<PAGE> 1
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [FEE REQUIRED]
------------
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
---------------
FOR THE TRANSITION PERIOD FROM _______________ TO ______________.
COMMISSION FILE NO. 0-132
THE REYNOLDS AND REYNOLDS COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-0421120
(State of Incorporation) (IRS Employer Identification No.)
115 SOUTH LUDLOW STREET
DAYTON, OHIO 45402
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 485-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
CLASS A COMMON SHARES (NO PAR VALUE) NEW YORK STOCK EXCHANGE
------------------------------------ -----------------------
(Title of class) (Exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
----
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in the
definitive proxy or in any amendment to this Form 10-K. __
The aggregate market value of the Class A Common Shares held by
non-affiliates of the registrant, as of December 1, 1997, was $1,448,247,426.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of December 1, 1997:
Class A Common Shares: 78,637,414 (exclusive of 13,650,309 Treasury shares)
Class B Common Shares: 20,000,000
DOCUMENTS INCORPORATED BY REFERENCE
Part III -- Portions of Proxy Statement for 1998 Annual Meeting of Shareholders
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<PAGE> 2
PART I
(Dollars in thousands)
ITEM 1. BUSINESS
The Reynolds and Reynolds Company, an Ohio corporation since 1889 (the
"company"), operates principally in two business segments - computer systems and
business forms.
COMPUTER SYSTEMS
AUTOMOTIVE MANAGEMENT SOLUTIONS - The automotive division provides an
extensive portfolio of information management solutions to automotive retailers
and manufacturers. Integrated hardware, software and data communications
systems; e-commerce solutions; ongoing customer service and support; and a full
suite of consulting and training services comprise the automotive-focused
products and services offering.
These products and services are provided through the company's sales
and service personnel located in approximately 250 offices in the United States
and Canada. The September 1997 acquisition of 26.5 percent of the shares of
Kalamazoo Computer Group plc provides the company with the opportunity to market
its products and services into the European automotive retailing market.
HEALTHCARE MANAGEMENT SOLUTIONS - The healthcare systems division
provides fully-integrated, computerized practice management and clinical
management systems plus hardware and software support services that help
physician groups, management service organizations, service bureaus and
integrated healthcare delivery networks control costs, increase revenues, and
improve quality of care and patient satisfaction.
FINANCIAL SERVICES - The company also provides financing for the
computer systems placed with its automotive and healthcare customers throughout
the United States and Canada.
BUSINESS FORMS
DOCUMENT MANAGEMENT SOLUTIONS - The company provides forms and forms
management services to automotive retailers and to a number of Fortune 1000
companies. Products and services include a complete line of paper-based and
electronic business forms and value-added document services including document
procurement services, document management services and work optimization
services. These permit customers to outsource non-strategic activities,
streamline document systems, reduce inventory burdens and improve organizational
efficiency.
The company operates 28 business forms manufacturing facilities in the
United States and Canada
(For additional information, see MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS beginning on page 7.)
NEW PRODUCTS
Computer Systems
----------------
The automotive division cooperated with Microsoft Corporation to launch
a new car buying service and used car classifieds on the Internet (Microsoft(R)
CarPoint(TM)) offering automotive retailers new marketing solutions to consumers
demanding a higher quality car shopping experience.
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The healthcare systems division introduced POWERRprovider(TM), an
integrated clinical information management systeM that focuses on the proactive
management of patients' health. Pilot installations began during the first
quarter of fiscal year 1998.
Business Forms
--------------
During the year, the business systems division introduced in pilot
installations the Reynolds Advantage Network (RAN), an open-system,
client-server-based document management network that integrates document
procurement, document management and work process optimization, and the Customer
Advantage system, an Internet-based interactive document management service
which allows Reynolds customers to purchase or requisition products and services
directly through a web browser interface.
RAW MATERIALS
An adequate supply of paper products is essential to the company's
business forms segment. The company obtains those products from a variety of
sources and historically has not experienced any difficulty in obtaining them.
An adequate supply of paper is expected for the foreseeable future and is not
anticipated to adversely impact the company's ability to fully meet the needs of
its customers.
Computer hardware is essential to the company's automotive and
healthcare systems offerings. This hardware comes from a variety of sources,
principally Silicon Graphics, Inc. in the automotive sector and Hewlett Packard
and IBM in the healthcare sector. Historically, the company has experienced an
ample supply.
In the opinion of the company, loss of one or more of its present
suppliers of either paper products or computer hardware would not have a
significant impact on the company's operations because of the general
availability of alternate sources at competitive prices.
PATENTS, TRADEMARKS AND RELATED RIGHTS
Except as described below, the company does not have any patents,
trademarks, licenses, franchises or concessions which are material to an
understanding of its business.
The company's trademark REYNOLDS & REYNOLDS(R) is associated with many
goods and services provided by the company. In the automotive systems market,
the company has a number of direct and indirect distribution and licensing
arrangements with equipment vendors and software providers relating to certain
components of the company's products, including the principal operating systems.
Such arrangements are in the aggregate, but not individually (except for the
operating systems), material to the company's business.
COMPETITION
In the automotive, business systems and healthcare markets, the company
is subject to competition from a number of other business organizations, some of
which have substantially greater assets and financial resources than the
company. The company believes that it competes by providing high value-added
products, services and solutions that meet customers' changing needs and which
utilize current technology to provide additional value and to improve price and
performance. The company has specialized in selected markets and has emphasized
service and long-term relationships to meet customer needs more effectively.
While no single customer represents 5% or more of the revenues of the two
business segments, the company does have several significant customers whose
loss, in the aggregate, could be material to the business forms segment. The
company believes that the likelihood of losing all of such customers is remote.
BACKLOG
COMPUTER SYSTEMS (INCLUDES PORTIONS OF THE AUTOMOTIVE AND HEALTHCARE SYSTEMS
DIVISIONS): The backlog represents unbilled computer systems or upgrades which
have not yet been shipped to customers. At December 1, 1997, the dollar value of
the product backlog, including software license fees, is estimated to be $23,338
compared with $26,086 last year.
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BUSINESS FORMS (INCLUDES BUSINESS SYSTEMS DIVISION AND PORTIONS OF THE
AUTOMOTIVE DIVISION): The company manufactures several thousand different types
of standard and custom business forms. At December 1, 1997, the dollar value of
the printing backlog is estimated to be $35,804 compared with $22,753 last year.
RESEARCH AND DEVELOPMENT
During fiscal 1997, the company continued its research and development
of in-house computer systems, terminal products, electronic image-based systems,
information exchange products and printing plant automation. In addition to
those programs, the company also had several other development projects of
lesser magnitude. Expenditures for all such activities were approximately
$43,052 in 1997, $24,439 in 1996 and $20,978 in 1995.
ENVIRONMENTAL PROTECTION
The company believes that it is in substantial compliance with all
applicable federal, state and local statutes concerning environmental
protection. The company has not experienced any material costs in this regard.
The U.S. Environmental Protection Agency has designated the company as one of a
number of potentially responsible parties under the Comprehensive Environmental
Response, Compensation and Liability Act at four environmental remediation
sites. (See Note 12 to the consolidated financial statements, page 43.)
EMPLOYEES
On September 30, 1997, the company and its subsidiaries had 9,138
employees. It is party to a number of collective bargaining agreements with
union locals which represent an aggregate of approximately 260 employees at its
Dayton, Ohio, Hagerstown, Maryland and Lebanon, Indiana plants.
ITEM 2. PROPERTIES
As of September 30, 1997, the company operated 19 forms manufacturing
plants in the United States and 9 in Canada encompassing approximately 2.5
million square feet. Of those, more than 1.5 million square feet are owned
outright by the company. The remaining 1 million square feet are leased.
Corporate headquarters and the respective division headquarters are located in
Dayton, Ohio in several buildings owned by the company which contain more than
.5 million square feet. In addition, the company leases approximately 250 sales
offices and 30 warehouses throughout the country.
Most printing and other equipment used in the manufacture of business
forms is owned by the company and its subsidiaries.
The company believes its properties are in good condition and adequate
for current activities. See Note 3 to the consolidated financial statements on
pages 30-31 regarding assets held for sale.
ITEM 3. LEGAL PROCEEDINGS
Relevant information appears in Note 12 to the consolidated financial
statements on page 43.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
(Dollars in thousands except per share data)
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The company's Class A Common Shares are listed on the New York Stock
Exchange. There is no principal market for the Class B Common Shares. The
company also has an authorized class of 60 million preferred shares with no par
value. As of the filing of this report, the company currently has no agreements
or commitments with respect to the sale or issuance of the preferred shares.
Information on market prices and dividends is set forth below:
<TABLE>
<CAPTION>
CLASS A COMMON SHARES SALE PRICES
------------------------------------------------------------------------
1997 1996
---------------------------------------------------------------------------------------------
Fiscal Quarter High Low High Low
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $27.88 $25.50 $19.69 $16.50
---------------------
Second $29.38 $23.88 $20.50 $18.31
---------------------
Third $24.75 $15.63 $26.63 $21.38
---------------------
Fourth $21.31 $16.38 $27.00 $22.31
---------------------------------------------------------------------------------------------
CASH DIVIDENDS PAID
------------------------------------------------------------------------
Class A Common Class B Common
---------------------------------------------------------------------------------------------
Months 1997 1996 1997 1996
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January $.08 $.06 $.004 $.003
---------------------
April $.08 $.06 $.004 $.003
---------------------
June $.08 $.06 $.004 $.003
---------------------
September $.08 $.07 $.004 $.0035
---------------------------------------------------------------------------------------------
</TABLE>
As of December 1, 1997, there were approximately 3,708 holders of
record of Class A Common Shares and one holder of record of Class B Common
Shares.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For The Years Ended September 30 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
Net Sales and Revenues
Information systems $ 1,355,302 $ 1,074,180 $ 888,580 $ 789,306 $ 677,748
Financial services 30,383 26,263 22,311 19,488 19,218
----------- ----------- ----------- ----------- -----------
Total net sales and revenues $ 1,385,685 $ 1,100,443 $ 910,891 $ 808,794 $ 696,966
=========== =========== =========== =========== ===========
Income Before Effect of Accounting Change $ 59,219 $ 93,738 $ 78,594 $ 66,204 $ 52,522
Effect of Accounting Change(1) (19,106)
----------- ----------- ----------- ----------- -----------
Net Income $ 59,219 $ 93,738 $ 78,594 $ 66,204 $ 33,416
=========== =========== =========== =========== ===========
Earnings Per Common Share
Income before effect of accounting change $ .70 $ 1.10 $ .92 $ .76 $ .60
Effect of accounting change(1) (.22)
----------- ----------- ----------- ----------- -----------
Net income $ .70 $ 1.10 $ .92 $ .76 $ .38
Return on Equity
Income before effect of accounting change 16.1% 26.6% 25.1% 23.8% 20.2%
Net income 16.1% 26.6% 25.1% 23.8% 12.9%
Cash Dividends Per Class A Common Share $ .32 $ .25 $ .20 $ .165 $ .13
Book Value Per Outstanding Common Share $ 4.55 $ 4.55 $ 4.01 $ 3.47 $ 3.07
Assets
Information systems $ 729,335 $ 610,362 $ 489,501 $ 430,592 $ 407,761
Financial services 373,175 313,282 265,965 204,107 162,790
----------- ----------- ----------- ----------- -----------
Total assets $ 1,102,510 $ 923,644 $ 755,466 $ 634,699 $ 570,551
=========== =========== =========== =========== ===========
Long-Term Debt
Information systems $ 170,150 $ 84,601 $ 41,443 $ 41,014 $ 40,000
Financial services 137,455 93,589 92,425 76,638 62,771
----------- ----------- ----------- ----------- -----------
Total long-term debt $ 307,605 $ 178,190 $ 133,868 $ 117,652 $ 102,771
=========== =========== =========== =========== ===========
Number of Employees 9,138 7,544 6,036 5,478 5,636
INFORMATION SYSTEMS (excluding financial services)
Current Ratio 1.57 1.62 1.50 1.95 2.03
Net Property, Plant and Equipment $ 188,501 $ 167,667 $ 128,462 $ 117,485 $ 111,177
Total Debt $ 191,526 $ 99,092 $ 51,649 $ 41,301 $ 40,000
Total Debt to Capitalization 34.5% 21.0% 13.4% 12.4% 13.2%
<FN>
(1) Represents the cumulative effect of the accounting change for the adoption of Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ENVIRONMENT
AUTOMOTIVE MANAGEMENT SOLUTIONS
Automobile dealerships represent a significant market for the company's
products and services. At the end of fiscal year 1997 there were about 22,000
automobile dealerships in the U.S. The automotive retail channel is undergoing
significant changes represented by continued consolidation, the continued
emergence of used car superstores and other new entrants, and multiple
manufacturer initiatives created to streamline the existing distribution
channel. Although each of these trends represent long-term growth opportunities
for the company's products and services, the changes caused many dealers to
defer major spending decisions during the second half of fiscal year 1997. The
company believes that it is well positioned to provide products and services to
the larger enterprises which typically have more sophisticated information
management requirements. In addition, a number of the company's customers and
its competitors' customers are operating on computer systems that are not Year
2000 compliant and must be replaced or upgraded.
DOCUMENT MANAGEMENT SOLUTIONS
Companies are increasingly seeking ways to offload nonstrategic
activities and streamline their business processes to reduce costs, improve
organizational efficiencies and increase effectiveness. This trend is favorable
for the company's document management services which simplify, standardize,
automate and integrate customers' information management and document usage. The
traditional business forms market in the U.S. has declined slightly and is
expected to continue to decline in size. The company is targeting related areas
which are enjoying growth including labels, direct mail printing, electronic
print and mail capabilities, electronic forms and other value added products and
services.
The document management industry in the U.S. remains highly fragmented
with a large number of local and regional providers. As a result, the industry
continues to consolidate as larger companies seek economies of scale through
acquisitions.
The company's document management division's results are impacted
slightly by the cost of paper. During periods of rising paper prices, the
increases are typically passed through to customers. Declining paper prices have
a slightly negative effect on the company's document management revenues. During
1997 the company's cost of paper was relatively stable. Paper costs declined in
1996 as paper manufacturers lowered prices because of reduced demand.
HEALTHCARE MANAGEMENT SOLUTIONS
The healthcare market is highly segmented with each segment having
unique information systems requirements. This segmentation reflects the
transition from traditional fee-for-service medical practices to managed care
plans. There has been significant growth in integrated healthcare delivery
networks and large group practices as physicians strive to operate efficiently
in a managed care environment. The information systems needs of this market are
complex as systems must integrate among healthcare providers, claims processors,
insurance companies and regulatory agencies. Physicians have begun implementing
clinical information or electronic patient recordkeeping systems to gain
efficiencies and provide better, more consistent care. In 1997 and 1996, the
company aggressively invested in sales, marketing and product development
resources to provide the information management solutions required by this
market.
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SIGNIFICANT EVENTS
RESTRUCTURING AND SPECIAL CHARGES
During fiscal year 1997 the company recorded pretax charges of $49,241
consisting of a $25,339 restructuring charge (recorded in the fourth quarter)
and $23,902 of other special charges ($17,063 recorded in the third quarter and
$6,839 recorded in the fourth quarter). After income taxes, the restructuring
and special charges reduced net income by $34,078 or $.41 per share ($12,573 or
$.15 per share in the third quarter and $21,505 or $.26 per share in the fourth
quarter). The income tax benefit on the combined charges represented a 30.8%
effective income tax rate because not all of the charges were tax deductible.
See Note 2 to the Consolidated Financial Statements for more information on
restructuring and special charges.
About $31,000 of the restructuring and special charges represented
reductions in the number of employees and write-offs of certain assets. These
actions are expected to lower wage and amortization expenses and increase
earnings by $.09 per share in fiscal year 1998. The improvement in fiscal year
1998 earnings should occur primarily during the last half of the fiscal year. In
the first half of the year, savings from the restructuring will be phased in as
restructuring actions (including the closing of four business forms
manufacturing plants) are implemented. The company will also incur relocation,
training and other expenses, not accrued as part of the restructuring charge,
which will partially offset the savings. The full year earnings benefit of $.12
per share is expected to be realized in fiscal year 1999 when the restructuring
activities are fully implemented. The balance of the restructuring and special
charges consisted primarily of purchased in-process research and development
costs and will avoid future amortization expenses of about $.02 per share
annually. The company did not record any amortization expenses for these items
in fiscal year 1997.
BUSINESS COMBINATIONS
In fiscal year 1997 the company purchased two sizable business forms
and document management services companies. On July 2, 1997, the company
purchased the outstanding shares of Crain-Drummond Inc. from UARCO, a subsidiary
of Settsu Corporation of Osaka, Japan. Effective December 31, 1996, the company
purchased substantially all net assets of Vanier Graphics Corporation from
American Business Products. Crain-Drummond and Vanier Graphics provide document
outsourcing, document management and work optimization services in Canada and
the U.S., respectively. The combined annual revenues of these two businesses
were about $261,000 in fiscal year 1996. The company expects to retain about
$200,000 of these sales. On May 20, 1996, the company purchased the outstanding
shares of Duplex Products Inc. Duplex provides business forms and labels,
electronic printing and mailing services, document management services, forms
automation solutions and process analysis to customers throughout the United
States. Although Duplex reported annual sales of $275,000 in fiscal year 1995,
at the time of the acquisition Duplex annual sales rate was about $230,000. The
company retained about $200,000 of Duplex sales, as expected. The company also
purchased three additional business forms companies in fiscal years 1995 and
1996 with combined annual sales of about $77,000.
From 1995 through 1997 the company purchased twelve additional
businesses in the automotive and healthcare markets. Automotive business
combinations, with about $12,000 in annual revenues, consisted primarily of new
products to supplement the company's existing product offerings. Healthcare
acquisitions resulted in stronger products and services offerings and additional
customers for the company adding about $28,000 in annual revenues. See Note 3 to
the Consolidated Financial Statements for additional disclosures about the
company's business combinations.
IN-PROCESS RESEARCH AND DEVELOPMENT COSTS
During fiscal year 1997 the company expensed $14,850 of in-process
research and development (R&D) costs (included in special charges discussed
previously) from three separate business combinations. In-process R&D costs
represented software development costs for which technological feasibility was
not established and for which there was no alternative future use. The company
obtained an outside appraisal in each instance to value in-process R&D costs.
Midway through 1997, the company purchased the assets of Advanced Medical
Applications and expensed $6,700 of in-process R&D costs. These costs related to
the development of an electronic medical records and clinical management system.
The company continued development in 1997 and during the first
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quarter of fiscal 1998 year will pilot its product called POWERRprovider.
General sales release is scheduled for later in fiscal year 1998. On June 30,
1997, the company acquired Fiscal Information Inc. and expensed $4,300 of
in-process R&D costs related to development of a system for hospital-based
physicians. Software development is expected to continue throughout fiscal year
1998. The third in-process R&D charge expensed in 1997 related to the company's
purchase of an equity interest in Kalamazoo Computer Group plc. The company
recorded $3,850 of in-process R&D in the fourth quarter of fiscal year 1997,
representing the company's share of costs for development of software for use
by automobile dealers in Europe. Kalamazoo is continuing to develop this
product.
RESULTS OF OPERATIONS
CONSOLIDATED
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
1997 1996 1995 Change Change
- ------------------------------------------------------------------------------------------------------------------
AS REPORTED
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,385,685 $1,100,443 $910,891 $285,242 26% $189,552 21%
Gross profit $608,935 $510,525 $417,935 $98,410 19% $92,590 22%
Operating income $126,046 $164,825 $137,015 ($38,779) -24% $27,810 20%
Net income $59,219 $93,738 $78,594 ($34,519) -37% $15,144 19%
Earnings per share $0.70 $1.10 $0.92 ($0.40) -36% $0.18 20%
EXCLUDING 1997 RESTRUCTURING AND SPECIAL CHARGES
Revenues $1,385,685 $1,100,443 $285,242 26%
Gross profit $613,644 $510,525 $103,119 20%
Operating income $171,437 $164,825 $6,612 4%
Net income $93,297 $93,738 ($441) 0%
Earnings per share $1.11 $1.10 $0.01 1%
</TABLE>
Consolidated net sales and revenues increased for the seventh
consecutive year in 1997. About $222,000 of 1997 sales growth and $133,000 of
the 1996 sales increase resulted from business combinations, primarily in the
business forms segment. Excluding the effect of business combinations, revenue
growth was strongest in the computer systems segment which grew about 10%.
Consolidated gross profit (excluding restructuring and special charges)
represented 45.3% of information systems revenues, compared to 47.5% in 1996 and
47.0% in 1995. In fiscal year 1997, consolidated gross profit margin declined
primarily as a result of products acquired in the Duplex Products,
Crain-Drummond and Vanier Graphics business combinations, which have lower
margins than the company's automotive products and services. The gross profit
percentage increased in 1996 primarily as a result of strong growth in computer
systems recurring revenues. Business forms gross profit percentage declined in
1996 as production efficiencies were offset by lower gross profit margins for
Duplex Products.
As a percentage of revenues, consolidated operating income (excluding
restructuring and special charges) was 12.4% in 1997, compared to 15% in both
1996 and 1995. The decline in operating profit percentages resulted primarily
from the lower operating margins of Duplex Products, Crain-Drummond and Vanier
Graphics. Computer systems operating margins also declined from last year as a
result of increased investment in healthcare systems. In fiscal year 1996,
higher business forms margins were offset by lower computer systems margins.
Total other charges were $10,339 in 1997, $2,582 in 1996 and $260 in
1995. Other charges increased in 1997 and 1996 because of higher net interest
expense from debt issued to finance business combinations. In-process R&D costs
of $3,850 were also included in 1997 other charges. These R&D costs were
recorded in the purchase of an equity interest in Kalamazoo Computer Group plc
as previously discussed.
The effective income tax rate was 48.8% in 1997, compared to 42.2% in
1996 and 42.5% in 1995. The 1997 tax rate increased primarily because of
nondeductible restructuring and special charges recorded. Excluding the effect
of restructuring and special charges, the 1997 effective income tax rate was
43.4%. The balance of the tax rate increase resulted from an increase in
nondeductible expenses. The 1996 tax rate included the benefits of certain tax
credits which did not repeat in 1997. The 1996 tax rate would have been 42.8%
excluding these benefits.
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In 1997 the company's earnings per share (excluding restructuring and
special charges) increased slightly over 1996 because of lower average shares
outstanding as a result of shares repurchased by the company. Net income
(excluding restructuring and special charges) declined slightly in 1997
reflecting investments primarily in the healthcare and automotive systems
businesses. In fiscal year 1997 return on average shareholders' equity was 24.2%
(excluding the effect of restructuring and special charges), compared to 26.6%
in 1996 and 25.1% in 1995.
COMPUTER SYSTEMS (excluding financial services)
<TABLE>
<CAPTION>
1997 vs 1996 1996 vs 1995
1997 1996 1995 Change Change
- -----------------------------------------------------------------------------------------------------------------------------
AS REPORTED
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $536,774 $478,994 $422,678 $57,780 12% $56,316 13%
Gross profit $253,002 $234,280 $198,667 $18,722 8% $35,613 18%
% of revenues 47.1% 48.9% 47.0%
Operating income $35,587 $69,751 $64,138 ($34,164) -49% $5,613 9%
% of revenues 6.6% 14.6% 15.2%
EXCLUDING 1997 RESTRUCTURING AND SPECIAL CHARGES
Revenues $536,774 $478,994 $57,780 12%
Gross profit $257,711 $234,280 $23,431 10%
% of revenues 48.0% 48.9%
Operating income $67,056 $69,751 ($2,695) -4%
% of revenues 12.5% 14.6%
</TABLE>
In 1997 and 1996 computer systems revenues grew primarily because of higher
automotive recurring service revenues and increasing sales of newer products in
the automotive business. Recurring service revenues continued to grow primarily
because of the increased number of ERA software applications supported. These
recurring service revenues result from monthly billings for technical support,
software updates and hardware maintenance that allow customers to maximize the
value of their computer systems. Revenues from newer products and services such
as Customer Marketing Services, SalesVision, SalesVision Vehicle Kiosk, Document
Management and laser solutions provided about 25% of 1997 sales growth.
Automotive and healthcare business combinations contributed about $10,000 of the
1997 revenue growth and $12,000 of the 1996 sales increase. Excluding the effect
of business combinations, healthcare systems fiscal year 1997 revenues were
essentially the same as in fiscal year 1996.
Excluding restructuring and special charges, computer systems gross
profit percentage declined in fiscal year 1997 because of increased investment
in the healthcare systems business and to a lesser degree, the inclusion of
Vanier Graphics electronic forms systems which have lower margins. Automotive
computer systems gross profit margins remained strong. In fiscal year 1996
computer systems gross profit percentage increased primarily because the higher
margin recurring service revenues became a greater percentage of the revenue
mix.
Selling, general and administrative (SG&A) expenses (excluding
restructuring and special charges) were 35.5% of revenues in 1997, compared to
34.3% of revenues in 1996 and 31.8% in 1995. The 1997 and 1996 increases in SG&A
expenses, as a percentage of revenues, reflected new investments in both the
automotive and healthcare businesses. In fiscal year 1997, the company invested
in sales resources and product development in both its automotive and healthcare
businesses. In fiscal year 1996 automotive systems investments were focused on
new products and services while healthcare systems investments involved
integrating two acquisitions with the existing business and implementing sales,
marketing and product development strategies for future growth.
In fiscal year 1997, computer systems operating income (excluding
restructuring and special charges) declined primarily because of increased
investment in the healthcare systems business. In 1996 computer systems
operating income grew, but declined as a percentage of sales because of new
investments in healthcare systems. Automotive systems operating margin was
relatively stable during the last three years. Healthcare systems operated at a
loss in each of the last three years because of increased investments in the
organization's products and capabilities.
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BUSINESS FORMS
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
1997 1996 1995 Change Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AS REPORTED
Revenues $818,528 $595,186 $465,902 $223,342 38% $129,284 28%
Gross profit $355,933 $276,245 $219,268 $79,688 29% $56,977 26%
% of revenues 43.5% 46.4% 47.1%
Operating income $75,358 $80,629 $59,716 ($5,271) -7% $20,913 35%
% of revenues 9.2% 13.5% 12.8%
EXCLUDING 1997 RESTRUCTURING AND SPECIAL CHARGES
Revenues $818,528 $595,186 $223,342 38%
Gross profit $355,933 $276,245 $79,688 29%
% of revenues 43.5% 46.4%
Operating income $89,280 $80,629 $8,651 11%
% of revenues 10.9% 13.5%
</TABLE>
In fiscal years 1997 and 1996 business forms revenues rose primarily
because of the effect of business combinations which contributed $212,000 and
$121,000 of the sales increase in 1997 and 1996, respectively. The remaining
sales increase resulted from growth in sales of document management products and
services, which was partially offset by reduced volume for other custom business
forms sales.
Business forms gross profit percentage declined in 1997 and 1996
because of the effect of lower gross profit margins of businesses acquired
(Duplex Products, Crain-Drummond and Vanier Graphics). Excluding these business
combinations, gross profit margins were 48.9% in 1997 and 48.5% in 1996, as
paper costs were about the same. In fiscal year 1996 lower paper costs which
reduced LIFO inventory adjustments contributed favorably to gross profit.
SG&A expenses (excluding restructuring and special charges) were 32.6%
of revenues in 1997, compared to 32.9% in 1996 and 34.3% in 1995. SG&A expenses
declined, as a percentage of revenues in 1997 and 1996 primarily because
business combinations provided strong revenue growth and lower SG&A expenses as
a percentage of sales. The company also further reduced SG&A expenses by
eliminating duplicate administrative functions of the companies acquired. In
1997 these benefits were partially offset by higher acquisition integration
expenses and software development costs.
Business forms operating income (excluding restructuring and special
charges) increased in both 1997 and 1996 because of higher sales from business
combinations. Operating income margin declined in fiscal year 1997 primarily
because of effects of the business combinations which caused the operating
income percentage for general business forms and document management services to
decline from about 10% in 1996 to about 7% in 1997. Automotive forms operating
income margins were strong for all three years.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
1997 1996 1995 Change Change
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $30,383 $26,263 $22,311 $4,120 16% $3,952 18%
Operating income $15,101 $14,445 $13,161 $656 5% $1,284 10%
% of revenues 49.7% 55.0% 59.0%
</TABLE>
Average finance receivables grew 19% in 1997 and 22% in 1996 as a
result of strong computer systems sales. Financial services revenues grew
significantly each of the last two years because of the increased receivable
11
<PAGE> 12
balances. The average interest rate earned on the receivable portfolio declined
slightly in both 1997 and 1996 because interest rates on new receivables were
less than those for maturing receivables.
Financial services interest rate spread remained strong at 3.5% in
1997, compared to 3.8% in 1996 and 4.0% in 1995. The decline in the interest
rate spread resulted from slightly higher borrowing rates in addition to the
previously mentioned change in the receivable portfolio. Operating income grew
at a slower rate in 1997 primarily because of increased bad debt expenses. Bad
debt expenses were a modest .5% of the average receivable balance in 1997, but
still higher than the unusually low bad debts experienced in 1996 and 1995.
The company has entered into a number of interest rate management
agreements to limit interest rate exposure on financial services variable rate
debt. It is important to manage this interest rate exposure because the proceeds
from these borrowings were invested in fixed rate finance receivables. The
company believes that over time it has reduced interest expense by using
interest rate management agreements and variable rate debt instead of directly
obtaining fixed rate debt. During fiscal year 1997, the company entered into two
additional interest rate management agreements with notional amounts totaling
about $18,000. See Note 6 to the Consolidated Financial Statements for
additional disclosures regarding the company's interest rate management
agreements.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Information systems continued to provide strong cash flow from
operating activities in fiscal year 1997. Operating cash flow was $149,325 in
1997 compared to $110,345 in 1996. Fiscal year 1997's operating cash flow
resulted primarily from net income adjusted for noncash charges. This strong
cash flow funded the company's investments for normal operations including
capital expenditures of $47,707. Nearly half of capital expenditures were for
computer equipment in 1997. Fiscal year 1998 capital expenditures in the
ordinary course of business are anticipated to be about $50,000 to $55,000. The
company also spent $145,347 on business combinations in fiscal year 1997.
Business combinations are discussed further in Note 3 to the Consolidated
Financial Statements. See the shareholders' equity caption of this analysis
regarding the payment of dividends and share repurchases.
Financial services operating cash flow, collections on finance
receivables and additional borrowings were invested in new finance receivables
for the company's computer systems and used to make scheduled debt repayments.
CAPITALIZATION
The company's ratio of total debt (total information systems debt) to
capitalization (total information systems debt plus shareholders' equity) was
34.5% at September 30, 1997 and 21.0% at September 30, 1996. The increase
reflects the issuance of $100,000 of notes in a public offering with proceeds
used to finance business combinations. In 1997 the company replaced its existing
revolving credit agreements with a new five year, $150,000 agented revolving
credit agreement with a consortium of banks. Remaining credit available under
this revolving credit agreement was $82,000 at September 30, 1997. In addition
to this committed credit agreement, the company also has a variety of other
short-term credit lines available. The company estimates that cash flow from
operations and cash available from existing credit agreements will be sufficient
to fund fiscal year 1998 normal operations. See Note 6 to the Consolidated
Financial Statements for additional disclosures regarding the company's debt
instruments.
SHAREHOLDERS' EQUITY
The company lists its Class A common shares on the New York Stock
Exchange. There is no principal market for Class B common shares. The company
also has an authorized class of 60 million preferred shares with no par value.
As of November 12, 1997, none of these preferred shares was outstanding and
there were no agreements or commitments with respect to the sale or issuance of
these shares, except for those described in Note 7 to the Consolidated Financial
Statements.
12
<PAGE> 13
The company paid cash dividends of $26,056 in 1997, $20,594 in 1996 and
$16,651 in 1995. Dividends per Class A common share were $.32 in 1997, $.25 in
1996 and $.20 in 1995. Dividends are typically declared each November, February,
May and August and paid in January, April, June and September, respectively.
Dividends per Class A common share must be twenty times the dividends per Class
B common share and all dividend payments must be simultaneous. In November 1997,
the board of directors raised the quarterly dividend 12.5% to $.09 per Class A
common share. The quarterly dividend was last increased by 14% in November 1996.
The company has increased cash dividends twelve times since 1989 and paid
dividends each year since the company's initial public offering in 1961.
The company has conducted an active share repurchase program during
recent years to provide additional returns to shareholders. The company
repurchased $46,799 of Class A common shares in 1997, $33,323 in 1996 and
$35,079 in 1995. Average prices paid per share were $19.75 in 1997, $20.83 in
1996 and $12.93 in 1995. As of September 30, 1997 the company could repurchase
an additional 3,169,800 Class A common shares under existing board of directors'
authorizations.
YEAR 2000 COMPLIANCE
The company has assessed potential Year 2000 effects on its internal
computer systems and systems provided to customers. Detailed plans have been
prepared to address Year 2000 issues with completion of software development
scheduled for December 1998. As of September 30, 1997, the costs to make all
systems Year 2000 compliant were not projected to have a material adverse effect
on the company's financial position, results of operations and cash flows.
ENVIRONMENTAL MATTERS
See Note 12 to the Consolidated Financial Statements for a discussion
of the company's environmental contingencies.
ACCOUNTING STANDARDS
See Note 13 to the Consolidated Financial Statements for a discussion
of the effect of accounting standards which the company has not yet adopted.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14 of
Part IV (pages 15-16) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age and background information for each of the Company's
directors and nominees are incorporated herein by reference to the section of
the Company's Proxy Statement for its 1998 Annual Meeting of Shareholders
captioned "ELECTION OF DIRECTORS."
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are elected by the Board of
Directors at its meeting immediately following the Annual Meeting of
Shareholders to serve generally for a term of one year. The executive officers
of the Company, as of December 1, 1997, are:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Richard H. Grant, Jr. 84 Chairman of the Steering Committee and Director
David R. Holmes 57 Chairman of the Board, President and Chief
Executive Officer
Robert C. Nevin 57 President, Automotive Division and Director
Dale L. Medford 47 Vice President, Corporate Finance and Chief Financial
Officer, and Director
Rodney A. Hedeen 49 President, Business Systems Division
H. John Proud 49 President, Healthcare Systems Division
Michael J. Gapinski 47 Treasurer and Assistant Secretary
Adam M. Lutynski 55 General Counsel and Secretary
</TABLE>
A description of prior positions held by executive officers of the Company
within the past 5 years, to the extent applicable, is as follows:
Mr. Nevin has been President, Automotive Division since February 1997;
prior thereto was President, Business Systems Division.
Mr. Hedeen has been President, Business Systems Division since February
1997; prior thereto was Senior Vice President and General Manager, Forms and
Systems Group.
Mr. Proud has been President, Healthcare Systems Division since February
1995; prior thereto was Senior Vice President and General Manager, Automotive
Computer Systems Group.
ITEM 11. EXECUTIVE COMPENSATION
Information on compensation of the Company's executive officers and
directors is incorporated herein by reference to the section of the Company's
Proxy Statement for its 1998 Annual Meeting of Shareholders captioned "EXECUTIVE
COMPENSATION."
14
<PAGE> 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The number of Common Shares of the Company beneficially owned by each five
percent shareholder, director or current nominee for director, and by all
directors and officers as a group as of December 1, 1997 is incorporated herein
by reference to the section of the Company's Proxy Statement for its 1998 Annual
Meeting of Shareholders captioned "VOTING SECURITIES OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning transactions with management, certain business
relationships and indebtedness of management is incorporated herein by reference
to the section of the Company's Proxy Statement for its 1998 Annual Meeting of
Shareholders captioned "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
PART IV
(Dollars in thousands)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
The following consolidated financial statements of the company are set
forth on pages 23 through 44.
Statements of Consolidated Income - For The Years Ended
September 30, 1997, 1996 and 1995
Consolidated Balance Sheets - September 30, 1997 and 1996
Statements of Consolidated Shareholders' Equity - For The Years Ended
September 30, 1997, 1996 and 1995
Statements of Consolidated Cash Flows - For The Years Ended
September 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements (Including Supplementary
Data)
(A)(2) FINANCIAL STATEMENT SCHEDULES FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED SEPTEMBER 30, 1997 ARE ATTACHED HERETO:
Schedule II Valuation Accounts Page 45
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore, have
been omitted.
(B) REPORTS ON FORM 8-K
None
(C) EXHIBITS
The exhibits as shown in "Index of Exhibits" (pages 46-53) are filed as a
part of this Report.
15
<PAGE> 16
(D) CONSOLIDATED FINANCIAL STATEMENTS
Individual financial statements and schedules of the company's
consolidated subsidiaries are omitted from this Annual Report on Form 10-K
because consolidated financial statements and schedules are submitted and
because the registrant is primarily an operating company and all subsidiaries
included in the consolidated financial statements are wholly owned.
----------------------------------------------------------------
The Company will provide a copy of its 1997 Annual Report to
Shareholders upon written request to:
ADAM M. LUTYNSKI, GENERAL COUNSEL & SECRETARY
THE REYNOLDS AND REYNOLDS COMPANY
P. O. BOX 2608
DAYTON, OHIO 45401
----------------------------------------------------------------
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
THE REYNOLDS AND REYNOLDS COMPANY
By /S/ ADAM M. LUTYNSKI
-----------------------------------
ADAM M. LUTYNSKI
General Counsel and Secretary
Date: December 18, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
<S> <C>
Date: December 18, 1997 By /S/ DAVID R. HOLMES
-----------------------------------
DAVID R. HOLMES
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
<S> <C>
Date: December 18, 1997 By /S/ DALE L. MEDFORD
-----------------------------------
DALE L. MEDFORD
Vice President, Corporate Finance and Chief
Financial Officer (Principal Financial and
Accounting Officer) and Director
Date: December 18, 1997 By /S/ JOSEPH N. BAUSMAN
-----------------------------------
JOSEPH N. BAUSMAN
Director
Date: December 18, 1997 By /S/ DR. DAVID E. FRY
-----------------------------------
DR. DAVID E. FRY, Director
Date: December 18, 1997 By /S/ RICHARD H. GRANT, JR.
-----------------------------------
RICHARD H. GRANT, JR.
Chairman of the Steering
Committee and Director
Date: December 18, 1997 By /S/ RICHARD H. GRANT, III
-----------------------------------
RICHARD H. GRANT, III, Director
Date: December 18, 1997 By /S/ CLEVE L. KILLINGSWORTH, JR.
-----------------------------------
CLEVE L. KILLINGSWORTH, JR., Director
Date: December 18, 1997 By /S/ ALLAN Z. LOREN
-----------------------------------
ALLAN Z. LOREN, Director
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C>
Date: December 18, 1997 By /S/ ROBERT C. NEVIN
-----------------------------------
ROBERT C. NEVIN
President, Automotive Division
and Director
Date: December 18, 1997 By /S/ GAYLE B. PRICE, JR.
-----------------------------------
GAYLE B. PRICE, JR., Director
Date: December 18, 1997 By /S/ KENNETH W. THIELE
-----------------------------------
KENNETH W. THIELE, Director
Date: December 18, 1997 By /S/ MARTIN D. WALKER
-----------------------------------
MARTIN D. WALKER, Director
</TABLE>
18
<PAGE> 19
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2); 14(c) and (d)
Financial Statements, Schedules and Exhibits
Year Ended September 30, 1997
The Reynolds and Reynolds Company
Dayton, Ohio
19
<PAGE> 20
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
November 12, 1997
To Our Shareholders:
The management of The Reynolds and Reynolds Company is responsible for
accurately and objectively preparing the company's consolidated financial
statements. These statements are prepared in accordance with generally accepted
accounting principles and include amounts based on management's best estimates
and judgments. Management believes that the financial information in this annual
report is free from material misstatement.
The company's management maintains an environment of multilevel controls. The
Company Business Principles, for example, is distributed to all employees and
communicates high standards of integrity that are expected in the company's
day-to-day business activities. The Company Business Principles addresses a
broad range of issues including potential conflicts of interest, business
relationships, accurate and timely reporting of financial information,
confidentiality of proprietary information, insider trading and social
responsibility.
The company also maintains and monitors a system of internal controls designed
to provide reasonable assurances regarding the safeguarding of company assets
and the integrity and reliability of financial records. These internal controls
include the appropriate segregation of duties and the application of formal
policies and procedures. Furthermore, an internal audit department, which has
access to all financial and other corporate records, regularly performs tests to
evaluate the system of internal controls to ensure the system is adequate and
operating effectively. At the date of these financial statements, management
believes the company has an effective internal control system.
The company's independent public auditors, Deloitte & Touche LLP, perform an
independent audit of the company's consolidated financial statements. They have
access to minutes of board meetings, all financial information and other
corporate records. Their audit is conducted in accordance with generally
accepted auditing standards and includes consideration of the system of internal
controls. Their report is included in this annual report on page 21.
Another level of control resides with the audit committee of the company's board
of directors. The committee, comprised of five directors who are not members of
management, oversees the company's financial reporting process. They recommend
to the board, subject to shareholder approval, the selection of the company's
independent public auditors. They discuss the overall audit scope and the
specific audit plans with the independent public auditors and the internal
auditors. This committee also meets regularly (separately and jointly) with the
independent public auditors, the internal auditors and management to discuss the
results of those audits, the evaluation of internal controls, the quality of
financial reporting and specific accounting and reporting issues.
David R. Holmes Dale L. Medford
Chairman, President and Vice President, Corporate Finance
Chief Executive Officer and Chief Financial Officer
20
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Shareholders of The Reynolds and Reynolds Company:
We have audited the accompanying consolidated balance sheets of The Reynolds and
Reynolds Company and its subsidiaries as of September 30, 1997 and 1996 and the
related statements of consolidated income, shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1997. Our audits
also included the financial statement schedule included at Item 14(a) (2). These
financial statements and financial statement schedule are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Reynolds and Reynolds Company
and its subsidiaries at September 30, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Dayton, Ohio
November 12, 1997
21
<PAGE> 22
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in The Reynolds and Reynolds
Company (1) Registration Statement No. 33-56045 on Form S-8 (2) Post-Effective
Amendment No. 1 to Registration Statement No. 33-51895 on Form S-3, (3)
Pre-Effective Amendment No. 1 to Registration Statement No. 33-58877 on Form
S-3, (4) Pre-Effective Amendment No. 1 to Registration Statement No. 33-61725
on Form S-3, (5) Registration Statement No. 33-59615 on Form S-3, (6)
Registration Statement No. 33-59617 on Form S-3 (7) Registration Statement No.
333-12967 on Form S-3, (8) Registration Statement No. 333-12681 on Form S-3,
(9) Registration Statement No. 333-16583 on Form S-3, (10) Registration
Statement No. 333-18585 on Form S-3, (11) Registration Statement No., 333-41983
on Form S-3, and (12) Registration Statement No. 333-41985 on Form S-3 of our
report dated November 12, 1997, appearing in this Annual Report on Form 10-K of
The Reynolds and Reynolds Company for the year ended September 30, 1997, and to
the reference to us under the heading "Experts" in the respective Prospectuses,
which is part of each of the above Registration Statements.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
Dayton, Ohio
December 16, 1997
22
<PAGE> 23
STATEMENTS OF CONSOLIDATED INCOME
(In thouands except per share data)
<TABLE>
<CAPTION>
For The Years Ended September 30 1997 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales and Revenues
Information
Products $ 984,611 $ 756,664 $621,909
Services 370,691 317,516 266,671
---------- ---------- --------
Total information systems 1,355,302 1,074,180 888,580
Financial services 30,383 26,263 22,311
---------- ---------- --------
Total net sales and revenues 1,385,685 1,100,443 910,891
---------- ---------- --------
Costs and Expenses
Cost of sales
Products 596,847 438,041 363,303
Services 149,520 125,614 107,342
---------- ---------- --------
Total cost of sales 746,367 563,655 470,645
Selling, general and administrative
expenses 472,651 360,145 294,081
Restructuring charge 25,339
Financial services 15,282 11,818 9,150
---------- ---------- --------
Total costs and expenses 1,259,639 935,618 773,876
---------- ---------- --------
Operating Income 126,046 164,825 137,015
---------- ---------- --------
Other Charges (Income)
Interest expense 10,446 5,778 3,779
Interest income (2,355) (1,648) (1,674)
Other 2,248 (1,548) (1,845)
---------- ---------- --------
Total other charges 10,339 2,582 260
---------- ---------- --------
Income Before Income Taxes 115,707 162,243 136,755
Provision for Income Taxes 56,488 68,505 58,161
---------- ---------- --------
Net Income $ 59,219 $ 93,738 $ 78,594
========== ========== ========
Earnings Per Common Share $ .70 $ 1.10 $ .92
========== ========== ========
Average Number of Common Shares
Outstanding 84.012 85.228 85.032
========== ========== ========
</TABLE>
See Notes to Consolidated Statements.
23
<PAGE> 24
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION SYSTEMS ASSETS
Current Assets
Cash and equivalents $ 7,604 $ 11,130
Accounts receivable (less allowance
for doubtful accounts:
1997--7,652; 1996--$5,744) 197,215 161,278
---------- ----------
Inventories
Finished products 59,683 42,953
Work in process 6,256 3,788
Raw materials and supplies 9,706 6,461
---------- ----------
Total inventories 75,645 53,202
---------- ----------
Deferred income taxes 21,699 22,398
---------- ----------
Prepaid expenses and other assets 25,764 23,075
---------- ----------
Total current assets 327,927 271,083
---------- ----------
Property, Plant and Equipment
Land and improvements 14,134 9,521
Buildings and improvements 90,159 84,716
Computer equipment 128,373 110,923
Machinery and equipment 99,155 92,952
Furniture and other 36,916 32,607
Construction in progress 12,954 10,535
---------- ----------
Total property, plant and equipment 381,691 341,254
Less accumulated depreciation 193,190 173,587
---------- ----------
Net property, plant and equipment 188,501 167,667
---------- ----------
Intangible Assets
Goodwill 94,241 94,969
Software licensed to customers 13,713 15,435
Other 8,588 10,349
---------- ----------
Total intangible assets 116,542 120,753
---------- ----------
Other Assets 96,365 50,859
---------- ----------
Total Information Systems Assets 729,335 610,362
---------- ----------
FINANCIAL SERVICES ASSETS
Finance Receivables 372,073 311,576
Cash and Other Assets 1,102 1,706
---------- ----------
Total Financial Services Assets 373,175 313,282
---------- ----------
TOTAL ASSETS $1,102,510 $ 923,644
========== ==========
</TABLE>
<TABLE>
<CAPTION>
September 30 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION SYSTEMS LIABILITIES
Current Liabilities
Current portion of long-term debt $ 8,131 $ 6,832
Notes payable 13,245 7,659
Accounts payable
Trade 56,159 45,208
Other 7,310 5,331
Accrued liabilities
Compensation and related items 56,379 43,847
Other 58,902 51,484
Deferred revenues 8,453 6,917
----------- -----------
Total current liabilities 208,579 167,278
----------- -----------
Long-Term Debt 170,150 84,601
----------- -----------
Other Liabilities
Postretirement medical 42,247 38,104
Pensions 29,753 23,795
Other 2,662 1,317
----------- -----------
Total other liabilities 74,662 63,216
----------- -----------
Total Information Systems Liabilities 453,391 315,095
----------- -----------
FINANCIAL SERVICES LIABILITIES
Notes Payable 198,314 161,911
Deferred Income Taxes 84,189 71,181
Other Liabilities 2,386 2,462
----------- -----------
Total Financial Services Liabilities 284,889 235,554
----------- -----------
SHAREHOLDERS' EQUITY
Capital Stock
Preferred
Class A common 53,269 50,601
Class B common 625 625
Other Adjustments (5,481) (6,203)
Retained Earnings 315,817 327,972
----------- -----------
Total Shareholders' Equity 364,230 372,995
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,102,510 $ 923,644
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE> 25
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In thousands except per share data)
<TABLE>
<CAPTION>
For The Years Ended September 30 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Stock
Class A common
Balance, beginning of year $ 50,601 $ 41,443 $ 28,624
Stock split 6,917
Capital stock issued 4,039 3,693 12,927
Capital stock repurchased (1,481) (1,000) (848)
Capital stock retired (1,327) (1,152) (462)
Tax benefits from stock options 1,437 700 1,202
--------- --------- ---------
Balance, end of year 53,269 50,601 41,443
--------- --------- ---------
Class B common
Balance, beginning of year 625 313 313
Stock split 312
--------- --------- ---------
Balance, end of year 625 625 313
--------- --------- ---------
Other Adjustments
Balance, beginning of year (6,203) (3,581) (2,566)
Foreign currency translation (212) (269) 28
Minimum pension liability 934 (2,353) (1,043)
Balance, end of year --------- --------- ---------
(5,481) (6,203) (3,581)
--------- --------- ---------
Retained Earnings
Balance, beginning of year 327,972 294,380 266,668
Stock split (7,229)
Net income 59,219 93,738 78,594
Cash dividends
Class A common (1997--$.32 PER SHARE;
1996--$.25 per share; 1995--$.20 per share) (25,736) (20,344) (16,451)
Class B common (1997--$.016 PER SHARE;
1996--$.0125 per share; 1995--$.01 per share) (320) (250) (200)
Capital stock repurchased (45,318) (32,323) (34,231)
--------- --------- ---------
Balance, end of year 315,817 327,972 294,380
--------- --------- ---------
Total Shareholders' Equity $ 364,230 $ 372,995 $ 332,555
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE> 26
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For The Years Ended September 30 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFORMATION SYSTEMS
Cash Flows Provided by Operating Activities $ 149,325 $ 110,345 $ 107,222
--------- --------- ---------
Cash Flows Provided by (Used for) Investing Activities
Business combinations (145,347) (78,039) (20,824)
Capital expenditures (47,707) (39,980) (30,750)
Net proceeds from sales of assets 18,307 10,943 3,744
Proceeds from sale of receivables 6,000
Capitalization of software licensed to customers (1,465) (4,103) (3,471)
(Advances to) repayments from financial services 6,368 4,189 (9,708)
--------- --------- ---------
Net cash used for investing activities (169,844) (106,990) (55,009)
--------- --------- ---------
Cash Flows Provided by (Used for) Financing Activities
Additional borrowings 145,641 50,000 1,254
Principal payments on debt (57,122) (8,159) (5,051)
Cash dividends paid (26,056) (20,594) (16,651)
Capital stock issued 1,541 1,754 1,422
Capital stock repurchased (46,799) (33,323) (35,079)
Net cash provided by (used for) financing --------- -------- ---------
activities 17,205 (10,322) (54,105)
--------- --------- ---------
Effect of Exchange Rate Changes on Cash (212) (269) 28
--------- --------- ---------
Decrease in Cash and Equivalents (3,526) (7,236) (1,864)
Cash and Equivalents, Beginning of Year 11,130 18,366 20,230
--------- --------- ---------
Cash and Equivalents, End of Year $ 7,604 $ 11,130 $ 18,366
========= ========= =========
FINANCIAL SERVICES
Cash Flows Provided by Operating Activities $ 19,875 $ 15,449 $ 13,854
--------- --------- ---------
Cash Flows Provided by (Used for) Investing Activities
Finance receivables originated (142,588) (117,040) (115,643)
Collections on finance receivables 92,305 76,174 64,232
Net cash used for investing activities --------- --------- ---------
(50,283) (40,866) (51,411)
--------- --------- ---------
Cash Flows Provided by (Used for)
Financing Activities
Additional borrowings 91,258 72,988 70,000
Principal payments on debt (54,855) (42,752) (42,688)
Advances from (repayments to) information systems (6,368) (4,189) 9,708
--------- --------- ---------
Net cash provided by financing activities 30,035 26,047 37,020
--------- --------- ---------
Increase (Decrease) in Cash and Equivalents (373) 630 (537)
Cash and Equivalents, Beginning of Year 1,293 663 1,200
--------- --------- ---------
Cash and Equivalents, End of Year $ 920 $ 1,293 $ 663
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the parent company
and its domestic and foreign subsidiaries and present details of revenues,
expenses, assets, liabilities and cash flows for both information systems and
financial services. Information systems is comprised of the company's computer
systems and business forms operations. Financial services is comprised of Reyna
Capital Corporation, the company's wholly-owned financial services subsidiary
and a similar operation in Canada. In accordance with industry practice, the
assets and liabilities of information systems are classified as current or
noncurrent and those of financial services are unclassified. Intercompany
balances and transactions between the consolidated companies are eliminated.
USE OF ESTIMATES
The consolidated financial statements are prepared in conformity with generally
accepted accounting principles and include amounts based on management's best
estimates and judgments. The use of estimates and judgments may affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results could differ
from those estimates.
CASH AND EQUIVALENTS
For purposes of reporting cash flows, cash and equivalents includes cash on
hand, cash deposits and investments with maturities of three months or less at
the time of purchase. The carrying amount of these short-term investments
approximates fair value.
CONCENTRATIONS OF CREDIT RISK
The company is a leading provider of information management systems to
automobile dealerships. A significant portion of finance receivables and
accounts receivable are from automobile dealerships.
ALLOWANCE FOR LOSSES
An allowance for losses on finance receivables is established based on
historical loss experience, portfolio profile, industry averages and current
economic conditions. Finance receivables are charged to the allowance for losses
when an account is deemed to be uncollectible, taking into consideration the
financial condition of the customer and the value of the collateral. Recoveries
of finance receivables, previously charged off as uncollectible, are credited to
the allowance for losses.
INVENTORIES
Inventories are stated at the lower of cost or market. Costs of business forms
inventories are determined by the last-in, first-out (LIFO) method. At September
30, 1997 and 1996, LIFO inventories were $66,732 and $45,253, respectively.
These inventories determined by the first-in, first-out (FIFO) method would
increase by $5,744 in 1997, $6,232 in 1996 and $7,096 in 1995. For other
inventories, cost is determined by specific identification or the FIFO method.
Market is based on net realizable value.
27
<PAGE> 28
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful service lives of the assets or asset
groups, principally on the straight-line method for financial reporting
purposes. Estimated asset lives are:
Years
- -------------------------------------------------------------------------------
Land improvements 10
Buildings and improvements 3--33
Computer equipment 3---5
Machinery and equipment 3--18
Furniture and other 3--15
INTANGIBLE ASSETS
The excess of cost over net assets of companies acquired is recorded as goodwill
and amortized on a straight-line basis over five to forty years. Amortization
expense was $15,066 in 1997, $10,541 in 1996 and $8,530 in 1995. Amortization
expense in 1997 included $3,560 from restructuring and special charges. At
September 30, 1997 and 1996, accumulated amortization was $49,762 and $36,183,
respectively.
The company capitalizes certain costs of developing its software products. Upon
completion of a software product, amortization is determined based on the larger
of the amounts computed using (a) the ratio that current gross revenues for each
product bears to the total of current and anticipated future gross revenues for
that product or (b) the straight-line method over the remaining estimated
economic life of the product, ranging from five to seven years. Amortization
expense for software licensed to customers was $9,188 in 1997, $3,731 in 1996
and $3,746 in 1995. Amortization expense in 1997 included $3,920 from
restructuring and special charges. At September 30, 1997 and 1996, accumulated
amortization was $52,389 and $43,052, respectively.
Other intangible assets are amortized over periods ranging from three to fifteen
years. Amortization expense was $2,885 in 1997, $2,408 in 1996 and $2,165 in
1995. At September 30, 1997 and 1996, accumulated amortization was $13,264 and
$10,398, respectively.
REVENUE RECOGNITION - INFORMATION SYSTEMS
Information systems revenues consist of both product sales and service revenues.
Product sales, including computer hardware, software licenses and business
forms, are generally recorded upon shipment to customers. Under certain forms
management contractual arrangements, custom forms are stored for future delivery
to customers, and are recognized as revenue when title passes and the customer
has been invoiced. Service revenues, which include computer hardware
maintenance, software support, training and forms management services, are
recorded ratably over the contract period or as services are performed. Forms
management services represent fees for inventory management and warehousing
services. Forms management services may be included in product sales or
separately billed to customers.
REVENUE RECOGNITION - FINANCIAL SERVICES
Financial services revenues consist primarily of interest earned on financing
the company's computer systems product sales. Revenues are recognized over the
lives of financing contracts, generally four to eight years, using the interest
method.
LEASE OBLIGATIONS
The company leases premises and equipment under various capital and operating
lease agreements. As of September 30, 1997, future minimum lease payments
relating to operating lease agreements were $26,480 in 1998, $19,881 in 1999,
$14,186 in 2000, $9,578 in 2001 and $6,699 in 2002. Rental expenses were $36,018
in 1997, $25,660 in 1996 and $19,408 in 1995. As a result of a business
combination, the company acquired a building under capital lease. The debt
associated with the building is discussed in Note 6 to the Consolidated
Financial
28
<PAGE> 29
Statements. Under the provisions of purchase accounting, the carrying
value recorded for the building is not significant.
During 1997, the company entered into an agreement for the construction and
lease of a new office building. Construction is estimated to be completed in
1999 at a total cost of $29,000.
RESEARCH AND DEVELOPMENT COSTS
The company expenses research and development costs as incurred. These costs
were $43,052 in 1997, $24,439 in 1996 and $20,978 in 1995. Included in 1997 are
$14,850 of purchased in-process research and development costs. In-process
research and development acquired in business combinations represented software
development costs for which technological feasibility was not established and
for which there was no alternative future use.
INCOME TAXES
The parent company and its domestic subsidiaries file a consolidated U.S.
federal income tax return. Deferred income taxes are provided for temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements. Temporary differences result principally
from financial services product financing activities, postretirement benefits
and different depreciation methods. No deferred income tax liabilities are
recorded on undistributed earnings of the foreign subsidiary because, for the
most part, those earnings are permanently reinvested. Undistributed earnings of
the foreign subsidiary at September 30, 1997, were $13,543. The calculation of
the unrecognized deferred income tax liability on these earnings is not
practicable.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the weighted
average number of Class A common shares and Class A common share equivalents
outstanding during each year. Class A common share equivalents consist of those
shares which would be outstanding, assuming all Class B common shares were
converted into Class A common shares and assuming all dilutive stock options
were exercised and the proceeds used to repurchase Class A common shares at the
average market price. The dilutive effect of stock options is not material.
2. RESTRUCTURING AND SPECIAL CHARGES
During fiscal year 1997 the company recorded a pretax charge of $49,241
consisting of a $25,339 restructuring charge (recorded in the fourth quarter)
and $23,902 of other special charges ($17,063 recorded in the third quarter and
$6,839 recorded in the fourth quarter). After income taxes the combined charges
reduced net income by $34,078 or $.41 per share. The income tax benefit on the
combined charges represented a 30.8% effective income tax rate because not all
of the charges were tax deductible. Major components of the charge are listed in
the following table.
<TABLE>
<CAPTION>
Restructuring Special Total
Charge Charges Charges
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Employee termination benefits $18,779 $ 116 $18,895
In-process research and development 14,850 14,850
Discontinued products 5,418 5,418
Impaired assets 1,142 8,936 10,078
----------------------------------
Totals $25,339 $23,902 $49,241
==================================
</TABLE>
29
<PAGE> 30
RESTRUCTURING CHARGE
Employee termination benefits consisted of involuntary severance benefits and
voluntary retirement benefits for 400 employees, about 75% from closing
manufacturing and distribution facilities. Through September 30, 1997, $411 of
involuntary termination benefits had been paid to 50 employees. See Note 9 to
the Consolidated Financial Statements for a discussion of voluntary retirement
benefits. The company discontinued several automotive computer services products
and wrote off the related intangible assets. Impaired assets represented the
write-off of idle production assets and lease costs related to closing four
manufacturing plants and five distribution facilities.
SPECIAL CHARGES
In-process research and development expenses resulted from three recent computer
services business combinations and represented software development costs for
which technological feasibility was not established and for which there was no
alternative future use. The balance of special charges represented primarily the
write-off of impaired software licensed to customers and internal software which
the company will no longer use. Special charges increased computer systems cost
of sales $4,709, computer systems selling, general and administrative (SG&A)
expenses $13,174, business forms SG&A expenses $2,169 and other charges $3,850.
3. BUSINESS COMBINATIONS
On July 2, 1997, the company purchased the outstanding shares of Crain-Drummond
Inc. from UARCO Inc., a subsidiary of Settsu Corporation of Osaka, Japan.
Crain-Drummond is a leading Canadian provider of business document outsourcing,
document management and work process optimization services, with fiscal year
1996 sales of about $131,000. The purchase price of $43,843 was initially paid
from available cash. In September 1997 the company borrowed funds in Canada to
finance this transaction.
Effective December 31, 1996, the company purchased substantially all net assets
of Vanier Graphics Corporation from American Business Products for $44,654.
Vanier, a provider of business forms and related forms management and workflow
analysis services, had fiscal year 1996 sales of about $130,000. The purchase
price was paid in cash using proceeds from the company's issuance of notes in a
public offering.
In fiscal year 1997, the company also purchased two healthcare systems
businesses for $17,524, paid from available cash. One of the businesses provides
information systems to physician practices with primary emphasis on practice
management systems for hospital-based physicians. The other business has
capabilities in electronic medical records and clinical management. These
businesses had annual sales of about $10,000. Based on an appraisal, $11,000 of
the purchase prices was allocated to in-process research and development,
representing software development costs for which technological feasibility was
not established and for which there was no alternative future use.
Recorded liabilities of acquired companies included the costs to exit duplicate
facilities. These liabilities included the costs of closing fourteen
manufacturing plants, ten distribution facilities and two administrative
buildings. At September 30, 1997, the company had closed eleven manufacturing
plants, seven distribution facilities and both administrative facilities. Key
elements of the costs accrued for exiting duplicate facilities were involuntary
termination benefits of $11,883, relocation costs of $1,526 and exit costs of
$2,118. Involuntary termination benefits represent severance payments and
outplacement services for 931 employees, principally for manufacturing
employees. Exit costs consist primarily of lease costs. Through September 30,
1997, $7,740 of involuntary termination benefits were paid to 623 employees and
$962 of relocation costs and $504 of exit costs were paid. The company recorded
the assets of the duplicate facilities as current assets held for sale. These
assets of $27,155 were recorded at estimated fair market value less disposal
costs. At September 30, 1997, $17,382 of these assets had been sold.
From September 22 through September 29, 1997 the company purchased 16,500 shares
of a public company in the United Kingdom, Kalamazoo Computer Group plc. This
investment represents 26.5% of the outstanding shares and accordingly is
accounted for under the equity method. The stock purchase was accomplished
through a combination of a subscription from Kalamazoo and a tender offer to
Kalamazoo shareholders. Kalamazoo
30
<PAGE> 31
provides computer solutions primarily to automobile dealers throughout Europe
and reported fiscal year 1997 sales of $124,000. Solutions include software,
hardware, support services, training, consulting and facilities management. The
purchase price of $36,001 was paid from available cash. A preliminary appraisal
was completed and $3,850 of the purchase price was allocated to in-process
research and development representing software development costs for which
technological feasibility was not established and for which there was no
alternative future use.
The company also purchased thirteen businesses in the automotive, healthcare and
general business forms markets during fiscal years 1996 and 1995 with annual
sales of $337,000 and $56,000, respectively.
All businesses were purchased with a combination of cash, notes payable and
stock as reported in the table titled Components of Purchase Prices. The
issuances of notes payable and capital stock were considered noncash
transactions for accounting purposes and were not included in the statements of
cash flows. All business combinations were accounted for as purchases and the
accounts of the acquired businesses were included in the company's financial
statements since the dates of acquisition. In connection with these business
combinations, the company recorded goodwill of $10,609 in 1997, $859 in 1996 and
$31,367 in 1995. This goodwill is being amortized on a straight-line basis over
five to fifteen years. Under the terms of some of the purchase agreements, the
company may be required to make additional payments, contingent on the sales and
profitability of the business purchased. These payments, if made, will either be
expensed in the period incurred or charged to goodwill. The amount of contingent
payments charged to goodwill was $3,728 in 1997, $3,447 in 1996 and $1,351 in
1995. Contingent payments may be made through 2006.
COMPONENTS OF PURCHASE PRICES
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash (net of cash and equivalents acquired) $145,347 $78,039 $20,824
Notes payable 9,492
Capital stock issued (1997 -- 44,220 SHARES;
1996 -- 31,472 shares; 1995 -- 827,576 shares) 1,171 796 11,383
-------- ------- -------
Totals $146,518 $78,835 $41,699
======== ======= =======
</TABLE>
Components of purchase prices include cash contingent payments of $3,325 in 1997
and $2,726 in 1996 and $1,171 of capital stock issued in 1997.
PRO FORMA INFORMATION (UNAUDITED)
On a pro forma basis, assuming that the 1997 business combinations were made as
of October 1, 1995, the consolidated revenues of the company would have
increased by about $148,000 in 1997 and $295,000 in 1996. Net earnings would
have increased by about $2,900 or $.04 per share in 1997 and decreased by about
$17,500 or $.21 per share in 1996. These pro forma results of operations include
pre-acquisition results of the businesses acquired and may not be indicative of
the results of operations that actually would have been obtained if the business
combinations had been in effect or that may be obtained in the future.
31
<PAGE> 32
4. INCOME TAXES
<TABLE>
<CAPTION>
PROVISION FOR INCOME TAXES 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 44,666 $ 50,598 $ 36,800
State and local 11,183 11,112 9,221
Foreign 647 902 (276)
Deferred
Financial services product financing activities 13,040 4,022 15,557
Depreciation (7,044) 690 2,774
Capital losses (1,926) 1,696 2,814
Capital losses valuation allowance 1,588 (1,122) (1,800)
In-process research and development (2,706)
Other (2,960) 607 (6,929)
-------- -------- --------
Provision for income taxes $ 56,488 $ 68,505 $ 58,161
======== ======== ========
Income taxes paid (net of refunds) $ 63,054 $79,616 $ 39,821
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF INCOME TAX RATES
1997 1996 1995
AMOUNT PERCENT Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income taxes $ 40,497 35.0% $ 56,785 35.0% $ 47,864 35.0%
State and local taxes less federal
income tax effect 7,300 6.3 8,996 5.5 7,573 5.5
Goodwill amortization
and write-off 3,997 3.5 2,636 1.6 2,228 1.6
In-process research and development 3,293 2.8
Other 1,401 1.2 88 .1 496 .4
-------- -------- -------- ------ -------- ------
Provision for income taxes $ 56,488 48.8% $ 68,505 42.2% $ 58,161 42.5%
======== ======== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
INFORMATION SYSTEMS DEFERRED INCOME TAX ASSETS (LIABILITIES)
1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets
Postretirement medical $ 17,684 $ 15,419
Pensions 11,770 9,005
Acquired net operating losses 5,062 6,668
Severance 4,203 3,743
Capital losses 2,083 157
Other 28,883 24,165
Deferred income tax liabilities
Depreciation (9,063) (17,700)
Capital losses valuation allowance (1,631) (43)
Other (18,547) (17,009)
-------- --------
Totals 40,444 24,405
Current 21,699 22,398
-------- --------
Noncurrent $ 18,745 $ 2,007
======== ========
</TABLE>
The carryforward of capital losses expires primarily in 1999. The carryforward
of net operating losses expires primarily in 2009.
32
<PAGE> 33
5. FINANCIAL SERVICES
INCOME STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 30,383 $ 26,263 $ 22,311
-------- -------- --------
Expenses
Interest expense 11,410 9,072 7,191
Allowance for losses provision (benefit) 1,600 500 (150)
General and administrative 2,272 2,246 2,109
-------- -------- --------
Total expenses 15,282 11,818 9,150
-------- -------- --------
Income before income taxes 15,101 14,445 13,161
Provision for income taxes 5,972 5,708 5,192
-------- -------- --------
Net income $ 9,129 $ 8,737 $ 7,969
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FINANCE RECEIVABLES
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Product financing receivables $420,088 $356,387
Unguaranteed residual values 27,575 22,143
Allowance for losses (3,571) (3,314)
Unearned interest income (74,877) (65,933)
Other 2,858 2,293
-------- --------
Totals $372,073 $311,576
======== ========
</TABLE>
As of September 30, 1997, product financing receivables due for each of the next
five years were $131,375 in 1998, $114,378 in 1999, $89,152 in 2000, $58,221 in
2001 and $25,886 in 2002.
ALLOWANCE FOR LOSSES
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $3,314 $3,903
Provision 1,600 500
Net losses (1,343) (1,089)
------ ------
Balance, end of year $3,571 $3,314
====== ======
</TABLE>
33
<PAGE> 34
6. FINANCING ARRANGEMENTS
INFORMATION SYSTEMS
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Short-term notes, weighted average interest rate
of 6.3% at September 30, 1997 and 6.0% at September 30, 1996 $13,245 $ 7,659
======= =======
Fixed rate notes, interest rate of 7.0%, maturing in 2007 $99,549
Fixed rate notes, weighted average interest rate
of 6.7% at September 30, 1997 and 6.6% at September 30, 1996,
maturing through 2003 34,602 $41,433
Variable rate notes, weighted average interest rate of 4.0%
at September 30, 1997 and 6.1% at September 30, 1996, maturing
through 1999 42,030 50,000
Capital lease obligation, weighted average interest
rate of 10.7%, maturing in 1998 2,100
-------- -------
Totals 178,281 91,433
Current portion 8,131 6,832
-------- -------
Long-term portion $170,150 $84,601
======== =======
</TABLE>
Loan agreements limit consolidated indebtedness and require a minimum
consolidated net worth. In December 1996, the company issued $100,000 (face
value) ten year notes at 99.51% of par. At September 30, 1997, the fair values
of information systems financing arrangements were $13,245 for short-term notes,
$134,985 for fixed rate notes, $2,100 for capital lease obligations and $42,030
for variable rate notes. As of September 30, 1996, the fair values of
information systems financing arrangements were $7,659 for short-term notes,
$39,954 for fixed rate notes and $50,000 for variable rate notes. At September
30, 1997, debt maturities were $8,131 in 1998, $47,744 in 1999, $5,714 in 2000,
$5,714 in 2001 and $5,714 in 2002. Interest paid was $7,620 in 1997, $5,882 in
1996 and $3,006 in 1995.
FINANCIAL SERVICES
In the ordinary course of business, the company borrows cash to fund investments
in finance receivables from the sale of the company's products. The company
attempts to limit its interest rate exposure between the interest earned on
fixed rate finance receivables and the interest paid on variable rate financing
agreements through the use of interest rate management agreements. Interest rate
swaps provide for interest to be received on notional amounts at variable rates
and provide for interest to be paid on the same notional amounts at fixed rates.
Ceiling agreements limit the maximum interest rates the company pays on variable
rate financing agreements. Fixed interest rates do not change over the life of
the agreements. Variable interest rates are reset at least every ninety days and
are based on LIBOR or commercial paper indices and are settled with
counterparties at that time. Net interest expense or income on these contracts
is reflected in interest expense. The company is exposed to credit related
losses in the event of nonperformance by counterparties to the interest rate
management agreements. The company attempts to minimize this credit risk by
entering into agreements only with counterparties that have a Standard & Poor's
rating of "A" or higher. The company also diversifies its interest rate
management agreements among several financial institutions. Interest rate
management agreements are accounted for using settlement accounting.
34
<PAGE> 35
<TABLE>
<CAPTION>
Notional Amounts
Notes Swaps Ceilings
======================================================================================
SEPTEMBER 30, 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable rate instruments, maturing through 2002 $ 113,076 $17,066 $10,625
Weighted average interest rate 5.9%
Weighted average pay rate 6.3%
Weighted average receive rate 5.3%
Weighted average ceiling interest rate 7.3%
Fixed rate notes, maturing through 2001 85,238
Weighted average interest rate 6.4%
---------- ------- -------
Totals $ 198,314 $17,066 $10,625
========== ======= =======
September 30, 1996
- --------------------------------------------------------------------------------------
Variable rate instruments, maturing through 2002 $ 76,875 $ 1,875 $20,625
Weighted average interest rate 6.0%
Weighted average pay rate 4.4%
Weighted average receive rate 5.6%
Weighted average ceiling interest rate 7.2%
Fixed rate notes, maturing through 2000 85,036
Weighted average interest rate 6.1%
---------- ------- -------
Totals $ 161,911 $ 1,875 $20,625
========== ======= =======
</TABLE>
Loan agreements limit consolidated indebtedness and require a minimum
consolidated net worth. The fair value of financial services debt was $198,124
and $161,367 at September 30, 1997 and 1996, respectively. At September 30,
1997, maturities of notes were $60,859 in 1998, $45,293 in 1999, $25,982 in
2000, $9,180 in 2001 and $57,000 in 2002. Interest paid was $11,178 in 1997,
$9,032 in 1996 and $7,211 in 1995.
At September 30, 1997, notional amount maturities of swap agreements were $4,608
in 1998, $4,608 in 1999, $4,608 in 2000 and $3,242 in 2001 and notional amount
maturities of ceiling agreements were $8,750 in 1998 and $1,875 in 1999. The
fair values of interest rate swap agreements were $96 and $6 at September 30,
1997 and 1996, respectively. The fair values of interest rate ceiling agreements
were $0 and $21 at September 30, 1997 and 1996, respectively. The premiums paid
for interest rate ceiling agreements are amortized to interest expense on a
straight-line basis over the life of the agreement. Unamortized premium costs
were $109 at September 30, 1997 and $219 at September 30, 1996.
REVOLVING CREDIT AGREEMENTS
Information systems and financial services share variable rate revolving credit
agreements which total $150,000 and require commitment fees on unused credit. At
September 30, 1997, available balances under these agreements were $82,000.
FAIR VALUES
Fair values of financial instruments are estimated based on quoted market prices
for debt and interest rate management agreements with the same remaining
maturities. The fair value of interest rate swap agreements represents the cost
if existing agreements had been settled at September 30.
35
<PAGE> 36
7. CAPITAL STOCK
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred
No par value
Authorized shares 60,000,000 60,000,000 60,000,000
Class A common
No par value
Authorized shares 240,000,000 120,000,000 120,000,000
============ ============ ============
Issued and outstanding shares
Balance, beginning of year 80,960,571 82,011,136 83,415,152
Issued 447,253 605,877 1,342,926
Repurchased (2,369,200) (1,600,000) (2,712,600)
Retired (53,094) (56,442) (34,342)
------------ ------------ ------------
Balance, end of year 78,985,530 80,960,571 82,011,136
============ ============ ============
Class B common
No par value
Authorized shares 40,000,000 30,000,000 30,000,000
Issued and outstanding shares 20,000,000 20,000,000 20,000,000
</TABLE>
Dividends on Class A common shares must be twenty times the dividends on Class B
common shares and must be paid simultaneously. Each share of Class A common and
Class B common is entitled to one vote. The Class B common shareholder may
convert twenty Class B common shares to one share of Class A common. The company
has reserved sufficient authorized Class A common shares for Class B conversions
and stock option plans.
Each outstanding Class A common share has one preferred share purchase right.
Each outstanding Class B common share has one-twentieth of a right. Rights
become exercisable if a person or group acquires or seeks to acquire, through a
tender or exchange offer, 20% or more of the company's Class A common shares. In
that event, all holders of Class A common shares and Class B common shares,
other than the acquirer, could exercise their rights and purchase preferred
shares at a substantial discount. At the date of these financial statements,
except for the preferred share purchase rights, the company had no agreements or
commitments with respect to the sale or issuance of the preferred shares.
On August 6, 1996, the company's board of directors approved a two-for-one
common stock split. As a result of the split, on September 17, 1996, common
shareholders received one additional share for each share held as of September
3, 1996. The company reclassified $6,917 to Class A common and $312 to Class B
common from retained earnings. Share and per share information presented in the
accompanying financial statements reflects the stock split.
At the annual meeting on February 13, 1997, the company's shareholders approved
an amendment to the Articles of Incorporation increasing the number of
authorized Class A common shares from 120,000,000 to 240,000,000 and Class B
common shares from 30,000,000 to 40,000,000. In addition, the shareholders
declared that the par value of all Class A common shares (previously $.625 per
share) and Class B common shares (previously $.03125 per share) be reclassified
to "no par value" shares. As a result, the company combined par value and
paid-in capital accounts and restated prior years' information.
The company repurchased Class A common shares for treasury at average prices of
$19.75 in 1997, $20.83 in 1996 and $12.93 in 1995. The remaining balance of
shares authorized for repurchase by the board of directors was 3,169,800 at
September 30, 1997. Treasury shares at September 30 were 13,326,535 in 1997,
11,402,821 in 1996 and 10,408,698 in 1995.
36
<PAGE> 37
8. EMPLOYEE STOCK OPTION PLANS
The company's stock option plans award incentive stock options and/or
nonqualified stock options to purchase Class A common shares to substantially
all employees. Stock options are generally granted at a price equal to fair
market value on the date of grant. During the three years ended September 30,
1997, no options were granted at a price less than fair market value. At
September 30, 1997, options to purchase 5,188,256 additional Class A common
shares were available for future awards to certain key employees. Under a
broad-based stock option plan, the board of directors may award options at its
discretion.
<TABLE>
<CAPTION>
Weighted Average
Shares Under Option Option Prices Per Share
1997 1996 1995 1997 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding
Beginning of year 7,604,607 7,320,072 7,213,248 $12.16 $10.94 $10.25
Granted 1,712,481 996,710 736,080 26.47 17.27 12.52
Exercised (403,033) (574,405) (547,256) 8.00 5.31 3.82
Canceled (125,879) (137,770) (82,000) 23.98 12.78 12.19
--------- --------- ---------
End of year 8,788,176 7,604,607 7,320,072 14.97 12.16 10.94
========= ========== ==========
Exercisable at September 30 1,367,129 1,242,327 1,427,852 8.31 6.27 4.54
========= ========= =========
<CAPTION>
Outstanding, September 30, 1997 Exercisable, September 30, 1997
Weighted
Average Weighted
Option Number of Remaining Average Number of Weighted Average
Price Range Options Life in Years Option Price Options Option Price
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.64 - $5.47 610,944 3.9 $ 3.75 610,944 $ 3.75
$10.00 - $18.03 6,565,070 6.4 13.19 755,585 11.97
$20.47 - $27.19 1,612,162 9.0 26.48 600 25.78
---------- ---------
Totals 8,788,176 6.7 14.97 1,367,129 8.31
========== =========
</TABLE>
The company accounts for employee stock options under Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees." Under
APB Opinion No. 25, no compensation expense for stock options was recognized in
the financial statements because the option price equals the market price of the
stock on the date of grant. In 1997, the company adopted the disclosure
requirements of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which requires the valuation of stock
options using option valuation models and the disclosure of the pro forma effect
on earnings. The company valued its stock options using the Black-Scholes option
valuation model which was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of subjective assumptions,
such as expected stock price volatility, which can materially affect the fair
value estimate. Because the company's stock options have characteristics
significantly different from traded options, the fair value determined may not
be reflective of the actual value of the company's stock options. The weighted
average fair value of the company's stock options granted was $7.49 in 1997 and
$4.74 in 1996. Had compensation expense been recognized using these fair values,
the company's net income would have decreased by $3,645 or $.04 per share in
1997 and $1,080 or $.01 per share in 1996. Because compensation expense need
only be determined for options granted after fiscal year 1995, and compensation
expense is amortized to expense over the option vesting period, the full effect
on pro forma earnings will not be reflected until fiscal year 1999.
37
<PAGE> 38
<TABLE>
<CAPTION>
OPTION VALUATION ASSUMPTIONS
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Expected life in years 5 5
Dividend yield 1.48% 1.48%
Risk free interest rate 6.4% 6.0%
Volatility 23% 23%
9. POSTRETIREMENT BENEFITS
PENSION EXPENSE
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans
Service cost $ 8,119 $ 6,525 $ 5,384
Interest on projected benefit obligation 11,615 9,524 8,463
Actual return on plan assets (17,241) (13,586) (12,640)
Net amortization and deferral 8,478 6,100 5,535
Special termination benefits 8,430
-------- -------- --------
Net periodic pension cost 19,401 8,563 6,742
Defined contribution plans 6,647 5,930 5,441
Multi-employer plans 265 312 319
-------- -------- --------
Totals $ 26,313 $ 14,805 $ 12,502
======== ======== ========
Actuarial assumptions of defined benefit plans
Discount rate 7.25% - 8.0% 7.875% 8.25%
Rate of compensation increase 3.75% - 5.0% 5.0% 5.0%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Actuarial cost method PROJECTED UNIT CREDIT
Measurement period JULY 1 - JUNE 30
</TABLE>
The company sponsors contributory and noncontributory, defined benefit pension
plans for most employees. Pension benefits are primarily based on years of
service and compensation. The company's funding policy is to make annual
contributions to the plans sufficient to meet or exceed the minimum statutory
requirements. The company and its actuaries review the pension plans each year.
The actuarial assumptions are intended to reflect expected experience over the
life of the pension liability.
During the fiscal year 1997 the company expensed $8,430 of special termination
benefits in connection with a voluntary early retirement program. These benefits
will be in addition to the employee's regular plan benefits and will be paid
directly from company assets rather than plan assets. These benefits were
accounted for as a curtailment and the present value of the future benefit
payments was accrued by the company. These special termination benefits
consisted primarily of enhanced benefits costing $6,835. The balance of the
charge represented immediate recognition of deferred obligations, consisting of
prior service cost, transition obligations and gains and losses of $2,521. These
costs were partially offset by a $926 reduction of the projected benefit
obligation related to revised compensation assumptions. All employees were fully
vested in their accumulated benefits.
38
<PAGE> 39
The company sponsors defined contribution savings plans covering most domestic
employees. Generally, contributions are funded monthly and represent 40% of the
first 3% of compensation contributed to the plan by participating employees.
Effective January 1, 1997, the company merged Retiree Medical Savings Accounts
into the Reynolds and Reynolds 401(k) Savings Plan. Contributions for this
portion of the plan are funded annually based on the company's return on equity
and are the same for each eligible employee. Forfeitures of nonvested savings
accounts are used to reduce contributions required by the company.
FUNDED STATUS OF DEFINED BENEFIT PENSION PLANS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 September 30, 1996
ABO ABO
ASSETS EXCEEDS Assets Exceeds
EXCEED ABO ASSETS Exceed ABO Assets
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Defined benefit plans
Vested benefit obligation $ 116,237 $ 34,420 $ 76,069 $ 26,407
========= ========= ========= =========
Accumulated benefit obligation (ABO) $ 118,195 $ 37,207 $ 79,584 $ 29,128
========= ========= ========= =========
Projected benefit obligation (PBO) $ 149,901 $ 40,112 $ 107,505 $ 32,725
Fair market value of plan assets (147,596) (457) (100,621) (2,775)
--------- --------- --------- ---------
PBO greater than plan assets 2,305 39,655 6,884 29,950
Unrecognized net loss (5,792) (7,459) (8,553) ( 9,965)
Unrecognized prior service cost (683) (1,551) (775) (2,500)
Unrecognized net asset (liability)
being amortized over 7 to 15 years 781 (1,860) 1,732 (2,232)
Minimum pension liability 8,196 11,100
Net pension (asset) liability --------- --------- --------- ---------
(3,389) 36,981 (712) 26,353
Multi-employer liability 170 206
--------- --------- --------- ---------
Totals (asset) liability $ (3,389) $ 37,151 $ (712) $ 26,559
========= ========= ========= =========
Minimum pension liability
Intangible asset $ 3,411 $ 4,735
Deferred income tax benefit 1,936 2,582
Charge to shareholders' equity 2,849 3,783
--------- ---------
Totals $ 8,196 $ 11,100
========= ==========
Actuarial assumptions of defined benefit plans
PBO discount rate 7.25% - 8.0% 8.0%
Rate of compensation increase 3.75% - 5.0% 3.75%-5.0%
</TABLE>
At September 30, 1997 and 1996, about 45% and 51% of the plans' assets were
invested in cash and equivalents, government bonds and investment grade
corporate bonds. The balance of the plans' assets were invested in equities.
39
<PAGE> 40
POSTRETIREMENT MEDICAL AND LIFE INSURANCE EXPENSE
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $1,131 $1,120 $ 935
Interest on accumulated benefit obligation 3,265 3,150 2,835
Special termination benefits 731
------ ------ ------
Totals $5,127 $4,270 $3,770
====== ====== ======
Actuarial assumptions of defined benefit plans
Discount rate 8.0% 7.875% 8.25%
Healthcare cost trend rate through 2007 6.0% 6.0% 6.0%
Healthcare cost trend rate thereafter 5.0% 5.0% 5.0%
</TABLE>
The company sponsors a defined benefit medical plan for employees who retired
before October 1, 1993. Future retirees may purchase postretirement medical
insurance from the company. Discounts from the market price of postretirement
medical insurance will be provided to certain retirees based on age and length
of remaining service as of October 1, 1993. These discounts are included in the
determination of the accumulated benefit obligation. During fiscal year 1997 the
company expensed $731 of special termination benefits in connection with a
voluntary early retirement program. The company also sponsors a defined benefit
life insurance plan for substantially all employees. The company funds medical
and life insurance benefits on a pay-as-you-go basis.
<TABLE>
<CAPTION>
POSTRETIREMENT MEDICAL AND LIFE INSURANCE OBLIGATION
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
Retirees $ 24,076 $21,099
Fully eligible active plan participants 6,499 6,629
Other active plan participants 13,796 13,854
Unrecognized net loss (828) (1,978)
-------- -------
Totals $ 43,543 $39,604
======== =======
Actuarial assumptions
Discount rate 8.0% 8.0%
Healthcare cost trend rate through 2007 6.0% 6.0%
Healthcare cost trend rate thereafter 5.0% 5.0%
</TABLE>
The effect of a 1% increase in the assumed healthcare cost trend rate would have
increased the service and interest cost components of postretirement medical
insurance in 1997 by $194 and the accumulated benefit obligation at September
30, 1997, by $2,568.
40
<PAGE> 41
10. CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------
INFORMATION SYSTEMS
<S> <C> <C> <C>
Cash flows provided by (used for) operating activities
Net income $ 50,090 $ 85,001 $ 70,625
Adjustments to reconcile net income to
net cash provided by operating activities
Purchased in-process research and development costs 14,850
Depreciation and amortization 60,636 44,327 37,348
Deferred income taxes (13,173) 1,605 (3,314)
Deferred income taxes transferred to (from)
financial services 4,001 (1,587) 8,664
Loss (gain) on sales of assets 4,215 (2,677) (617)
Changes in operating assets and liabilities
Accounts receivable (9,216) (22,050) (22,406)
Inventories 8,525 15,038 4,500
Prepaid expenses, intangible and other assets 6,619 (9,209) (6,279)
Accounts payable 3,197 1,785 1,882
Accrued and other liabilities 19,581 (1,888) 16,819
--------- -------- --------
Net cash provided by operating activities $ 149,325 $110,345 $107,222
========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL SERVICES
Cash flows provided by (used for) operating activities
<S> <C> <C> <C>
Net income $ 9,129 $ 8,737 $ 7,969
Adjustments to reconcile net income to
net cash provided by operating activities
Deferred income taxes 13,008 4,022 15,557
Deferred income taxes transferred to (from)
information systems (4,001) 1,587 (8,664)
Changes in receivables, other assets
and other liabilities 1,739 1,103 (1,008)
--------- --------- ---------
Net cash provided by operating activities $ 19,875 $ 15,449 $ 13,854
========= ========= =========
</TABLE>
41
<PAGE> 42
11. SEGMENT REPORTING
The company conducts business primarily throughout the United States and Canada
in three industry segments, computer systems, business forms and financial
services.
The computer systems segment provides integrated computer systems products and
services to automotive and healthcare markets. The segment's products include
integrated software packages, computer hardware and related hardware and
software installation. Services include customer training and consulting,
hardware maintenance, software support and database management.
The business forms segment manufactures and distributes printed business forms
and systems, custom continuous and snap out forms, specialty printed products
and provides forms management services to automotive, healthcare and general
business markets.
The financial services segment provides financing for the company's computer
systems products to the automotive and healthcare markets.
<TABLE>
<CAPTION>
Computer Business Financial
Systems Forms Services Corporate Totals
- ------------------------------------------------------------------------------------------------------------------
1997
==================================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales and revenues $536,774 $818,528 $ 30,383 $1,385,685
Operating income 35,587 75,358 15,101 126,046
Income before income taxes 33,775 75,704 15,101 $(8,873) 115,707
Identifiable assets 214,720 449,574 373,175 65,041 1,102,510
Depreciation and amortization 38,419 20,522 1,695 60,636
Capital expenditures 20,056 22,496 5,155 47,707
1996
- ------------------------------------------------------------------------------------------------------------------
Net sales and revenues $478,994 $595,186 $ 26,263 $1,100,443
Operating income 69,751 80,629 14,445 164,825
Income before income taxes 72,123 80,723 14,445 $(5,048) 162,243
Identifiable assets 196,508 363,214 313,282 50,640 923,644
Depreciation and amortization 26,060 16,880 1,387 44,327
Capital expenditures 21,539 11,796 6,645 39,980
1995
- ------------------------------------------------------------------------------------------------------------------
Net sales and revenues $422,678 $465,902 $ 22,311 $910,891
Operating income 64,138 59,716 13,161 137,015
Income before income taxes 66,903 59,500 13,161 $(2,809) 136,755
Identifiable assets 182,727 257,022 265,965 49,752 755,466
Depreciation and amortization 21,832 14,246 1,270 37,348
Capital expenditures 18,462 10,927 1,361 30,750
</TABLE>
42
<PAGE> 43
12. CONTINGENCIES
The U.S. Environmental Protection Agency (EPA) designated the company as one of
a number of potentially responsible parties (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) at four
environmental remediation sites. The EPA has contended that any company linked
to a CERCLA site is potentially liable for all response costs under the legal
doctrine of joint and several liability.
During fiscal year 1997 the company paid approximately $100 to settle
obligations regarding three environmental remediation sites.
The remaining site involves a municipal waste disposal facility owned and
operated by four municipalities. The company joined a PRP coalition and shared
remedial investigation and feasibility study costs with other PRPs. During
fiscal year 1994, the PRP coalition received an engineering evaluation/cost
analysis of the presumed remedy for the site from its private contractor.
However, because the EPA has not yet selected a remedy, potential remediation
costs remain uncertain. Remediation costs for a typical CERCLA site on the
National Priorities List average about $30,000. The engineering evaluation/cost
analysis was consistent with this average. During fiscal year 1996, an agreement
was reached whereby the state of Connecticut will contribute $8,000 towards
remediation costs. The company believes that the reasonably foreseeable
resolution will not have a material adverse effect on the financial statements.
13. ACCOUNTING STANDARDS
In February 1997 the Financial Accounting Standards Board (FASB) issued SFAS
Statement No. 128, "Earnings Per Share." This statement, effective for both
interim and annual periods ending after December 15, 1997, will require the
company to report basic earnings per share (EPS) and diluted EPS. Basic EPS is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the entity.
Diluted EPS is computed similarly to primary EPS pursuant to APB Opinion No. 15,
"Earnings Per Share." On a pro forma basis, basic EPS would have been $.73 in
1997, $1.14 in 1996 and $.94 in 1995. Diluted EPS was the same as the company's
currently reported primary EPS.
In June 1997 the FASB issued SFAS Statement No. 130, "Reporting Comprehensive
Income." This statement, effective for fiscal years beginning after December 15,
1997, would require the company to report components of comprehensive income in
a financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined by Concepts Statement No.
6, "Elements of Financial Statements" as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from nonowner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners. On a pro
forma basis, comprehensive income would have been $59,941 in 1997, $91,116 in
1996 and $77,579 in 1995.
In June 1997 the FASB issued SFAS Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, effective for
financial statements for periods beginning after December 15, 1997, requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, financial information is
required to be reported on the basis that it is used internally for evaluating
segment performance and deciding how to allocate resources to segments. The
company plans to change its reported business segments, which currently
represent product classifications, to reflect the organizational structure of
the company at the time of adoption.
43
<PAGE> 44
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
================================================================================================
1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues
Information systems $307,183 $346,677 $330,273 $371,169
Financial services 7,124 7,525 7,787 7,947
-------- -------- -------- --------
Totals $314,307 $354,202 $338,060 $379,116
======== ======== ======== ========
Costs and expenses
Cost of sales $162,852 $190,253 $185,723 $207,539
Selling, general and administrative expenses 102,317 113,689 127,823 128,822
Restructuring charge 25,339
Financial services 3,385 3,612 3,772 4,513
-------- -------- -------- --------
Totals $268,554 $307,554 $317,318 $366,213
======== ======== ======== ========
Net income $ 25,500 $ 26,267 $ 7,278 $ 174
Earnings per common share $ .30 $ .31 $ .09 $ .00
Cash dividends declared per share
Class A common $ .08 $ .08 $ .08 $ .08
Class B common $ .004 $ .004 $ .004 $ .004
Closing market prices of Class A common shares
High $ 27.88 $ 29.38 $ 24.75 $ 21.31
Low $ 25.50 $ 23.88 $ 15.63 $ 16.38
</TABLE>
<TABLE>
<CAPTION>
1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues
Information systems $227,133 $250,538 $280,457 $316,052
Financial services 6,234 6,466 6,592 6,971
-------- -------- -------- --------
Totals $233,367 $257,004 $287,049 $323,023
======== ======== ======== ========
Costs and expenses
Cost of sales $115,746 $130,610 $146,636 $170,663
Selling, general and administrative expenses 77,487 83,439 94,314 104,905
Financial services 2,862 2,872 2,871 3,213
-------- -------- -------- --------
Totals $196,095 $216,921 $243,821 $278,781
======== ======== ======== ========
Net income $ 21,386 $ 22,958 $ 24,308 $ 25,086
Earnings per common share $ .25 $ .27 $ .28 $ .29
Cash dividends declared per share
Class A common $ .06 $ .06 $ .06 $ .07
Class B common $ .003 $ .003 $ .003 $ .0035
Closing market prices of Class A common shares
High $ 19.69 $ 20.50 $ 26.63 $ 27.00
Low $ 16.50 $ 18.31 $ 21.38 $ 22.31
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
Schedule II
VALUATION ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996, AND 1995
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
Additions Deductions
<S> <C> <C> <C> <C> <C> <C>
Balance at Charged to Other Write-offs Other Balance
Beginning Costs and Net of at End
Description of Year Expenses (a) Recoveries (a) of Year
- -------------------------------------------------------------------------------------------------------------------------
Valuation Accounts - Deducted From Assets to Which They Apply
INFORMATION SYSTEMS
Reserves for accounts receivable
Year ended September 30, 1997 5,744 3,960 476 2,528 0 7,652
Year ended September 30, 1996 3,166 2,325 2,407 2,154 0 5,744
Year ended September 30, 1995 2,683 1,977 202 1,696 0 3,166
Reserves for inventory:
Year ended September 30, 1997 7,000 2,402 2,368 4,961 0 6,809
Year ended September 30, 1996 1,387 1,926 5,033 1,346 0 7,000
Year ended September 30, 1995 1,503 1,660 0 1,776 0 1,387
Reserves for notes receivable:
Year ended September 30, 1997 629 57 (336) 115 0 235
Year ended September 30, 1996 471 170 203 215 0 629
Year ended September 30, 1995 731 (205) 0 55 0 471
FINANCIAL SERVICES
Reserves for finance receivables:
Year ended September 30, 1997 3,314 1,600 336 1,679 0 3,571
Year ended September 30, 1996 3,903 500 0 1,089 0 3,314
Year ended September 30, 1995 4,854 (150) 0 801 0 3,903
<FN>
(a) Includes adjustments from translation of foreign currency to United States dollars, the effects
of acquisitions and disposals of businesses and transfers between reserves.
</TABLE>
45
<PAGE> 46
INDEX OF EXHIBITS
Securities Exchange Act of 1934
<TABLE>
<CAPTION>
Page in
Form
Exhibit No. Item 10-K
----------------------------------------------------------------------------------------------------
<S> <C>
(3)(a) Amended Articles of Incorporation, Restatement effective
February 9, 1995; incorporated by reference to Exhibit A of
the company's definitive proxy statement dated January 5, 1995
filed with the Securities and Exchange Commission.
(3)(b) Consolidated Code of Regulations; incorporated by reference to
Exhibit B to the company's definitive proxy statement dated
January 8, 1990 filed with the Securities and Exchange
Commission.
(4)(a) Loan Agreement with Metropolitan Life Insurance Company dated
September 17, 1986, incorporated by reference to Exhibit
(4)(a) to Form 10-K for the fiscal year ended September 30,
1986.
(4)(b) Copies of the agreements relating to long-term debt, which are
not required as exhibits to this Form 10-K, will be provided
to the Securities and Exchange Commission upon request.
(4)(c) Shareholder Rights Plan incorporated by reference to Exhibit I
to the company's Form 8-A (File No. 1-10147), which was
adopted on May 6, 1991 and filed with the Securities and
Exchange Commission on May 8, 1991.
(9) Not applicable.
(10)(a) Amended and Restated Employment Agreement with David R. Holmes
dated as of October 1, 1995; incorporated by reference to
Exhibit (10)(a) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(b) Amended and Restated Employment Agreement with Robert C. Nevin
dated as of February 1, 1997.
(10)(c) Amended and Restated Employment Agreement with Joseph N.
Bausman dated May 31, 1995; incorporated by reference to
Exhibit (10)(e) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(d) Employment Agreement with H. John Proud dated September 1,
1995; incorporated by reference to Exhibit (10)(f) to Form
10-K for the fiscal year ended September 30, 1995.
(10)(e) Employment Agreement with Rodney A. Hedeen dated February 1,
1997.
(10)(f) Settlement Agreement with Wayne C. Jira dated as of November
9, 1987; incorporated by reference to Exhibit (10)(f) to Form
10-K for the fiscal year ended September 30, 1987.
</TABLE>
46
<PAGE> 47
<TABLE>
<CAPTION>
Page in
Form
Exhibit No. Item 10-K
----------------------------------------------------------------------------------------------------
<S> <C>
(10)(g) General form of Indemnification Agreement between the company
and each of its directors dated as of December 1, 1989;
incorporated by reference to Exhibit (10)(m) to Form 10-K for
the fiscal year ended September 30, 1989.
(10)(h) Non-Qualified Stock Option Plan -- 1980, Amended and Restated
August 11, 1987; incorporated by reference to Exhibit (10)(h)
to Form 10-K for the fiscal year ended September 30, 1987.
(10)(i) Amendment to Non-Qualified Stock Option Plan -- 1980 dated as
of December 8, 1989; incorporated by reference to Exhibit
(10)(o) to Form 10-K for the fiscal year ended September 30,
1989.
(10)(j) Amended and Restated Stock Option Plan -- 1989, effective
September 29, 1993; incorporated by reference to Exhibit
(10)(l) to Form 10-K for the fiscal year ended September 30,
1993.
(10)(k) Stock Option Plan - 1995; incorporated by reference to Exhibit
B of the company's definitive proxy statement dated January 5,
1995; incorporated by reference to Exhibit (10)(l) to Form
10-K for the fiscal year ended September 30, 1995.
(10)(l) Performance Options Policy of the Compensation Committee of
the Board of Directors of The Reynolds and Reynolds Company
under the Non-Qualified Stock Option Plan -- 1980, effective
October 1, 1986; incorporated by reference to Exhibit (10)(i)
to Form 10-K for the fiscal year ended September 30, 1987.
(10)(m) Amendment and Restatement No. 1 to the Performance Options
Policy of the Compensation Committee of the Board of Directors
of The Reynolds and Reynolds Company under the Non-Qualified
Stock Option Plan -- 1980, effective October 28, 1987;
incorporated by reference to Exhibit (10)(j) to Form 10-K for
the fiscal year ended September 30, 1987.
(10)(n) Amendment and Restatement No. 2 to the Performance Options
Policy of the Compensation Committee of the Board of Directors
of The Reynolds and Reynolds Company under the Non-Qualified
Stock Option Plan -- 1980, effective November 12, 1987;
incorporated by reference to Exhibit (10)(k) to Form 10-K for
the fiscal year ended September 30, 1987.
(10)(o) The Reynolds and Reynolds Company Supplemental Retirement
Plan; incorporated by reference to Exhibit (10)(G) to Form
10-K for the fiscal year ended September 30, 1980.
(10)(p) The Reynolds and Reynolds Company Supplemental Retirement
Plan; Amendment No. 2, adopted on August 17, 1982;
incorporated by reference to Exhibit (10)(j) to Form 10-K for
the fiscal year ended September 30, 1982.
</TABLE>
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(10)(q) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 3, adopted on August 16, 1983;
incorporated by reference to Exhibit (10)(j) to Form 10-K for
the fiscal year ended September 30, 1983.
(10)(r) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 4, adopted on November 6, 1984;
incorporated by reference to Exhibit (10)(l) to Form 10-K for
the fiscal year ended September 30, 1984.
(10)(s) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 5, adopted on May 13, 1985; incorporated
by reference to Exhibit (10)(s) to Form 10-K for the fiscal
year ended September 30, 1985.
(10)(t) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 6, adopted on February 11, 1986;
incorporated by reference to Exhibit (10)(r) to Form 10-K for
the fiscal year ended September 30, 1986.
(10)(u) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 7, adopted on August 12, 1986;
incorporated by reference to Exhibit (10)(s) to Form 10-K for
the fiscal year ended September 30, 1986.
(10)(v) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 8, adopted on February 10, 1987;
incorporated by reference to Exhibit (10)(s) to Form 10-K for
the fiscal year ended September 30, 1987.
(10)(w) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 9, adopted on August 11, 1987;
incorporated by reference to Exhibit (10)(t) to Form 10-K for
the fiscal year ended September 30, 1987.
(10)(x) The Reynolds and Reynolds Company Supplemental Retirement
Plan, Amendment No. 10, adopted on May 8, 1989; incorporated
by reference to Exhibit (10)(dd) to Form 10-K for the fiscal
year ended September 30, 1989.
(10)(y) The Reynolds and Reynolds Company Restated Supplemental
Retirement Plan adopted November 9, 1988; incorporated by
reference to Exhibit (10)(ee) to Form 10-K for the fiscal year
ended September 30, 1989.
(10)(z) Resolution of the Board of Directors amending The Reynolds and
Reynolds Company Supplemental Retirement Plan dated as of
December 1, 1989; incorporated by reference to Exhibit
(10)(ff) to Form 10-K for the fiscal year ended September 30,
1989.
(10)(aa) Resolution of the Board of Directors amending The Reynolds and
Reynolds Company Supplemental Retirement Plan (Amendment No.
1), dated as of November 13, 1990; incorporated by reference
to Exhibit (10)(ff) to Form 10-K for the fiscal year ended
September 30, 1990.
</TABLE>
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(10)(bb) Resolution of the Board of Directors amending The Reynolds and
Reynolds Company Supplemental Retirement Plan (Amendment No.
2), dated as of July 23, 1991; incorporated by reference to
Exhibit (10)(dd) to Form 10-K for the fiscal year ended
September 30, 1991.
(10)(cc) The Reynolds and Reynolds Company Supplemental Retirement Plan
Amendment No. 3, adopted August 8, 1995; incorporated by
reference to Exhibit (10)(dd) to Form 10-K for the fiscal year
ended September 30, 1995.
(10)(dd) The Reynolds and Reynolds Company Supplemental Retirement Plan
Amendment No. 4, adopted March 14, 1997.
(10)(ee) Description of The Reynolds and Reynolds Company Annual
Incentive Compensation Plan adopted as of October 1, 1986;
incorporated by reference to Exhibit (10)(t) to Form 10-K for
the fiscal year ended September 30, 1987.
(10)(ff) Description of The Reynolds and Reynolds Company Amended and
Restated Annual Incentive Compensation Plan effective October
1, 1995; incorporated by reference to (10)(ff) to Form 10-K
for the fiscal year ended September 30, 1995.
(10)(gg) Description of The Reynolds and Reynolds Company Intermediate
Incentive Compensation Plan adopted as of October 1, 1986;
incorporated by reference to Exhibit (10)(v) to Form 10-K for
the fiscal year ended September 30, 1987.
(10)(hh) Resolution of the Board of Directors amending The Reynolds and
Reynolds Company Intermediate Incentive Compensation Plan
dated as of December 1, 1989; incorporated by reference to
Exhibit (10)(jj) to Form 10-K for the fiscal year ended
September 30, 1989.
(10)(ii) The Reynolds and Reynolds Company Retirement Plan (formerly
The Reynolds and Reynolds Company Salaried Retirement Plan)
October 1, 1995 Restatement; incorporated by reference to
Exhibit (10)(ii) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(jj) The Reynolds and Reynolds Company Retirement Plan (formerly
The Reynolds and Reynolds Company Salaried Retirement Plan)
October 1, 1995 Restatement Amendment No. 1, adopted December
19, 1996.
(10)(kk) The Reynolds and Reynolds Company Retirement Plan (formerly
The Reynolds and Reynolds Company Salaried Retirement Plan)
October 1, 1995 Restatement Amendment No. 2, adopted August
11, 1997.
(10)(ll) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan), January 1, 1994 Restatement;
incorporated by reference to Exhibit (10)(jj) to Form 10-K for
the fiscal year ended September 30, 1995.
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(10)(mm) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan) First Amendment adopted March
31, 1995; incorporated by reference to Exhibit (10)(kk) to
Form 10-K for the fiscal year ended September 30, 1995.
(10)(nn) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan) Second Amendment adopted March
31, 1995; incorporated by reference to Exhibit (10)(ll) to
Form 10-K for the fiscal year ended September 30, 1995.
(10)(oo) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan ) Third Amendment adopted
August 8, 1995; incorporated by reference to Exhibit (10)(mm)
to Form 10-K for the fiscal year ended September 30, 1995.
(10)(pp) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan) Fourth Amendment adopted
August 8, 1995; incorporated by reference to Exhibit (10)(nn)
to Form 10-K for the fiscal year ended September 30, 1995.
(10)(qq) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan) Fifth Amendment adopted March
1, 1996; incorporated by reference to Exhibit (10)(mm) to Form
10-K for the fiscal year ended September 30, 1996.
(10)(rr) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan) Seventh Amendment adopted
March 14, 1997.
(10)(ss) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan) Eighth Amendment adopted
August 11, 1997.
(10)(tt) The Reynolds and Reynolds Company Tax Deferred Savings and
Protection Plan ("401(k)" Plan) Sixth Amendment adopted
January 23, 1996; incorporated by reference to Exhibit
(10)(nn) to Form 10-K for the fiscal year ended September 30,
1996.
(10)(uu) The Reynolds and Reynolds Company Retiree Medical Savings
Account Plan effective October 1, 1993; incorporated by
reference to Exhibit (10)(oo) for the fiscal year ended
September 30, 1995.
(10)(vv) The Reynolds and Reynolds Company Retiree Medical Savings
Account Plan, Amendment No. 1, adopted August 8, 1995;
incorporated by reference to Exhibit (10)(pp) to Form 10-K for
the fiscal year ended September 30, 1995.
(10)(ww) The Reynolds and Reynolds Company Retiree Medical Savings
Account Plan, Amendment No. 2, adopted March 14, 1997.
</TABLE>
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(10)(xx) General Form of Deferred Compensation Agreement between the
company and each of the following officers; incorporated by
reference to Exhibit (10)(p) to Form 10-K for the fiscal year
ended September 30, 1983.
Joseph N. Bausman, R. H. Grant, III, David
R. Holmes, Dale L. Medford and Robert C.
Nevin
(10)(yy) Resolution of the Board of Directors and General Form of
Amendment dated December 1, 1989 to the Deferred Compensation
Agreements between the company and each of the following
officers; incorporated by reference to Exhibit (10)(fff) to
Form 10-K for the fiscal year ended September 30, 1989.
Joseph N. Bausman, R. H. Grant, III, David
R. Holmes, Dale L. Medford and Robert C.
Nevin
(10)(zz) General Form of Collateral Assignment Split-Dollar Insurance
Agreement and Policy and Non-Qualified Compensation and
Disability Benefit Agreement between the company and each of
the following officers; incorporated by reference to Exhibit
(10)(dd) to Form 10-K for the fiscal year ended September 30,
1985.
Joseph N. Bausman, Michael J. Gapinski, R.
H. Grant, III, David R. Holmes, Adam M.
Lutynski, Dale L. Medford and Robert C.
Nevin.
(10)(aaa) Resolution of the Board of Directors and General Form of
Amendment dated December 1, 1989 to the Non-Qualified
Compensation and Disability Benefit between the company and
each of the following officers; incorporated by reference to
Exhibit (10)(hhh) to Form 10-K for the fiscal year ended
September 30, 1989.
Joseph N. Bausman, Michael J. Gapinski, R.
H. Grant, III, Rodney A. Hedeen, David R.
Holmes, Adam M. Lutynski, Dale L. Medford,
Robert C. Nevin and H. John Proud.
(10)(bbb) Agreement dated March 11, 1963, between the company and
Richard H. Grant, Jr., restricting transfer of Class B Common
Stock of the company; incorporated by reference to Exhibit 9
to Registration Statement No. 2-40237 on Form S-7.
(10)(ccc) Amendment dated February 14, 1984 to Richard H. Grant, Jr.'s
Agreement restricting transfer of Class B Common Stock of the
company dated March 11, 1963; incorporated by reference to
Exhibit (10)(u) to Form 10-K for the fiscal year ended
September 30, 1984.
(10)(ddd) Agreement and Plan of Merger dated April 20, 1996 among the
company, Delaware Acquisition Co. and Duplex Products Inc.;
incorporated by reference to Exhibit (c)(1) to the company's
schedule 14 D-1 filed with the Securities and Exchange
Commission on April 22, 1996.
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(10)(eee) Exchange Agreement dated May 29, 1992 among the company,
Norick Investment Company A Limited Partnership, Frances N.
Lilly and Majorie K. Norick; incorporated by reference to
Exhibit 2(b) to the company's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on June
11, 1992 (Registration Statement No. 33-48546).
(10)(fff) Exchange Agreement dated May 29, 1992 between the company and
Third Generation Leasing Company; incorporated by reference to
Exhibit 2(c) to the company's Registration Statement on Form
S-3 filed with the Securities and Exchange Commission on June
11, 1992 (Registration Statement No. 33-48546).
(11) Not applicable
(12) Not applicable
(13) Not applicable
(18) Not applicable
(21) List of subsidiaries 53
(22) Not applicable
(23) Consent of Independent Auditors 22
(24) Not applicable
(27) Financial Data Schedule
(28) Not applicable
(99) Not applicable
</TABLE>
52
<PAGE> 53
EXHIBIT (21)
LIST OF SUBSIDIARIES
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
- -------------------------------------------------------------------------------
Dataforms, Inc. Wisconsin
Fiscal Information, Inc. Delaware
Formcraft, Inc. Texas
Reyna Capital Corporation Ohio
Reynolds and Reynolds (Canada) Limited Canada
Crain-Drummond Inc. Canada
Reynolds Vehicle Registration, Inc. Ohio
53
<PAGE> 1
Exhibit 10B
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") made and
entered into as of the 1st day of February, 1997, by and between THE REYNOLDS
AND REYNOLDS COMPANY, a corporation existing under the laws of the State of Ohio
("Reynolds"), and ROBERT C. NEVIN ("Nevin").
W I T N E S S E T H:
WHEREAS, Nevin and Reynolds have entered into an Employment Agreement
dated as of November 9, 1987, as amended effective December 1, 1989 and as
further amended and restated in its entirety effective September 30, 1992 (as so
amended and restated the "Employment Agreement"), pursuant to which Nevin is
currently employed as President of the Reynolds Automotive Division; and
WHEREAS, Nevin and Reynolds desire to amend further, again restate in
its entirety, and continue the Employment Agreement and enter into this
Agreement on the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the foregoing premises and of the
mutual promises set forth below, Reynolds and Nevin hereby agree as follows:
1. AMENDMENT, RESTATEMENT IN ITS ENTIRETY AND CONTINUATION OF
EMPLOYMENT AGREEMENT.
Effective as of the date hereof, the Employment Agreement shall be, and
hereby is, amended, restated in its entirety and continued as set forth in this
Agreement, and all terms, conditions and provisions of the Employment Agreement
shall be, and hereby are, superseded by this Agreement and shall no longer be of
any force and effect.
<PAGE> 2
2. DEFINITIONS.
For purposes of this Agreement, the terms set forth below shall have
the following meanings:
(a) "Annual Compensation Value" shall mean Nevin's then-current Base
Compensation plus an amount equal to the average of all Bonuses (excluding any
compensation attributable to stock options of any type granted by Reynolds)
earned by Nevin during the three (3) calendar years preceding the date upon
which the valuation is made.
(b) "Base Compensation" shall mean the then-current annual base salary
(exclusive of Bonuses) of Nevin.
(c) "Bonuses" shall mean bonus payments earned by Nevin under Reynolds'
Incentive Compensation Plans and under any future bonus or incentive
compensation plans of Reynolds for its executive officers.
(d) "Change in Control" shall mean the occurrence of any of the
following:
(i) Any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any
trustee or other fiduciary holding securities under an employee benefit plan of
Reynolds, or any company owned, directly or indirectly, by the shareholders of
Reynolds in substantially the same proportions as their ownership of stock of
Reynolds), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of Reynolds
representing fifty percent (50%) or more of the combined voting power of
Reynolds' then outstanding securities;
(ii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the
2
<PAGE> 3
Board, any new director (other than a director designated by a person who has
entered into an agreement with Reynolds to effect a transaction described in
clause (i), (iii) or (iv) of this Section whose election by the Board or
nomination for election by Reynolds' shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election was previously so
approved) cease for any reason to constitute at least a majority thereof;
(iii) the shareholders of Reynolds approve a merger or
consolidation of Reynolds with any other company, other than (1) a merger or
consolidation which would result in the voting securities of Reynolds
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting security of Reynolds or such surviving entity outstanding immediately
after such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of Reynolds (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than fifty percent (50%) of the
combined voting power of Reynolds' then outstanding securities; or
(iv) the shareholders of Reynolds approve a plan of liquidation,
dissolution or winding up of Reynolds or an agreement for the sale or
disposition by Reynolds of all or substantially all of Reynolds' assets.
(e) "Disability Benefits" shall mean an annual amount equal to
fifty-five percent (55%) of Nevin's Final Average Annual Compensation,
determined at the time of Nevin's disability rather than his retirement;
provided, however, that the amount of disability benefit payments to be made
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<PAGE> 4
hereunder shall be reduced by the amount of regular disability benefits payable
to Nevin under Reynolds' long-term disability program.
(f) "Discharge For Cause" shall be construed to have occurred whenever
occasioned by reason of felonious acts on the part of Nevin, actions by Nevin
involving serious moral turpitude or his misconduct in such manner as to bring
substantial and material discredit upon Reynolds, following the giving of thirty
(30) days' written notice to Nevin specifying the respect in which Reynolds
claims Nevin has violated this provision and the failure, inability or
unwillingness of Nevin to remedy the situation to the satisfaction of Reynolds
within said thirty-day period. In establishing whether a Discharge For Cause
shall have occurred, the standard for judgment shall be the level of conduct by
Nevin and by other comparably situated executive officers prior to the alleged
improper activity of Nevin for which the Discharge For Cause has been made.
(g) "Escrow Agreement" shall mean the agreement dated November 9, 1987
as amended September 30, 1992 and as further amended simultaneously herewith
entered into between Reynolds and Bank One, Dayton, NA, a copy of which
(including the amendments) is attached hereto and made a part hereof as Exhibit
A.
(h) "Escrow Agent" shall mean Bank One, Dayton, NA.
(i) "Escrow Amount" shall mean the amounts placed in escrow by Reynolds
pursuant to subsection (e)(iii) of Section 8 of this Agreement.
(j) "Escrow Funding Event" shall mean the occurrence of any of the
following events:
(i) Class A Common Shares of Reynolds have been acquired other than
directly from Reynolds in exchange for cash or property by any person (other
than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any
trustee or other fiduciary holding securities under an
4
<PAGE> 5
employee benefit plan of Reynolds, or any company owned directly or indirectly
by the shareholders of Reynolds in substantially the same proportions as their
ownership of the stock of Reynolds) who either thereby becomes the owner of more
than nine and one half percent (9.5%) of Reynolds'
outstanding Class A Common Shares, or having directly or indirectly become the
owner of more than five percent (5%) of Reynolds' Class A Common Shares either
alone or in conjunction with another person has expressed an intent to continue
acquiring Reynolds' outstanding Class A Common Shares so as to become thereby
the owner of more than nine and one-half percent (9.5%) of such stock either
directly or indirectly;
(ii) Any person (other than Richard H. Grant, Jr., his children or
grandchildren, Reynolds, any trustee or other fiduciary holding securities under
an employee benefit plan of Reynolds, or any company owned directly or
indirectly by the shareholders of Reynolds in substantially the same proportions
as their ownership of stock of Reynolds) has made a tender offer for, or a
request for invitations for tenders of, Class A Common Shares of Reynolds.
(iii) Any person forwards or causes to be forwarded to shareholders
of Reynolds proxy statement(s) in any period of twenty-four (24) consecutive
months, soliciting proxies, to elect to the Board of Reynolds two (2) or more
candidates who were not nominated as candidates in proxy statements forwarded to
shareholders during such period by the Board; or
(iv) The Board adopts a resolution to the effect that, for purposes
of this Agreement, an Escrow Funding Event has occurred.
(k) "Final Annual Compensation" shall mean Nevin's Base Compensation at
the time of termination of employment plus an amount equal to the average of all
Bonuses (excluding any
5
<PAGE> 6
compensation attributable to stock options of any type granted by Reynolds)
earned by Nevin during the three (3) calendar years preceding his termination of
employment.
(l) "Final Average Annual Compensation" shall mean the average of
Nevin's Base Compensation and Bonuses (excluding any compensation attributable
to stock options of any type granted by Reynolds) as determined for the five (5)
consecutive calendar years of the last ten (10) calendar years preceding and
including the calendar year in which Nevin's employment terminates which yields
the highest sum.
(m) "Pension Plan" shall mean the existing Reynolds and Reynolds
Company Non-Union Pension Plan, as the same may be amended from time to time.
(n) "Retirement Benefits" shall mean payments to Nevin based upon his
lifetime in an annual amount equal to a designated percentage of Nevin's Final
Average Annual Compensation or, in the case of Section 8(d) below, Final Annual
Compensation, which shall be comprised of the sum of (i) Nevin's primary Social
Security retirement benefits when he is entitled to receive such benefit (age
sixty-two (62)) [until that time an amount equal to the primary Social Security
retirement benefit shall be paid to Nevin from Reynolds' Supplemental Plan],
(ii) Nevin's pension benefits determined as a life annuity (without regard to
actual payment form) under the Pension Plan and deferred compensation payments
under the Non-Qualified Deferred Compensation and Disability Benefit Agreement
dated June 15, 1992 between Nevin and Reynolds, or such other non-contributory
deferred compensation agreement(s) then existing between Reynolds and Nevin, and
(iii) such amount of supplemental retirement benefits under the Supplemental
Plan as shall be necessary to achieve the designated percentage of Nevin's Final
Average Annual Compensation or, in the case of Section 8(d) below, Final Annual
Compensation. In addition to said annual amount,
6
<PAGE> 7
Retirement Benefits shall include a continuation of coverage for the remainder
of Nevin's life under Reynolds-sponsored medical benefits and life insurance
programs, but only to the extent applicable to participants in Reynolds'
Qualified Retiree Medical Plans. For purposes of determining the amount of
supplemental retirement benefits to be made by Reynolds pursuant to the
Supplemental Plan, the method of payment of retirement benefits to Nevin
pursuant to the Pension Plan shall determine the amount and method of payment of
the supplemental retirement payments pursuant to the Supplemental Plan. These
supplemental retirement payments by Reynolds pursuant to the Supplemental Plan
shall continue so long as pension benefits are payable under the Pension Plan
and shall be in addition to the pension benefit payments under the Pension Plan.
(o) "Supplemental Plan" shall mean Reynolds' existing Supplemental
Retirement Plan, as the same may be amended from time to time.
3. TERMS AND DUTIES.
(a) The term of this Agreement shall continue from the date hereof and
end on September 30, 2001. Nevin shall continue in the employ of Reynolds as
President of the Reynolds Automotive Division or such other substantially
equivalent position designated by the Board, consistent with the provisions of
this Agreement. In addition, Nevin agrees to perform such other duties as may be
specifically designated for him from time to time by the Board, consistent with
the provisions of this Agreement.
(b) At all times Nevin will, to the best of his ability, energy and
skill, faithfully perform all of the duties that may be required of him from
time to time by the Board and diligently devote his entire working time,
attention and efforts to the business affairs and best interests of Reynolds,
except for absences for sicknesses and vacations. If the Board determines that
any outside activity
7
<PAGE> 8
engaged in by him is detrimental to the best interests of Reynolds, he will
discontinue such outside activity within thirty (30) days after written notice
from the Board.
(c) Nevin agrees that during the period of his employment by Reynolds,
for so long as he is entitled to receive payments under this Agreement, and for
a period of two (2) years thereafter (subject to the provisions of Section 9
below), he will not, directly or indirectly, further the affairs of any other
corporation, partnership, or any business enterprise by employment of any kind,
investment therein (except as otherwise permitted under Section 9(d) below),
counseling or otherwise, if the same is in competition with Reynolds, without
the written consent of the Board. This provision, however, shall not be
construed to prevent him from pursuing personal investments in any business or
enterprise which is not in competition with Reynolds and which do not interfere
with his employment and the performance of his duties to Reynolds hereunder.
4. COMPENSATION AND FRINGE BENEFITS.
(a) The Base Compensation of Nevin during the term of this Agreement
shall be $297,220, which may be increased from time to time by the Board or, in
the case of any proposed decrease, such other amount as mutually may be agreed
upon by Nevin and Reynolds; provided, however, that such Base Compensation may
not be reduced below said rate of $297,220 without Nevin's consent, unless
necessitated by general business conditions adversely affecting Reynolds'
operations; but, in the event of a reduction, his Base Compensation shall be
fair and reasonable, and any disagreement concerning the same shall be resolved
by arbitration in the manner provided in Section 10 below. Nevin's Base
Compensation shall be reviewed at least annually to determine whether in view of
Reynolds' performance during the year any increase is warranted. Responsibility
8
<PAGE> 9
for this determination rests with the sole discretion of the Board, and this
provision shall not be construed as requiring any such increase for any given
year.
(b) Nevin shall continue his participation in the existing Deferred
Compensation Plan and the existing bonus plan arrangements under the Incentive
Compensation Plans (or their equivalent) for executive officers of Reynolds and
shall be entitled to such awards under any future bonus, incentive, or similar
compensation plans of Reynolds, as shall, in the determination of the Board, be
appropriate and consistent with the purposes of such plans and with the awards
granted to other executive officers of Reynolds.
(c) Nevin shall continue to be eligible for participation in the Stock
Option Plan - 1995 of Reynolds and shall be entitled to the grant of such
options to purchase shares of Class A Common Stock of Reynolds under any other
future stock option plans for employees and to participate in such other
executive compensation incentive plans awarding stock as shall, in the
determination of the Board, be appropriate and consistent with the purposes of
the plans and with the grants of such options to the executive officers of
Reynolds.
(d) In addition to the specific benefits provided for Nevin under the
terms of this Agreement, Reynolds shall provide him with other fringe benefits
(including bonuses, vacations, health and disability insurance, pension plan
participation and others) at least equivalent to those of the other executive
officers of Reynolds and as set forth on Exhibit B attached hereto and made a
part hereof.
(e) It is understood and agreed that Nevin shall have no rights to
benefits under the Pension Plan unless he becomes vested under the Pension Plan
in accordance with its terms (currently, five (5) Years of Service), and that
Nevin shall have no rights to deferred compensation
9
<PAGE> 10
payments under the Non-Qualified Deferred Compensation and Disability Benefit
Agreement dated June 15, 1992 between Nevin and Reynolds unless and until Nevin
has satisfied the service requirement therein (currently, 174 calendar months of
employment with Reynolds).
5. EXPENSES.
Nevin shall be reimbursed for his reasonable business-related expenses
incurred for the benefit of Reynolds in accordance with Reynolds' policies
governing such reimbursement in effect from time to time. Such expenses shall
include, but shall not be limited to, travel, lodging away from home,
entertainment, and meals. With respect to any expenses which are reimbursed by
Reynolds to Nevin, Nevin shall account to Reynolds in sufficient detail to
entitle Reynolds to a federal income tax deduction for such reimbursed item if
such item is deductible.
6. RETIREMENT BENEFITS.
(a) Nevin, having attained age fifty-five (55), may elect to retire
from Reynolds upon giving twelve (12) months prior written notice and upon
retirement between the ages of fifty-five (55) and fifty-eight (58), shall be
entitled to receive at the time of such early retirement, Retirement Benefits at
a level equal to fifty-five percent (55%) of his Final Average Annual
Compensation, reduced by one-fifteenth (1/15) for each Year of Service (as
defined in the Pension Plan) less than fifteen (15). If Nevin elects to retire
upon giving twelve (12) months prior written notice after attaining age
fifty-eight (58), the level of this Retirement Benefits as a percentage of his
Final Average Annual Compensation shall be increased by one percent (1%) for
each additional twelve (12) month period over age fifty-eight (58), but shall
not be reduced even if Years of Service are less than fifteen (15).
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<PAGE> 11
(b) If Nevin voluntarily terminates his employment or if Nevin is
discharged by Reynolds (and such discharge is not a Discharge For Cause), or if
Nevin's employment is terminated under the circumstances described in Section
8(e)(i) below, Nevin shall be entitled to the benefits set forth in Section 8
and shall be entitled to the Retirement Benefits set forth in this Section 6.
(c) To the extent Nevin receives any similar benefits under the Pension
Plan, Supplemental Plan or other Reynolds benefit plan for any of its employees,
such benefits shall be included in calculating the amount to which Nevin shall
be entitled under Sections 6(a) and 6(b), above; provided, however, that in no
event shall the benefits described in Sections said 6(a) and (b) above be
reduced by the provisions of this Section 6(c).
7. DISABILITY AND DEATH BENEFITS.
(a) If Nevin becomes so ill or disabled as to be permanently
incapacitated from performing the duties of his employment with Reynolds (this
disability to be certified by two (2) physicians competent to do so in the
opinion of the Board), Nevin shall be deemed to have elected retirement under
this Agreement and shall be entitled to receive the Retirement Benefits set
forth in Section 6(a) above. Such Retirement Benefits, however, shall be
calculated on the basis of Nevin's Final Average Annual Compensation at the time
of his disability, not the time of his retirement. See also Section 8(c) of this
Agreement.
(b) In the event of Nevin's death while still employed by Reynolds
pursuant to this Agreement, Reynolds shall pay to such beneficiary or
beneficiaries as he shall have designated by written notice delivered to
Reynolds prior to his death, or failing such written notice, to his estate, an
amount equal to the Base Compensation plus the Bonuses, if any, which Nevin
would have received or which would have been accrued for his benefit during the
period of six (6) months
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immediately following his death if he had lived and had been employed by
Reynolds during that period. Such payment shall be made in one lump sum or in
six (6) equal monthly installments as Reynolds shall elect and shall be in
addition to the proceeds of any insurance policies carried on Nevin's life with
respect to which he has the right to designate beneficiaries. Also, Reynolds
shall pay to Nevin's spouse an amount, periodically as such payments are
required to be made by said spouse, to enable her to continue medical coverage
for her and her dependents in the same manner as immediately prior to Nevin's
death for a period expiring at the earlier of: (i) her death; (ii) forty-two
(42) months after Nevin's death; or (iii) eligibility for regular Medicare and
Medicaid or any successor programs furnished by the government. Thereafter,
Reynolds shall make available to Nevin's spouse (including her dependents), at
her cost, such medical coverage as shall be available to a person of her then
age under the then-existing Reynolds-sponsored medical benefits program, but
only to the extent coverage is available under such program.
8. TERMINATION; DISCHARGE.
(a) TERMINATION OR DISCHARGE WITHOUT CAUSE. Reynolds reserves the right
to discharge Nevin at any time and for any reason; but such discharge, unless a
Discharge For Cause, shall not extinguish the obligation of Reynolds to provide
Nevin (and, in the event of his prior death, his designated beneficiary or
beneficiaries or his estate) with the following severance benefits:
(i) If such discharge occurs prior to September 30, 2001,
Nevin shall be entitled to receive for a period equal to the lesser of two (2)
years from the date of discharge or the number of full months then remaining on
the term of this Agreement, payments from Reynolds in an amount equal to his
Annual Compensation Value, which shall be reduced by seventy percent (70%) of
the
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amount of compensation received by Nevin from any subsequent employment obtained
by him during said payment period.
(ii) Nevin shall be entitled, during the period expiring on the
earlier of Nevin's securing other employment or the end of payment of severance
payments hereunder (or such longer period as required by law), to continuing
coverage under the then-existing Reynolds-sponsored medical benefits program,
which, at the option of Reynolds, may be provided outside of such program
through the purchase of insurance or otherwise.
(iii) For purposes of determining Nevin's benefits under the
Supplemental Plan, Nevin shall receive credit toward his Years of Service under
the Supplemental Plan for the time period that he receives or is entitled to
receive payments under subsection (i) of this Section 8(a). In addition, during
the time period that he receives or is entitled to receive payments under said
subsection (i) of this Section 8(a), Nevin's Base Compensation shall be deemed
to be increased by the annual economic range adjustment for Reynolds' salaried
employees announced in October of each year (or, if there is no such announced
economic range adjustment in a given year, by an assumed five (5%) increase for
that year) in order to calculate his highest earnings during five (5)
consecutive years out of the last ten (10) years prior to retirement under the
Supplemental Plan, and his Final Annual Compensation (see Section 8(d) below)
and Final Average Annual Compensation shall be deemed to increase in the same
manner for purposes of determining the amount of his Retirement Benefits under
this Agreement.
(iv) Nevin shall be reimbursed for up to $20,000 for out-placement
fees if he chooses to seek other employment following his discharge by Reynolds.
Nevin shall not be obligated to seek other employment in order to mitigate his
damages resulting from his discharge.
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(v) In addition to all of the foregoing, Nevin shall be entitled to
receive the payments required of Reynolds under his then-existing deferred
compensation agreement(s) with Reynolds in accordance with the terms of such
agreement(s).
Nevin acknowledges that he shall remain subject to and bound by the
restrictive provisions of Section 9 below.
(b) DISCHARGE FOR CAUSE. If Nevin's employment with Reynolds is
terminated by a Discharge For Cause, regardless of whether such Discharge For
Cause occurs after the occurrence of any of the events set forth in Sections
8(d) or 8(e) below, he shall be entitled to receive only his Base Compensation
up to the date of his discharge and no further payments hereunder shall be
required from Reynolds; provided, however, that Nevin shall be entitled to
receive his benefits, if any, under the Pension Plan and the payments required
of Reynolds under his then-existing deferred compensation agreement(s) with
Reynolds in accordance with the terms of such agreement(s). Nevin shall remain
subject to the restrictive provisions of Section 9 below for a period for two
(2) years from the date of discharge. Should Nevin disagree that his discharge
was a Discharge For Cause the question shall be submitted to arbitration in
accordance with Section 10 below.
(c) TERMINATION DUE TO DISABILITY. If, by reason of illness,
disability, or other incapacity (certified in accordance with Section 7(a)
above), Nevin is unable to perform the duties required of him under this
Agreement for a period of six (6) consecutive months, Reynolds, following the
giving of thirty (30) days' written notice to Nevin and the failure of Nevin by
reason of illness, disability, or other incapacity to resume his duties within
such thirty (30) days and thereafter perform the same for a period of two (2)
consecutive months, may terminate Nevin's employment by giving Nevin written
notice thereof; and in that event all obligations of Reynolds hereunder shall
cease on the date
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such notice of termination is given except for: (i) payment of the Retirement
Benefits under Section 6 above; (ii) payments required of Reynolds under Nevin's
then-existing deferred compensation agreement(s) in accordance with the terms of
such agreement(s); and (iii) benefits, if any, under medical and hospital care
insurance coverage for Nevin comparable to that provided for other employees of
Reynolds; provided, however, such insurance benefits shall be coordinated with
the benefits Nevin is entitled to receive under regular Medicare and Medicaid or
any successor programs furnished by the government.
(d) BENEFITS UPON TERMINATION UNDER CERTAIN CIRCUMSTANCES. If Nevin
voluntarily terminates his employment or Nevin is discharged by Reynolds and
such discharge is not a Discharge For Cause, and if such voluntary termination
or involuntary discharge takes place within eighteen (18) months after the
occurrence of any of the following events:
(i) Nevin is required by Reynolds, prior to a Change in Control, to
perform duties or services which differ significantly from those performed by
him on the effective date hereof, or which are not ordinarily and generally
performed by a President of a division or corporation similar in size and scope
to the Reynolds Automotive Division; or
(ii) The nature of the duties or services which Reynolds, prior to
a Change in Control, requires him to perform necessitates absence overnight from
his place of residence on the effective date hereof, because of travel involving
the business or affairs of Reynolds, for more than ninety (90) days during any
period of twelve (12) consecutive months; Nevin shall be entitled to receive
from Reynolds all of the severance benefits set forth in Section 8(a) above,
except that if the remaining term of the Agreement is then more than two (2)
years, severance payments shall be made for the remaining term of the Agreement
and Nevin's right to receive his Retirement Benefits shall
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be based upon his Final Annual Compensation, as the same may be adjusted
pursuant to Section 8(a)(iii) above. Nevin shall remain subject to and bound by
the restrictive provisions of Section 9 below.
(e) BENEFITS UPON A CHANGE IN CONTROL. Reynolds recognizes that the
threat of a Change in Control would be of significant concern to Nevin. The
following provisions provide termination protection for Nevin in the event of a
Change in Control. These provisions, among other purposes, are intended to
foster and encourage Nevin's continued attention and dedication to his duties in
the event of such potentially disturbing and disruptive circumstances. Reynolds,
therefore, agrees to do the following:
(i) If Reynolds terminates Nevin's employment for any reason other
than a Discharge for Cause, or if Nevin terminates his employment with Reynolds
voluntarily for any reason other than disability or retirement within the
twenty-four (24) month period following a Change in Control, Nevin shall be
entitled to receive from Reynolds the following benefits:
(A) A lump sum severance payment (the "Severance Payment"), in
cash, equal to three (3) times the sum of (i) the higher of Nevin's annual Base
Compensation in effect immediately prior to the occurrence of the event or
circumstance upon which such termination of employment is based or in effect
immediately prior to the Change in Control, and (ii) the average of Nevin's
Bonuses during the three (3) calendar years immediately preceding the year in
which the date of termination occurs.
(B) Nevin shall be entitled, during the period expiring on the
earlier of Nevin's securing other employment or twenty-four (24) months from the
date of such termination of employment (or such longer period as required by
law), to continued coverage under the Reynolds
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sponsored medical benefits program in existence on such date of termination or,
if such continued coverage is barred, Reynolds shall provide equivalent medical
benefit coverage through the purchase of insurance or otherwise.
(C) For purposes of determining Nevin's benefits under the
Supplemental Plan, Nevin shall receive credit toward his Years of Service under
the Supplemental Plan for the two (2) year period following such termination of
employment. In addition, with respect to the two (2) year period following such
termination of employment, Nevin's Base Compensation shall be deemed to be
increased by the annual economic range adjustment for Reynolds' salaried
employees announced in October of each year (or, if there is no such announced
economic range adjustment in a given year, by an assumed five percent (5%)
increase for that year) in order to calculate his highest earnings during five
(5) consecutive years out of the last ten (10) years prior to retirement under
the Supplemental Plan.
(D) Nevin shall be reimbursed for up to $20,000 for outplacement
fees if he chooses to seek other employment following his discharge by Reynolds.
Nevin shall not be obligated to seek other employment in order to mitigate his
damages resulting from his discharge.
(E) In addition to all of the foregoing, Nevin shall be entitled
to receive the payments required of Reynolds under his then-existing deferred
compensation agreement(s) with Reynolds in accordance with the terms of such
agreement(s).
The benefits provided in this Section 8(e) shall be in lieu of
any benefits provided under Section 8(d) of this Agreement.
(ii) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by Nevin in
connection with a Change in Control or
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the termination of Nevin's employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with Reynolds, any person
whose actions result in a Change in Control or any person affiliated with
Reynolds or such person) (all such payments and benefits, including the
Severance Payment, being hereinafter called "Total Payments") would be subject
(in whole or part), to an excise tax pursuant to Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (such tax hereinafter
referred to as the "Excise Tax"), then the Severance Payment shall be reduced to
the extent necessary so that no portion of the Total Payments is subject to
Excise Tax (after taking into account any reduction in the Total Payments
provided by reason of Section 280G of the Code in such other plan, arrangement
or agreement) if (A) the net amount of such Total Payments, as so reduced, (and
after deduction of the net amount of federal, state and local income tax on such
Total Payments), is greater than (B) the excess of (i) the net amount of such
Total Payments, without reduction (but after deduction of the net amount of
federal, state and local income tax on such Total Payments), over (ii) the
amount of Excise Tax to which Nevin would be subject in respect of such Total
Payments. For purposes of determining whether and the extent to which the Total
Payments will be subject to the Excise Tax, (i) no portion of the Total Payments
the receipt or enjoyment of which Nevin shall have effectively waived in writing
prior to the date of this termination of employment shall be taken into account,
(ii) no portion of the Total Payments shall be taken into account which in the
opinion of tax counsel selected by Reynolds does not constitute a "parachute
payment" within the meaning of Section 280G(b)(2) of the Code, (including by
reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax,
no portion of such Total Payment shall be taken into account which constitutes
reasonable compensation for services actually rendered, within the meaning of
Section 280G(b)(4)(B) of the
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Code, in excess of the base amount as defined in Section 280G(b)(3) of the Code
allowable to such reasonable compensation, and (iii) the value of any non-cash
benefit or any deferred payment or benefit included in the Total Payments shall
be determined by Reynolds in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. Prior to the fifth day following the date of
Nevin's termination of employment, Reynolds shall provide Nevin with its
calculation of the amounts referred to in this Section and such supporting
materials as are reasonably necessary for Nevin to evaluate Reynolds'
calculations. If Nevin objects to Reynolds' calculations, he shall notify
Reynolds of his objections prior to the initial payment date set forth in
Section 8(e)(vi) hereof, and Reynolds shall pay to Nevin such portion of the
Severance Payment (up to one hundred percent (100%) thereof) as Nevin determines
is necessary to result in Nevin's receiving the greater of clauses (A) and (B)
of this Section.
(iii) Upon the occurrence of an Escrow Funding Event, Reynolds
shall pay into an escrow account at the Escrow Agent an amount equal to three
(3) times the sum of (i) Nevin's Base Compensation in effect immediately prior
to the Escrow Funding Event and (ii) the average of Nevin's Bonuses during the
three (3) calendar years immediately preceding the year in which the Escrow
Funding Event occurs. Subsequent to the delivery to the Escrow Agent of the
Escrow Amount, Reynolds shall, in the event that either Nevin's Base
Compensation is increased (or decreased) or he receives a Bonus that affects the
amount described in Section 8(e)(i)(A), unless the Escrow Amount shall
theretofore have been released pursuant to this subsection, recalculate the
Escrow Amount as of the date such change in Base Compensation or receipt of
Bonus occurs, treating the Escrow Funding Event as having occurred on such date.
If the amount so calculated exceeds the fair market value of the Escrow Amount,
Reynolds shall promptly (and in no event later
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than seven (7) days from such date) pay to the Escrow Agent an amount in cash
(or marketable securities or any combination thereof) equal to such excess. If
the Escrow Amount so calculated is less than the fair market value of the Escrow
Amount then held in the escrow account, the Escrow Agent, upon receipt of a
written request from Reynolds, shall distribute to Reynolds such difference in
cash; provided, however, that this sentence shall not apply after the occurrence
of a Change in Control.
(iv) Unless the parties otherwise agree, Reynolds may withdraw the
Escrow Amount when and only when two (2) years have expired from the date of
deposit and no proper demand pursuant to Section 8(e)(vi) below has been made
during the time, or when the conditions requiring the deposit have ceased to
exist for a period of ninety (90) days without a demand right having been
created, or when Nevin's right to a payment under this Section 8(e) has been
forfeited, whichever occurs first. If, before the expiration of such period or
forfeiture, there shall occur another Escrow Funding Event, Reynolds will not be
required to make an additional deposit, but the two (2) year period shall then
be measured from the date of the last such event. Notwithstanding a deposit with
the Escrow Agent pursuant to subsection (iii) of this Section 8(e), Nevin shall
continue to be entitled to receive all of the benefits from Reynolds under this
Agreement until a termination of employment shall occur.
(v) Reynolds shall pay the charges of the Escrow Agent for its
services under the Escrow Agreement, and Reynolds will be entitled to any
interest or other income arising from the date of the deposit of the Escrow
Amount until all payments have been made under the Escrow Agreement to Nevin.
All interest or other income arising from the Escrow Amount deposited with the
Escrow Agent shall be paid monthly to Reynolds.
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(vi) If Reynolds terminates Nevin's employment for any reason but a
Discharge for Cause, or if Nevin terminates his employment with Reynolds
voluntarily for any reason other than disability or retirement within the
twenty-four (24) month period following the date of a Change in Control, the
Escrow Agent, upon written demand made on or after the tenth (10th) day
following such termination of employment, shall pay the Escrow Amount in
accordance with this Section and Nevin shall no longer be subject to the
restrictive provisions of Section 9 below, except for Section 9(e). Nevin shall
notify the Escrow Agent prior to the tenth (10th) day following his termination
of employment as to whether he has accepted the determination of Reynolds of the
amount of the Severance Payments pursuant to Section 8(e) (iii). If he has
accepted such determination, Reynolds shall provide the Escrow Agent with
Reynolds' written determination as set forth in Section 8(e) (iii) and the
Escrow Agent shall pay to Nevin all or a portion of the Escrow Amount as
provided in such determination, and any remaining amount shall be paid to
Reynolds. If Nevin does not accept Reynolds' determination, Nevin shall provide
to the Escrow Agent his determination of the Severance Payment, and the Escrow
Agent shall pay to Nevin all or a portion of the Escrow Amount as provided in
Nevin's determination and any remaining amount shall be paid to Reynolds.
(vii) In the event that, following the creation of a demand right
pursuant to Section 8(e)(vi) above, Nevin incurs any costs or expenses,
including attorneys' fees, in the enforcement of rights under this Section 8(e)
or under any plan for the benefit of employees of Reynolds, including without
limitation the stock option plan, pension plans, payroll-based stock ownership
plan, tax deferred savings and protection plan, bonus arrangements, supplemental
pension plan, deferred compensation agreements, incentive compensation plans,
and life insurance and compensation program, then, unless Reynolds or the
consolidated, surviving or transferee entity in the event of a
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consolidation, merger or sale of assets, is wholly successful in defending
against the enforcement of such rights, Reynolds, or such consolidated,
surviving or transferee entity, shall promptly pay to Nevin all such costs and
expenses.
9. NON-COMPETITION; CONFIDENTIALITY.
(a) In order to protect Reynolds, it is understood that a covenant not
to compete is a necessary and appropriate adjunct to the other provisions of
this Agreement. Therefore, should Nevin at any time determine prior to the
expiration of this Agreement that he does not desire to remain an employee of
Reynolds and shall terminate his employment for any reason other than the
grounds specified in Section 8(e) above, or should he be Discharged For Cause by
Reynolds, Nevin shall remain subject to the restrictive provisions hereinafter
set forth. In addition, these restrictive provisions shall remain in full force
and effect at any other time during which payments are required to be made by
Reynolds pursuant to the retirement (Section 6), severance (Section 8, except
for Section 8(e)(vi)) or disability (Section 7) provisions of this Agreement.
These restrictive provisions are as follows:
(b) For a period of two (2) years from and after Nevin's employment
with Reynolds shall have terminated and after he shall have ceased receiving
retirement, severance or disability benefits under this Agreement, whichever
shall last occur, he shall not, directly or indirectly, compete with Reynolds or
any of its related or affiliated companies. For purposes of this Agreement,
competition with Reynolds or any of its related or affiliated companies shall
include the manufacture, distribution, and sale of business forms and computer
hardware and software and the furnishing of EDP services which are similar in
nature or function to the products and/or services then being furnished by
Reynolds for sale in the same vertical markets in which Reynolds' products
and/or
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services are then being marketed at the time of Nevin's termination of
employment or upon the cessation of any retirement, severance or disability
benefits under this Agreement.
(c) From and after the execution of this Agreement and for a period of
two (2) years after termination of his employment with Reynolds and after he
shall have ceased receiving retirement, severance or disability benefits under
this Agreement, whichever shall last occur, Nevin shall not, directly or
indirectly, by direct participation, by purchase of stocks or bonds or other
evidences of indebtedness, by loaning of money, by guarantee of loans of others,
by gift to establish or assist others, or in any other manner or fashion, engage
in any such restricted activity in competition with Reynolds or any of its
related or affiliated companies, nor shall he assist any present employees of
Reynolds or any other person similarly to engage in such competing business for
the full two-year prohibition period set forth in this Agreement.
(d) The restrictive provisions of this Section 9, however, are in no
way intended to prohibit Nevin from acquiring in open market transactions
investments in equity stock or evidences of indebtedness of a corporation if the
said stock or if the said evidence of indebtedness is traded on a national or
regional securities exchange or in the over-the-counter market and the
investment therein represents no more than five percent (5%) of the outstanding
securities of the issue being acquired. Moreover, it is not the intention of
this Section 9 to limit in any way Nevin's ability to invest in businesses not
competitive with Reynolds.
(e) Nevin shall keep secret and inviolate all knowledge or information
of a confidential nature (which is not then nor later, through no breach of this
Agreement, in the public domain), including all unpublished matters related to,
without limitation thereof, the business, properties, accounts, books and
records, research and development information, processes, procedures, products,
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know-how, trade secrets, memoranda, devices, suppliers, and customers
of Reynolds which he may now know or hereafter come to know as a result of his
affiliation in business with Reynolds.
(f) All copyrights, improvements, discoveries and inventions and all
claims, interest and rights thereto relating to any part of the business of
Reynolds conceived, developed or made by Nevin, either alone or with others,
during the period of his employment, and whether conceived, developed or made
during his regular working hours or at any other time during such period, shall
be and are the sole property of Reynolds and Nevin hereby assigns to Reynolds
all right, title and interest in and to such copyrights, improvements,
discoveries and inventions. Further, Nevin will, at any time in the future upon
Reynolds' request, execute specific assignments of any said copyrights,
improvements, discoveries and inventions as well as execute all documents and
perform all lawful acts which Reynolds deems necessary or advisable to vest full
ownership thereof in Reynolds, to register same in the name of Reynolds or its
designee or otherwise to provide legal protection for Reynolds' ownership
interests therein.
(g) This Agreement shall be without geographical limitation in
continental North America and, in addition, in any other areas of the world in
which Reynolds or any of its related or affiliated companies shall be doing
business at the time of the proposed competing entry into business by Nevin, it
being agreed that the contacts of Nevin and the potential scope of operation of
Reynolds is without any limitation within the area of prohibition. Any violation
of this covenant may be enforced by specific performance in any court of
competent jurisdiction within the area of limitation imposed by this provision.
If any court of competent jurisdiction shall determine that either the period or
the territory covered by this provision against competition in unreasonable,
said
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provision shall not be determined to be null, void, and of no effect but shall
be reformed by said court to impose a reasonable period or a reasonable
geographical limitation, as the case may be.
10. RESOLUTIONS OF DISPUTES; ARBITRATION.
(a) Except for the breach or threatened breach by Nevin of the
noncompetition provisions of this Agreement which may be enforced by appropriate
injunctive relief at the option of Reynolds, any dispute or controversy arising
out of or relating to this Agreement, including, but not limited to, whether
Nevin has been Discharged for Cause, shall be submitted to and settled by
arbitration in Dayton, Ohio in accordance with the rules then pertaining of the
American Arbitration Association.
(b) Should Nevin disagree that his determination was due to a Discharge
for Cause, the question shall, within thirty (30) days after the termination, be
submitted to arbitration by three (3) arbitrators, one of whom shall be selected
by Reynolds, another of whom shall be selected by Nevin, and the third of whom
shall be selected by the two arbitrators so appointed. The decision of these
arbitrators on the question shall be final and conclusive upon Reynolds and upon
Nevin and his wife or widow, personal representatives, designated beneficiaries
and heirs, and shall be enforceable in any court having competent jurisdiction
thereof. A discharge which is eventually determined under arbitration to have
been a Discharge for Cause, or no arbitration having been requested and the
discharge being one which Reynolds had determined was for a Discharge for Cause,
shall extinguish any and all liability of Reynolds under this Agreement from and
after the date of termination.
(c) The arbitrators for all other disputes or controversies under this
Agreement shall be selected as set forth above and the parties shall select the
arbitrators within thirty (30) days after demand from Nevin or Reynolds to the
other to settle matters by arbitration. As stated above, the decision of the
arbitrators shall be final and conclusive.
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11. NONASSIGNABLE RIGHTS.
Nevin, his wife, or his widow after his death, or his personal
representatives, designated beneficiaries and heirs, shall not have the right to
anticipate or commute, or to sell, assign, transfer, or otherwise alienate or
convey the right to receive any payments hereunder, whether by his, her or their
voluntary or involuntary act, or by operation of law and, in particular, that
any payments due hereunder shall not be subject to attachment or garnishment or
any other legal proceedings by any creditor, or be in any way responsible for
the debts or liabilities of Nevin or his wife or his widow after his death or
his personal representatives, designated beneficiaries and heirs. Should Nevin
or his wife or his widow after his death or his personal representatives,
designated beneficiaries and heirs, voluntarily attempt to breach this Section
of this Agreement, Reynolds' liability to make payments hereunder from and after
the date of said attempt shall be extinguished; and should any attempt be made
to reach the payments by other than Nevin or his wife or his widow after his
death or his personal representatives, designated beneficiaries and heirs,
Reynolds shall make each payment as it becomes due to such person or persons for
the sole benefit of Nevin or his wife or his widow or his personal
representatives, designated beneficiaries and heirs, as the case may be, as
Reynolds may deem expedient.
12. UNFUNDED AGREEMENT.
(a) Reynolds' obligation under this Agreement shall be unfunded, but
Reynolds reserves the right to provide for its liability under this Agreement in
any manner it deems advisable, including the purchasing of such assets
(including an insurance policy or policies on Nevin's life) as it may deem
necessary or proper; provided, however, that Nevin's insurability or
non-insurability shall in no way affect Reynolds' obligations pursuant to this
Agreement. Any asset so purchased by
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Reynolds shall be the sole property of Reynolds and shall not be deemed to
provide funding of Reynolds' obligations under this Agreement.
(b) In the event Reynolds determines to purchase any insurance policy
or policies on Nevin's life, Nevin agrees to submit to such examination and to
supply information as may be required by the insurer.
(c) Any policy so purchased by Reynolds shall be issued so that
Reynolds is the sole, full, and complete owner of the policy or policies, with
the right and power to exercise any and all privileges and options thereof or
available under the rules of the issuing insurer without the consent of any
other persons.
(d) Nevin, his wife, or his widow after his death, or his designated
beneficiaries, personal representatives, heirs, successors and assigns shall
have no claim or rights with respect to, and shall have no property or equitable
interests whatsoever in, any specific funds or assets of Reynolds and shall have
only the status of a general creditor with respect to Reynolds hereunder.
13. FACILITY OF PAYMENT.
In the event of a physical or mental illness or disability of Nevin or
of his widow after his death or of his designated beneficiaries at a time when
he or she (or they) is (are) entitled to payments hereunder, such payments as
may be due shall be paid to such person or persons for the benefit of Nevin or
his widow or his designated beneficiaries, as the case may be, as Reynolds or,
if applicable, the Escrow Agent may deem proper. In the event of Nevin's death
after he has made demand pursuant to Section 8(e)(v) above, the Escrow Agent
shall pay such amounts as thereafter are due to such beneficiary or
beneficiaries as Nevin shall have designated in writing, or failing such
writing, to his estate. No liability shall accrue to Reynolds or Escrow Agent
for any alleged payment
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to an improper person or representative if so made after such reasonable
investigation and Reynolds and Escrow Agent shall have no responsibility to see
to the proper application of such payments.
14. MISCELLANEOUS PROVISIONS.
(a) All notices required or permitted to be given under this Agreement
shall be in writing and shall be mailed, postage prepaid, by registered or
certified mail or personally delivered, if to Reynolds, addressed to:
The Reynolds and Reynolds Company
Attention: Vice President, Corporate Finance and
Chief Financial Officer
115 South Ludlow St.
Dayton, Ohio 45402
and, if to Nevin, addressed to:
Robert C. Nevin
110 Pauley's Plantation Ct.
Beavercreek, Ohio 45385-9120
Either party may change the address to which notices to such party are to be
sent by giving written notice of such change to the other party in the manner
specified in this provision.
(b) (i) This Agreement shall be binding upon Nevin, his wife, and upon
his or her heirs, executors, administrators, designated beneficiaries and upon
anyone claiming under him or his wife or widow, and upon Reynolds and its
successor or assigns.
(ii) Reynolds shall not merge or consolidate with any other entity
unless and until such other entity shall expressly assume Reynolds' obligations
under this Agreement or Reynolds has provided an appropriate alternative
arrangement covering its contingent liabilities under this Agreement, and
Reynolds shall not voluntarily dissolve without first providing an appropriate
arrangement covering its contingent liabilities under this Agreement.
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(c) This Agreement may be amended, but only with the consent of Nevin
during his lifetime and, after his death only with the consent of his widow
during her lifetime or his other designated beneficiaries during their lifetime,
as the case may be. Any agreement of amendment shall be executed with the same
formality as this Agreement.
(d) This Agreement supersedes any prior agreements or understandings
covering the subject matter hereof, either written or oral, between the parties.
(e) This Agreement shall be construed under the laws of the State of
Ohio.
(f) The paragraph headings used in this Agreement are for convenience
of reference only and shall not be considered in construing this Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
respective hands the year and date first above written.
THE REYNOLDS AND REYNOLDS COMPANY
By___________________________________
_____________________________________
ROBERT C. NEVIN
29
<PAGE> 30
EXHIBIT A
ESCROW AGREEMENT DATED NOVEMBER 9, 1987 BETWEEN
THE REYNOLDS AND REYNOLDS COMPANY AND BANK ONE
DAYTON, N.A., AS AMENDED AS OF SEPTEMBER 30,
1992 AND AS FURTHER AMENDED AS OF FEBRUARY 1,
1997
<PAGE> 31
AMENDMENT NO. 2
TO
ESCROW AGREEMENT
THIS AMENDMENT NO. 2 TO ESCROW AGREEMENT ("Amendment") is made and
entered into as of this 1st day of February, 1997 by and between THE REYNOLDS
AND REYNOLDS COMPANY, an Ohio corporation (hereinafter referred to as
"Reynolds"), and BANK ONE, DAYTON, NA (hereinafter referred to as the "Escrow
Agent").
WITNESSETH:
WHEREAS, Reynolds and the Bank have entered into an Escrow Agreement
(the "Escrow Agreement") dated November 9, 1987 as amended September 30, 1992
pursuant to an Amended and Restated Employment Agreement dated November 9, 1987
as amended December 1, 1989 and as further amended and restated in its entirety
on September 30, 1992 (the "September 30, 1992 Agreement") between Reynolds and
Robert C. Nevin ("Nevin"), an employee of Reynolds; and
WHEREAS, Nevin and Reynolds have entered into a new Amended and
Restated Employment Agreement effective February 1, 1997 (the "Employment
Agreement"), pursuant to which Reynolds has agreed to continue to provide
termination pay protection for Nevin and which provides that the required
protective payments under the Employment Agreement are to continue to be paid
into an escrow account at the Escrow Agent; and
WHEREAS, the parties hereto desire that the Escrow Agreement shall
continue in full force and effect and for the benefit of Nevin and with full
applicability to the Employment Agreement;
NOW, THEREFORE, in consideration of the covenants and agreements
contained in this Amendment, the parties hereby agree as follows:
1. All references to the September 30, 1992 Agreement between Reynolds
and Nevin contained in the Escrow Agreement shall include and apply with full
force and effect to the Employment Agreement.
2. Except as set forth herein, the Escrow Agreement shall remain
unchanged and continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
respective hands as of the day and year first above written.
THE REYNOLDS AND REYNOLDS COMPANY
By_________________________________
BANK ONE, DAYTON, NA
By__________________________________
<PAGE> 32
EXHIBIT B
SCHEDULE OF FRINGE BENEFITS
PURSUANT TO SECTION 4(d)
<TABLE>
<CAPTION>
Benefit Amount
<S> <C>
Annual Physical Exam Local Clinic, maximum of $600
Auto/Gas Allowance $916 monthly
Charitable Allowance $1,000 annually to charities of his choice
Income Tax Planning and $1,000 annually
Preparation
Estate Planning and
Will Preparation
Initial Service $900
Updates $300 annually
Country Club Dues 50% annually, including initiation fee up to $3,500
Luncheon Club Dues 100% annually
Corporate aircraft (personal use) Yes; in connection with company business use
Nevin may include personal passengers,
subject to seat availability. Nevin shall
receive W-2 for personal use value per IRS
regulations
Vacation Five (5) weeks annually at mutually agreed times.
</TABLE>
<PAGE> 1
Exhibit 10E
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT ("Agreement") made and entered into as of the 1st
day of February, 1997, by and between THE REYNOLDS AND REYNOLDS COMPANY, a
corporation existing under the laws of the State of Ohio ("Reynolds"), and
RODNEY A. HEDEEN ("Hedeen").
W I T N E S S E T H:
WHEREAS, Hedeen is now President of the Business Systems Division of
Reynolds; and
WHEREAS, Reynolds desires to retain Hedeen's services and has offered
him substantial inducements so that he would deem continued employment by
Reynolds beneficial to him and to provide him reasonable employment security and
economic protection; and
WHEREAS, Hedeen is willing to accept the same and continue in the
employ of Reynolds;
NOW THEREFORE, in consideration of the foregoing premises and of the
mutual promises set forth below, Reynolds and Hedeen hereby agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the terms set forth below shall have
the following meanings:
(a) "Annual Compensation Value" shall mean Hedeen's then-current Base
Compensation plus an amount equal to the average of all Bonuses (excluding any
compensation attributable to stock options of any type granted by Reynolds)
earned by Hedeen during the three (3) calendar years preceding the date upon
which the valuation is made.
(b) "Base Compensation" shall mean the then-current annual base salary
(exclusive of Bonuses) of Hedeen.
<PAGE> 2
(c) "Bonuses" shall mean bonus payments earned by Hedeen under
Reynolds' Incentive Compensation Plans and under any future bonus or incentive
compensation plans of Reynolds for its executive officers.
(d) "Change in Control" shall mean the occurrence of any of the
following:
(i) Any "person," as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any
trustee or other fiduciary holding securities under an employee benefit plan of
Reynolds, or any company owned, directly or indirectly, by the shareholders of
Reynolds in substantially the same proportions as their ownership of stock of
Reynolds), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of Reynolds
representing fifty percent (50%) or more of the combined voting power of
Reynolds' then outstanding securities;
(ii) during any period of two (2) consecutive years (not including
any period prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, any new director (other than a
director designated by a person who has entered into an agreement with Reynolds
to effect a transaction described in clause (i), (iii) or (iv) of this Section
whose election by the Board or nomination for election by Reynolds' shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at the beginning of the period or whose
election was previously so approved) cease for any reason to constitute at least
a majority thereof;
(iii) the shareholders of Reynolds approve a merger or
consolidation of Reynolds with any other company, other than (1) a merger or
consolidation which would result in the voting
2
<PAGE> 3
securities of Reynolds outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of the
combined voting power of the voting security of Reynolds or such surviving
entity outstanding immediately after such merger or consolidation or (2) a
merger or consolidation effected to implement a recapitalization of Reynolds (or
similar transaction) in which no "person" (as hereinabove defined) acquires more
than fifty percent (50%) of the combined voting power of Reynolds' then
outstanding securities; or
(iv) the shareholders of Reynolds approve a plan of liquidation,
dissolution or winding up of Reynolds or an agreement for the sale or
disposition by Reynolds of all or substantially all of Reynolds' assets.
(e) "Discharge For Cause" shall be construed to have occurred whenever
occasioned by reason of felonious acts on the part of Hedeen, actions by Hedeen
involving serious moral turpitude or his misconduct in such manner as to bring
substantial and material discredit upon Reynolds, following the giving of thirty
(30) days' written notice to Hedeen specifying the respect in which Reynolds
claims Hedeen has violated this provision and the failure, inability or
unwillingness of Hedeen to remedy the situation to the satisfaction of Reynolds
within said thirty-day period. In establishing whether a Discharge For Cause
shall have occurred, the standard for judgment shall be the level of conduct by
Hedeen and by other comparably situated executive officers prior to the alleged
improper activity of Hedeen for which the Discharge For Cause has been made.
(f) "Escrow Agreement" shall mean the agreement dated entered into
simultaneously herewith between Reynolds and Bank One, Dayton, NA, a copy of
which is attached hereto and made a part hereof as Exhibit A.
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<PAGE> 4
(g) "Escrow Agent" shall mean Bank One, Dayton, NA.
(h) "Escrow Amount" shall mean the amounts placed in escrow by Reynolds
pursuant to subsection (e)(iii) of Section 5 of this Agreement.
(i) "Escrow Funding Event" shall mean the occurrence of any of the
following events:
(i) Class A Common Shares of Reynolds have been acquired other than
directly from Reynolds in exchange for cash or property by any person (other
than Richard H. Grant, Jr., his children or his grandchildren, Reynolds, any
trustee or other fiduciary holding securities under an employee benefit plan of
Reynolds, or any company owned directly or indirectly by the shareholders of
Reynolds in substantially the same proportions as their ownership of the stock
of Reynolds) who either thereby becomes the owner of more than nine and one half
percent (9.5%) of Reynolds' outstanding Class A Common Shares, or having
directly or indirectly become the owner of more than five percent (5%) of
Reynolds' Class A Common Shares either alone or in conjunction with another
person has expressed an intent to continue acquiring Reynolds' outstanding Class
A Common Shares so as to become thereby the owner of more than nine and one-half
percent (9.5%) of such stock either directly or indirectly;
(ii) Any person (other than Richard H. Grant, Jr., his children or
grandchildren, Reynolds, any trustee or other fiduciary holding securities under
an employee benefit plan of Reynolds, or any company owned directly or
indirectly by the shareholders of Reynolds in substantially the same proportions
as their ownership of stock of Reynolds) has made a tender offer for, or a
request for invitations for tenders of, Class A Common Shares of Reynolds.
(iii) Any person forwards or causes to be forwarded to shareholders
of Reynolds proxy statement(s) in any period of twenty-four (24) consecutive
months, soliciting proxies, to elect
4
<PAGE> 5
to the Board of Reynolds two (2) or more candidates who were not nominated as
candidates in proxy statements forwarded to shareholders during such period by
the Board; or
(iv) The Board adopts a resolution to the effect that, for purposes
of this Agreement, an Escrow Funding Event has occurred.
(j) "Final Annual Compensation" shall mean Hedeen's Base Compensation
at the time of termination of employment plus an amount equal to the average of
all Bonuses (excluding any compensation attributable to stock options of any
type granted by Reynolds) earned by Hedeen during the three (3) calendar years
preceding his termination of employment.
(k) "Final Average Annual Compensation" shall mean the average of
Hedeen's Base Compensation and Bonuses (excluding any compensation attributable
to stock options of any type granted by Reynolds) as determined for the five (5)
consecutive calendar years of the last ten (10) calendar years preceding and
including the calendar year in which Hedeen's employment terminates which yields
the highest sum.
(l) "Pension Plan" shall mean the existing Reynolds and Reynolds
Company Non-Union Pension Plan, as the same may be amended from time to time.
(m) "Supplemental Plan" shall mean Reynolds' existing Supplemental
Retirement Plan, as the same may be amended from time to time.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall continue from the date hereof and
end on February 1, 2001, unless extended in accordance herewith. Hedeen shall
continue in the employ of Reynolds as President of the Business Systems Division
or such other substantially equivalent position designated by the Board,
consistent with the provisions of this Agreement. In addition,
5
<PAGE> 6
Hedeen agrees to perform such other duties as may be specifically designated for
him from time to time by the Board, consistent with the provisions of this
Agreement. Subject to Hedeen's willingness to so extend his employment, Reynolds
may extend the term of this Agreement for additional renewal periods of one (1)
year each by giving written notice thereof not less than twelve (12) months
prior to February 1, 2001, initially and not less than twelve (12) months prior
to each succeeding February 1st thereafter.
(b) At all times Hedeen will, to the best of his ability, energy and
skill, faithfully perform all of the duties that may be required of him from
time to time by the Board and diligently devote his entire working time,
attention and efforts to the business affairs and best interests of Reynolds,
except for absences for sickness and vacations. If the Board determines that any
outside activity engaged in by him is detrimental to the best interests of
Reynolds, he will discontinue such outside activity within thirty (30) days
after written notice from the Board.
(c) For a period of two (2) years from and after Hedeen's employment
with Reynolds shall have terminated (provided, however, in the event of
termination of Hedeen's employment due to Reynolds' decision not to renew this
Agreement the period shall be one (1) year) and after he shall have ceased
receiving severance or disability benefits under this Agreement, whichever shall
last occur, and during the period of his employment by Reynolds, he will not,
directly or indirectly, further the affairs of any other corporation,
partnership, or any business enterprise by employment
6
<PAGE> 7
of any kind (except as otherwise permitted under Section 6(d) below), counseling
or otherwise, if the same is in competition with Reynolds, without the written
consent of the Board. This provision, however, shall not be construed to prevent
him from pursuing personal investments in any business or enterprise which is
not in competition with Reynolds and which do not interfere with his employment
and the performance of his duties to Reynolds hereunder.
3. COMPENSATION AND FRINGE BENEFITS.
(a) The Base Compensation of Hedeen during the term of this Agreement
shall be $250,000, which may be increased from time to time by the Board or, in
the case of any proposed decrease, such other amount as mutually may be agreed
upon by Hedeen and Reynolds; provided, however, that such Base Compensation may
not be reduced below said rate of $250,000 without Hedeen's consent, unless
necessitated by general business conditions adversely affecting Reynolds'
operations; but, in the event of a reduction, his Base Compensation shall be
fair and reasonable, and any disagreement concerning the same shall be resolved
by arbitration in the manner provided in Section 7 below. Hedeen's Base
Compensation shall be reviewed at least annually to determine whether in view of
Reynolds' performance during the year any increase is warranted. Responsibility
for this determination rests within the sole discretion of the Board, and this
provision shall not be construed as requiring any such increase for any given
year.
(b) Hedeen shall continue his participation in the existing bonus plan
arrangements under the Incentive Compensation Plans (or their equivalent) for
executive officers of Reynolds and shall be entitled to such awards under any
future bonus, incentive, or similar compensation plans of Reynolds, as shall, in
the determination of the Board, be appropriate and consistent with the purposes
of such plans and with the awards granted to other executive officers of
Reynolds.
7
<PAGE> 8
(c) Hedeen shall continue to be eligible for participation in the Stock
Option Plan - 1995 of Reynolds and shall be entitled to the grant of such
options to purchase shares of Class A Common Stock of Reynolds under any other
future stock option plans for employees and to participate in such other
executive compensation incentive plans awarding stock as shall, in the
determination of the Board, be appropriate and consistent with the purposes of
the plans and with the grants of such options to the executive officers of
Reynolds.
(d) In addition to the specific benefits provided for Hedeen under the
terms of this Agreement, Reynolds shall provide him with other fringe benefits
(including bonuses, vacations, health and disability insurance, pension plan
participation and others) at least equivalent to those of the other executive
officers of Reynolds and as set forth on Exhibit B attached hereto and made a
part hereof.
4. EXPENSES.
Hedeen shall be reimbursed for his reasonable business-related expenses
incurred for the benefit of Reynolds in accordance with Reynolds' policies
governing such reimbursement in effect from time to time. Such expenses shall
include, but shall not be limited to, travel, lodging away from home,
entertainment, and meals. With respect to any expenses which are reimbursed by
Reynolds to Hedeen, Hedeen shall account to Reynolds in sufficient detail to
entitle Reynolds to a federal income tax deduction for such reimbursed item if
such item is deductible.
5. TERMINATION; DISCHARGE.
(a) TERMINATION OR DISCHARGE WITHOUT CAUSE. Reynolds reserves the right
to discharge Hedeen at any time and for any reason and not to renew this
Agreement; but such non-renewal or discharge, unless a Discharge For Cause,
shall not extinguish the obligation of Reynolds to provide
8
<PAGE> 9
Hedeen (and, in the event of his prior death, his designated beneficiary or
beneficiaries or his estate) with the following severance benefits:
(i) If Reynolds does not renew this Agreement, Hedeen shall be
entitled to receive for a period expiring one (1) year from February 1, 2001 (or
any renewal thereof) payments from Reynolds in an amount equal to his Annual
Compensation Value.
(ii) If such discharge occurs prior to February 1, 2001, Hedeen
shall be entitled to receive for a period expiring two (2) years from the date
of discharge, payments from Reynolds in an amount equal to his Annual
Compensation Value.
(iii) Hedeen shall be entitled, during the period expiring on the
earlier of Hedeen's securing other employment or two (2) years from the date of
discharge (or such longer period as required by law), to continuing coverage
under the then-existing Reynolds-sponsored medical benefits program, which, at
the option of Reynolds, may be provided outside of such program through the
purchase of insurance or otherwise.
(iv) For purposes of determining Hedeen's benefits under the
Supplemental Plan, Hedeen shall receive credit toward his Years of Service under
the Supplemental Plan for the time period that he receives or is entitled to
receive payments under subsections (i) or (ii) of this Section 5(a). In
addition, during the time period that he receives or is entitled to receive
payments under said subsections (i) or (ii) of this Section 5(a), Hedeen's Base
Compensation shall be deemed to be increased by the annual economic range
adjustment for Reynolds' salaried employees announced in October of each year
(or, if there is no such announced economic range adjustment in a given year, by
an assumed five (5%) increase for that year) in order to calculate his highest
earnings during five (5) consecutive years out of the last ten (10) years prior
to retirement under the Supplemental Plan,
9
<PAGE> 10
and his Final Annual Compensation (see Section 5(d) below) and Final Average
Annual Compensation shall be deemed to increase in the same manner for purposes
of determining the amount of his Retirement Benefits under this Agreement.
(v) Hedeen shall be reimbursed for up to $20,000 for out-placement
fees if he chooses to seek other employment following his discharge by Reynolds.
Hedeen shall not be obligated to seek other employment in order to mitigate his
damages resulting from his discharge.
Hedeen acknowledges that he shall remain subject to and bound by
the restrictive provisions of Section 6 below.
(b) DISCHARGE FOR CAUSE. If Hedeen's employment with Reynolds is
terminated by a Discharge For Cause, regardless of whether such Discharge For
Cause occurs after the occurrence of any of the events set forth in Sections
5(d) or 5(e) below, he shall be entitled to receive only his Base Compensation
up to the date of his discharge and no further payments hereunder shall be
required from Reynolds; provided, however, that Hedeen shall be entitled to
receive his benefits, if any, under the Pension Plan and the Supplemental Plan
to the extent applicable. Hedeen shall remain subject to the restrictive
provisions of Section 6 below for a period for two (2) years from the date of
discharge. Should Hedeen disagree that his discharge was a Discharge For Cause
the question shall be submitted to arbitration in accordance with Section 7
below.
(c) TERMINATION DUE TO DISABILITY OR DEATH. If, by reason of illness,
disability, or other incapacity certified by two (2) physicians competent to do
so in the opinion of the Board, Hedeen is unable to perform the duties required
of him under this Agreement for a period of six (6) consecutive months,
Reynolds, following the giving of thirty (30) days' written notice to Hedeen and
the failure of Hedeen by reason of illness, disability, or other incapacity to
resume his duties within
10
<PAGE> 11
such thirty (30) days and thereafter perform the same for a period of two (2)
consecutive months, may terminate Hedeen's employment by giving Hedeen written
notice thereof; and in that event all obligations of Reynolds hereunder shall
cease on the date such notice of termination is given except for disability
benefits, including medical benefits, to which Hedeen may then be entitled by
virtue of his participation in any Reynolds' sponsored programs then in effect.
Similarly, upon his death, all obligations of Reynolds hereunder shall cease
except for any death benefits to which Hedeen (or his beneficiaries) may be
entitled by virtue of his participation in any Reynolds' sponsored programs then
in effect.
(d) BENEFITS UPON TERMINATION UNDER CERTAIN CIRCUMSTANCES. If Hedeen
voluntarily terminates his employment or Hedeen is discharged by Reynolds and
such discharge is not a Discharge For Cause, and if such voluntary termination
or involuntary discharge takes place within eighteen (18) months after the
occurrence of any of the following events:
(i) Hedeen is required by Reynolds, prior to a Change in Control,
to perform duties or services which differ significantly from those performed by
him on the effective date hereof, or which are not ordinarily and generally
performed by a President of a division or corporation similar in size and scope
to the Reynolds Business Systems Division; or
(ii) The nature of the duties or services which Reynolds, prior to
a Change in Control, requires him to perform necessitates absence overnight from
his place of residence on the effective date hereof, because of travel involving
the business or affairs of Reynolds, for more than ninety (90) days during any
period of twelve (12) consecutive months; Hedeen shall be entitled to receive
from Reynolds all of the severance benefits set forth in Section 5(a) above,
except that severance payments shall be made until the later of the end of the
term of this Agreement or two (2)
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<PAGE> 12
years from the date of his termination of employment. Hedeen shall remain
subject to and bound by the restrictive provisions of Section 6 below.
(e) BENEFITS UPON A CHANGE IN CONTROL. Reynolds recognizes that the
threat of a Change in Control would be of significant concern to Hedeen. The
following provisions provide termination protection for Hedeen in the event of a
Change in Control. These provisions, among other purposes, are intended to
foster and encourage Hedeen's continued attention and dedication to his duties
in the event of such potentially disturbing and disruptive circumstances.
Reynolds, therefore, agrees to do the following:
(i) If Reynolds terminates Hedeen's employment for any reason other
than a Discharge for Cause, or if Hedeen terminates his employment with Reynolds
voluntarily for any reason other than disability or retirement within the
twenty-four (24) month period following a Change in Control, Hedeen shall be
entitled to receive from Reynolds the following benefits:
(A) A lump sum severance payment (the "Severance Payment"), in
cash, equal to three (3) times the sum of (i) the higher of Hedeen's annual Base
Compensation in effect immediately prior to the occurrence of the event or
circumstance upon which such termination of employment is based or in effect
immediately prior to the Change in Control, and (ii) the average of Hedeen's
Bonuses during the three (3) calendar years immediately preceding the year in
which the date of termination occurs.
(B) Hedeen shall be entitled, during the period expiring on the
earlier of Hedeen's securing other employment or twenty-four (24) months from
the date of such termination of employment (or such longer period as required by
law), to continued coverage under the Reynolds sponsored medical benefits
program in existence on such date of termination or, if such continued
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<PAGE> 13
coverage is barred, Reynolds shall provide equivalent medical benefit coverage
through the purchase of insurance or otherwise.
(C) For purposes of determining Hedeen's benefits under the
Supplemental Plan, Hedeen shall receive credit toward his Years of Service under
the Supplemental Plan for the two (2) year period following such termination of
employment. In addition, with respect to the two (2) year period following such
termination of employment, Hedeen's Base Compensation shall be deemed to be
increased by the annual economic range adjustment for Reynolds' salaried
employees announced in October of each year (or, if there is no such announced
economic range adjustment in a given year, by an assumed five percent (5%)
increase for that year) in order to calculate his highest earnings during five
(5) consecutive years out of the last ten (10) years prior to retirement under
the Supplemental Plan.
(D) Hedeen shall be reimbursed for up to $20,000 for
outplacement fees if he chooses to seek other employment following his discharge
by Reynolds. Hedeen shall not be obligated to seek other employment in order to
mitigate his damages resulting from his discharge.
The benefits provided in this Section 5(e) shall be in lieu of any
benefits provided under Section 5(d) of this Agreement.
(ii) Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by Hedeen in
connection with a Change in Control or the termination of Hedeen's employment
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with Reynolds, any person whose actions result in a Change in
Control or any person affiliated with Reynolds or such person) (all such
payments and benefits, including the Severance Payment, being hereinafter called
"Total Payments") would be subject (in
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<PAGE> 14
whole or part), to an excise tax pursuant to Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (such tax hereinafter
referred to as the "Excise Tax"), then the Severance Payment shall be reduced to
the extent necessary so that no portion of the Total Payments is subject to
Excise Tax (after taking into account any reduction in the Total Payments
provided by reason of Section 280G of the Code in such other plan, arrangement
or agreement) if (A) the net amount of such Total Payments, as so reduced, (and
after deduction of the net amount of federal, state and local income tax on such
Total Payments), is greater than (B) the excess of (i) the net amount of such
Total Payments, without reduction (but after deduction of the net amount of
federal, state and local income tax on such Total Payments), over (ii) the
amount of Excise Tax to which Hedeen would be subject in respect of such Total
Payments. For purposes of determining whether and the extent to which the Total
Payments will be subject to the Excise Tax, (i) no portion of the Total Payments
the receipt or enjoyment of which Hedeen shall have effectively waived in
writing prior to the date of this termination of employment shall be taken into
account, (ii) no portion of the Total Payments shall be taken into account which
in the opinion of tax counsel selected by Reynolds does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code,
(including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating
the Excise Tax, no portion of such Total Payment shall be taken into account
which constitutes reasonable compensation for services actually rendered, within
the meaning of Section 280G(b)(4)(B) of the Code, in excess of the base amount
as defined in Section 280G(b)(3) of the Code allowable to such reasonable
compensation, and (iii) the value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by
Reynolds in accordance with the principles of Sections 280G(d)(3) and (4) of the
Code. Prior to the fifth day following the date of
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<PAGE> 15
Hedeen's termination of employment, Reynolds shall provide Hedeen with its
calculation of the amounts referred to in this Section and such supporting
materials as are reasonably necessary for Hedeen to evaluate Reynolds'
calculations. If Hedeen objects to Reynolds' calculations, he shall notify
Reynolds of his objections prior to the initial payment date set forth in
Section 8(e)(vi) hereof, and Reynolds shall pay to Hedeen such portion of the
Severance Payment (up to one hundred percent (100%) thereof) as Hedeen
determines is necessary to result in Hedeen's receiving the greater of clauses
(A) and (B) of this Section.
(iii) Upon the occurrence of an Escrow Funding Event, Reynolds
shall pay into an escrow account at the Escrow Agent an amount equal to three
(3) times the sum of (i) Hedeen's Base Compensation in effect immediately prior
to the Escrow Funding Event and (ii) the average of Hedeen's Bonuses during the
three (3) calendar years immediately preceding the year in which the Escrow
Funding Event occurs. Subsequent to the delivery to the Escrow Agent of the
Escrow Amount, Reynolds shall, in the event that either Hedeen's Base
Compensation is increased (or decreased) or he receives a Bonus that affects the
amount described in Section 5(e)(i)(A), unless the Escrow Amount shall
theretofore have been released pursuant to this subsection, recalculate the
Escrow Amount as of the date such change in Base Compensation or receipt of
Bonus occurs, treating the Escrow Funding Event as having occurred on such date.
If the amount so calculated exceeds the fair market value of the Escrow Amount,
Reynolds shall promptly (and in no event later than seven (7) days from such
date) pay to the Escrow Agent an amount in cash (or marketable securities or any
combination thereof) equal to such excess. If the Escrow Amount so calculated is
less than the fair market value of the Escrow Amount then held in the escrow
account, the Escrow Agent, upon receipt of a written request from Reynolds,
shall distribute to Reynolds such difference
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<PAGE> 16
in cash; provided, however, that this sentence shall not apply after the
occurrence of a Change in Control.
(iv) Unless the parties otherwise agree, Reynolds may withdraw the
Escrow Amount when and only when two (2) years have expired from the date of
deposit and no proper demand pursuant to Section 5(e)(vi) below has been made
during the time, or when the conditions requiring the deposit have ceased to
exist for a period of ninety (90) days without a demand right having been
created, or when Hedeen's right to a payment under this Section 5(e) has been
forfeited, whichever occurs first. If, before the expiration of such period or
forfeiture, there shall occur another Escrow Funding Event, Reynolds will not be
required to make an additional deposit, but the two (2) year period shall then
be measured from the date of the last such event. Notwithstanding a deposit with
the Escrow Agent pursuant to subsection (iii) of this Section 5(e), Hedeen shall
continue to be entitled to receive all of the benefits from Reynolds under this
Agreement until a termination of employment shall occur.
(v) Reynolds shall pay the charges of the Escrow Agent for its
services under the Escrow Agreement, and Reynolds will be entitled to any
interest or other income arising from the date of the deposit of the Escrow
Amount until all payments have been made under the Escrow Agreement to Hedeen.
All interest or other income arising from the Escrow Amount deposited with the
Escrow Agent shall be paid monthly to Reynolds.
(vi) If Reynolds terminates Hedeen's employment for any reason but
a Discharge for Cause, or if Hedeen terminates his employment with Reynolds
voluntarily for any reason other than disability or retirement within the
twenty-four (24) month period following the date of a Change in Control, the
Escrow Agent, upon written demand made on or after the tenth (10th) day
following
16
<PAGE> 17
such termination of employment, shall pay the Escrow Amount in accordance with
this Section and Hedeen shall no longer be subject to the restrictive provisions
of Section 6 below, except for Section 6(e). Hedeen shall notify the Escrow
Agent prior to the tenth (10th) day following his termination of employment as
to whether he has accepted the determination of Reynolds of the amount of the
Severance Payments pursuant to Section 5(e)(iii). If he has accepted such
determination, Reynolds shall provide the Escrow Agent with Reynolds' written
determination as set forth in Section 5(e)(iii) and the Escrow Agent shall pay
to Hedeen all or a portion of the Escrow Amount as provided in such
determination, and any remaining amount shall be paid to Reynolds. If Hedeen
does not accept Reynolds' determination, Hedeen shall provide to the Escrow
Agent his determination of the Severance Payment, and the Escrow Agent shall pay
to Hedeen all or a portion of the Escrow Amount as provided in Hedeen's
determination and any remaining amount shall be paid to Reynolds.
(vii) In the event that, following the creation of a demand right
pursuant to Section 5(e)(vi) above, Hedeen incurs any costs or expenses,
including attorneys' fees, in the enforcement of rights under this Section 5(e)
or under any plan for the benefit of employees of Reynolds, including without
limitation the stock option plan, pension plans, payroll-based stock ownership
plan, tax deferred savings and protection plan, bonus arrangements, supplemental
pension plan, deferred compensation agreements, incentive compensation plans,
and life insurance and compensation program, then, unless Reynolds or the
consolidated, surviving or transferee entity in the event of a consolidation,
merger or sale of assets, is wholly successful in defending against the
enforcement of such rights, Reynolds, or such consolidated, surviving or
transferee entity, shall promptly pay to Hedeen all such costs and expenses.
17
<PAGE> 18
6. NON-COMPETITION; CONFIDENTIALITY.
(a) In order to protect Reynolds, it is understood that a covenant not
to compete is a necessary and appropriate adjunct to the other provisions of
this Agreement. Therefore, should Hedeen at any time determine prior to the
expiration of this Agreement that he does not desire to remain an employee of
Reynolds and shall terminate his employment for any reason other than the
grounds specified in Section 5(e) above, or should he be Discharged For Cause by
Reynolds, Hedeen shall remain subject to the restrictive provisions hereinafter
set forth. In addition, these restrictive provisions shall remain in full force
and effect at any other time during which payments are required to be made by
Reynolds pursuant to the severance or disability provisions (Section 5) of this
Agreement. These restrictive provisions are as follows:
(b) For a period of two (2) years from and after Hedeen's employment
with Reynolds shall have terminated (provided, however, in the event of
termination of Hedeen's employment due to Reynolds' decision not to renew this
Agreement the period shall be one (1) year) and after he shall have ceased
receiving severance or disability benefits under this Agreement, whichever shall
last occur, he shall not, directly or indirectly, compete with Reynolds or any
of its related or affiliated companies. For purposes of this Agreement,
competition with Reynolds or any of its related or affiliated companies shall
include the manufacture, distribution, and sale of business forms and computer
hardware and software and the furnishing of EDP services which are similar in
nature or function to the products and/or services then being furnished by
Reynolds for sale in the same vertical markets in which Reynolds' products
and/or services are then being marketed at the time of Hedeen's termination of
employment or upon the cessation of any retirement, severance or disability
benefits under this Agreement.
18
<PAGE> 19
(c) From and after the execution of this Agreement and for a period of
two (2) years after termination (provided, however, in the event of termination
of Hedeen's employment due to Reynolds' decision not to renew this Agreement the
period shall be one (1) year) of his employment with Reynolds and after he shall
have ceased receiving severance or disability benefits under this Agreement,
whichever shall last occur, Hedeen shall not, directly or indirectly, by direct
participation, by purchase of stocks or bonds or other evidences of
indebtedness, by loaning of money, by guarantee of loans of others, by gift to
establish or assist others, or in any other manner or fashion, engage in any
such restricted activity in competition with Reynolds or any of its related or
affiliated companies, nor shall he assist any present employees of Reynolds or
any other person similarly to engage in such competing business for the full
two-year prohibition period set forth in this Agreement.
(d) The restrictive provisions of this Section 6, however, are in no
way intended to prohibit Hedeen from acquiring in open market transactions
investments in equity stock or evidences of indebtedness of a corporation if the
said stock or if the said evidence of indebtedness is traded on a national or
regional securities exchange or in the over-the-counter market and the
investment therein represents no more than five percent (5%) of the outstanding
securities of the issue being acquired. Moreover, it is not the intention of
this Section 6 to limit in any way Hedeen's ability to invest in businesses not
competitive with Reynolds.
(e) Hedeen shall keep secret and inviolate all knowledge or information
of a confidential nature (which is not then nor later, through no breach of this
Agreement, in the public domain), including all unpublished matters related to,
without limitation thereof, the business, properties, accounts, books and
records, research and development information, processes, procedures, products,
19
<PAGE> 20
know-how, trade secrets, memoranda, devices, suppliers, and customers of
Reynolds which he may now know or hereafter come to know as a result of his
affiliation in business with Reynolds.
(f) All copyrights, improvements, discoveries and inventions and all
claims, interest and rights thereto relating to any part of the business of
Reynolds conceived, developed or made by Hedeen, either alone or with others,
during the period of his employment, and whether conceived, developed or made
during his regular working hours or at any other time during such period, shall
be and are the sole property of Reynolds and Hedeen hereby assigns to Reynolds
all right, title and interest in and to such copyrights, improvements,
discoveries and inventions. Further, Hedeen will, at any time in the future upon
Reynolds' request, execute specific assignments of any said copyrights,
improvements, discoveries and inventions as well as execute all documents and
perform all lawful acts which Reynolds deems necessary or advisable to vest full
ownership thereof in Reynolds, to register same in the name of Reynolds or its
designee or otherwise to provide legal protection for Reynolds' ownership
interests therein.
(g) This Agreement shall be without geographical limitation in
continental North America and, in addition, in any other areas of the world in
which Reynolds or any of its related or affiliated companies shall be doing
business at the time of the proposed competing entry into business by Hedeen, it
being agreed that the contacts of Hedeen and the potential scope of operation of
Reynolds is without any limitation within the area of prohibition. Any violation
of this covenant may be enforced by specific performance in any court of
competent jurisdiction within the area of limitation imposed by this provision.
If any court of competent jurisdiction shall determine that either the period or
the territory covered by this provision against competition in unreasonable,
said
20
<PAGE> 21
provision shall not be determined to be null, void, and of no effect but shall
be reformed by said court to impose a reasonable period or a reasonable
geographical limitation, as the case may be.
7. RESOLUTION OF DISPUTES; ARBITRATION.
(a) Except for the breach or threatened breach by Hedeen of the
noncompetition provisions of this Agreement which may be enforced by appropriate
injunctive relief at the option of Reynolds, any dispute or controversy arising
out of or relating to this Agreement, including, but not limited to, whether
Hedeen has been Discharged for Cause, shall be submitted to and settled by
arbitration in Dayton, Ohio in accordance with the rules then pertaining of the
American Arbitration Association.
(b) Should Hedeen disagree that his determination was due to a
Discharge for Cause, the question shall, within thirty (30) days after the
termination, be submitted to arbitration by three (3) arbitrators, one of whom
shall be selected by Reynolds, another of whom shall be selected by Hedeen, and
the third of whom shall be selected by the two arbitrators so appointed. The
decision of these arbitrators on the question shall be final and conclusive upon
Reynolds and upon Hedeen and his wife or widow, personal representatives,
designated beneficiaries and heirs, and shall be enforceable in any court having
competent jurisdiction thereof. A discharge which is eventually determined under
arbitration to have been a Discharge for Cause, or no arbitration having been
requested and the discharge being one which Reynolds had determined was for a
Discharge for Cause, shall extinguish any and all liability of Reynolds under
this Agreement from and after the date of termination.
(c) The arbitrators for all other disputes or controversies under this
Agreement shall be selected as set forth above and the parties shall select the
arbitrators within thirty (30) days after
21
<PAGE> 22
demand from Hedeen or Reynolds to the other to settle matters by arbitration. As
stated above, the decision of the arbitrators shall be final and conclusive.
8. NONASSIGNABLE RIGHTS.
Hedeen, his wife, or his widow after his death, or his personal
representatives, designated beneficiaries and heirs, shall not have the right to
anticipate or commute, or to sell, assign, transfer, or otherwise alienate or
convey the right to receive any payments hereunder, whether by his, her or their
voluntary or involuntary act, or by operation of law and, in particular, that
any payments due hereunder shall not be subject to attachment or garnishment or
any other legal proceedings by any creditor, or be in any way responsible for
the debts or liabilities of Hedeen or his wife or his widow after his death or
his personal representatives, designated beneficiaries and heirs. Should Hedeen
or his wife or his widow after his death or his personal representatives,
designated beneficiaries and heirs, voluntarily attempt to breach this Section
of this Agreement, Reynolds' liability to make payments hereunder from and after
the date of said attempt shall be extinguished; and should any attempt be made
to reach the payments by other than Hedeen or his wife or his widow after his
death or his personal representatives, designated beneficiaries and heirs,
Reynolds shall make each payment as it becomes due to such person or persons for
the sole benefit of Hedeen or his wife or his widow or his personal
representatives, designated beneficiaries and heirs, as the case may be, as
Reynolds may deem expedient.
9. UNFUNDED AGREEMENT.
(a) Reynolds' obligation under this Agreement shall be unfunded, but
Reynolds reserves the right to provide for its liability under this Agreement in
any manner it deems advisable, including the purchasing of such assets
(including an insurance policy or policies on Hedeen's life) as it may
22
<PAGE> 23
deem necessary or proper; provided, however, that Hedeen's insurability or
non-insurability shall in no way affect Reynolds' obligations pursuant to this
Agreement. Any asset so purchased by Reynolds shall be the sole property of
Reynolds and shall not be deemed to provide funding of Reynolds' obligations
under this Agreement.
(b) In the event Reynolds determines to purchase any insurance policy
or policies on Hedeen's life, Hedeen agrees to submit to such examination and to
supply information as may be required by the insurer.
(c) Any policy so purchased by Reynolds shall be issued so that
Reynolds is the sole, full, and complete owner of the policy or policies, with
the right and power to exercise any and all privileges and options thereof or
available under the rules of the issuing insurer without the consent of any
other persons.
(d) Hedeen, his wife, or his widow after his death, or his designated
beneficiaries, personal representatives, heirs, successors and assigns shall
have no claim or rights with respect to, and shall have no property or equitable
interests whatsoever in, any specific funds or assets of Reynolds and shall have
only the status of a general creditor with respect to Reynolds hereunder.
10. FACILITY OF PAYMENT.
In the event of a physical or mental illness or disability of Hedeen or
of his widow after his death or of his designated beneficiaries at a time when
he or she (or they) is (are) entitled to payments hereunder, such payments as
may be due shall be paid to such person or persons for the benefit of Hedeen or
his widow or his designated beneficiaries, as the case may be, as Reynolds or,
if applicable, the Escrow Agent may deem proper. In the event of Hedeen's death
after he has made demand pursuant to Section 5(e)(v) above, the Escrow Agent
shall pay such amounts as thereafter
23
<PAGE> 24
are due to such beneficiary or beneficiaries as Hedeen shall have designated in
writing, or failing such writing, to his estate. No liability shall accrue to
Reynolds or Escrow Agent for any alleged payment to an improper person or
representative if so made after such reasonable investigation and Reynolds and
Escrow Agent shall have no responsibility to see to the proper application of
such payments.
11. MISCELLANEOUS PROVISIONS.
(a) All notices required or permitted to be given under this Agreement
shall be in writing and shall be mailed, postage prepaid, by registered or
certified mail or personally delivered, if to Reynolds, addressed to:
The Reynolds and Reynolds Company
Attention: Vice President, Corporate Finance and
Chief Financial Officer
115 South Ludlow St.
Dayton, Ohio 45402
and, if to Hedeen, addressed to:
Rodney A. Hedeen
3961 Applewood Lane
Dayton, Ohio 45429
Either party may change the address to which notices to such party are to be
sent by giving written notice of such change to the other party in the manner
specified in this provision.
(b) (i) This Agreement shall be binding upon Hedeen, his wife, and upon
his or her heirs, executors, administrators, designated beneficiaries and upon
anyone claiming under him or his wife or widow, and upon Reynolds and its
successor or assigns.
(ii) Reynolds shall not merge or consolidate with any other
entity unless and until such other entity shall expressly assume Reynolds'
obligations under this Agreement or Reynolds
24
<PAGE> 25
has provided an appropriate alternative arrangement covering its contingent
liabilities under this Agreement, and Reynolds shall not voluntarily dissolve
without first providing an appropriate arrangement covering its contingent
liabilities under this Agreement.
(c) This Agreement may be amended, but only with the consent of Hedeen
during his lifetime and, after his death only with the consent of his widow
during her lifetime or his other designated beneficiaries during their lifetime,
as the case may be. Any agreement of amendment shall be executed with the same
formality as this Agreement.
(d) This Agreement supersedes any prior agreements or understandings
covering the subject matter hereof, either written or oral, between the parties.
(e) This Agreement shall be construed under the laws of the State of
Ohio.
(f) The paragraph headings used in this Agreement are for convenience
of reference only and shall not be considered in construing this Agreement.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
respective hands the year and date first above written.
THE REYNOLDS AND REYNOLDS COMPANY
By___________________________________
_____________________________________
RODNEY A. HEDEEN
25
<PAGE> 26
EXHIBIT A
ESCROW AGREEMENT
----------------
This Escrow Agreement made and entered into as of this 1st day of
February, 1997, by and between THE REYNOLDS AND REYNOLDS COMPANY, an Ohio
corporation (hereinafter referred to as "REYNOLDS") and BANK ONE, DAYTON, N.A.
(hereinafter referred to as the "ESCROW AGENT"),
WITNESSETH:
WHEREAS, REYNOLDS, has agreed to provide termination pay protection for
Rodney A. Hedeen ("Employee") under conditions set forth in an Employment
Agreement with Employee dated February 1, 1997 (hereinafter referred to as the
"Agreement"); and
WHEREAS, the required protective payments under the Agreement are to be
paid to an escrow account at Bank One, Dayton, N.A.;
NOW, THEREFORE, in consideration of the covenants and agreements
contained in this ESCROW AGREEMENT, the parties hereby do agree as follows:
1. ACCEPTANCE OF ESCROW. The ESCROW AGENT shall serve as ESCROW AGENT
in accordance with the provisions of this ESCROW AGREEMENT, and the duties of
the ESCROW AGENT shall be solely those imposed by this ESCROW AGREEMENT.
2. TERMS. The ESCROW AGENT shall receive, hold and disburse funds as
ESCROW AGENT in accordance with the Agreement, in the form attached hereto as
Exhibit A and made a part hereof. The ESCROW AGENT acknowledges that it has
reviewed and is familiar with the Agreement and shall be bound by the
obligations, terms and conditions therein relating to the ESCROW AGENT and its
duties.
<PAGE> 27
However, the ESCROW AGENT is not a party to or bound by the Agreement,
except as specifically provided for therein and as provided in Sections 2, 4, 6,
7 and 8 of this ESCROW AGREEMENT. The ESCROW AGENT shall be liable for only such
funds and items as are actually deposited and received by it for the purposes of
said escrow.
3. INDEMNIFICATION. So long as the ESCROW AGENT shall follow the terms
of this ESCROW AGREEMENT and any instructions issued hereunder in good faith,
relying upon documents which it believes to be genuine and properly signed and
executed, it shall be held free, clear and harmless and shall incur no liability
hereunder. REYNOLDS shall indemnify and hold the ESCROW AGENT harmless from any
loss, liability, cost, or expense, including reasonable legal fees, which may
arise or be incurred by reason of this ESCROW AGREEMENT or the ESCROW AGENT's
performance in good faith of any duty or obligation hereunder.
The ESCROW AGENT shall not be liable for any error of judgment or for
any act done or omitted by it in good faith, or for anything which it may in
good faith do or refrain from doing in connection with said escrow; nor will any
liability be incurred by the ESCROW AGENT if, in the event of any dispute or
question as to the construction of, this ESCROW AGREEMENT or any demand or
notice hereunder, the ESCROW AGENT acts in accordance with the opinion of its
legal counsel.
4. INVESTMENTS BY ESCROW AGENT; INCOME. The ESCROW AGENT shall invest
escrow funds in federally-insured interest bearing accounts selected by the
ESCROW AGENT or in any one or more of the following investments, selected by the
ESCROW AGENT:
(a) Certificates of Deposit of United States commercial banks
holding membership in the Federal Reserve System. Such U.S.
banks shall have minimum total assets of $1,000,000,000 and
shall not be currently
2
<PAGE> 28
listed n any publicly-disclosed report of U.S. banks having
financial problems warranting close monitoring by the Federal
Reserve Board.
(b) Euro-dollar Certificates of Deposit issued by the twenty-five
(25) largest United States commercial banks, which banks shall
have minimum total assets of $1,000,000,000 and shall not be
currently listed on any publicly-disclosed report of U. S. banks
having financial problems warranting close monitoring by the
Federal Reserve Board.
(c) Bankers Acceptances of United States commercial banks holding
membership in the Federal Reserve System. Such U.S. banks shall
have minimum total assets of $1,000,000,000 and shall not be
currently listed on any publicly- disclosed report of U.S. banks
having financial problems warranting close monitoring by the
Federal Reserve Board.
(d) United States Treasury Bills.
(e) United States Treasury Notes.
(f) United States Government Guaranteed "Project Notes" and/or
Tax-Exempt Notes rated MIG 1 by Moody's rating agency.
(g) Debt instruments issued by the following five United States
Government agencies:
Federal Intermediate Credit Banks
Banks for Cooperatives
Federal Land Banks
Federal Home Loan Banks
Federal National Mortgage Association
(h) Commercial Paper rated Prime-1 by Moody's rating agency or rated
A-1 by Standard & Poors rating agency. In addition, with respect
to any corporation's commercial paper being purchased, such
corporation's long-term debt, if any, must be rated either A by
Moody's rating agency or A by Standard & Poors rating agency.
The total investments in the above-described approved Certificates of Deposit,
Bankers Acceptances, Commercial Paper, and/or Tax-Exempt Notes shall be limited
to a maximum of $1,000,000 at any one time in any one single bank, corporation,
state and/or municipality.
3
<PAGE> 29
With respect to funds deposited in escrow by REYNOLDS pursuant to the
terms of the Agreement, principal shall be used only for the payments to the
Employee. Any and all income on invested funds shall be paid to REYNOLDS in
accordance with subsection (c) of Section 2 of the Agreement. Fees of the Escrow
Agent shall be paid by REYNOLDS in accordance with subsection (e)(v) of Section
5 of the Agreement.
With respect to funds deposited pursuant to the Agreement, the ESCROW
AGENT shall be authorized to invest such funds. The ESCROW AGENT will maintain
such liquidity in the investments as will permit them to be cashed when
necessary to fund the required distributions to Employee.
5. TERMINATION. This ESCROW AGREEMENT and all obligations of the ESCROW
AGENT shall terminate upon satisfaction by the ESCROW AGENT of all of its
obligations under this ESCROW AGREEMENT and the Agreement.
6. ADVERSE CLAIMS. ESCROW AGENT shall make delivery or disbursement of
the funds deposited hereunder in accordance with the terms of the ESCROW
AGREEMENT and the Agreement, regardless of any disagreement or the presentation
of any adverse claims or demands of any person, unless such person shall have
obtained an injunction from a court having proper jurisdiction, enjoining ESCROW
AGENT from making such delivery or disbursement. ESCROW AGENT shall not become
liable to REYNOLDS or to any other person, for or because of such delivery or
disbursement of such funds, even with knowledge of a disagreement or adverse
claim or demand.
7. DEMANDS. Except in cases where demand or notice by a single party is
specifically provided for in this ESCROW AGREEMENT or in the Agreement, the
ESCROW AGENT shall not
4
<PAGE> 30
be bound to recognize any notice, demand or change of instructions as having any
effect on this escrow unless given in writing and signed by all parties
considered by the ESCROW AGENT to be affected thereby.
8. NOTICES. Any notice required or permitted to be given hereunder
shall be given in writing and shall be sufficiently delivered if sent by
registered or certified mail, return receipt requested, prepaid, addressed as
follows:
_________________________, Trust Officer
Trust Division
Bank One, Dayton, NA
Kettering Tower
Dayton, Ohio 45423
The Reynolds and Reynolds Company
115 S. Ludlow Street
Dayton, Ohio 45402
Attn: Chief Financial Officer
Should the address of any party identified above change for the purposes herein,
such party shall give written notice of the new address to the other parties
identified above.
All notice hereunder to the ESCROW AGENT shall be given in writing to
an officer of the ESCROW AGENT. Unless written notice shall so be given, the
ESCROW AGENT shall not be required to take or be bound by said notice or to take
action concerning such notice. If written notice be properly given and the
ESCROW AGENT is required upon receipt thereof to take any action hereunder and
such action involves any expense or liability, the ESCROW AGENT shall not be
required to take any such action unless it is indemnified against such expense
or liability in a manner reasonably satisfactory to the ESCROW AGENT. At the
time of depositing funds into escrow on behalf of Employee, REYNOLDS shall
deliver to the ESCROW AGENT a written notice setting
5
<PAGE> 31
forth such person's name and address, and social security number identifying the
amounts being deposited on such person's behalf, and the conditions of the
Agreement, which have been met and which, therefore, require that such deposit
be made.
9. RECORD KEEPING. The ESCROW AGENT shall maintain records showing the
amount and date of all deposits made by REYNOLDS for the benefit of Employee and
the amount and date of all disbursements made to Employee, his heirs, successors
and assigns. REYNOLDS shall be given access to said records at reasonable times
upon request.
10. ESCROW FEE. REYNOLDS shall pay to the ESCROW AGENT for its services
hereunder an escrow fee based upon the then-current schedule of charges for such
services promulgated by the ESCROW AGENT and shall pay additional reasonable
compensation for any further or extraordinary service which the ESCROW AGENT may
be required to render pursuant to the terms of this ESCROW AGREEMENT.
11. BINDING EFFECT. This ESCROW AGREEMENT shall be binding upon and
inure to the heirs, executors, administrators, personnel representatives,
successors and assigns of all parties hereto.
12. MISCELLANEOUS. Employee is acknowledged to be third party
beneficiary upon the deposit of any amounts under this ESCROW AGREEMENT for his
benefit. This ESCROW AGREEMENT may be modified or amended only by a writing
signed (i) by all parties hereto, (ii) by the third party beneficiary and (iii)
by any other person the ESCROW AGENT considers to be affected by said
modification or amendment. This ESCROW AGREEMENT shall be construed and enforced
in accordance with the laws of the State of Ohio.
6
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have set their respective hands
the year and date first hereinabove written.
THE REYNOLDS AND REYNOLDS
COMPANY
By_____________________________________
"REYNOLDS"
BANK ONE, DAYTON, NA
By_____________________________________
"ESCROW AGENT"
7
<PAGE> 33
EXHIBIT B
SCHEDULE OF FRINGE BENEFITS
PURSUANT TO SECTION 3(d)
<TABLE>
<CAPTION>
Benefit Amount
------- ------
<S> <C>
Annual Physical Exam Local Clinic, maximum of $600
Auto/Gas Allowance $916 monthly
Charitable Allowance $1,000 annually to charities of his choice
Income Tax Planning and Preparation $1,000 annually
Estate Planning and Will Preparation
Initial Service $900
Updates $300 annually
Country Club Dues 50% annually, including initiation fee up to
$3,500
Luncheon Club Dues 100% annually
Corporate aircraft (personal use) Yes; in connection with company business use
Hedeen may include personal passengers,
subject to seat availability. Hedeen shall
receive W-2 for personal use value per IRS
regulations
Vacation Five (5) weeks annually at mutually agreed
times.
</TABLE>
<PAGE> 1
EXHIBIT (10) (dd)
AMENDMENT NUMBER 4
THE REYNOLDS AND REYNOLDS COMPANY
SUPPLEMENTAL RETIREMENT PLAN
The Reynolds and Reynolds Company (the "Company") established The
Reynolds and Reynolds Company Supplemental Retirement Plan effective October 1,
1978, amended and restated such plan as The Reynolds and Reynolds Company
Supplemental Retirement Plan (October 1, 1986 Restatement)(the "Plan"), and has
successively amended the Plan, the most recent amendment being Amendment Number
3 effective August 8, 1995. The Company desires to further amend the Plan as
follows, effective June 1, 1996.
1. Section 2.1-Eligibility, the first sentence, is replaced in its
entirety to read as follows:
An Employee of the Company who is an officer other than a
grade 10 officer (as described from time to time under the Company's
personnel policies), who is a management or highly compensated employee
within the meaning of all of Section 201(a), 301(a)(3) and Section
401(a)(1) of ERISA, and who has accrued three Years of Service (as
defined in the Salaried Retirement Plan) as an officer of the Company
other than a grade 10 officer shall be eligible to become a Participant
under the Plan.
IN WITNESS WHEREOF, The Reynolds and Reynolds Company has caused
Amendment Number 4 to be executed by its duly authorized officer this 14th day
of March, 1997.
By /s/ Thomas J. Momchilov
----------------------------------
Title V.P. Corporate Human Resources
-------------------------------
<PAGE> 1
EXHIBIT (10) (jj)
FIRST AMENDMENT TO
THE REYNOLDS AND REYNOLDS COMPANY
RETIREMENT PLAN
(OCTOBER 1, 1994 RESTATEMENT)
The Reynolds and Reynolds Company hereby amends The
Reynolds and Reynolds Company Retirement Plan (October 1, 1994 Restatement) (the
"Plan"), effective as if originally included in the October 1, 1994 restatement
of the Plan, as follows:
1. Paragraph (b) of Section 1.16 of the Plan is
amended to provide as follows:
(b) INELIGIBLE EMPLOYEE - Any person employed by an Employer who
is not an Eligible Employee. The term "Ineligible Employee"
shall also include a person who had been an Eligible Employee
and either has been transferred to an employment status other
than that of an Employee or has been transferred to a Related
Company which has not adopted the Plan, for so long as he
remains so employed. The term "Ineligible Employee" shall also
include any "leased employee," as defined below, with respect
to an Employer or a Related Company (other than an "excludable
leased employee" as defined below). Provided, however, that
any person who performs services for an Employer or Related
Company solely as an independent contractor shall not be
considered to be employed by such Employer. A "leased
employee" means any person who performs services for an
Employer or a Related Company (the "recipient") (other than an
employee of the recipient) pursuant to an agreement between
the recipient and any other person (the "leasing
organization") on a substantially full-time basis for a period
of at least one year, provided that such services are of a
type historically performed, in the business field of the
recipient, by employees, other than an "excludable leased
employee," which means any leased employee of the recipient
who is covered by a money purchase pension plan maintained by
the leasing organization which provides for (i) a
nonintegrated employer contribution on behalf of each
<PAGE> 2
participant in the plan equal to at least ten percent of
compensation, as defined in Section 415(c)(3) of the Code, but
including amounts contributed pursuant to a salary reduction
agreement which are excludable from the leased employee's
gross income under Section 125, Section 402(e)(3), Section
402(h)(1)(B), or Section 403(b) of the Code, (ii) full and
immediate vesting, and (iii) immediate participation by
employees of the leasing organization (other than employees
who perform substantially all of their services for the
leasing organization or whose compensation from the leasing
organization in each plan year during the four-year period
ending with the plan year is less than $l,000); provided,
however, that leased employees do not constitute more than 20
percent of the recipient's nonhighly compensated work force.
Moreover, for the relevant purposes of the Plan, contributions
or benefits provided to a leased employee by the leasing
organization that are attributable to services performed for
the recipient shall be treated as provided by the recipient.
2. Section 9.1 of the Plan is amended by deleting the
word "five" and substituting therefor the word "three".
3. Paragraph (a) of Section 9.2 of the Plan is
amended to provide as follows:
(a) The term "annual compensation" shall
mean compensation as defined in Section 415(c)(3) of the Code
and the regulations issued thereunder, excluding amounts in
excess of the limitations of Section 401(a)(17) of the Code,
of a Participant paid to him by the Employer or a Related
Company during a Plan Year beginning after December 31, 1983,
and with respect to which the Plan is determined to be a top
heavy plan.
4. Section 9.4 of the Plan is amended to provide as
follows:
-2-
<PAGE> 3
Section 9.4 - Minimum Top Heavy Benefit
---------------------------------------
In the event the Plan is determined to be a top heavy
plan, the annual Normal Retirement Pension under the Plan of any
non-key employee who is a Participant and is credited with at least
1,000 Hours of Service during a Plan Year in which the Plan is a top
heavy plan, payable in the form of a single life annuity beginning at
his Normal Retirement Date, shall not be less than such Participant's
average compensation for years in the testing period multiplied by the
lesser of:
(a) Two percent multiplied by his Credited Service; or
(b) 20 percent.
For purposes of this Section, "Credited Service" shall include only
Credited Service completed after December 31, 1983 and shall not
include any such Credited Service if the Plan was not a top heavy plan
with respect to the Plan Year in which such Credited Service was
earned. Notwithstanding the foregoing, any accrued benefit of any such
non-key employee under any tax-qualified defined benefit pension plan
other than the Plan maintained by an Employer or any Related Company
shall be deemed to be provided under the Plan for purposes of
determining whether the minimum benefit requirement of this Section has
been satisfied and if a Participant who is a non-key employee satisfies
the requirements for a minimum benefit under the Plan and any such
other plan with respect to the same period of service the minimum
benefit provisions of this Section, rather than the top heavy minimum
benefit provisions of such other plan, shall apply with respect to such
period of service. In the event the Plan is part of a required
aggregation group in which a top-heavy defined contribution plan is
included, each non-key employee hereunder who is also covered under
such top-heavy defined contribution plan shall receive the minimum
top-heavy benefit under the Plan.
5. Paragraph (e) of Section 10.1 of the Plan is
amended by adding the following at the end thereof:
For purposes of this Section, compensation for limitation
years beginning on or after January 1, 1992 shall mean only
such compensation actually paid or made available to a
Participant within the limitation year.
-3-
<PAGE> 4
6. Section 16.4 of the Plan is amended by deleting
the word "five" and substituting therefor the word "three".
* * *
IN WITNESS WHEREOF, The Reynolds and Reynolds Company
has caused this Amendment to be executed by its duly authorized officer on this
19 day of December, 1996.
ATTEST: THE REYNOLDS AND REYNOLDS COMPANY
/s/ Craig L. Currier By: /s/ Thomas J. Momchilov
- -------------------------- ---------------------------------------
Title: V.P. Corp. Human Resources
<PAGE> 1
EXHIBIT (10) (kk)
SECOND AMENDMENT TO
THE REYNOLDS AND REYNOLDS COMPANY
RETIREMENT PLAN
OCTOBER 1, 1994 RESTATEMENT
The Reynolds and Reynolds Company hereby amends The Reynolds and
Reynolds Company Retirement Plan (October 1, 1994 Restatement) (the "Plan"), as
follows:
1. Section 1 of Schedule I -- Participating Employers is amended
effective October 1, 1997, by adding the following after the
last stated employer:
<TABLE>
<CAPTION>
Employer Effective Date of Special Provisions
-------- ----------------- ------------------
Participation
-------------
<S> <C> <C>
Formcraft, Inc. October 1, 1997 Plan adopted only for Employees.
Dataforms, Inc. October 1, 1997 Plan adopted only for Employees.
</TABLE>
2. Schedule II -- Provisions Regarding Predecessor Employment is
amended effective October 1, 1997, by adding the following
after the last stated employer:
<TABLE>
<CAPTION>
Predecessor Effective Date of Provisions Regarding
----------- ----------------- --------------------
Employer Participation Predecessor Employment in
-------- ------------- -------------------------
Service and Credited Service
----------------------------
<S> <C> <C>
Formcraft, Inc. October 1, 1997 In determining Service (Section
3.2), Credited Service (Section 3.3),
and eligibility to participate in the
Plan (Section 2.1) for employees of
Formcraft, Inc. employed before January
4, 1994, periods of employment with
Formcraft, Inc. shall be considered for
purposes of determining Continuous
Employment under the Plan beginning as
of January 4, 1994. Periods of
employment prior to January 4, 1994,
with Formcraft, Inc. shall not be
considered period of
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
Continuous Employment under the Plan
except that such Periods of Employment
prior to January 4, 1994 shall be
considered Continuous Employment only
for purposes of Service for purposes of
eligibility for an Early Retirement
Pension (Section 4.2) and for purposes
of Service for purposes of determining
the Accrued Retirement Pension of a
Participant who retires on Early
Retirement under Section 4.2 after
completing thirty-five (35) or more
years of Service (Section 1.23(e)).
Dataforms, Inc. October 1, 1997 In determining Service (Section 3.2), Credited
Service (Section 3.3), and eligibility
to participate in the Plan (Section 2.1)
for employees of Dataforms, Inc.
employed before May 10, 1995, periods of
employment with the Company shall be
considered for purposes of determining
Continuous Employment under the Plan
beginning as of May 10, 1995. Periods
ofemployment prior to May 10, 1995, with
Dataforms, Inc. shall not be considered
prior of Continuous Employment under the
Plan except that period of employment
prior to May 10, 1995, with Dataforms,
Inc. shall be considered Continuous
Employment only for purposes of Service
for purposes of eligibility for an Early
Retirement Pension (Section 4.2) and for
purposes of
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Service for purposes of determining the
Accrued Retirement Pension of a
Participant who retires on Early
Retirement under Section 4.2 after
completing thirty-five (35) or more
years of Service (Section 1.23(e)).
Jordan Graphics, Inc. October 1, 1997 In determining Service (Section 3.2),
Credited Service (Section 3.3), and
eligibility to participate in the Plan
(Section 2.1) for former employees of
Jordan Graphics, Inc., periods of
employment with the Company shall be
considered for purposes of determining
Continuous Employment under the Plan
beginning as of January 23, 1996, and
periods of employment before January 23,
1996, with Jordan Graphics, Inc. shall
not be considered period of Continuous
Employment under the Plan. Except
periods of employment prior to January
23, 1996, with Jordan Graphics, Inc.
shall be considered Continuous
Employment only for purposes of Service
for purposes of eligibility for an Early
Retirement Pension (Section 4.2) and for
purposes of Service for determining the
Accrued Retirement Pension of a
Participant who retires on Early
Retirement under Section 4.2 after
completing thirty-five (35) or more
years of Service (Section 1.23(e)).
</TABLE>
<PAGE> 4
3. Effective as of September 30, 1997, a new Article XXI shall be added to
the Plan at the end thereof to provide the following:
Section 21.1 - Definitions
--------------------------
For purposes of this Article XXI, the following definitions
shall apply:
(a) The "Transfer Date" shall mean September 30,
1997.
(b) The "Transferee Employees" shall mean those
persons who are "Transfer Employees" as
defined in Article XXI of the Transferor
Plan.
(c) The "Transferor Plan" shall mean The
Reynolds and Reynolds Company Union
Retirement Plan.
Section 21.2 - Crediting of Compensation, Continuous Employment,
----------------------------------------------------------------
Service, and Credited Service
-----------------------------
(a) For purposes of crediting Compensation,
Continuous Employment, Service, and Credited Service, the
Transfer Employees shall be subdivided into Group I and Group
II, where Group I shall consist of all Transfer Employees who
are Employees on the day immediately following the Transfer
Date and all Transfer Employees who terminated employment
covered under the Transferor Plan under conditions entitling
them to a "Normal Retirement Pension" or an "Early Retirement
Pension" under Section 4.1 or Section 4.2, as applicable, of
the Transferor Plan, and where Group II shall consist of all
other Transfer Employees; provided, however, that Group II
Transfer Employees who, after the Transfer Date, are
reemployed by an Employer as an Eligible Employee shall, as of
such reemployment date, be excluded from Group II and included
in Group I.
(b) As of the day immediately following the Transfer
Date (or as of the date of reemployment under the Plan in the
case of a reemployed Group II transfer Employee), each
Transfer Employee in Group I shall be credited under the Plan
with:
(i) Continuous Employment under the Plan
pursuant to the provisions of the Plan; provided,
however, that the Continuous Employment credited
shall in no event be less than the "Continuous
Employment" that would be credited to the Transfer
Employee under the provisions of the Transferor Plan
as in effect on the Transfer Date; and
(ii) Service under the Plan pursuant to the
provisions of the Plan; provided, however, that the
Service credited shall in no event be less that the
"Service" that would be credited to the Transfer
Employee under the provisions of the Transferor Plan
as in effect on the Transfer Date; and
<PAGE> 5
(iii) Credited Service under the Plan
pursuant to the provisions of the Plan; provided,
however, that (a) the Credited Service credited shall
in no event be less that the "Credited Service"
credited to the Transfer Employee under the
provisions of the Transferor Plan as of the close of
business on September 30, 1997; and
(iv) Compensation under the Plan pursuant to
the provisions of the Plan.
Notwithstanding the foregoing provisions of
this Section or any other provision of the Plan,
however, in no event shall any Transfer Employee
receive dual credit under the Plan for Compensation,
Continuous Employment, Service, or Credited Service
with respect to any period.
Section 21.3 - Transfer of Assets and Liabilities
-------------------------------------------------
Effective as of the Transfer Date, all liabilities of the Transferor
Plan with respect to the Transfer Employees shall be transferred to the Plan
from the Transferor Plan. On or as soon as practicable after the Transfer Date,
assets of the Transferor Plan with respect to the Transfer Employees'
liabilities so transferred to the Plan, in an amount that, based on the
certification of the Actuary, meets the requirements of Section 414(l) of the
Code and regulations and rulings thereunder, together with interest thereon at
the rate recommended by the Actuary from the Transfer Date to the date of the
assets transfer, shall, upon the direction of the Company to the Trustee, be
transferred to the Trust Fund from the trust fund maintained under the
Transferor Plan. Notwithstanding any provision of the Plan to the contrary, in
no event shall the accrued benefit under the Plan on or after the Transfer Date
of any Transfer Employee be less that his accrued benefit under the Transferor
Plan as of the Transfer Date. Any applications, elections, and waivers under the
Transferor Plan that are applicable to a Transfer Employee's benefit transferred
from the Transferor Plan to the Plan shall continue to be applicable to such
benefit hereunder.
Section 21.4 - Continuation of Portion of Transferor Plan
- ---------------------------------------------------------
The Plan shall be deemed to be a continuation of that portion of the
Transferor Plan transferred to the Plan as provided in Section 21.3 with respect
to the Transfer Employees.
Section 21.5 - Overriding Provisions
- ------------------------------------
The provisions of this Article XXI shall apply notwithstanding any
other provisions of the Plan, except Section 15.2, and shall override any
conflicting Plan provisions.
<PAGE> 6
4. Effective September 30, 1997, subsection (a) of Section 1.16 is
replaced with the following:
Except as otherwise provided herein, any person employed by an
Employer who is not classified as an Ineligible Employee and
is a common law employee, a regular salaried employee or a
salesman of an Employer, on or after the Effective Date. With
respect to periods after December 31, 1990, any person
classified as a regular hourly-rated employee of an Employer,
who is receiving remuneration for personal services rendered
to the Employer (or who would be receiving such remuneration
except for an Approved Absences or Military Service.) With
respect to periods after September 30, 1997, any person who is
covered by a collective bargaining agreement which provides
for such person's inclusion in the Plan.
5. Effective September 30, 1997, subsection (b) of Section 1.16 is
replaced with the following:
Any person who had been an Eligible Employee and either has
been transferred to an employment status other than that of an
Employee or has been transferred to a Related Company which
has not adopted the Plan, for so long as he remains so
employed. The term "Ineligible Employee" shall also include
any "leased employee", as defined in Section 414(n)(2) of the
Code, with respect to an Employer or a Related Company (other
than a leased employee excludable pursuant to Section
414(n)(5) of the Code). Provided, however, that any person who
performs services for an Employer or Related Company solely as
an independent contractor shall not be considered to be
employed by such Employer. The term "Ineligible Employee" also
includes (1) independent contractors reclassified by the
Internal Revenue Service as common law employees, and (2)
common law employees who serve in the Project Contingency Work
Force Division. The Project Contingency Work Force Division
contracts with certain workers to provide services on projects
of a temporary nature. The Project Contingency Work Form
Division is fully described in The Reynolds and Reynolds
Company Employee Handbook.
6. Effective September 30, 1997, Section 3.1 is amended to add Section
3.1(a)(2)(iii) which shall read as follows:
Participants who meet the disability requirements
under The Reynolds and Reynolds Company Union Retirement Plan
as of September 30, 1997, shall continue to accrue Hours of
Service up to the maximum of 501 hours per continuous period
in accordance with The Reynolds and Reynolds Company Union
Retirement Plan. However, such Participants shall cease
accruing Hours of Service as of the first day on which such
Participant no longer meets such disability requirements.
7. Effective September 30, 1997, Section 5.1 is amended to provide the
following:
Provided, however, with respect to periods after
September 30, 1997, any person participating pursuant to the
terms of a collective bargaining agreement shall
<PAGE> 7
be eligible for a Normal Retirement Pension in accordance with
the terms of such collective bargaining agreement.
8. Effective for distribution made on or after September 15, 1997, Section
6.4 is amended by removing the first sentence of the second paragraph
and replacing the first sentence of the second paragraph with the
following:
If any benefit payable pursuant to this Article
shall, prior to the commencement or distribution thereof have
an Actuarial Equivalent lump sum value greater than $3,500 (or
greater than $3,500 at the time of any prior distribution) but
not in excess of $10,000, the Participant may elect, subject
to the provisions of Section 7.2 and 7.4 hereof, to receive a
lump sum cash settlement of such benefit.
9. Effective with respect to any distribution made on or after September
15, 1997, Section 8.10 is amended by removing the second paragraph and
replacing the second paragraph with the following:
If any benefit payable pursuant to this Article
shall, prior to the commencement or distribution thereof have
an Actuarial Equivalent lump sum value greater than $3,500 (or
greater than $3,500 at the time of any prior distribution) but
not in excess of $10,000, the Eligible Spouse or other
beneficiary, as the case may be may elect to receive a lump
sum cash settlement of the Actuarial Equivalent lump sum value
of such benefit, which shall be paid as soon as practicable
after the Plan Administrator receives written notice of such
election.
10. Effective October 1, 1997, Article I is amended to add Section 1.35
which shall read as follows:
Section 1.35 - HR-Group
-----------------------
A special grouping of individuals within the
Company's Human Resources Information System (HRIS) that
consists of employees acquired through an acquisition and
employees hired within the group following the acquisition.
IN WITNESS WHEREOF, The Reynolds and Reynolds Company has caused this
Amendment to be executed by its duly authorized officers on this 11 day of
August, 1997.
THE REYNOLDS AND REYNOLDS COMPANY
By
----------------------------------------
Title
-------------------------------------
<PAGE> 1
EXHIBIT (10)(rr)
AMENDMENT NUMBER 7
THE REYNOLDS AND REYNOLDS COMPANY
401(k) SAVINGS PLAN
The Reynolds and Reynolds Company (the "Company") established The
Reynolds and Reynolds Company 401(k) Savings Plan (the "Plan") effective as of
January 1, 1994. Prior to such time, the Plan was known as The Reynolds and
Reynolds Company Tax Deferred Savings and Protection Plan. Thereafter, the
Company has successively amended the Plan, the most recent amendment being
Amendment Number 6 effective March 1, 1996. The Company desires to further amend
the Plan as follows effective January 1, 1997:
1. Article I is amended by the adding a new paragraph after the last
paragraph of Section 1.1 which shall read as follows:
Years of Vesting Service shall be determined in accordance with the
following:
(i) An Employee or Disabled Employee shall be credited
with years of Vesting Service equal to his period of
continuous service.
(ii) Notwithstanding the provisions of paragraph (i), the
following periods of continuous service shall not be
included in determining an Employee's or Disabled
Employee's years of Vesting Service:
(I) continuous service completed by the
Employee or the Disabled Employee
prior to a severance date unless (1)
the Employee or the Disabled
Employee has a reemployment
commencement date within the
12-consecutive-month period
following the severance date, (2)
the Employee or the Disabled
Employee has a nonforfeitable right
to any portion of his Separate
Account as of the severance date, or
(3) his reemployment commencement
date is less than the greater of
five years or his period of
continuous service determined as of
the severance date; provided,
however, that solely for purposes of
applying this subparagraph, if a
person is on maternity/paternity
absence beyond the first anniversary
of the first day of such absence,
his severance date shall be the
second anniversary of the first day
of such maternity/paternity absence;
and
II. continuous service completed by an
Employee or a Disabled Employee
prior to October 1, 1993.
2. Article II is amended by removing the current Section 2.1 and replacing
it as follows:
2.1 Eligibility
<PAGE> 2
(a) Except as provided below in Section 2.1(b), Each Employee who
is in an eligible employment classification as set forth in
this Section 2.1 shall become an Eligible employee on or as
soon as administratively practicable after the first date he
is in an eligible employment classification as set forth in
this Section 2.1, but in no event later than the first day of
the sixth calendar week beginning after the first date he is
in an eligible employment classification. An Employee is in an
eligible employment classification unless he is:
(1) A nonresident alien who receives no earned
income from an Employer or a Related Company
(within the meaning of Section 911(b) of the
Code) that constitutes income from sources
within the United Sates (within the meaning
of Section 861(a)(3) of the Code);
(2) An Employee hired for a specific project of
limited duration;
(3) An Employee of a Related Company;
(4) An Employee of an Employer at a plant,
division, or other business operation to
which coverage has not been extended by such
Employer;
(5) A leased employee; or
(6) A person included in a unit of employees
covered by a collective bargaining
agreement, except as provided below.
As of January 1, 1994, each Eligible Employee who is covered
by collective bargaining agreement with one of the following
unions are in an eligible employment classification:
The Graphic Communications Union, Local No. 754-S,
Subordinate to The Graphic Communications
International Union;
The Graphic Communications International Union, Local
508 OKI, AFL/CIO (Printing Support Unit); and
International Union, United Automobile, Aerospace,
and Agricultural Implement Workers of America, UAW,
and Its Local Union No. 2295
Effective as soon as administratively possible
following February 11, 1997, The Graphic
Communications International Union, Local 199B.
(b) For purposes of the Non-Elective Employer Discretionary
Contribution described in Section 5.7, each Employee who has
attained age 20 1/2, has completed six full calendar months of
Eligibility Service, and meets the employment classification
requirements set forth below, shall be eligible for such
contribution as of the next
2
<PAGE> 3
following Enrollment Date. An Employee or Disabled Employee is
in an eligible employment classification unless he is:
(1) A nonresident alien who received no earned income
from an Employer or a Related Company (within the
meaning of Section 911(b) of the Code) that
constitutes income from sources within the United
States (within the meaning of Section 861(a)(3) of
the Code);
(2) A person who is not covered by The Reynolds and
Reynolds Flexible Benefits Plan;
(3) An Employee hired for a specific project of limited
duration;
(4) An Employee of a Related Company, or a Disabled
Employee who last performed services for a Related
Company;
(5) An Employee of an Employer at a plant, division, or
other business operation to which coverage has not
been extended by such Employer;
(6) A Disabled Employee who last performed services for
an Employer at a plant, division, or other business
operation to which coverage has not been extended by
such Employer; or
(7) A leased employee.
3. Article V shall be amended by adding Section 5.1(c) which shall read as
follows:
(c) The "Non-Elective Employer Discretionary Contribution" means
any Employer Contribution made to the Plan in accordance with
the provision of Section 5.7.
4. Article V shall be amended by adding a new Section 5.7 which shall read
as follows:
5.7 Non-Elective Employer Discretionary Contribution
The Sponsor, in its capacity as an Employer, may make a
contribution to the Plan for the Contribution Period in an amount
determined by the Employer. Employer Contributions shall be reduced to
the extent that the amount that would be allocated to any Eligible
Employee for the Contribution Period exceeds the Section 415
limitations. The amount of any Employer Contribution to the Plan for a
Contribution Period shall in no event exceed the amount that would be
deductible in the Employer's taxable year that corresponds to such
Contribution Period for purposes of federal taxes on income under
Section 404 of the Code, and all Employer Contributions contributed
shall be conditioned upon such deductibility. Each Eligible Employee's
allocable share of any contribution made pursuant to this Section shall
be credited to the Employer Contributions Sub-Account of such Eligible
Employee. A Contribution Period for purposes of this Section shall be
each Plan Year.
3
<PAGE> 4
5. Article V shall be amended by adding a new Section 5.8 which shall read
as follows:
5.8 Allocation of Non-Elective Employer Discretionary Contribution
Any Employer Contribution made pursuant to Section 5.7 for any
Plan Year shall be allocated in equal shares (per capita) among all
Eligible Employees.
6. Article V shall be amended by restating Section 5.10 which shall read
as follows:
5.10 Vesting of Employer Contributions
Employer Contributions shall vest as follows:
(a) Except as provided in subsection 5.10(b), a
Participant's vested interest in his Employer
Contributions Sub-Account shall be at all times 100
percent.
(b) A Participant's vested interest in any Non-Elective
Employer Discretionary Contribution shall be zero
percent until the Participant has completed three
Years of Vesting Service at which time his vested
interest in such amounts shall be 100 percent. For
Participant's hired on or before October 1, 1993,
vesting will be determined from October 1, 1993.
Otherwise, vesting will be determined from a
Participant's date of hire.
7. Article V shall be amended by renumbering the article beginning with
the previous Section 5.7 as Section 5.9.
8. Article XX shall be amended by restating Section 20.18 which shall read
as follows:
20.18 Forfeitures
(a) That portion of a Participant's Sub-Account that is not vested
upon the occurrence of his Settlement Date shall be deposed of
as follows:
(1) If the Participants has no vested interest in his
Sub-Account upon the occurrence of his settlement
Date or if the Participant receives full payment f
his vested interest in his Sub-Account, the
non-vested balance remaining in the Participant's
Sub-Account will be forfeited and his Separate
Account closed as of (i) the date on which the
Participant has no vested interest in his
Sub-Account, or (ii) in which the full payment occurs
provided that such distribution occurs prior to the
end of the second Plan year beginning on or after the
participant's Settlement Date. Otherwise, the
non-vested portion of the Participant's Sub-Account
will continue to be held in such Separate Account and
will not be forfeited until the end of the five-year
period beginning on his Settlement Date.
4
<PAGE> 5
(b) Forfeitures of contributions made pursuant to Section 5.7
shall be applied to offset contributions made to Section 5.7.
(c) A former Participant who forfeited the non-vested portion of
his Sub-Account and who is reemployed by an Employer or a
Related Company shall have such forfeited amounts recredited
to a new Separate Account in his name, without adjustment for
interim gains or losses experienced by the Trust, if:
(1) he returns to employment with an Employer or
a Related Company before the end of the
five-year period beginning on the later of
his Settlement Date or the date he received
distribution of his vested interest in his
Separate Account;
(2) he resumes employment covered under the plan
before the end of the five-year period
beginning on the date he is reemployed; and
(3) if he received distribution of his vested
interest in his Sub-Account, he repays to
the Plan the full amount of such
distribution before the end of the five-year
period beginning on the date he is
reemployed.
Funds needed in any Plan year to recredit the separate Account
of a Participant with the amounts of prior forfeitures that
arise during such Plan Year, and then by way of a separate
Employer Contribution, and shall finally be provided from the
Trust income earned in such Plan Year.
IN WITNESS WHEREOF, The Reynolds and Reynolds Company has caused
Amendment Number 25 to be executed by its duly authorized officer this _____ day
of _____________, 199_.
By
-----------------------------
Title
---------------------------
5
<PAGE> 1
EXHIBIT (10) (SS)
EIGHTH AMENDMENT TO
THE REYNOLDS AND REYNOLDS COMPANY
401(K) SAVINGS PLAN
The Reynolds and Reynolds Company (the "Company") established The
Reynolds and Reynolds Company 401(k) Savings Plan (the "Plan") effective as of
January 1, 1994. Prior to such time, the Plan was known as The Reynolds and
Reynolds Company Tax Deferred Savings and Protection Plan. Thereafter, the
Company has successively amended the Plan, the most recent amendment being
Amendment Number 7 effective January 1, 1997. The Company desires to further
amend the Plan as follows:
1. Effective October 1, 1997, Article I is amendment by removing the
current definition of "Employee" and replacing such definition with the
following:
An "EMPLOYEE" means any common law employee of an Employer or of a
Related Company or a person who is a "leased employee" as defined in
Section 20.15, excluding independent contractors and Ineligible
Employees.
2. Effective October 1, 1997, Article I is amended to add after the last
paragraph of Section 1.1 the following:
An "INELIGIBLE EMPLOYEE" means any common law employees who serve in
the Project Contingency Work Force Division. The Project Contingency
Work Force Division contracts with certain workers to provide
services on projects of a temporary nature. The Project Contingency
Work Force Division is fully described in The Reynolds and Reynolds
Company Employee Handbook. An "Ineligible Employee" also means
independent contractors reclassified by the Internal Revenue Service
as common law employees.
"HR-GROUP" shall mean a special grouping of individuals within the
Company's Human Resources Information Systems (HRIS) that consists
of employees acquired through an acquisition and employees hired
within the group following the acquisition.
3. Effective October 1, 1997, Article II is amended to remove
Section 2.1(a)(2).
4. Effective October 1, 1997, Article II is amended to remove
Section 2.1(b)(3).
5. Article V shall be amended by adding new language after the last
paragraph of Section 5.7 which shall read as follows:
Notwithstanding any other provision of the Plan to the contrary,
employees of HR-Group Formcraft shall not be eligible to receive a
Non-Elective Employer Discretionary Contribution for any Contribution
Period ending on or before September 30, 1997. For Contribution
<PAGE> 2
Periods beginning after September 30, 1997, employees of HR-Group
Formcraft shall be eligible to receive a Non-Elective Employer
Discretionary Contribution in accordance with the terms of the Plan.
Notwithstanding any other provision of the Plan to the contrary,
employees of HR-Group Jordan Graphics shall not be eligible to receive a
Non-Elective Employer Discretionary Contribution for any Contribution
Period ending on or before September 30, 1997 For Contribution Periods
beginning after September 30, 1997, employees of HR-Group Jordan
Graphics shall be eligible to receive a Non-Elective Employer
Discretionary Contribution in accordance with the terms of the Plan.
Notwithstanding any other provision of the Plan to the contrary,
employees of HR-Group Dataforms shall not be eligible to receive a
Non-Elective Employer Discretionary Contribution for any Contribution
Period ending before January 1, 1998. For Contribution Periods
beginning on or after January 1, 1998, employees of HR-Group Dataforms
shall be eligible to receive a Non-Elective Employer Discretionary
Contribution in accordance with the terms of the Plan.
Notwithstanding any other provision of the Plan to the contrary,
employees of HR-Group Duplex shall not be eligible to receive a
Non-Elective Employer Discretionary Contribution pursuant to this
Section 5.7.
Notwithstanding any other provision of the Plan to the contrary,
employees of HR-Group Vanier Graphics shall not be eligible to
receive a Non-Elective Employer Discretionary Contribution
pursuant to this Section 5.7.
IN WITNESS WHEREOF, The Reynolds and Reynolds Company has caused
Amendment Number 8 to be executed by it duly authorized officer this 11th day
of August 1997.
By
------------------------------------
Title
---------------------------------
<PAGE> 1
EXHIBIT (10) (WW)
AMENDMENT NUMBER 2
THE REYNOLDS AND REYNOLDS COMPANY
RETIREE MEDICAL SAVINGS ACCOUNT PLAN
The Reynolds and Reynolds Company (the "Company") established The
Reynolds and Reynolds Company Retiree Medical Savings Account Plan (the "Plan")
effective as of October 1, 1993. Thereafter, the Company has amended the Plan,
the most recent amendment being Amendment Number 1 effective October 1, 1993.
The Company desires to further amend the Plan as follows effective October 1,
1993:
1. Article IV is amended by the restating the first paragraph of Section
4.7 which shall read as follows:
A Participant's vested interest in his Separate Account shall be zero
percent until the Participant has completed three years of Vesting
Service at which time his vested interest in his Separate Account shall
be 100 percent. For Participant's hired on or before October 1, 1993,
vesting will be determined from October 1, 1993. Otherwise, vesting
will be determined from a Participant's date of hire.
IN WITNESS WHEREOF, The Reynolds and Reynolds Company has caused this
Amendment to be execute by its duly authorized officers on this 14 day of
March, 1997.
THE REYNOLDS AND REYNOLDS COMPANY
By /s/ Thomas J. Momchilov
------------------------------------
Title V.P. Corporate Human Resources
---------------------------------
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