-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, jQdcF/uAhGqRvZRBKxuS1txwqGMXSqVjblJfLK/OlGtcwLf3wUrrnB2aVMzoZHkA h7ioq17d5GgkR1eQf8ebqA== 0000950131-94-001303.txt : 19940817 0000950131-94-001303.hdr.sgml : 19940817 ACCESSION NUMBER: 0000950131-94-001303 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DONNELLEY R R & SONS CO CENTRAL INDEX KEY: 0000029669 STANDARD INDUSTRIAL CLASSIFICATION: 2750 IRS NUMBER: 361004130 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04694 FILM NUMBER: 94543391 BUSINESS ADDRESS: STREET 1: 77 W WACKER DR CITY: CHICAGO STATE: IL ZIP: 60601 BUSINESS PHONE: 3123268000 MAIL ADDRESS: STREET 1: 77 W. WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60601 10-Q 1 FORM 10-Q - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-Q ----------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-4694 R. R. DONNELLEY & SONS COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-1004130 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 77 WEST WACKER DRIVE, CHICAGO, ILLINOIS 60601 (ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE) OFFICES) REGISTRANT'S TELEPHONE NUMBER (312) 326-8000 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 the filing requirements for the past 90 days. X Yes------- No ------- NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF JULY 31, 1994 153,864,474 - - -------------------------------------------------------------------------------- - - -------------------------------------------------------------------------------- PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
PAGE INDEX NUMBER(S) ----- --------- Condensed Consolidated Statements of Income (Unaudited) for the three and six month periods ended June 30, 1994 and 1993...... 3 Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 1994 and December 31, 1993................................ 4-5 Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 1994 and 1993................... 6 Notes to Condensed Consolidated Financial Statements (Unau- dited)........................................................ 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations--Comparison of Second Quarter and First Half 1994 to 1993............................................. 8 Financial Condition............................................ 8-9
2 R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES ---------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------------ ------------------------ 1994 1993 1994 1993 ----------- ----------- ----------- ----------- Net sales................. $ 1,117,338 $ 993,964 $ 2,188,215 $ 1,954,305 Cost of sales............. 899,519 798,613 1,776,543 1,584,119 ----------- ----------- ----------- ----------- Gross profit............ 217,819 195,351 411,672 370,186 Selling and administrative expenses................. 118,120 105,431 233,270 209,285 Restructuring charge...... -- -- -- 90,000 ----------- ----------- ----------- ----------- Earnings from operations............. 99,699 89,920 178,402 70,901 Interest expense.......... (12,472) (11,254) (24,199) (22,464) Other expense, net........ (1,435) (486) (5,476) (3,010) ----------- ----------- ----------- ----------- Earnings before income taxes and cumulative effect of accounting changes ................. 85,792 78,180 148,727 45,427 Provision for income taxes.................... 27,454 25,409 47,593 14,764 ----------- ----------- ----------- ----------- Net income from operations before cumulative effect of accounting changes.... 58,338 52,771 101,134 30,663 Cumulative effect of change in accounting for post-retirement benefits other than pensions (net of tax benefits of $80.1 million)................. -- -- -- (127,700) Cumulative effect of change in accounting for income taxes............. -- -- -- 58,200 ----------- ----------- ----------- ----------- Net income (loss)......... $ 58,338 $ 52,771 $ 101,134 $ (38,837) =========== =========== =========== =========== Income (charge) per share: Operations before cumulative effects of accounting changes..... $ 0.38 $ 0.34 $ 0.66 $ 0.20 Cumulative effect of change in accounting for post-retirement benefits other than pensions (net of tax benefits).............. -- -- -- (0.82) Cumulative effect of change in accounting for income taxes....... -- -- -- 0.37 ----------- ----------- ----------- ----------- Net income (loss)....... $ 0.38 $ 0.34 $ 0.66 $ (0.25) =========== =========== =========== =========== Cash dividends.......... $ 0.14 $ 0.13 $ 0.28 $ 0.26 =========== =========== =========== =========== Average number of shares outstanding.............. 154,367,000 154,701,000 154,288,000 154,805,000 =========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. 3 R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES ---------------- CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) JUNE 30, 1994 AND DECEMBER 31, 1993 (THOUSANDS OF DOLLARS) ASSETS
1994 1993 ----------- ----------- Current assets: Cash and equivalents............................... $ 19,949 $ 10,716 Receivables, less allowance for doubtful accounts of $15,377 and $14,795 at June 30, 1994 and December 31, 1993, respectively................... 818,423 825,207 Inventories, principally at LIFO cost.............. 283,954 243,714 Prepaid expenses................................... 40,571 30,277 ----------- ----------- Total current assets............................. 1,162,897 1,109,914 ----------- ----------- Property, plant and equipment, at cost............... 3,619,850 3,361,255 Accumulated depreciation............................. (1,812,226) (1,686,779) ----------- ----------- Net property, plant and equipment................ 1,807,624 1,674,476 ----------- ----------- Goodwill--net........................................ 541,687 493,672 Other assets......................................... 434,679 375,964 ----------- ----------- Total assets..................................... $ 3,946,887 $ 3,654,026 =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements. 4 R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES ------------ CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) JUNE 30, 1994 AND DECEMBER 31, 1993 (THOUSANDS OF DOLLARS) LIABILITIES AND SHAREHOLDERS' EQUITY
1994 1993 ---------- ---------- Current liabilities: Accounts payable..................................... $ 364,047 $ 333,862 Accrued compensation................................. 70,152 78,284 Short-term debt...................................... 37,400 37,428 Current and deferred income taxes.................... 53,281 40,698 Other accrued liabilities............................ 195,134 195,169 ---------- ---------- Total current liabilities.......................... 720,014 685,441 ---------- ---------- Long-term debt......................................... 841,779 673,422 Deferred income taxes.................................. 262,083 272,959 Other noncurrent liabilities........................... 216,307 178,213 Shareholders' equity: Common stock, at stated value........................ 330,612 330,612 Retained earnings, including cumulative translation adjustments of ($4,934) and ($13,140) at June 30, 1994 and December 31, 1993, respectively..................... 1,699,061 1,629,673 Reacquired common stock, at cost..................... (122,969) (116,294) ---------- ---------- Total shareholders' equity......................... 1,906,704 1,843,991 ---------- ---------- Total liabilities and shareholders' equity......... $3,946,887 $3,654,026 ========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements. 5 R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES ------------ CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30 (THOUSANDS OF DOLLARS)
1994 1993 -------- --------- Cash flows provided by (used in) operating activities: Net income from operations before cumulative effect of accounting changes..................................... $101,134 $ 30,663 Depreciation and amortization........................... 150,888 133,870 Net change in assets and liabilities.................... 482 3,582 Other................................................... (100) 5,441 -------- --------- Net cash provided by operating activities............. 252,404 173,556 -------- --------- Cash flows used for investing activities: Capital expenditures.................................... (233,528) (145,289) Other capital investments including acquisitions........ (103,521) (32,696) -------- --------- Net cash used for investing activities................ (337,049) (177,985) -------- --------- Cash flows from (used for) financing activities: Net increase in borrowings.............................. 138,069 64,637 Disposition of reacquired common stock.................. 17,367 12,428 Acquisition of common stock............................. (20,783) (23,335) Cash dividends on common stock.......................... (43,211) (40,247) -------- --------- Net cash from financing activities.................... 91,442 13,483 -------- --------- Effect of exchange rate changes on cash and equivalents... 2,436 (424) -------- --------- Net increase in cash and equivalents...................... 9,233 8,630 Cash and equivalents at beginning of period............... 10,716 12,348 -------- --------- Cash and equivalents at end of period..................... $ 19,949 $ 20,978 ======== =========
See accompanying Notes to Condensed Consolidated Financial Statements. 6 R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES ------------ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. The condensed consolidated financial statements included herein are unaudited (although the balance sheet at December 31, 1993 is condensed from the audited balance sheet at that date) and have been prepared by the company to conform with the requirements applicable to this quarterly report on Form 10-Q. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been omitted as permitted by such requirements. However, the company believes that the disclosures made are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the company's 1993 annual report on Form 10-K. The condensed consolidated financial statements included herein reflect, in the opinion of the company, all adjustments (which include only normal, recurring adjustments) necessary to present fairly the financial information for such periods. Note 2. Components of the company's inventories at June 30, 1994 and December 31, 1993 were as follows:
(THOUSANDS OF DOLLARS) ---------------------- JUNE 30, DECEMBER 31, 1994 1993 -------- ------------ Raw materials........................................... $150,317 $142,739 Work in process......................................... 193,488 154,477 Other, including goods held for customers and operating supplies............................................... 35,515 32,192 LIFO reserve............................................ (47,896) (45,395) Progress billings....................................... (47,470) (40,299) -------- -------- Total inventories................................... $283,954 $243,714 ======== ======== Note 3. The following provides supplemental cash flow information: (THOUSANDS OF DOLLARS) ---------------------- SIX MONTHS ENDED JUNE 30 ---------------------- 1994 1993 -------- ------------ Interest paid, net of capitalized interest.............. $ 24,137 $ 17,784 Income taxes paid....................................... $ 38,831 $ 14,644
7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS--COMPARISON OF SECOND QUARTER 1994 TO SECOND QUARTER 1993 Net sales increased 12.4%, reflecting new products and services, higher volume from existing and new customers and recent acquisitions. Net sales from international operations increased 29%, resulting from strong demand from computer hardware and software customers in Europe and Asia and from existing and new customers in book, catalog and magazine operations in the United Kingdom and Mexico. As a result of this growth, international operations represented over 10% of consolidated net sales in the quarter. The growth in international sales is expected to continue in the second half with the consolidation of Editorial Lord Cochrane, the major independent printer in South America, in which the company acquired a majority interest in the second quarter of 1994. Gross profit increased 11.5%, reflecting higher sales volume partially offset by higher depreciation and amortization, a higher LIFO provision and higher start-up expenses. Selling and administrative expenses increased 12% (less than the 12.4% growth in net sales), due to higher volume, recent expansions and new operations. Total other expense increased $2.2 million, primarily reflecting higher interest expense (due to larger commercial paper balances and higher interest rates) and lower investment income. The effective tax rate of 32% in 1994 was lower than the 1993 rate of 32.5% reflecting benefits associated with life insurance programs and credits associated with affordable housing programs, partially offset by the impact of the higher federal statutory income tax rate. Net income increased 10.5%, as a result of volume increases and a lower effective tax rate. Earnings per share were $0.38 per share, up 11.8%, reflecting the growth in net income and fewer average shares outstanding. RESULTS OF OPERATIONS--COMPARISON OF FIRST HALF 1994 TO FIRST HALF 1993 Net sales increased 12%, reflecting new products and services, higher volume from existing and new customers and recent acquisitions. Net sales from international operations increased 24%, resulting from strong demand from computer hardware and software customers in Europe and Asia, and from existing and new customers in book, catalog and magazine operations in the United Kingdom and Mexico. As a result of this growth, international operations represented over 10% of consolidated net sales in the first half. The growth in international sales is expected to continue in the second half with the consolidation of Editorial Lord Cochrane, as discussed in the second quarter comparison. Gross profit increased 11.2%, reflecting higher sales volume partially offset by higher depreciation and amortization, a higher LIFO provision and higher start-up expenses. Selling and administrative expenses increased 11.5% (less than the 12% growth in net sales), due to increased volume, recent expansions and new operations. Total other expense increased $4.2 million, primarily reflecting higher interest expense (due to larger commercial paper balances and higher interest rates) and lower investment income. The effective tax rate of 32% in 1994 was lower than the 1993 rate of 32.5%, reflecting benefits associated with life insurance programs and credits associated with affordable housing programs, partially offset by the impact of the higher federal statutory income tax rate. Due to volume increases and the lower effective tax rate, net income increased 10.6% in the first half, excluding the restructuring charge and accounting changes reflected in the first quarter of 1993. First half earnings per share of $0.66 increased 11.9% over 1993, excluding the one- time items recorded in the first quarter of 1993, reflecting growth in net income and fewer average shares outstanding. FINANCIAL CONDITION With the growth in cash flow and the credit facilities and shelf registration discussed below, management believes the company has the financial strength and flexibility to fund current 8 operations and growth. Net income from operations plus depreciation and amortization increased to $252 million, up 12% over the prior year, excluding the restructuring charge recorded in the first quarter of 1993. Capital investments during the first half totaled $337 million, including new equipment to meet the growing needs of present and new customers; expansion of manufacturing plants; and acquisitions and joint venture investments. Full year capital investments are expected to be $500 million, including the second- quarter acquisition of a majority interest in Editorial Lord Cochrane. Working capital increased by $18 million from December 31, 1993, primarily from higher inventory levels to support expected second half volume increases, partially offset by higher accounts payable balances. At June 30, 1994, the company continues to have two unused revolving credit facilities totaling $550 million with a number of banks. These credit facilities provide support for the issuance of commercial paper and other credit needs. As of June 30, 1994, the company continues to have effective shelf registration statements permitting it to issue, from time to time, up to $500 million in debt securities. 9 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10(a) Retirement Agreement with retiring executive* 10(b) Donnelley Shares Stock Option Plan, as amended on July 28, 1994 12 Statement of Computation of Ratio of Earnings to Fixed Charges - - -------- *Management Contract or Compensation Plan or Arrangement. (b) No current Report on Form 8-K was filed during the second quarter of 1994. 10 SIGNATURE PURSUANT TO THE REQUIREMENTS 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. R. R. Donnelley & Sons Company /s/ William L. White By __________________________________ William L. White Controller (Authorized Officer and Chief Accounting Officer) August 12, 1994 Date __________________________ 11 EX-10.A 2 RETIREMENT/RELEASE AGREEMENT Exhibit 10(a) (Form 10-Q for quarter ended June 30, 1994) RETIREMENT AND RELEASE AGREEMENT -------------------------------- This Retirement and Release Agreement ("Agreement") is entered into by and between R.R. Donnelley & Sons Company, on behalf of itself, its subsidiaries and affiliated entities and their respective shareholders, directors, officers, employees, agents, and attorneys and their predecessors, successors, and assigns ("Company"), and Frank J. Uvena ("Uvena") this 25th day of July 1994. PRELIMINARY RECITALS: --------------------- WHEREAS, the Company has employed Uvena as Senior Vice President of Law and Corporate Staffs; WHEREAS, Uvena has elected to retire from his employment and all offices he held with the Company, effective March 31, 1995; and WHEREAS, the Company and Uvena mutually agree to end the employment relationship, provide for an orderly transition of responsibilities, secure Uvena's availability in the future to assist in the prosecution or defense of matters in which Uvena was involved, limit certain competitive activities following Uvena's retirement, and settle all matters and potential claims on the terms and conditions and for the compensation stated in this Agreement. AGREEMENT --------- NOW THEREFORE, in consideration of the mutual promises and covenants contained herein, the Company and Uvena hereby agree as follows: 1. Uvena shall remain on the payroll of the Company at his base salary rate through March 31, 1995 ("Retirement Date"), at which time his employment will terminate. Uvena shall cease to perform services for the Company (except as provided in this Agreement) by no later than December 31, 1994 ("Leave Date"). Effective on or before the Leave Date, Uvena shall resign as the Company's Senior Vice President of Law and Corporate Staffs (and any other positions he may hold with any of the subsidiary corporations or affiliated entities of the Company). Uvena's separation shall be deemed to be, and shall be, early retirement with the consent of the Company for purposes of determining his rights under retirement, stock options and other benefit plans of the Company providing for rights dependent upon whether a termination of employment was early retirement with the consent of the Company. 2. So long as Uvena has complied with the terms of this Agreement and: (i) Uvena does not revoke this Agreement within seven (7) days after his execution and delivery of the Agreement; and (ii) Uvena executes and delivers to the Company the notarized Ratification Affidavit attached as Exhibit A between eight (8) and fifteen (15) days after the delivery of the executed Agreement to the Company, the Company will cause the following compensation to be paid to Uvena and shall cause the following events to occur: a. Uvena shall be entitled to receive such retirement benefits as are provided for him under the Company's various plans for retired employees except for the following adjustment and such plans shall be honored in accordance with their terms. Uvena shall be credited with four years of additional benefit accrual based on Annual Covered Earnings for 1994 as defined by the plans. The additional four years will not be credited to his age for the purpose of calculating Early Retirement Reductions. However, there will be no actuarial reduction for retirement prior to normal retirement age regarding the additional four years of additional benefit accrual. b. The rights of Uvena under the Company's stock bonus, restricted stock, and stock option grants shall be honored in accordance with the terms of such grants and the plans under which such grants were issued. No such grants will be made to Uvena in 1994 or 1995. c. Uvena may participate in the Company's 1993 Stock Purchase Plan in accordance with the terms of the plan. d. The Company agrees, effective as of the Retirement Date, to establish and to credit to a hypothetical account (the "Account") the principal sum of $550,000. Such principal amount, as increased or decreased from time to time by interest credited and distributions made, shall bear interest from April 1, 1995, creditable quarterly thereafter, at a rate equal to Moody's Aaa, but not less than six percent (6%). There shall be paid to Uvena during his lifetime, and charged to the Account the sum of $50,000 on April 1, 1995, and on each April 1 thereafter (or in the case of the last such installment such lesser amount as shall remain in the Account) until the first to occur of (i) the death of Uvena or (ii) the depletion of the Account by reason of the charges for such distributions. The obligation of the Company to make the payments contemplated by this section shall be an unsecured general obligation of the Company. 2 e. In January 1996, the Company shall pay Uvena two-thirds of the payment that would have been called for under the 1993-1995 long term incentive grant made to Uvena on December 10, 1992 pursuant to the terms of the 1991 Stock Incentive Plan. f. The Company shall pay Uvena the full 1994 annual bonus in accordance with the terms of the 1994 Annual Incentive Plan, payable in January 1995 in accordance with the terms of that plan. Uvena shall not receive a payment under that plan for any period after December 31, 1994. g. The Company shall reimburse Uvena up to $5,000 for 1994 and an additional $5,000 for 1995 for financial planning purposes in accordance with the terms of the plan approved at the June 13, 1994 meeting of the Compensation Committee of the Company's Board of Directors. h. The Company shall pay the premium for excess life and disability insurance benefits for Uvena for the period through the Retirement Date in accordance with the terms of the plan approved at the June 13, 1994 meeting of the Compensation Committee of the Company's Board of Directors. i. Uvena may continue to participate in the Company's benefit plans in accordance with the terms of the plans through the Retirement Date and thereafter as permitted by the plans. The Company shall provide Uvena his rights under the Consolidated Budget Reconciliation Act ("COBRA") from and after the Retirement Date or, if earlier, the date of any "qualifying event" under that law. j. The Company shall provide outplacement assistance to Uvena, if desired by Uvena, in the Company's discretion. Upon the death of Uvena, any balance then remaining in the Account described in sub-paragraph 2(d) or payment not yet made pursuant to sub-paragraphs 2(e) or (f) shall be paid to such person(s) or trust(s) as shall be designated in writing delivered to the Company by Uvena or if no such person(s) or trust(s) have been so designated to the estate of Uvena. The foregoing payments and benefits shall be subject to withholding taxes to the extent required by law. 3. Uvena shall not at any time hereafter disparage or portray in a negative light the Company, its subsidiary or affiliated entities, or their shareholders, members, directors, officers, employees, agents or attorneys (past or present) and shall not disclose to any one (without the prior written consent of the Company) any information 3 regarding the Company or its financial condition, contractual arrangements, internal affairs, or governance which is non-public, confidential, or proprietary or which would in any way injure the reputation of the Company or of any of the (past or present) shareholders, members, directors, officers, employees, agents or attorneys of the Company. 4. Uvena agrees that as a part of his responsibilities he will perform such duties as are assigned to him and will assist the Company to ensure a smooth transition to employees or other individuals designated by the Company of his responsibilities and the details concerning the projects and assignments in which he is and was involved. 5. Uvena agrees to cooperate with the Company in the truthful and honest prosecution and/or defense of any claim in which the Released Parties (as defined below) may have an interest (subject to reasonable limitations concerning time and place), which may include without limitation making himself available to participate in any proceeding involving any of the Released Parties, allowing himself to be interviewed by representatives of the Company, appearing for depositions and testimony without requiring a subpoena, and producing and/or providing any documents or names of other persons with relevant information. 6. Uvena agrees that during the two year period commencing March 31, 1995 and ending March 30, 1997, he will hold himself available to provide, and will provide, if requested by the Company, consulting services relating to the areas of his expertise developed during his career with the Company. To the extent that he shall provide such consulting services, Uvena shall be entitled to reimbursement for all reasonable out-of-pocket expenses incurred in the performance of such services, but shall not be entitled to other compensation therefor, it being the intent of the parties that the benefits provided elsewhere in this Agreement include compensation for a reasonable amount of consulting services. In the event the Company should request Uvena to provide consulting services which would require more than one hundred (100) hours in any twelve month period, Uvena shall not be obligated to provide such services unless he and the Company shall agree upon a basis of compensation for such excess hours. The inability of Uvena to provide required consulting services under this paragraph due to his death or disability shall not be deemed a breach of this Agreement. 7. Uvena reaffirms and agrees to comply with the terms of the Agreement Regarding Confidential Information, Intellectual Property and Non-Solicitation of Employees signed by Uvena on November 1, 1988, a copy of which is attached hereto as Exhibit B and incorporated by reference herein. Uvena represents that he has delivered (or will as requested, but no later than the Leave Date, deliver) all papers, books, records, computer programs, or like materials in his possession or control and all copies thereof to the Company. 4 8. In consideration of the covenants and agreements of the Company herein contained, the payments to be made by the Company pursuant to this Agreement, the positions of trust and confidence he occupied with the Company and the information of a highly sensitive and confidential nature he garnered as a result of such position, Uvena agrees that he will not, during the period commencing on the date of this Agreement and ending on December 31, 1996, without the prior written consent of the Company, either directly or indirectly accept employment by or serve as a consultant, agent, principal stockholder, corporate officer, director, or any other individual or representative capacity for any competitor, identified in the graphic arts industry, of the Company or any of its subsidiaries or assist in the solicitation of any work or engage in any other activity in competition with the business then being conducted by the Company or any of its subsidiaries, or solicit directly or indirectly the employees of the Company or any of its subsidiaries to accept any other employment. Uvena acknowledges that the business conducted by the Company is worldwide and that it is reasonably necessary for the protection of the Company and its subsidiaries and their goodwill, in view of his knowledge of its and their worldwide operations, that he not provide to competitors of the Company or any of its subsidiaries anywhere in the world the benefit of his knowledge of the Company and its subsidiaries and its and their business. Uvena further acknowledges that a breach by him of his agreements contained in this section would cause irreparable harm to the Company which is not adequately measurable by money damages and that accordingly in the event of such a breach, in addition to any and all other rights the Company may have, including, without limitation, rights at law and in equity, and the right of the Company to terminate its obligations under this Agreement and the payment of any monies hereunder, the Company shall be entitled to equitable remedies in the nature of injunctive relief to stop any existing breaches and to prohibit any future breaches. 9. Uvena, on behalf of himself, his heirs, executors, attorneys, administrators, successors and assigns, hereby fully and forever, to the full extent permitted by law, releases and discharges the Company, and each of its subsidiary and affiliated companies and entities and each of their partners, principals, members, shareholders, directors, officers, trustees, employees, contractors, consultants, agents and attorneys, past, present and future, and all predecessors, successors and assigns thereof (collectively "Released Parties") from any and all claims, demands, agreements, actions, suits, causes of action, damages, injunctions, restraints and liabilities, of whatever kind or nature, in law, equity or otherwise, whether now known or unknown or which have ever existed or which may now exist (except to enforce the terms of this Agreement), including, but not limited to, any and all claims, liabilities, demands or causes of action relating to or arising out of Uvena's employment, resignation from the position of Senior Vice President of Law and Corporate Staffs, or retirement from employment with the Company, such as claims under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. (S) 2000e et seq., 42 U.S.C. (S) 1981, the Civil Rights Act of 1991, the Americans with Disabilities Act, the Family and Medical Leave Act, the Age Discrimination in Employment Act, as amended by the Older 5 Workers Benefit Protection Act, the anti-trust and restraint of trade statutes and common law, the federal and state (including, without limitation, Illinois) statutes or common law, or claims for breach of contract, for misrepresentation, for violation of any other federal, state or local statute, ordinance or regulation or common law dealing in any respect with discrimination in employment or otherwise, defamation, retaliatory or wrongful discharge under the common law of any state, infliction of emotional distress or any other tort under the common law of any state or for attorney's fees. Uvena acknowledges and agrees that this release and the covenant not to sue set forth in paragraph 10 are essential and material terms of this Agreement and that without such release and covenant not to sue no agreement would have been reached by the parties. Uvena understands and acknowledges the significance and consequences of this release and this Agreement. The following provisions are applicable to, and made a part of, this Agreement and the foregoing general release and waiver: a. Uvena does not release or waive any right or claim that arises after the date of execution of this Agreement which he may have under the Age Discrimination in Employment Act, as amended by the Older Workers Benefits Protection Act, provided that any claim based upon his resignation from the position of Senior Vice President of Law and Corporate Staffs and his retirement from the Company has arisen prior to the execution of this Agreement; b. In exchange for this general release and waiver hereunder, Uvena hereby acknowledges that he has received separate consideration beyond that to which he is otherwise entitled under the Company's policy or applicable law; c. The Company has advised, and hereby again expressly advises, Uvena to consult with an attorney of his choosing regarding, and prior to executing, this Agreement which contains a general release and waiver. d. Uvena has twenty-one (21) days from the date of receiving this document to consider whether or not to execute this Agreement. In the event of such execution, Uvena has a further period of seven (7) days from such date in which to revoke said execution and this Agreement shall not become effective or enforceable prior to the expiration of such period. This release and covenant not to sue shall not apply to workers, compensation claims, and claims under state and federal unemployment insurance laws. 10. To the maximum extent permitted by law, Uvena covenants not to sue or to institute or cause to be instituted any kind of claim or action (except to enforce this 6 Agreement) in any federal, state or local agency or court against any of the Released Parties relating to the matters covered by the foregoing release. 11. Uvena warrants and represents that he has neither made, will make, nor suffered to be made any assignment or transfer of any right, claim, demand or cause of action covered by the above release or covenant not to sue, that Uvena is the sole and absolute owner of all thereof, and that Uvena has not filed or suffered to be filed on his behalf any claim, action, demand of any kind covered by the above release or covenant not to sue as of the date and time of the execution of this Agreement. 12. Uvena agrees that Uvena's breach, or failure to fulfill the conditions, of paragraphs 2 through 10 of this Agreement will cause the Released Parties great injury which will be difficult, if not impossible, to measure and that such injury will be immediate and irreparable for which the Released Parties will have no adequate remedy at law. Consequently, Uvena agrees that, notwithstanding the availability to the Company of any other relief, any breach by Uvena or Uvena's agents or attorneys of any of the provisions of this Agreement shall entitle the Released Parties to injunctive relief, and shall discharge Uvena from its obligations under this Agreement. Further, Uvena agrees that, in the event of a breach by Uvena or Uvena's agents or attorneys of the provisions of this Agreement, the Released Parties would be more harmed by the denial of an injunction or other equitable relief than Uvena would be harmed by the issuance of an injunction or other equitable relief and that the public interest would be furthered by the issuance of an injunction or other equitable relief to prevent a further or additional breach of the provisions of this Agreement by Uvena or Uvena's agents or attorneys. 13. Uvena agrees that neither this Agreement nor performance hereunder constitutes an admission by the Company of any violation of any federal, state or local law, regulation, common law, of any breach of any contract or any other wrongdoing of any type. 14. In the event that any paragraph, subparagraph or provision of this Agreement shall be determined to be contrary to governing law or otherwise unenforceable, all remaining portions of this Agreement shall be enforced to the maximum extent permitted by law; the unenforceable paragraph, subparagraph or provision shall first be construed or interpreted, if possible, to render it enforceable and, if that is not possible, then the provision shall be severed and disregarded, and the remainder of this Agreement shall be enforced to the maximum extent permitted by law. 15. This Agreement is being made and entered into in the State of Illinois and its construction, validity and enforceability shall be determined under, and in accordance with, the laws of the State of Illinois. 7 16. This instrument plus the exhibits attached hereto constitute the entire agreement between the parties. No modification of this Agreement shall be valid unless signed by the party against whom such modification is sought to be enforced. IN WITNESS WHEREOF the parties have executed this Agreement the day and year first above stated. R.R. Donnelley & Sons Company By: /s/ Steven J. Baumgartner ----------------------------- Steven J. Baumgartner Senior Vice President of Human Resources /s/ Frank J. Uvena ------------------------------ Frank J. Uvena 8 EXHIBIT A - - --------- STATE OF ILLINOIS ) RATIFICATION AFFIDAVIT )SS: COUNTY OF COOK ) Frank J. Uvena, being first duly cautioned and sworn on oath, deposes and states: 1. I am the same Frank J. Uvena who is a party to a Retirement and Release Agreement ("Agreement") between R.R. Donnelley & Sons Company ("the Company") and myself dated July 25, 1994. 2. I affirm that, prior to my acceptance of that Agreement on July 25, 1994, I was advised to seek my own lawyer,s advice, and further I was advised that I had 21 days in which to consider the matter (which period of time I utilized to the extent deemed prudent by myself, I being under no compulsion to make a decision sooner). I further affirm that the Agreement was written in such a manner that I understood the terms, and that the consideration called for by the Agreement in exchange for the release and covenant not to sue arises solely from that aspect of the Agreement, and is something to which I would not otherwise be entitled absent the Agreement and the release and covenant not to sue. 3. More than seven calendar days have passed since I executed the Agreement and I have not taken any action to revoke the Agreement or the release and covenant not to sue. In full recognition of my rights and obligations under that Agreement and release and covenant not to sue, I ratify my initial acceptance. 4. I have read all of the statements in this Ratification Affidavit, and all of the facts are true to my own personal knowledge. 5. Further this affiant sayeth naught. _______________________ Frank J. Uvena [Notarized on following page] 9 Subscribed and sworn to before me, the undersigned notary public, this 4th day of August, 1994. _________________________________ Notary public in and for the State of Illinois, County of Cook 10 EXHIBIT B Frank J. Uvena -------------------------------- (Type or print name of employee) AGREEMENT REGARDING CONFIDENTIAL INFORMATION, INTELLECTUAL PROPERTY AND NON-SOLICITATION OF EMPLOYEES In consideration of my employment or continued employment by R. R. Donnelley & Sons Company or any subsidiary, affiliate, successor or assignee thereof (collectively "Donnelley"), and the salary, commission or other compensation paid to me from time to time by Donnelley, I agree as follows: 1. Competitive Employment. While employed by Donnelley, I will devote my entire skill and best efforts to the duties that are assigned to me from time to time, and I will not, without Donnelley's prior written consent, engage in any employment or activity other than for Donnelley in any business in which Donnelley is or becomes engaged. 2. Definition of Confidential Information. I realize that my position with Donnelley creates a relationship of high trust and confidence with respect to Confidential Information owned by Donnelley, its customers or suppliers that may be learned or developed by me while employed by Donnelley. For purposes of this Agreement, "Confidential Information" means all information that meets one or more of the following three conditions: (a) it has not been made available generally to the public either by Donnelley or by a third party with Donnelley's consent, (b) it is useful or of value to Donnelley's current or anticipated business or research and development activities or those of a customer or supplier of Donnelley, or (c) it either has been identified as confidential to me by Donnelley (orally or in writing) or it has been maintained as confidential from outside parties and is recognized as intended for internal disclosure only. Confidential Information includes, but is not limited to, "Trade Secrets" to the full extent of the definition of that term under Illinois law. It does not include "general skills, knowledge and experience" as those terms are defined under Illinois law. 3. Examples of Confidential Information. Confidential Information includes, but is not limited to: computer programs, unpatented inventions, discoveries or improvements; marketing, manufacturing, organizational, research and development, and business plans; company policies; sales forecasts; personnel information (including the identity of Donnelley employees, their responsibilities, competence and abilities, and compensation); medical information about employees; pricing and nonpublic financial information; current and prospective customer lists and information on customers or 11 their employees; information concerning planned or pending acquisitions or divestitures; and information concerning purchases of major equipment or property. 4. General Skills, Knowledge and Experience. If I leave Donnelley, I may take with me and use the general skills, knowledge and experience that I have learned or developed in my position or positions with Donnelley or others. 5. Confidentiality Obligations. During and after my employment with Donnelley, I will not (a) disclose, directly or indirectly, any Confidential Information to anyone outside of Donnelley or to any employees of Donnelley not authorized to receive such information or (b) use any Confidential Information other than as may be necessary to perform my duties at Donnelley. In no event will I disclose any Confidential Information to, or use any Confidential Information for the benefit of, any current or future competitor, supplier or customer of Donnelley, whether myself, any subsequent employer, or any other person or entity. 6. Duration. With respect to Trade Secrets, my obligations under paragraph 5 shall continue indefinitely or until such Trade Secret Information has been made available generally to the public either by Donnelley or by a third party with Donnelley's consent or is otherwise not considered a Trade Secret under Illinois law. With respect to Confidential Information which is not a Trade Secret (hereinafter referred to as "Proprietary Information"), my obligations under paragraph 5 shall continue in duration until the first to occur of the following: (a) five (5) years has elapsed since termination of my employment with Donnelley for any reason, including termination by Donnelley with or without cause, or (b) the Proprietary Information has been made available generally to the public either by Donnelley or by a third party with Donnelley's consent. 7. Geographic Scope. I understand that Donnelley has sales and manufacturing facilities throughout the United States and in a number of foreign countries, that it purchases equipment and materials from suppliers located throughout the world, and that it expects to expand the scope of its international activities in the future, I therefore agree that my obligations under paragraph 5 shall extend worldwide. 8. Former Employers. I acknowledge that Donnelley expects me to respect and safeguard the trade secrets and confidential information of my former employers. I will not disclose to Donnelley, use in Donnelley's business, or cause Donnelley to use, any information or material that is confidential to any former employer, unless such information is no longer confidential or Donnelley or I have obtained the written consent of such former employer to do so. 9. Return of Property. Upon termination of my employment with Donnelley, I will return all Donnelley property in my possession, including notebooks, reports, manuals programming data, listings and materials, engineering or patent drawings, patent applications, any other documents, files or materials which contain, mention or relate to Confidential Information, and all copies and summaries of such materials, whether 12 in human-or machine-readable-only form, that I may have or that may come into my custody while employed by Donnelley. 10. Non-Solicitation of Employees. I shall not while employed by Donnelley and for a period of two (2) years from the date of termination of my employment with Donnelley for any reason, including termination by Donnelley with or without cause, either directly or indirectly solicit, induce or encourage any Donnelley employee(s) to terminate their employment with Donnelley or to accept employment with any competitor, supplier or customer of Donnelley, nor shall I cooperate with any others in doing or attempting to do so. As used herein, the term "solicit, induce or encourage" includes, but is not limited to, (a) initiating communications with a Donnelley employee relating to possible employment, (b) offering bonuses or additional compensation to encourage Donnelley employees to terminate their employment with Donnelley and accept employment with a competitor, supplier or customer of Donnelley, or (c) referring Donnelley employees to personnel or agents employed by competitors, suppliers or customers of Donnelley. 11. Injunctive Relief. I acknowledge that violation of the foregoing confidentiality and non-solicitation obligations will cause Donnelley irreparable harm. I agree that Donnelley is entitled to protection from such violations, including protection by injunctive relief, in addition to other remedies available under the law. 12. Disclosure of Developments. I will disclose promptly to Donnelley all inventions, discoveries, developments, improvements, works of authorship and computer programs and related documentation (collectively, "Developments") that are made, conceived, first reduced to practice or learned by me either solely or jointly with another or others while employed by Donnelley, whether or not they are patentable, copyrightable or subject to trade secret protection. 13. Ownership of Developments. I agree that, except as otherwise provided in paragraph 17 hereof, all Developments shall be the sole and exclusive property of Donnelley. Any Development for which copyright protection is available shall be considered a work made for hire or, if I am an independent contractor, assigned by me to Donnelley, I agree to assign and do hereby assign to Donnelley, or to some other legal entity ("Assignee") designated by Donnelley, all of my right, title and interest in and to all Developments. 14. Protection of Developments. Donnelley or Assignee shall have the right to use the Developments and obtain Letters Patent, copyrights (as author or assignee) or other statutory or common law protections for Developments in any and all countries. I will provide Donnelley or Assignee such assistance as may be requested in order for Donnelley or Assignee to obtain or otherwise secure, and from time to time enforce. U.S. or foreign Letters Patent, copyrights or other statutory or common law protections for Developments, including the execution of any and all documents that Donnelley or Assignee may wish to use to obtain or otherwise secure or enforce such rights, together with any assignments thereof to Donnelley or Assignee, and to the successors and 13 assigns of Donnelley or Assignee, transferring all of my right, title and interest in and to any Development, and the right to apply for or otherwise obtain any such rights. Donnelley or Assignee shall have the sole right to determine what action, if any, to take with respect to any Development. All expenses incurred in obtaining and enforcing rights in Developments owned by or assigned to Donnelley shall be borne by Donnelley. 15. Post-Employment Assistance. If I am no longer employed by Donnelley, Donnelley or Assignee shall compensate me at a reasonable rate for time actually spent by me at the request of Donnelley or Assignee on the assistance referred to in paragraph 14. Such rate shall be determined by Donnelley and shall be based on my compensation at the time my employment with Donnelley was terminated. Donnelley or Assignee shall also reimburse me for pre-approved traveling and personal expenses incurred in complying with such request. 16. Employee Inventions. I understand that the provisions of paragraphs 13, 14 and 15 of this Agreement do not apply to an invention for which none of Donnelley's equipment, supplies, facilities or trade secret information was used and which was developed entirely on my own time, unless the invention relates directly to Donnelley's business or to Donnelley's actual or demonstrably anticipated research or development activities, or unless the invention results from work I perform for Donnelley. 17. Pre-Existing Developments. I have identified at the end of this agreement all Developments that have been made or conceived or first reduced to practice by me alone or jointly with others prior to my employment with Donnelley, and that I desire to exclude from operation of this agreement. If there are no Developments listed, I represent that I have made no such Developments 18. Payments. With respect to any Development for which Donnelley seeks to obtain U.S. or foreign letters patent, Donnelley will pay me the sum of Five Hundred Dollars ($500) when I execute an assignment of the Development to Donnelley, or when I execute the first patent application and assignment covering the Development, whichever occurs first. Divisional or continuation-in-part applications shall be considered to cover separate Developments. The payment of the sum of Five Hundred Dollars ($500) shall relieve Donnelley of any obligation to make any further payments to me with respect to such Development. If there are several co-inventors, this sum shall be divided equally between them. 19. Partial Termination. If, subsequent to the date of this agreement, I am placed into a position at Donnelley in which disclosure and assignment of Developments is not required under Donnelley's Standard Practice on Patents, SP5-0500, I may terminate paragraphs 12-18 of this Agreement in accordance with the terms of such Standard Practice with respect to Developments conceived subsequent to the date of my placement. 14 20. Identification of Authorship. Donnelley, its assignees and licensees are not required to designate me as the author of any design, computer program or related documentation or other work of authorship created as a work made for hire or assigned under this agreement when any such work is distributed publicly, nor to make any such public distribution. 21. Subsidiaries and Affiliates. I understand and agree that this agreement is executed by R. R. Donnelley & Sons Company on its own behalf and on behalf of each of its subsidiaries, that my obligations under this agreement shall apply equally to each of Donnelley's subsidiaries and that such subsidiaries may enforce this agreement in their own names as if they were parties to this agreement. 22. Prior Agreements. The provisions of any previous agreement relating to the same subject matter shall remain in effect with respect to any Developments disclosed by me to Donnelley prior to the date of this agreement. Any Development made or conceived during the term of such previous agreement but not disclosed until after the date of this agreement shall be governed by the terms of this agreement. 23. Severability. If any provision of this agreement is held by a court to be void or unenforceable for any reason, the remaining provisions of this agreement shall continue in full force and effect. If a court is of the opinion that any part of this Agreement is unreasonable, it may modify this Agreement to make it reasonable and enforceable in all respects. 24. Recovery of Expenses. I agree to pay to Donnelley the costs and reasonable attorneys' fees incurred by Donnelley if it prevails in enforcing any or all of the terms of this Agreement. 25. Survival of Obligations. The provisions of paragraphs 2-16, 18, 20, and 23-26 of this Agreement shall survive its termination. 26. Governing Law. This agreement shall be construed in accordance with laws governing contracts made and to be performed in the State of Illinois. _________________________________________ _____________________, 19_____ Employee Date R. R. DONNELLEY & SONS COMPANY By ______________________________________ 15 The following are Developments not covered by paragraph 17, in which I have any right, title or interest, and which were conceived or written either wholly or in part by me prior to my employment with Donnelley, but neither published nor filed in any Patent Office. DESCRIPTION OF DOCUMENTS (if applicable) Date of Name of Witness Title of Document Document on Document - - ------------------------ ------------------ ------------------------ - - ------------------------ ------------------ ------------------------ - - ------------------------ ------------------ ------------------------ 16 EX-10.B 3 SHARES STOCK OPTION Exhibit 10(b) (Form 10-Q for quarter ended 6/30/94) Approved by Board of Directors on January 27, 1994 Amended July 18, 1994 DONNELLEY SHARES STOCK OPTION PLAN 1. Plan. The purpose of this Donnelley Shares Stock Option Plan (the "Plan") is to provide incentives to employees through rewards based upon the ownership and performance of the common stock of R. R. Donnelley & Sons Company (the "Company"). The Committee hereinafter designated shall grant options to purchase shares of common stock, par value $1.25 per share, of the Company (the "Common Stock") to eligible employees on the terms and subject to the conditions stated in the Plan. 2. Eligibility. All employees (other than officers) of the Company and all of its direct or indirect wholly-owned subsidiaries (the "Employers") who have completed at least two (2) years of continuous service with any one or more of the Employers shall be eligible, upon selection by the Committee, to receive options under the Plan; provided, however, that an otherwise eligible employee whose terms and conditions of employment are covered by a collective bargaining agreement shall be eligible to receive options under the Plan only if expressly provided for in a collective bargaining agreement or supplemental letter of understanding signed by such employee's Employer and the recognized representative of the collective bargaining unit in which the employee is a member; provided further, that the preceding proviso shall not apply to employees who are not subject to the United States labor laws. An employee granted an option pursuant to the Plan shall be referred to herein from time to time as an "Optionee". 3. Limitation on Shares Available. Subject to adjustment as provided in Section 5 of the Plan, the maximum number of shares of Common Stock available for all grants made under the Plan shall be 6,000,000. Shares of Common Stock subject to grants made hereunder which, by reason of the expiration, cancellation, forfeiture or other termination of such grants prior to purchase, are not purchased shall again be available for future grants. Shares of Common Stock to be delivered may be authorized and unissued shares of stock, treasury stock or a combination thereof. The Company reserves the right to purchase shares of Common Stock for the Plan in the open market. 4. Administration of the Plan. The Plan shall be administered by a committee (the "Committee") designated by the Board of Directors of the Company (the "Board"). Except as otherwise set forth in the Plan, the Committee shall, subject to the terms of the Plan, select groups of eligible employees for participation in the Plan and, with respect to such groups of eligible employees, shall determine the number of shares of Common Stock subject to each option granted hereunder, the terms and conditions of exercise of such option and all other terms and conditions of such option. The Committee shall, subject to the terms of the Plan, have the authority to interpret the Plan, establish rules and regulations for the administration of the Plan and impose, incidental to the grant of an option, conditions with respect to the grant. All such rules, regulations and interpretations adopted by the Committee shall be conclusive and binding on all parties. The Committee may delegate its authority to interpret all or part of the Plan to designated officers of the Company. 5. Adjustments for Changes in Capitalization. The Committee shall make appropriate adjustments to the number of shares available under the Plan, the option exercise price and the number of shares subject to any option granted hereunder in order to give effect to any stock split, stock dividend, merger, consolidation, reorganization, spin-off, liquidation or other similar change in capitalization or event that occurs after the effective date of the Plan, such adjustments to be made in the case of outstanding options without a change in the aggregate purchase price. If any adjustment would result in a fractional security being available under the Plan or subject to a grant under the Plan, such fractional security shall be disregarded. 6. Effective Date and Term of Plan. The Plan shall become effective on January 27, 1994 (the "Effective Date"). The Plan shall terminate five (5) years after the Effective Date unless terminated prior thereto by action of the Board. No further grants shall be made under the Plan after termination, but termination shall not affect the rights of any Optionee under any grants made prior to termination. 7. Amendments. The Plan may be amended or terminated by the Board in any respect and at any time, provided that such action shall not adversely affect any rights or obligations with respect to any outstanding grants under the Plan. 8. Grants. (a) Options to purchase 100 shares of Common Stock shall be granted on March 24, 1994 to eligible employees employed on such date who had completed at least two (2) years of continuous service with any one or more of the Employers as of December 31, 1993; provided, however, that employees who, as of March 24, 1994, are members of a collective bargaining unit shall be deemed eligible employees for purposes of this paragraph 8(a) only if a collective bargaining agreement or supplemental letter of understanding providing for the receipt of such options by such employees was fully executed by such employee's Employer and the recognized representative of the collective bargaining unit prior to March 1, 1994; and provided further, that eligible employees who are not employed in the United States of America as of March 24, 1994 shall not receive such options. All options granted on March 24, 1994 shall become exercisable in full on December 31, 1996. (b) Additional options may be granted, in the sole and absolute discretion of the Committee, to groups of eligible employees at any time. (c) The option price per share of Common Stock purchasable upon the exercise -2- of any option granted pursuant to the Plan shall be the fair market value of a share of Common Stock on the date of grant of such option. For purposes of the Plan, the fair market value shall be determined by reference to the average of the high and low transaction prices in trading of the Common Stock as reported in the New York Stock Exchange-Composite Transactions on the date of grant. (d) All options granted hereunder shall be evidenced by a certificate substantially in the form of Exhibit A hereto. Each certificate shall be dated and signed by an officer of the Company as of the date of the grant. 9. Terms of Options. (a) No option shall be exercisable earlier than one (1) year, nor more than ten (10) years, after the date of grant. Each option granted hereunder shall become exercisable in full on the third anniversary of the date of the grant, unless otherwise determined by the Committee and except as otherwise set forth in Section 8(a). Notwithstanding the foregoing, if an Optionee is no longer employed by at least one of the Employers for any reason (including due to death or long-term disability but excluding due to termination of employment upon retirement at normal retirement age or early retirement at or after age 55 with the consent of the Company), each option held by such Optionee which is not exercisable on the date of termination of employment shall terminate automatically on such date. Options held by an Optionee who retires at normal retirement age or who takes early retirement at or after age 55 with the consent of the Company, regardless of whether or not such options are exercisable at the date of retirement, shall not terminate as a result of such retirement but shall continue to remain outstanding and subject to the terms and conditions of the Plan; provided, however, that in the event that such an Optionee dies, each option held by such Optionee which is not exercisable on the date of death of such Optionee shall terminate automatically upon the death of such Optionee. Additionally, after an option held by an Optionee has become exercisable, if such Optionee is no longer employed by at least one of the Employers for any reason (other than retirement at normal retirement age or early retirement at or after age 55 with the consent of the Company or for any of the reasons specified in Section 9(c)) and/or such Optionee dies, then such Optionee (or in the case of death, such Optionee's executor, administrator, personal representative, beneficiary or similar person) may exercise such exercisable option until ninety (90) days from the date of such termination of employment and/or the date of death, as the case may be, or until the expiration of the term of such option, whichever is earlier. (b) No option hereunder shall be transferable other than by will, the laws of descent and distribution or pursuant to the beneficiary designation procedures approved by the Committee. Each option shall be exercisable during the Optionee's lifetime only by the Optionee or the Optionee's guardian, legal representative or similar person, provided that evidence of such person's identity and rights with respect to such exercise are acceptable to the Committee. Except as permitted by the first sentence of Section 9(b) of the Plan, no option hereunder shall be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Any such attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any option hereunder shall be null and void and no person shall be entitled to any rights hereunder -3- by virtue of any attempted execution, attachment or similar process. In the event of the death of an Optionee, any unexercised portion of an option that, but for the death of the Optionee, would have been exercisable on the date of such Optionee's death by such Optionee may be exercised by the executor, administrator, personal representative, beneficiary or similar person of such deceased Optionee within ninety (90) days of the death of such Optionee, but not after the expiration of the term of the option; provided that evidence of such person's identity and rights with respect to such exercise are acceptable to the Committee. (c) Notwithstanding anything contained herein to the contrary, in the event the Committee shall determine that an Optionee's employment was terminated by the Optionee's Employer on account of (i) an unauthorized disclosure of confidential information or trade secrets of any Employer, (ii) unlawful trading in the securities of the Company or any customers of any of the Employers, or (iii) fraud, theft or embezzlement with respect to any of the Employers or any breach of the Optionee's duties to the Optionee's Employer or any of the other Employers, then such Optionee shall forfeit all rights to the unexercised portion of any option held by the Optionee under the Plan, and all such options shall automatically terminate. (d) Options must be exercised in full. No partial exercise is permitted. No shares of Common Stock may be purchased under any option granted under the Plan unless prior to or simultaneously with the purchase, the Optionee shall have delivered by such means as have been identified by the Committee notice to the Company, accompanied by payment therefor in full of the option price, any brokerage fees associated with the exercise of the options (the "Brokerage Fees"), and any local, state, federal or other taxes required to be withheld and paid over to governmental taxing authorities by the Company due to such exercise ("Taxes") (or arrangement made for such payment to the satisfaction of the Company). Upon exercise, the option price, the Brokerage Fees and the Taxes may be paid according to procedures established by the Committee as follows: (i) in cash or (ii) by electing to sell, through an agent or broker designated by the Company, whole shares of Common Stock issuable upon exercise of the option having a fair market value determined on the date of exercise as close as is practicable to the sum of (A) the option price for shares of Common Stock subject to such exercise, (B) the Brokerage Fees associated with such exercise and (C) the Taxes associated with such exercise, provided that the number of whole shares sold shall be sufficient to pay in full the option price, the Brokerage Fees and the Taxes. No option may be exercised by an Optionee through any agent or broker other than an agent or broker designated by the Company. Notwithstanding the foregoing, in the event that an Optionee has notified the Company through the Company's electronic system that such Optionee is exercising an option and is paying cash for the option price and the Taxes and such cash is not received within 30 calendar days following such notice, then the Company may automatically order the sale, through the designated agent or broker, of whole shares of Common Stock to pay in full the option price, the Brokerage Fees and the Taxes and deliver any whole shares of Common Stock not so applied to the Optionee, plus any cash owed in lieu of fractional shares. The Committee shall have sole discretion to disapprove of an election pursuant to clause (ii). No shares of Common Stock shall be delivered to the Optionee until the full option price, the Brokerage Fees and the Taxes have been paid. Optionees shall be required to receive all shares acquired under an option in the form of stock certificates; cash shall not be paid to an Optionee in -4- lieu of the delivery of stock certificates upon the exercise of any option, except to the extent necessary to compensate for fractional shares. (e) Optionees shall be entitled to the privilege of ownership with respect to shares of Common Stock subject to options granted hereunder only as to shares of Common Stock purchased and delivered to an Optionee upon exercise of an option. 10. Miscellaneous. (a) Effect of Leaves of Absence. Leaves of absence for periods and purposes conforming to the personnel policies of the Company and approved by the Employer shall not be deemed terminations of employment or interruptions of continuous service. (b) Restrictions on Shares. Notwithstanding any provision of the Plan to the contrary, unless a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), is in effect as to the shares purchasable under any option granted under the Plan, no shares of Common Stock may be purchased under such option. In addition, notwithstanding any provision of this Plan to the contrary, any option granted under the Plan is subject to the condition that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such option upon any securities exchange or under any law, the consent or approval of any regulatory body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of the shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. (c) No Right to Employment. Neither the Plan nor the grant of options hereunder shall be construed as giving any employee any right to be retained in the employ of any Employer. (d) Governing Law. The Plan shall be governed by and interpreted in accordance with the laws of the State of Delaware. (e) Nature of Option. The options granted under the Plan shall not be treated as incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 11. Acceleration of Options Upon a Change in Control. If while any option remains unexercised and outstanding under the Plan: (a) any "person", as such term is defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as modified and used in Section 13(d) and 14(d) thereof (but not including (i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily holding securities -5- pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company) (hereinafter a "Person") is or becomes the beneficial owner, as defined in Rule 13d-3 of the Exchange Act, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its affiliates) representing 50% or more of the combined voting power of the Company's then outstanding securities; or (b) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director designated by a Person who has entered into any agreement with the Company to effect a transaction described in clause (a), (c) or (d) of this Section) whose election by the Board or nomination for election by the Company's stockholders 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 or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than 50% of the combined voting power of the Company's then outstanding securities; or (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all the Company's assets; (any of such events being hereinafter referred to as a "Change in Control"), then from and after the date on which public announcement of the acquisition of such percentage shall have been made, or the date on which the change in composition of the Board set forth above shall have occurred, or the date of any such stockholder approval of a merger, consolidation, plan of complete liquidation or an agreement for the sale of the Company's assets as described above occurs (the applicable date being hereinafter referred to as the "Acceleration Date"), all such outstanding and unexercised options, whether or not then exercisable, shall be fully and immediately exercisable. -6- Exhibit A Donnelley Shares STOCK OPTION PLAN This is to certify that (OPTIONEE NAME) was granted on (DATE), an option to purchase (NUMBER) SHARES of R. R. Donnelley & Sons Company common stock at a fixed option price of (PRICE) per share. This option is subject to the terms and conditions of the Donnelley Shares Stock Option Plan. This certificate has been [logo] RR Donnelley executed as of (DATE), & Sons Company on behalf of R. R. Donnelley & Sons Company by (FACSIMILE SIGNATURE) John R. Walter Chairman and Chief Executive Officer -7- EX-12 4 COMPUTATION OF RATIO EXHIBIT 12 R. R. DONNELLEY & SONS COMPANY ---------------- STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 1994 ---------------- Earnings Earnings before income taxes................................. $148,727 Interest expense............................................. 24,199 Interest component of operating leases....................... 10,133(1) Amortization of capitalized interest......................... 3,120 -------- Earnings available for fixed charges......................... $186,179 ======== Fixed Charges Interest expense............................................. $ 24,199 Capitalized interest......................................... 4,700 -------- Interest incurred............................................ 28,899 Interest component of operating leases....................... 10,133(1) -------- Total fixed charges.......................................... $ 39,032 ======== Ratio of Earnings to Fixed Charges........................... 4.77(2) ========
- - -------- (1) Management estimates one-third of current year operating lease payments to be the interest factor of such rentals. (2) On a rolling twelve month basis, the ratio of earnings to fixed charges was 6.03. -----END PRIVACY-ENHANCED MESSAGE-----