10-K405 1 FORM 10-K405 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to 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 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON ----------------------------- WHICH REGISTERED COMMON (PAR VALUE $1.25) -------------------------------------------- PREFERRED STOCK PURCHASE RIGHTS NEW YORK, CHICAGO AND PACIFIC STOCK EXCHANGES NEW YORK, CHICAGO AND PACIFIC STOCK EXCHANGES 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. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATE- MENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X] AS OF MARCH 1, 1995, 152,987,160 SHARES OF COMMON STOCK WERE OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK (BASED ON THE CLOSING PRICE OF THESE SHARES ON THE NEW YORK STOCK EXCHANGE--COMPOSITE TRANSACTIONS ON MARCH 1, 1995) HELD BY NONAFFILIATES WAS APPROXIMATELY $4,980,908,625. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT DATED FEBRUARY 16, 1995 ARE INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS
FORM 10-K ITEM NO. NAME OF ITEM PAGE --------- ------------ ---- Part I Item 1. Business.......................................... 3 Item 2. Properties........................................ 4 Item 3. Legal Proceedings................................. 7 Item 4. Submission of Matters to a Vote of Security Holders.......................................... 8 Executive Officers of R. R. Donnelley & Sons Company.......................................... 8 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................. 9 Item 6. Selected Financial Data........................... 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 11 Item 8. Financial Statements and Supplementary Data....... 13 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 13 Part III Item 10. Directors and Executive Officers of the Registrant....................................... 13 Item 11. Executive Compensation............................ 13 Item 12. Security Ownership of Certain Beneficial Owners and Management................................... 13 Item 13. Certain Relationships and Related Transactions.... 13 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 14 Signatures................................................... 15 Index to Financial Statements and Financial Statement Sched- ules........................................................ F-1 Index to Exhibits............................................ E-1
2 PART I ITEM 1. BUSINESS R. R. Donnelley & Sons Company (the company), incorporated in the state of Delaware in 1956 as the successor to a business founded in 1864, is a major participant in the information industry, providing a broad range of services in print and digital media. The company believes it is the largest supplier of commercial print and print-related services in the United States. It is a major supplier in the United Kingdom and also provides services in Latin America, other locations in Europe and in Asia. Services provided to customers include presswork and binding, including on-demand customized publications; conventional and digital pre-press operations, including desktop publishing and filmless color imaging necessary to create a printed image; software replication, translation and localization; list rental, list enhancement, database management and mail production services (provided primarily through Metromail); design and related creative services (provided through Mobium); electronic communication networks for simultaneous worldwide product releases; digital services to publishers; and, through the planning for and fulfillment of truck, rail, mail and air distribution for products of the company and its customers, as well as third parties. The company's pre-press, presswork and binding operations have accounted for over 90% of the company's revenues for each of the last five years. The company provides these services to more than 5,000 customers, including publishers of consumer and trade magazines, books and telephone and other directories; direct mail (catalog) and in-store merchandisers; software publishers and computer hardware manufacturers; and financial institutions and other firms requiring substantial amounts of printing and other related information services. Due to the range of services it provides, the company believes it is uniquely positioned to meet the information and communication needs of its customers. The relative contribution of each of the company's major product areas to its total sales for the five-year period ended December 31, 1994, is presented in the table below.
1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- REVENUE BY PRODUCT TYPE Catalogs, Inserts and Specialty Products............... 31% 32% 35% 39% 37% Magazines.............................................. 18 18 17 17 18 Global Software Services............................... 14 12 10 8 7 Books.................................................. 13 13 11 11 11 Directories............................................ 12 14 16 16 17 Financial.............................................. 5 6 5 4 4 Other.................................................. 7 5 6 5 6
For the fiscal year ended December 31, 1994, international operations represented over 11% of consolidated results and assets. See "Geographic Segments" in the Notes to Consolidated Financial Statements for further information. Most of the company's sales are made pursuant to term contracts with customers, with the remainder being made on a single-order basis. For some customers, the company prints and provides related services for several different publications under different contracts. The company's contracts with its larger customers normally run for a period of years (usually three to five years but longer in the case of contracts requiring significant capital investment) or for an indefinite period subject to termination on specified notice by either party. Such sales contracts generally provide for timely price adjustments to reflect price changes for materials, wages and utilities. No single customer has a relationship with the company that accounted for 3% or more of the company's sales in 1994. The company's dependence for sales from its ten largest customers has declined in the past ten years to approximately 21% of sales in 1994, from 30% of sales in 1984. The various phases of the information industry in which the company is involved are highly competitive. While the company has contracts with its customers as discussed above, there are numerous competing 3 companies and renewal of such contracts is dependent, in part, on the ability of the company to continue to differentiate itself from the competition. Differentiation results, in part, from the company's broad range of value-added services, which include: conventional and digital prepress, computerized printing, Selectronic(R) imaging and gathering and sophisticated pool shipping and distribution services for printed products; information content repackaging into multiple formats, including print, magnetic and optical media; fulfillment and returned books inventory management; database management and distribution; list rental, list enhancement and direct mail production services; turnkey computer documentation services, including translation, printing, binding, CD- ROM and diskette replication, kitting licensing, republishing and fulfillment; reprographics and facilities management; and graphic design and editorial services. Although the company believes it is the largest commercial printer in the United States, it estimates that its revenues represent approximately 7% of the total sales in the industry. Although the company's plants are well located for the global, national or regional distribution of its products, competitors in some areas of the United States have a competitive advantage in some instances due to such factors as freight rates, wage scales and customer preference for local services. In addition to location, other important competitive factors are price and quality as well as the range of available services. Tight market conditions for certain grades of paper are expected to continue in 1995, but are not expected to have a significant impact on the company due to guaranteed quantity allocations from suppliers coupled with the company's production efficiencies and ability to substitute different paper grades. Paper prices have increased in recent months reflecting the tight supply but are mitigated by the company's ability to pass the increases to customers. The company has existing paper supply contracts (at prevailing market prices) to cover substantially all of the company's requirements through 1995, and management believes extensions and renewals of these purchase contracts will provide adequate paper supplies in the future. Ink and ink materials are currently available in sufficient amounts, and the company believes that it will have adequate supplies in the future. The company estimates that its capital expenditures in 1995 and 1996 to comply with federal, state and local provisions for environmental controls, as well as expenditures, if any, for the company's share of costs to clean hazardous waste sites that have received waste from the company, will not have a material effect upon its earnings or its competitive position. The company employed an average of approximately 36,500 persons in 1994 (39,000 persons at December 31, 1994), of whom more than 11,000 had been with the company for more than 10 years and over 2,700 for 25 years or longer. ITEM 2. PROPERTIES The company's corporate office is located in leased facilities in Chicago, Illinois. Production facilities leased by the company and its subsidiaries are listed in the chart beginning on page 6. Printing and other plants that are owned and operated by the company (or through subsidiaries) are listed below and continuing on the next page.
DATE OF DATE OF ACQUISITION LATEST SQUARE PRINCIPAL PRODUCTS OWNED LOCATION(S) OR OPERATIONS BEGAN ADDITION FEET OR SERVICES ----------------- ------------------- -------- --------- -------------------- Chicago, IL 1912 1974 240,000 Financial Crawfordsville, IN 1923 1992 1,858,000 Books, Global Software Services Willard, OH 1956 1992 1,099,000 Books, Directories, Global Software Services Warsaw, IN 1959 1994 1,300,000 Catalogs, Inserts Old Saybrook, CT 1959 1986 296,000 Magazines, Catalogs Lancaster, PA 1959 1994 1,437,000 Directories, Catalogs, Inserts, Magazines, Financial
4
DATE OF DATE OF ACQUISITION LATEST SQUARE PRINCIPAL PRODUCTS OWNED LOCATION(S) OR OPERATIONS BEGAN ADDITION FEET OR SERVICES ----------------- ------------------- -------- --------- -------------------- Mattoon, IL 1968 1994 861,000 Magazines, Catalogs, Inserts Dwight, IL 1968 1994 434,000 Directories, Catalogs, Inserts, Magazines Glasgow, KY 1970 1994 591,000 Magazines Gallatin, TN 1975 1987 528,000 Catalogs, Inserts, Magazines York, England 1978 1985 291,000 Directories, Magazines, Catalogs Torrance, CA 1978 1994 252,000 Magazines, Inserts Harrisonburg, VA 1980 1994 620,000 Books Spartanburg, SC 1980 1994 545,000 Catalogs, Inserts, Magazines Gateshead, England 1983 1989 189,000 Directories Danville, KY 1985 1993 548,000 Magazines, Catalogs, Inserts Portland, OR 1986 1989 250,000 Directories, Global Software Services Greeley, CO 1986 -- 165,000 Directories Reno, NV 1987 1991 502,000 Catalogs, Inserts Pittsburgh, PA 1987 -- 70,000 Financial Lincoln, NE 1987 1988 233,000 Mail Production, Data Center Rutland, VT 1987 1987 113,000 Mail Production Mt. Pleasant, IA 1987 -- 211,000 Mail Production Seward, NE 1987 -- 161,000 Mail Production Thorp Arch, En- 1989 -- 146,000 Global Software gland Services South Daytona, FL 1990 1993 237,000 Magazines, Catalogs, Inserts Des Moines, IA 1990 -- 627,000 Magazines, Catalogs, Inserts Lynchburg, VA 1990 1993 504,000 Catalogs, Inserts Newton, NC 1990 -- 455,000 Catalogs, Inserts, Magazines Casa Grande, AZ 1990 -- 316,000 Catalogs, Inserts Reynosa, Mexico 1990 -- 260,000 Books Singapore 1990 1994 221,000 Global Software Services Houston, TX 1991 -- 41,000 Financial San Juan del Rio, 1992 1993 80,000 Mexico Catalogs Provo, UT 1992 1993 126,000 Global Software Services Mendota, IL 1992 -- 110,000 Magazines Seymour, IN 1992 1994 45,000 Specialty Products Allentown, PA 1993 -- 23,000 Books Bloomsburg, PA 1993 -- 105,000 Books Pontiac, IL 1993 1994 304,000 Magazines
5
DATE OF OWNED LOCA- DATE OF ACQUISITION LATEST SQUARE PRINCIPAL PRODUCTS TION(S) OR OPERATIONS BEGAN ADDITION FEET OR SERVICES ----------- ------------------- -------- --------- -------------------- Scranton, PA 1993 -- 399,000 Books Senatobia, MS 1993 -- 137,000 Magazines Newbern, TN 1993 -- 30,000 Books Krakow, Poland 1994 -- 115,000 Magazines, Inserts Shenzhen, China 1994 -- 170,000 Directories, Books, Magazines Santiago, Chile 1994 -- 250,000 Magazines, Catalogs, Books, Directories
SQUARE LEASED LOCATIONS FEET ---------------- ------- R. R. DONNELLEY & SONS COMPANY ------------------------------ Cary, NC................................................................ 108,000 Columbus, OH............................................................ 12,000 Crawfordsville, IN...................................................... 381,000 Elgin, IL............................................................... 77,000 Fremont, CA............................................................. 444,000 Glasgow, KY............................................................. 57,000 Hudson, MA.............................................................. 150,000 Lancaster, PA........................................................... 62,000 Lindon, UT.............................................................. 338,000 New York, NY............................................................ 92,000 Newark, CA.............................................................. 75,000 Orem, UT................................................................ 33,000 Sandy, UT............................................................... 121,000 Shelby, OH.............................................................. 250,000 Torrance, CA............................................................ 45,000 West Valley City, UT.................................................... 30,000 Wheeling, IL............................................................ 110,000 Willowbrook, IL......................................................... 55,000 R. R. DONNELLEY NEDERLAND, B.V. ------------------------------- Apeldoorn, The Netherlands.............................................. 54,000 Amsterdam, The Netherlands.............................................. 15,000 R. R. DONNELLEY NORWEST INC. ---------------------------- Seattle, WA............................................................. 22,000 Tigard, OR.............................................................. 140,000 Preston, WA............................................................. 66,000 LABORATORIO LITO COLOR, S.A. DE C.V. ------------------------------------ Mexico City, Mexico..................................................... 15,000 R. R. DONNELLEY PRINTING COMPANY -------------------------------- Lynchburg, VA........................................................... 120,000 METROMAIL CORPORATION --------------------- Lombard, IL............................................................. 100,000 R. R. DONNELLEY (U.K.) LIMITED ------------------------------ London, England......................................................... 10,000 Cumbernauld, Scotland................................................... 53,000 MOBIUM CORPORATION FOR DESIGN AND COMMUNICATION ----------------------------------------------- Chicago, IL............................................................. 28,000 IRISH PRINTERS HOLDINGS ----------------------- Dublin, Ireland......................................................... 103,000 Kildare, Ireland........................................................ 97,000 DONNELLEY CARIBBEAN GRAPHICS, INC. ---------------------------------- Bridgetown, Barbados.................................................... 31,000
6
SQUARE LEASED LOCATIONS FEET ---------------- ------ DONNELLEY KOREA CO. LTD. ------------------------ Sungnam-si, Kyungki-do Korea............................................. 11,000 R. R. DONNELLEY FRANCE, S.A. ---------------------------- Orleans, France.......................................................... 75,000 Les Aubrais, France...................................................... 22,000 R. R. DONNELLEY PINDAR ---------------------- Middlesex, England....................................................... 35,000 TURNKEY SERVICES JAPAN, K.K. ---------------------------- Chuo, Chiba-City 260..................................................... 3,000 R. R. DONNELLEY AUSTRALIA PTY., LTD. ------------------------------------ New South Wales, Australia............................................... 80,000 R. R. DONNELLEY DEUTSCHLAND --------------------------- Munich, Germany.......................................................... 65,000
The company has historically followed the practice of adding capacity to meet customer requirements, and has retained a substantial portion of its earnings for reinvestment in plant and equipment for this purpose. Management believes that growth in 1995 will be financed in large part by internally-generated funds. The amount of capital expenditures in future years will depend upon the requirements of the company's existing and future customers. ITEM 3. LEGAL PROCEEDINGS On July 13, 1990, the Federal Trade Commission ("FTC") filed a complaint in the U.S. District Court for the District of Columbia ("District Court") seeking a preliminary injunction enjoining the company from consummating its acquisition of the Meredith/Burda companies. The complaint alleged that consummation of the acquisition might substantially lessen competition in certain alleged rotogravure printing markets. The District Court denied the motion of the FTC for an injunction as well as a further motion for injunction pending appeal. The acquisition was closed on September 4, 1990. On October 11, 1990, the FTC Staff initiated its administrative action challenging the acquisition of the Meredith/Burda companies. The complaint alleged the same issues as did the complaint before the District Court. Trial before an administrative law judge ("ALJ") of the FTC concluded in June, 1993. On December 30, 1993, the FTC's ALJ issued his initial decision upholding the position of the FTC Staff. The ALJ found that the acquisition by the company of the Meredith/Burda companies created a "dominant firm" and significantly increased concentration in a "high-volume publication rotogravure market," thus increasing the likelihood of anti-competitive conduct and actual or tacit collusion among the firms participating in that market. The ALJ ordered the divestiture of the Meredith/Burda companies and prohibited the acquisition by the company of any other firms participating in the U.S. "rotogravure market" without FTC approval for a period of ten years. The company appealed the ALJ's decision, asking the FTC Commissioners to dismiss the FTC complaint and is awaiting a decision. The appeal has the effect of staying the ALJ's order. If the appeal by the company is not granted, the company intends to file a further appeal to a U.S. Court of Appeals. The company continues to believe that the acquisition of the Meredith/Burda companies was legally proper and will ultimately be upheld. In January 1995, an administrative complaint by the U.S. Environmental Protection Agency Region V ("Region V") seeking $304,500 in penalties was filed against the company's Warsaw, Indiana facility alleging violations of the Resource Conservation and Recovery Act. The complaint alleges that filtercake from wastewater treatment operations was mischaracterized by the company as a non-hazardous waste. The complaint also alleges failure to give certain land disposal restriction notices. The company has submitted evidence to the Region V that the proper notifications were given in all but two instances and has requested that allegations with respect to notifications that were given be removed from the complaint. 7 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended December 31, 1994. EXECUTIVE OFFICERS OF R. R. DONNELLEY & SONS COMPANY
NAME, AGE AND OFFICER BUSINESS EXPERIENCE DURING POSITIONS WITH THE COMPANY SINCE PAST FIVE YEARS(1) -------------------------- ------- -------------------------- J. R. Walter 1985 Management responsibilities as Chairman of the 48, Director, Board and Chief Executive Officer. Prior manage- Chairman of the Board ment responsibilities as Chief Executive Officer and Chief Executive Offi- and President. cer(2) J. R. Donnelley 1983 Management responsibilities as Vice Chairman of 59, Director, Vice Chairman the Board. Prior management responsibility for of the Board Corporate Development. R. J. Cowan 1988 Management responsibilities for Information 42, Executive Vice Services, Technology, Database Technology Serv- President and Sector ices, Information Systems and Metromail. Prior President, Information management responsibilities for Book, Financial Resources Sector(2) Services, Global Software Services, Information Services and Technology; prior sales and manu- facturing responsibility for Global Software Services. F. R. Jarc 1987 Management responsibilities for treasury, 52, Executive Vice accounting, real estate, internal audit, taxes President and and purchasing. Chief Financial Officer(2) W. E. Tyler 1989 Management responsibilities for Financial Serv- 42, Executive Vice Presi- ices, Global Software Services, Book Publishing dent Services and Europe. Prior sales and manufactur- and Sector President, ing responsibility for Global Software Services; Networked Services Sec- prior management responsibility for Technology. tor(2) J. P. Ward 1991 Management responsibilities for Retail Services, 40, Executive Vice Presi- Telecommunications, Specialized Publishing Serv- dent ices, Catalog Services, Consumer Magazines Serv- and Sector President, ices, Sterling Group and Manufacturing Support. Commercial Print Sector(2) Prior sales and manufacturing responsibility for Merchandise Media; prior sales and manufacturing responsibility for Financial Services. S. J. Baumgartner 1993 Management responsibilities for Strategy, Human 43, Senior Vice President, Resources, Communications, and Compensation and Strategy, Human Resources Benefits. Prior experience as a co-owner and and Communication(1)(2) member of board of directors of FRC Management, Inc., and as a Senior Vice President, Human Re- sources and Public Affairs at Rhone-Poulenc Rorer/Rorer Group, Inc. T. J. Quarles 1995 Management responsibilities for legal services, 45, Senior Vice President office of the corporate secretary, government and General Counsel(1)(2) relations, environmental, health and safety functions. Prior experience as Vice President and Associate General Counsel at Ameritech and as Vice President and General Counsel at Ameritech Publishing, Inc. B. L. Faber 1989 Sales and manufacturing responsibility for In- 47, President, formation Services. Prior management responsi- Information Services(2) bility for Corporate Development.
8 (1) Each officer named has carried on his principal occupation and employment in R. R. Donnelley & Sons Company for more than five years with the exception of S. J. Baumgartner and T. J. Quarles as noted in the above table. (2) Member of the company's management committee. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock is listed and traded on the New York Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange. As of March 1, 1995 there were approximately 11,000 stockholders of record. Information about the quarterly prices of the common stock, as reported on the New York Stock Exchange-Composite Transactions, and dividends paid during the two years ended December 31, 1994, is contained in the chart below:
COMMON STOCK PRICES ------------------------------- DIVIDENDS PAID 1994 1993 ------------- --------------- --------------- 1994 1993 HIGH LOW HIGH LOW ------ ------ ------- ------- ------- ------- First Quarter..................... $0.140 $0.130 $31 3/4 $27 5/8 $32 3/4 $27 1/8 Second Quarter.................... 0.140 0.130 29 7/8 26 7/8 31 3/4 26 1/8 Third Quarter..................... 0.160 0.140 31 1/4 27 1/2 31 3/8 27 3/4 Fourth Quarter.................... 0.160 0.140 32 1/2 27 3/8 31 1/8 27 3/8 Full Year......................... 0.600 0.540 32 1/2 26 7/8 32 3/4 26 1/8
9 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA (NOT COVERED BY AUDITORS' REPORT) (THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
YEAR ENDING DECEMBER 31, ------------------------------------------------------ 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- INCOME STATEMENT DATA: Net sales............... $4,888,786 $4,387,761 $4,193,072 $3,914,828 $3,497,943 Earnings from operations*............ 459,431 325,607 405,501 363,128 361,836 Net income from operations before cumulative effect of accounting changes..... 268,603 178,920 234,659 204,919 225,846 Net income**............ 268,603 109,420 234,659 204,919 225,846 PER COMMON SHARE*** Net income from operations before cumulative effect of accounting changes..... 1.75 1.16 1.51 1.32 1.45 Net income**............ 1.75 0.71 1.51 1.32 1.45 Dividends............... 0.60 0.54 0.51 0.50 0.48
DECEMBER 31, ------------------------------------------------------ 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- BALANCE SHEET DATA: Total assets............. $4,452,143 $3,654,026 $3,410,247 $3,206,826 $3,147,486 Noncurrent liabilities... 1,671,924 1,124,594 949,537 940,544 1,064,333
-------- * 1993 earnings from operations includes the one-time adjustment for a restructuring charge ($90 million). ** 1993 net income and net income per common share include one-time adjustments for the restructuring charge ($60.8 million or $0.39 per share); the net cumulative effect of accounting changes ($69.5 million or $0.45 per share); and the deferred income tax charge related to the federal income tax rate increase ($6.2 million or $0.04 per share). *** Reflects the 2-for-1 stock split effective September 1, 1992. 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS COMPARISON OF 1994 WITH 1993 Net sales increased 11.4% reflecting increased global demand and volume growth across most product categories, new products and services, new customers and recent acquisitions. Net sales from foreign operations increased 42% and represented over 11% of consolidated net sales. The growth in foreign sales, which is expected to continue in 1995, was the result of volume increases realized from recent expansions and start-up operations in Europe, Asia and Latin America, including the acquisition of Chilean-based Cochrane, S.A. (51% owned by the company), which was consolidated in operating results beginning July 1, 1994. Gross profit grew 9.3%, slightly lower than the growth in net sales, as the volume increase was partially offset by higher paper costs (which are recovered, but at lower overall margins), depreciation, amortization and start- up costs. Tight market conditions for certain grades of paper are expected to continue in 1995, but are not expected to have a significant impact on the company due to guaranteed quantity allocations from suppliers coupled with the company's production efficiencies and ability to substitute different paper grades. Selling and administrative expenses increased 8.1% primarily resulting from volume related increases. The ratio of selling and administrative expenses to net sales, at 10% in 1994, was down from 10.3% in 1993. Interest expense increased $8.1 million, due to higher interest rates and debt levels to fund acquisitions and expansions. Other expense was $7.3 million above the prior year reflecting lower investment income and higher minority interest expense. The effective income tax rate of 32% in 1994 was lower than the 1993 rate resulting from tax credits for affordable housing investments and the one-time impact on the deferred income tax provision in 1993, related to the federal tax rate increase. Net income, excluding the one-time effect of accounting changes, a restructuring charge and the deferred income tax charge all reflected in 1993, increased 9.2% reflecting the volume increase and a lower effective income tax rate. Earnings per share of $1.75 increased 10.1%, excluding the one-time items, reflecting net income growth and fewer shares outstanding. COMPARISON OF 1993 WITH 1992 Net sales grew at a rate of 4.6% due to an increased volume of services provided to customers, including volume added through the company's global expansion into new areas. Strong demand for global software services, financial printing services and services for book publishers and volume increases associated with acquisitions in new product areas were partially offset by the negative effects of a stronger dollar (lower translation of foreign revenues, particularly those of the company's U.K. operations) and lower catalog volume primarily associated with the decision by Sears, Roebuck & Co. to discontinue its catalog operations. Gross profit grew at a greater rate than net sales, 6.3%, reflecting better coverage of fixed costs through higher volume, a more favorable mix of sales and lower raw material prices. Earnings from operations included a $90 million restructuring charge recorded during the first quarter (an after-tax charge of $0.39 per share) related primarily to the closing of the company's Chicago manufacturing facility following the decision by Sears to discontinue its catalog operations. Excluding this charge, earnings from operations would have been $415.6 million, a 2.5% increase over the prior year, reflecting the gross profit improvement partially offset by higher selling and administrative expenses (a 10.1% increase) resulting primarily from the additional costs associated with newly acquired and start-up operations and the expansion of the company's global sales presence. 11 The $6.8 million increase in interest expense resulted from higher outstanding debt balances due to acquisitions, investments in joint ventures and additional VEBA funding for employee benefits. Other expense decreased $2.2 million reflecting improved earnings on investments partially offset by expenses associated with company owned life insurance programs. The 1993 provision for income taxes included the one-time effect of the higher federal statutory income tax rate on deferred taxes, which reduced net income by $6.2 million (equivalent to $0.04 per share); excluding this one-time charge, the 1993 effective income tax rate of 33.1% would have been lower than the 1992 rate of 35.0%, reflecting the benefits associated with life insurance programs and credits associated with affordable housing investments. Net income from operations before cumulative effect of accounting changes reflected the restructuring charge and increased selling and administrative expenses partially offset by the favorable factors discussed above with respect to gross profit. Excluding the restructuring charge and deferred income tax charge, net income from operations before cumulative effect of accounting changes would have been $245.9 million (equivalent to $1.59 per share). During the first quarter of 1993, the company adopted two new accounting standards for postretirement benefits and income taxes. The one-time charge for postretirement benefits, net of associated tax benefits of $80.1 million, was $127.7 million (equivalent to $0.82 per share). The accounting standard for postretirement benefits resulted in additional expenses which reduced operating income by $0.05 per share. The accounting standard for income taxes resulted in a one-time credit of $58.2 million (equivalent to $0.37 per share). As discussed above, the income tax standard also required the company to increase its 1993 income tax provision by $6.2 million. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION The Consolidated Balance Sheets present the company's financial position at the end of each of the last two years. The statements list the company's assets and liabilities, and the equity of its shareholders. Major changes in the financial position are summarized in the Consolidated Statements of Cash Flows. The Consolidated Statements of Cash Flows summarize the changes in the company's cash and equivalents for each of the last three years and help to show the relationship between operations (presented in the Consolidated Statements of Income) and liquidity and financial resources (presented in the Consolidated Balance Sheets). Management believes the company has the financial strength and flexibility to fund current operations and growth. In 1994, net income from operations plus depreciation and amortization was $582.1 million, an increase of $61.3 million, or 11.8%, from 1993 (excluding the restructuring charge and the deferred income tax charge relating to the increase in the federal statutory income tax rate recorded in 1993). The company's working capital continues to be adequate for the operation and expansion of the business. Working capital--particularly cash, accounts receivable and inventories--is closely controlled and continually monitored. Emphasis continues on overall balance sheet management. Working capital increased by $127 million from December 31, 1993, primarily from increased receivables and inventory reflecting recent acquisitions and volume increases partially offset by higher accounts payable and accrued compensation. The increase in goodwill and other intangibles reflected recent acquisitions and costs ($257 million in 1994) associated with acquiring long-term print contracts and volume guarantees. Proceeds from debt issuances were used to fund capital expansion, acquisitions and costs associated with long-term print contracts and volume guarantees. Capital expenditures during 1994 totaled $425 million ($307 million in 1993) and an additional $120 million ($178 million in 1993) was invested in acquisitions and joint venture investments. This capital investment reflects the company's continued program to expand and upgrade operations, targeting geographic markets in the United States, Europe, Asia and Latin America. Recent investments have strategically placed new equipment and operations to meet the growing global needs of present and new customers. Capital 12 expenditures for 1995 are estimated at $400 million and will be financed primarily from operating cash flows. Other expenditures in 1995 are expected to be commensurate with and to support the growth in sales and earnings. At December 31, 1994, the company had a revolving credit facility of $550 million with a number of banks (see the Notes to Consolidated Financial Statements). This credit facility provides support for the issuance of commercial paper and other credit needs. Under shelf registration statements, during the fourth quarter of 1994, the company issued $200 million of medium term notes with interest rates ranging from 7.01% to 7.96% (7.55% weighted average rate) due between 1997 and 1999. The proceeds from these issues were used to retire commercial paper debt. At December 31, 1994, the company had an effective shelf registration statement permitting the company to issue, from time to time, up to $300 million in debt securities. In February 1995, the company filed a prospectus supplement to this existing shelf registration permitting the company to issue these debt securities in the form of medium term notes. The company currently intends to use the proceeds of the issuance of medium term notes, if any, to retire commercial paper debt. As of March 23, 1995, the company had issued no notes under this prospectus supplement. Subsequent to filing the medium term note prospectus supplement, the company filed a new shelf registration statement permitting the company to issue, from time to time, up to an additional $500 million in debt securities. This registration statement became effective in February, 1995. The company has no current intention to issue debt securities under this new registration statement. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial information required by Item 8 is contained in Item 14 of Part IV and listed on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the directors and officers of the company is contained on pages 2-5 and 8 of the company's definitive Proxy Statement dated February 16, 1995 and is incorporated herein by reference. See also the list of the company's executive officers and related information under "Executive Officers of R. R. Donnelley & Sons Company" at the end of Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION Information concerning executive compensation for the year ended December 31, 1994, and, with respect to certain of such information, prior years, is contained on pages 8-12 of the company's definitive Proxy Statement dated February 16, 1995 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning the beneficial ownership of the company's common stock is contained on pages 6 and 7 of the company's definitive Proxy Statement dated February 16, 1995 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions for the year ended December 31, 1994, is contained on pages 5 and 13 of the company's definitive Proxy Statement dated February 16, 1995 and is incorporated herein by reference (excluding the information on page 13 under the caption, "Compensation Committee Report on Executive Compensation"). 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. Financial Statements The financial statements listed in the accompanying index (page F-1) to the financial statements are filed as part of this annual report. 2. Financial Statement Schedule The financial statement schedule listed in the accompanying index (page F-1) to the financial statements is filed as part of this annual report. 3. Exhibits The exhibits listed on the accompanying index to exhibits (pages E-1 through E-2) are filed as part of this annual report. (b)Reports on Form 8-K None (c)Exhibits The exhibits listed on the accompanying index (Pages E-1 through E-2) are filed as part of this annual report. (d)Financial Statements omitted-- Separate financial statements of the parent company have been omitted since it is primarily an operating company and the minority interest and indebtedness to persons other than the parent of the subsidiaries included in the consolidated financial statements are less than 5% of total consolidated assets. Certain schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they are not applicable or not required. 14 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, ON THE 23RD DAY OF MARCH, 1995. R. R. DONNELLEY & SONS COMPANY /s/ William L. White By __________________________________ William L. White, Vice President, Controller 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 INDICATED, ON THE 23RD DAY OF MARCH, 1995. SIGNATURE AND TITLE SIGNATURE AND TITLE /s/ John R. Walter /s/ Richard M. Morrow ------------------------------------- ------------------------------------- John R. Walter Richard M. Morrow Chairman of the Board, Director Chief Executive Officer and Director (Principal Executive Officer) /s/ M. Bernard Puckett ------------------------------------- /s/ Frank R. Jarc M. Bernard Puckett ------------------------------------- Director Frank R. Jarc Executive Vice President and /s/ John M. Richman Chief Financial Officer ------------------------------------- (Principal Financial Officer) John M. Richman Director /s/ William L. White ------------------------------------- /s/ William D. Sanders William L. White ------------------------------------- Vice President, Controller William D. Sanders (Principal Accounting Officer) Director /s/ Martha Layne Collins ------------------------------------- ------------------------------------- Martha Layne Collins Jerre L. Stead Director Director /s/ James R. Donnelley /s/ Bide L. Thomas ------------------------------------- ------------------------------------- James R. Donnelley Bide L. Thomas Director Director /s/ Charles C. Haffner III /s/ H. Blair White ------------------------------------- ------------------------------------- Charles C. Haffner III H. Blair White Director Director /s/ Thomas S. Johnson /s/ Stephen M. Wolf ------------------------------------- ------------------------------------- Thomas S. Johnson Stephen M. Wolf Director Director 15 ITEM 14(A). INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
PAGE(S) ------- Consolidated Statements of Income for each of the three years ended December 31, 1994..................................................... F-2 Consolidated Balance Sheets at December 31, 1994 and 1993.............. F-3 Consolidated Statements of Cash Flows for each of the three years ended December 31, 1994..................................................... F-4 Consolidated Statements of Shareholders' Equity for each of the three years ended December 31, 1994......................................... F-5 Notes to Consolidated Financial Statements............................. F-6 Report of Independent Public Accountants............................... F-16 Interim Financial Information.......................................... F-17 Report of Independent Public Accountants on Financial Statement Schedule.............................................................. F-18 Financial Statement Schedule II--Valuation and Qualifying Accounts................................ F-19
F-1 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME THOUSANDS OF DOLLARS
YEAR ENDING DECEMBER 31 --------------------------------- 1994 1993 1992 ---------- ---------- ---------- Net sales.................................... $4,888,786 $4,387,761 $4,193,072 Cost of sales................................ 3,938,494 3,518,168 3,375,214 ---------- ---------- ---------- Gross profit................................. 950,292 869,593 817,858 Selling and administrative expenses.......... 490,861 453,986 412,357 Restructuring charge......................... -- 90,000 -- ---------- ---------- ---------- Earnings from operations..................... 459,431 325,607 405,501 Interest expense............................. 53,493 45,436 38,659 Other expense--net........................... 10,934 3,609 5,828 ---------- ---------- ---------- Earnings before income taxes and cumulative effect of accounting changes................ 395,004 276,562 361,014 Income taxes................................. 126,401 97,642 126,355 ---------- ---------- ---------- Net income from operations before cumulative effect of accounting changes................ 268,603 178,920 234,659 Cumulative effect of change in accounting for: Postretirement benefits other than pensions (net of $80.1 million in tax benefits).... -- (127,700) -- Income taxes............................... -- 58,200 -- ---------- ---------- ---------- Net Income............................... $ 268,603 $ 109,420 $ 234,659 ========== ========== ========== Income (charge) per common share: Operations before cumulative effect of accounting changes........................ $ 1.75 $ 1.16 $ 1.51 Cumulative effect of change in accounting for: Postretirement benefits other than pensions (net of tax benefits)..................... -- (0.82) -- Income taxes............................... -- 0.37 -- ---------- ---------- ---------- Net Income per Share of Common Stock..... $ 1.75 $ 0.71 $ 1.51 ========== ========== ==========
See accompanying Notes to Consolidated Financial Statements. F-2 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS THOUSANDS OF DOLLARS
DECEMBER 31 ---------------------- 1994 1993 ---------- ---------- Assets Cash and equivalents................................. $ 20,569 $ 10,716 Receivables, less allowances for doubtful accounts of $19,168 in 1994 and $14,795 in 1993................. 987,520 825,207 Inventories, principally at LIFO cost................ 311,237 243,714 Prepaid expenses..................................... 34,004 30,277 ---------- ---------- Total Current Assets............................... 1,353,330 1,109,914 Net property, plant and equipment, at cost, less accumulated depreciation of $1,852,084 in 1994 and $1,686,779 in 1993.................................. 1,856,760 1,674,476 Goodwill and other intangibles, net of accumulated amortization of $114,932 in 1994 and $85,330 in 1993................................................ 887,071 556,681 Other noncurrent assets.............................. 354,982 312,955 ---------- ---------- Total Assets....................................... $4,452,143 $3,654,026 ========== ========== Liabilities Accounts payable..................................... $ 422,703 $ 333,862 Accrued compensation................................. 107,167 78,284 Short-term debt...................................... 32,400 37,428 Current and deferred income taxes.................... 46,912 40,698 Other accrued liabilities............................ 192,668 195,169 ---------- ---------- Total Current Liabilities.......................... 801,850 685,441 ---------- ---------- Long-term debt....................................... 1,212,332 673,422 Deferred income taxes................................ 286,904 272,959 Other noncurrent liabilities......................... 172,688 178,213 ---------- ---------- Total Noncurrent Liabilities....................... 1,671,924 1,124,594 ---------- ---------- Shareholders' Equity Common stock at stated value ($1.25 par value) Authorized shares: 500,000,000; Issued: 158,608,800 in 1994 and 1993.................................... 330,612 330,612 Retained earnings, net of cumulative translation adjustments of $18,235 in 1994 and $13,140 in 1993.. 1,802,777 1,629,673 Reacquired common stock, at cost..................... (155,020) (116,294) ---------- ---------- Total Shareholders' Equity......................... 1,978,369 1,843,991 ---------- ---------- Total Liabilities and Shareholders' Equity........... $4,452,143 $3,654,026 ========== ==========
See accompanying Notes to Consolidated Financial Statements. F-3 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THOUSANDS OF DOLLARS
YEAR ENDING DECEMBER 31 ------------------------------- 1994 1993 1992 --------- --------- --------- Cash flows provided by (used in) operating activities: Net income from operations before cumulative effect of accounting changes............... $ 268,603 $ 178,920 $ 234,659 Depreciation and amortization............... 313,463 274,804 258,169 Net change in assets and liabilities........ (355,934) (4,342) (41,530) Other....................................... (38,586) 3,241 743 --------- --------- --------- Net Cash Provided By Operating Activities. 187,546 452,623 452,041 --------- --------- --------- Cash flows used for investing activities: Capital expenditures........................ (425,190) (306,512) (228,002) Other investments including acquisitions, net of cash acquired....................... (120,461) (177,743) (83,771) --------- --------- --------- Net Cash Used For Investing Activities.... (545,651) (484,255) (311,773) --------- --------- --------- Cash flows from (used for) financing activities: Net increase (decrease) in borrowings....... 500,951 143,286 (56,275) Disposition of reacquired common stock...... 20,585 19,693 13,068 Acquisition of common stock................. (57,363) (47,513) (28,298) Cash dividends on common stock.............. (92,352) (83,465) (79,242) --------- --------- --------- Net Cash From (Used For) Financing Activities............................... 371,821 32,001 (150,747) --------- --------- --------- Effect of exchange rate changes on cash and equivalents.................................. (3,863) (2,001) (1,313) --------- --------- --------- Net Increase (Decrease) in Cash and Equivalents.................................. 9,853 (1,632) (11,792) Cash and Equivalents at Beginning of Year..... 10,716 12,348 24,140 --------- --------- --------- Cash and Equivalents at End of Year........... $ 20,569 $ 10,716 $ 12,348 ========= ========= ========= The changes in assets and liabilities, net of balances assumed through acquisitions, were as follows: 1994 1993 1992 --------- --------- --------- Decrease (Increase) in Assets: Receivables--net............................ $(125,001) $ 5,835 $ (87,970) Inventories--net............................ (53,214) (32,156) (32,568) Prepaid expenses............................ (601) (8,463) 80,133 Other assets................................ (275,759) 31,609 (125,065) Increase (Decrease) in Liabilities: Accounts payable............................ 97,439 41,988 37,079 Accrued compensation........................ 28,603 (3,146) 22,108 Current and deferred income taxes........... 6,095 4,773 (3,859) Deferred income taxes....................... 13,574 9,725 18,821 Other accrued liabilities................... (15,448) (1,110) 53,748 Other noncurrent liabilities................ (31,622) (53,397) (3,957) --------- --------- --------- Net Change in Assets and Liabilities...... $(355,934) $ (4,342) $ (41,530) ========= ========= =========
See accompanying Notes to Consolidated Financial Statements. F-4 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY THOUSANDS OF DOLLARS
REACQUIRED COMMON STOCK COMMON STOCK -------------------- --------------------- RETAINED SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL ----------- -------- ---------- --------- ---------- ---------- Balance at December 31, 1991...... 79,304,400 $231,481 (1,629,549) $ (66,515) $1,565,420 $1,730,386 Net income.............. 234,659 234,659 Par value of common shares issued for stock split effective September 1, 1992...... 79,304,400 99,131 (1,629,549) (99,131) -- Treasury stock purchases.............. (967,370) (28,298) (28,298) Cash dividends.......... (79,242) (79,242) Cost of common shares issued under stock programs............... 646,486 10,777 2,291 13,068 Translation adjustments. (21,596) (21,596) ----------- -------- ---------- --------- ---------- ---------- Balance at December 31, 1992...... 158,608,800 330,612 (3,579,982) (84,036) 1,602,401 1,848,977 Net income before cumulative effect of accounting changes..... 178,920 178,920 Cumulative effect of change in accounting for: Other postretirement benefits, net of tax benefits............. (127,700) (127,700) Income taxes.......... 58,200 58,200 Treasury stock purchases.............. (1,601,296) (47,513) (47,513) Cash dividends.......... (83,465) (83,465) Cost of common shares issued under stock programs............... 730,511 15,255 4,438 19,693 Translation adjustments. (3,121) (3,121) ----------- -------- ---------- --------- ---------- ---------- Balance at December 31, 1993...... 158,608,800 330,612 (4,450,767) (116,294) 1,629,673 1,843,991 Net income.............. 268,603 268,603 Treasury stock purchases.............. (1,958,193) (57,363) (57,363) Cash dividends.......... (92,352) (92,352) Cost of common shares issued under stock programs............... 885,478 18,637 1,948 20,585 Translation adjustments. (5,095) (5,095) ----------- -------- ---------- --------- ---------- ---------- Balance at December 31, 1994...... 158,608,800 $330,612 (5,523,482) $(155,020) $1,802,777 $1,978,369 =========== ======== ========== ========= ========== ==========
See accompanying Notes to Consolidated Financial Statements. F-5 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation--The consolidated financial statements include the accounts of the company and its subsidiaries. Intercompany items and transactions are eliminated in consolidation. Nature of Operations--The operations of the company are in the information industry. The company provides a wide variety of print and print-related products and services for specific customers, virtually always under contract. Some contracts provide for progress payments from customers as certain phases of the work are completed; however, revenue is not recognized until the production process has been completed in accordance with the terms of the contracts. Some customers furnish paper for their work, while in other cases the company purchases and sells the paper. Cash and Equivalents--The company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Inventories--Inventories include material, labor and factory overhead and are substantially carried at Last-In, First-Out (LIFO) cost. This method reflects the effect of inventory replacement costs in earnings; accordingly, charges to cost of sales reflect recent costs of material, labor and factory overhead. Foreign Currency Translation--Gains and losses arising from the translation of the company's international subsidiaries' financial statements are reflected in Retained Earnings. Net Income Per Share of Common Stock--Net income per share is computed on the basis of average shares outstanding during each year. No material dilution would result if effect were given to the exercise of outstanding stock options and the vesting of stock units. Benefit Plans--The company's Retirement Benefit Plan (the Plan) is a non- contributory defined benefit plan covering substantially all domestic employees. Normal retirement age is 65 but provision is made for earlier retirement. As required, the company uses the projected unit credit actuarial cost method to determine pension cost for financial reporting purposes. In conjunction with this method, the company amortizes deferred gains and losses (using the corridor method), prior service costs and the transition credit (the excess of Plan assets plus balance sheet accruals over the projected obligation, as of January 1, 1987) over 19 years, representing the average remaining service life of its active employee population. For tax and funding purposes, the attained age normal actuarial cost method is used. Compared to the projected unit credit method, the attained age normal method attributes a greater proportion of the total retirement obligation to an employee's early years of service. Capitalization, Depreciation and Amortization--Property, plant and equipment are stated at cost. Depreciation is computed principally on the straight-line method based on useful lives of 15 to 33 years for buildings and 3 to 15 years for machinery and equipment. Maintenance and repair costs are charged to expense as incurred. Major overhauls are capitalized as reductions to accumulated depreciation. When properties are retired or disposed, the costs and related depreciation reserves are eliminated and the resulting profit or loss is recognized in income. Goodwill ($558.0 million and $493.7 million, net of accumulated amortization, at December 31, 1994 and 1993, respectively) is amortized principally over periods ranging from 10 to 40 years. Other intangibles represent the cost of acquiring print contracts and volume guarantees and are amortized over the lives of the related agreements. RESTRUCTURING CHARGE On January 25, 1993, Sears, Roebuck and Co., a customer, announced its decision to discontinue catalog operations during 1993. In response to Sears' announcement, the company incurred a one-time charge of F-6 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) $60.8 million (net of the associated tax benefit) in the first quarter of 1993. The charge primarily covered the costs associated with closing the company's manufacturing facility in Chicago, Illinois, where the company produced the Sears catalogs. INVENTORIES The components of the company's inventories as of December 31, 1994 and 1993, were as follows:
1994 1993 -------- -------- THOUSANDS OF DOLLARS Raw materials......................................... $165,615 $142,739 Work in process....................................... 182,914 154,477 Operating supplies.................................... 51,372 32,192 Progress billings..................................... (45,523) (40,299) LIFO reserve ......................................... (43,141) (45,395) -------- -------- Total............................................. $311,237 $243,714 ======== ========
VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATIONS The company maintains two Voluntary Employees' Beneficiary Associations (VEBAs), one to fund employee welfare benefits and one to fund postretirement medical and death benefits. The balances of the VEBAs (net of associated liabilities) are recorded in the accompanying Consolidated Balance Sheets, classified as current or noncurrent depending on the ultimate expected payment date of the underlying liabilities. As of December 31, 1994, a net current asset of $11.3 million was included in Prepaid Expenses representing the current position of the company's employee welfare benefit plans funded by one of the VEBAs ($9.8 million is included in Prepaid Expenses at December 31, 1993). The VEBA established to partially fund the company's liability for postretirement medical and death benefits ($156 million at December 31, 1994 and $135 million at December 31, 1993) is included in Other Noncurrent Liabilities as an offset to the related liability. For additional information, refer to the notes on "Other Retirement Benefits." PROPERTY, PLANT AND EQUIPMENT The following table summarizes the components of property, plant and equipment (at cost):
1994 1993 ---------- ---------- THOUSANDS OF DOLLARS Land................................................ $ 38,430 $ 39,033 Buildings........................................... 595,460 551,103 Machinery and equipment............................. 3,074,954 2,771,119 ---------- ---------- Total........................................... $3,708,844 $3,361,255 ========== ==========
COMMITMENTS AND CONTINGENCIES As of December 31, 1994, authorized expenditures on incomplete projects for the purchase of property, plant and equipment totaled $265.6 million. Of this total, $184.1 million has been contractually committed. The company has a variety of commitments with suppliers for the purchase of paper, ink and other materials for delivery in future years at prevailing market prices. F-7 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The company has operating lease commitments totaling $364.9 million and extending through various periods to 2009. The lease commitments total $49.2 million for 1995, range from $24.3 million to $44.3 million in each of the years 1996-1999 and total $177.3 million for years 2000 and thereafter. The company is not exposed to significant accounts receivable credit risk, due to the diversity of industry classification, distribution channels and geographic location of its customers. In addition, the company is a party to certain litigation (other than the matters described below) arising in the ordinary course of business which, in the opinion of management, will not have a material adverse effect on the operations of the company. The company also has future annual commitments to invest in various affordable housing limited partnerships which provide annual tax benefits and credits in amounts greater than the annual investments. The company has appealed a 1993 decision in the Federal Trade Commission (FTC) challenge to the company's 1990 acquisition of the Meredith/Burda companies. A FTC administrative law judge found the acquisition has or may substantially lessen competition in an alleged "high-volume publication gravure printing" market and ordered the divestiture of the Meredith/Burda companies. The company's appeal has the effect of staying the divestiture order. The ruling is contrary to an earlier ruling by a Federal District Court which allowed the acquisition to be consummated. Company management continues to believe this acquisition was legally proper. On December 17, 1994, a purported class action seeking compensatory and punitive damages was filed in California state court against Metromail Corporation, a wholly-owned subsidiary of the company, alleging among other things, that inclusion of certain information in Metromail databases resulted in invasions of privacy in violation of laws. The case was removed from state court to the U.S. District Court for the Central District of California, and in an order dated March 8, 1995, the U.S. District Court dismissed the lawsuit on the joint motion of the parties. The U.S. District Court found, among other things, that the action was not legally maintainable as a class action. RETIREMENT BENEFIT PLAN Net pension credits included in operating results for the Retirement Benefit Plan (the Plan) were:
1994 1993 1992 -------- -------- -------- THOUSANDS OF DOLLARS Service cost..................................... $ 28,158 $ 25,097 $ 20,455 Interest cost on the projected benefit obligation...................................... 51,604 47,295 43,252 Actual return on Plan assets..................... 3,858 (106,595) (85,115) Amortization of excess Plan net assets at adoption of SFAS No. 87 and deferrals--net...... (97,293) 20,306 5,127 -------- -------- -------- Total........................................ $(13,673) $(13,897) $(16,281) ======== ======== ========
The actuarial computations that derived the above amounts assumed a discount rate on projected benefit obligations of 8.5% (7.5% at December 31, 1993 and 7.8% at December 31, 1992), an expected long-term rate of return on Plan assets of 9.5% and annual salary increases of 5%. Plan assets include primarily government and corporate debt securities and marketable equity securities, and, to a lesser extent, commingled funds, real estate and a group annuity contract purchased from a life F-8 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) insurance company. The funded status and prepaid pension cost (included in Other Noncurrent Assets on the accompanying Consolidated Balance Sheets) are as follows:
DECEMBER 31, DECEMBER 31, 1994 1993 ------------ ------------ THOUSANDS OF DOLLARS Fair value of Plan assets............................ $ 935,847 $ 962,153 --------- --------- Actuarial present value of benefit obligations: Vested............................................. 574,839 590,214 Non-vested......................................... 9,354 10,488 --------- --------- Total accumulated benefit obligations................ 584,193 600,702 Additional amounts related to projected wage increases........................................... 80,098 95,155 --------- --------- Projected benefit obligations for services rendered to date............................................. 664,291 695,857 --------- --------- Excess of Plan assets over projected benefit obligations......................................... 271,556 266,296 Unrecognized net deferrals........................... 4,948 6,385 Unrecognized net excess Plan assets to be amortized through the year 2005............................... (108,347) (118,197) --------- --------- Prepaid Pension Costs................................ $ 168,157 $ 154,484 ========= =========
In the event of Plan termination, the Plan provides that no funds can revert to the company and any excess assets over Plan liabilities must be used to fund retirement benefits. OTHER RETIREMENT BENEFITS In addition to pension benefits, the company provides certain health care and life insurance benefits for retired employees. Substantially all of the company's domestic, full-time employees become eligible for those benefits upon reaching age 55 while working for the company and having ten years continuous service at retirement. Beginning in 1992, the company began a program to partially fund the liabilities associated with these plans through a tax-exempt trust. The trust is invested in various assets, primarily life insurance covering some of the company's employees. Effective January 1, 1993, the company adopted Statement of Financial Accounting Standards No. 106 (SFAS 106), "Employers' Accounting for Postretirement Benefits Other Than Pensions." SFAS 106 requires companies to charge to expense the expected costs of postretirement health care and life insurance (and similar benefits) during the years that the employees render service. Previously, such costs were expensed as actual claims were paid. The company elected to immediately recognize the transition obligation for future benefits to be paid related to past employee services, resulting in a noncash charge of $207.8 million before deferred income tax benefits ($127.7 million after-tax or $0.82 per share) that represents the cumulative effect of the change in accounting for the years prior to 1993. The net accrual-basis expense for postretirement benefits during 1994 and 1993 included the following components:
1994 1993 -------- ------- THOUSANDS OF DOLLARS Service cost........................................... $ 11,807 $11,580 Interest cost on the projected benefit obligations..... 18,532 17,486 Actual return on assets................................ (1,296) (5,545) Deferrals--net......................................... (11,113) (3,832) -------- ------- Total.............................................. $ 17,930 $19,689 ======== =======
The above table does not include a $23 million charge for postretirement medical benefits associated with the closing of the company's Chicago manufacturing facility; such amount was included in the 1993 restructuring charge (see separate note above). The expense for postretirement medical and death benefits for 1992 (recognized on a cash basis) was $12.4 million. F-9 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The liability (included in Other Noncurrent Liabilities on the accompanying Consolidated Balance Sheets) for postretirement benefits, net of the partial funding, is as follows:
DECEMBER 31, DECEMBER 31, 1994 1993 ------------ ------------ THOUSANDS OF DOLLARS Actuarial present value of benefit obligations: Retirees........................................... $ 136,854 $ 152,334 Fully eligible active plan participants............ 7,056 4,413 Other active plan participants..................... 65,595 87,077 --------- --------- Total accumulated benefit obligations................ 209,505 243,824 Fair value of Plan assets............................ (156,416) (134,731) Unrecognized net deferrals........................... 37,542 (805) --------- --------- Excess of Accumulated Benefit Obligations Over Plan Assets.............................................. $ 90,631 $ 108,288 ========= =========
The actuarial computations assumed a discount rate of 8.5% (7.5% at December 31, 1993) to determine the accumulated postretirement benefit obligation, an expected long-term rate of return on plan assets of 9.0% and a health care cost trend rate of 7.8% initially, declining gradually to 5.4% in 2023 and thereafter, to measure the accumulated postretirement benefit obligation. Effective January 1, 1993, certain features of the plan were amended. For future retirees, the company introduced retiree cost-sharing and implemented programs intended to stem rising costs. Also, the company has adopted a provision which limits its future obligation to absorb health care cost inflation. The features of the new plan provisions have been reflected in the assumed health care cost trend rate disclosed above. However, a one percentage point increase in the assumed health care cost trend rate would increase the 1994 postretirement benefit expense (service cost and interest cost) by $2 million and the accumulated postretirement benefit obligation as of December 31, 1994 by $11.6 million. INCOME TAXES Effective January 1, 1993, the company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 requires, among other things, the application of current statutory income tax rates in computing deferred income tax balances. In the first quarter of 1993, the company recognized the cumulative effect, through January 1, 1993, of the accounting change, reflecting the difference between current statutory tax rates and the generally higher rates that were used to establish the deferred income tax balances, resulting in noncash income of $58.2 million (equivalent to $0.37 per share). Cash payments for income taxes were $101.6 million, $75.2 million and $105.9 million in 1994, 1993 and 1992, respectively. The components of income tax expense for the years ending December 31, 1994, 1993 and 1992, were as follows:
1994 1993 1992 -------- ------- -------- THOUSANDS OF DOLLARS Federal Current...................................... $ 79,483 $72,049 $108,494 Deferred*.................................... 23,218 7,339 (5,966) State.......................................... 23,700 18,254 23,827 -------- ------- -------- Total...................................... $126,401 $97,642 $126,355 ======== ======= ========
-------- *The 1993 deferred income tax expense includes $6.2 million for the one-time adjustment of previously recorded deferred taxes due to the increase in the U.S. statutory rate. F-10 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The significant deferred tax assets and liabilities at December 31, 1994 and 1993, were as follows:
1994 1993 --------- --------- MILLIONS OF DOLLARS Deferred tax liabilities: Accelerated depreciation........................... $ 206 $ 176 Investments in safe harbor leases.................. 37 46 Pensions........................................... 61 57 Other.............................................. 65 72 --------- --------- Total deferred tax liabilities................... 369 351 --------- --------- Deferred tax assets: Postretirement benefits............................ 36 43 Accrued liabilities................................ 25 34 Other.............................................. 37 15 --------- --------- Total deferred tax assets........................ 98 92 --------- --------- Net Deferred Tax Liabilities......................... $ 271 $ 259 ========= =========
The following table outlines the reconciling differences between the U.S. statutory tax rates and the rates used by the company in the determination of net income:
1994 1993 1992 ---- ---- ---- Federal statutory rate....................................... 35.0% 35.0% 34.0% State and local income taxes, net of U.S. federal income tax benefit..................................................... 3.9 4.3 4.4 Differences resulting from purchase accounting............... 1.3 2.0 1.1 Benefits resulting from life insurance programs.............. (4.7) (5.5) (3.2) Affordable housing investment credits........................ (3.1) (2.5) -- Other........................................................ (0.4) (0.2) (1.3) ---- ---- ---- Subtotal..................................................... 32.0 33.1 35.0 Adjustment of deferred taxes for the increase in the U.S. federal statutory income tax rate........................... -- 2.2 -- ---- ---- ---- Total.................................................... 32.0% 35.3% 35.0% ==== ==== ====
DEBT FINANCING AND INTEREST EXPENSE The company's debt at December 31, consisted of the following:
1994 1993 ---------- -------- THOUSANDS OF DOLLARS 9.125% Debentures due December 1, 2000..................... $ 199,574 $199,502 7.0% Notes due January 1, 2003............................. 109,686 109,647 8.875% Debentures due April 15, 2021....................... 149,652 149,638 Medium term Notes.......................................... 200,000 -- Commercial paper........................................... 484,061 218,664 Other...................................................... 101,759 33,399 ---------- -------- Total.................................................. $1,244,732 $710,850 ========== ========
F-11 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Based upon the interest rates currently available to the company for borrowings with similar terms and maturities, the fair value of the company's debt approximates its book value at December 31, 1994. The company's notes and debentures are not actively traded and contain no call provisions. At December 31, 1994, the company had an available credit facility of $550 million with a group of domestic and foreign banks. The credit arrangement provides support for the issuance of commercial paper and other credit needs. Borrowings under the facility (none during the past two years) bear interest at various rates not exceeding the banks' prime rates. The company pays an annual fee of 0.07% on the total unused credit facility. At December 31, 1994, the company had an effective shelf registration statement permitting it to issue, from time to time, up to $300 million in debt securities. Under shelf registration statements, the company issued $200 million of medium term notes during the fourth quarter of 1994. The notes bear interest at rates ranging between 7.01% and 7.96% (with a weighted average interest rate of 7.55%) with maturities as follows: 1997--$91 million, 1998--$5 million and 1999--$104 million. The proceeds from these issues were used to retire commercial paper debt. At December 31, 1994, the company had $538.6 million of commercial paper and short-term debt outstanding, of which $32.4 million represents management's current estimate of the 1995 net repayment. The remaining $506.2 million is classified as long term since the company has the ability and intent to maintain such debt on a long-term basis. The weighted average interest rate on all commercial paper debt outstanding during 1994 was 4.3% (6.0% at December 31, 1994). The following table summarizes interest expense included in the Consolidated Statements of Income:
1994 1993 1992 -------- ------- ------- THOUSANDS OF DOLLARS Interest incurred.................................. $ 63,726 $51,922 $43,882 Amount capitalized as property, plant and equipment......................................... (10,233) (6,486) (5,223) -------- ------- ------- Total.......................................... $ 53,493 $45,436 $38,659 ======== ======= =======
Interest paid, net of capitalized interest, was $51.8 million, $42.9 million and $38.4 million in 1994, 1993 and 1992, respectively. STOCK AND INCENTIVE PROGRAMS FOR MANAGEMENT EMPLOYEES Stock Unit Awards and Restricted Stock Awards--At December 31, 1994 and 1993, the company had outstanding 10,000 and 80,000 stock units, respectively, which had been granted to officers and selected managers prior to 1990. Certain of these units are payable upon or subsequent to termination of employment and others are payable upon vesting, normally five years after the date of grant. Payment of these awards will be made in shares of common stock equal to the number of units awarded, in cash equal to the market value at the date of distribution, or a combination thereof, at the company's option. The expense for these grants was recognized in the year granted. When an award of stock units is paid, the recipient will receive an additional amount in cash equal to dividends paid on an equivalent number of shares of common stock during the vesting period, plus interest. The values of the dividends and interest accounts were $46,000 and $232,000 at December 31, 1994 and 1993, respectively. At December 31, 1994 and 1993, the company had outstanding 328,000 and 275,000, respectively, restricted shares granted to certain officers. These shares are registered in the names of the recipients, but are subject to conditions of forfeiture and restrictions on sale or transfer for five years from the grant date. Dividends on the restricted shares are paid currently to the recipients and, accordingly, the restricted shares are treated as outstanding shares. The expense of the grant is recognized evenly over the vesting period. F-12 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The value of the stock units and restricted stock awards was $10.0 million and $11.0 million based upon the closing price of the company's stock at each year end ($29.50 and $31.13 at December 31, 1994 and 1993, respectively). Charges to expense for both stock plans were $1.5 million, $1.1 million and $1.2 million in 1994, 1993 and 1992, respectively. Stock Purchase Plan--The company has a stock purchase plan for selected managers and key staff employees. Under the plan, the company is required to contribute an amount equal to 70% of participants' contributions, of which 50% is applied to the purchase of stock and 20% is paid in cash. The number of shares required for the plan for the year 1994 will depend upon the extent to which eligible participants subscribe during the subscription period in the first quarter of 1995 and the price of the stock on March 16, 1995. Amounts charged to expense for this plan were $6.1 million, $6.2 million, and $5.8 million in 1994, 1993 and 1992, respectively. Incentive Compensation Plans--The company has incentive compensation plans covering selected officers. Amounts charged to expense for supplementary compensation ($3.3 million in 1994, $2.6 million in 1993 and $2.7 million in 1992), are determined from the level of achievement of performance measures related to earnings, margins and returns applied to the participants' base salaries. Similar incentive and gain sharing compensation plans exist for other officers, managers, supervisors and production employees. Stock Options--The company has granted stock options annually from 1983 to 1994. Exercise prices are 100% of the market price of common stock on the date of grant. The employee options vest over three, four or five years and may be exercised, once vested, up to ten years from the date of grant. Under the 1991 Stock Incentive Plan, a maximum of 1.2 million shares were available for future grants of stock options and restricted stock awards as of December 31, 1994. Information relating to stock options, which includes 2.4 million shares granted under a broad base stock option program for non-management employees, for the years ended December 31 is shown below.
1994 1993 --------------------------- -------------------------- NUMBER OF PER SHARE OPTION NUMBER OF PER SHARE OPTION SHARES ON DATE OF GRANT SHARES ON DATE OF GRANT ---------- ---------------- --------- ---------------- Stock options granted... 4,016,500 $28.44 to $30.94 1,399,200 $28.94 to $30.19 Stock options canceled or expired............. 274,220 $19.63 to $31.38 17,040 $19.63 to $31.38 Stock options exercised. 370,627 $11.44 to $23.94 248,201 $11.00 to $23.94 At end of year: Stock options outstanding.......... 11,056,758 $15.66 to $31.38 7,685,105 $11.44 to $31.38 Stock options exercisable.......... 4,764,756 $15.66 to $31.38 3,850,079 $11.44 to $31.38
Other Information--Under the stock programs, authorized unissued shares or treasury shares may be used. If authorized unissued shares are used, not more than 11.3 million shares may be issued in the aggregate. The company intends to reacquire shares of its common stock to meet the stock requirements of these programs in the future. EMPLOYEE STOCK OWNERSHIP PLAN Contributions to the company's Employee Stock Ownership Plan were discontinued in response to the change in tax law that eliminated the previously available tax credit. Under this plan, 1.2 million shares are held in trust as of December 31, 1994, for formerly eligible employees. There are no charges to operations for this plan, except for certain administrative expenses. F-13 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) STOCK SPLIT On July 23, 1992, the Board of Directors declared a 2-for-1 common stock split. The split was completed on September 1, 1992, by the distribution of one share of common stock, par value $1.25 per share, for each share held by stockholders of record on August 7, 1992. Information relating to stock options, stock units, reacquired common stock, the Shareholders Rights Plan, and the net income and dividends per share included in the Consolidated Financial Statements and related notes reflects the stock split. PREFERRED STOCK The company has two million shares of $1.00 par value preferred stock authorized for issuance. The Board of Directors may divide the preferred stock into one or more series and fix the redemption, dividend, voting, conversion, sinking fund, liquidation and other rights. The company has no present plans to issue any preferred stock. One million of the shares are reserved for issuance under the Shareholder Rights Plan discussed below. SHAREHOLDER RIGHTS PLAN The company maintains a Shareholder Rights Plan (the Plan) designed to deter coercive or unfair takeover tactics, to prevent a person or group from gaining control of the company without offering fair value to all shareholders and to deter other abusive takeover tactics which are not in the best interest of shareholders. Under the terms of the Plan, each share of common stock is accompanied by one-quarter of a right; each full right entitles the shareholder to purchase from the company, one one-hundredth of a newly issued share of Series A Junior Preferred Stock at an exercise price of $225. The rights become exercisable ten days after a public announcement that an acquiring person (as defined in the Plan) has acquired 20% or more of the outstanding common stock of the company (the Stock Acquisition Date) or ten days after the commencement of a tender offer which would result in a person owning 30% or more of such shares. The company can redeem the rights for $.05 per right at any time until twenty days following the Stock Acquisition Date (the 20-day period can be shortened or lengthened by the company). The rights will expire on August 8, 1996 unless redeemed earlier by the company. If, subsequent to the rights becoming exercisable, the company is acquired in a merger or other business combination at any time when there is a 20% or more holder, the rights will then entitle a holder to buy shares of the acquiring company with a market value equal to twice the exercise price of each right. Alternatively, if a 20% holder acquires the company by means of a merger in which the company and its stock survives, or if any person acquires 30% or more of the company's common stock, each right not owned by a 20% or more shareholder, would become exercisable for common stock of the company (or, in certain circumstances, other consideration) having a market value equal to twice the exercise price of the right. ACQUISITIONS The company made several acquisitions, joint venture and equity investments in 1994, 1993 and 1992, none of which, either individually or in the aggregate, were material to the company's financial statements. The acquisitions were accounted for using the purchase method; accordingly, the assets and liabilities of the acquired entities have been recorded at their estimated fair values at their respective dates of acquisition. F-14 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) GEOGRAPHIC SEGMENTS The following table summarizes the company's results of operations and identifiable assets, as of and for the years ended December 31, 1994, 1993 and 1992:
1994 1993 1992 ---------- ---------- ---------- THOUSANDS OF DOLLARS Net sales: Domestic.................................. $4,343,477 $3,999,367 $3,844,053 Foreign................................... 553,395 390,282 349,941 Less transfers between geographic areas... (8,086) (1,888) (922) ---------- ---------- ---------- Total................................... $4,888,786 $4,387,761 $4,193,072 ========== ========== ========== Earnings from operations: Domestic*................................. $ 497,120 $ 362,364 $ 436,522 Foreign................................... 4,118 (598) 1,766 Corporate and other expenses--net......... (41,807) (36,159) (32,787) ---------- ---------- ---------- Total................................... $ 459,431 $ 325,607 $ 405,501 ========== ========== ========== Identifiable assets: Domestic.................................. $3,719,974 $3,186,229 $3,023,177 Foreign................................... 541,614 307,727 264,452 Investment in unconsolidated affiliates... 80,580 74,188 53,646 Corporate and other....................... 109,975 85,882 68,972 ---------- ---------- ---------- Total................................... $4,452,143 $3,654,026 $3,410,247 ========== ========== ==========
-------- *1993 domestic earnings from operations includes a $90 million restructuring charge recorded during the first quarter of 1993 related primarily to the closing of the company's Chicago manufacturing facility. Sales to affiliates are at negotiated prices based on specific market conditions. Earnings from operations is net sales less cost of sales, selling and administrative expenses, assessments to operating units for various corporate expenses and goodwill amortization. In computing earnings from operations, none of the following items has been added or deducted: interest expense, income taxes and equity in income from unconsolidated investees. Identifiable assets are those assets of the company that are identified with the operations in each geographic area. Corporate and other assets are principally investments. Since December 31, 1991, foreign identifiable assets have grown 113%, which is attributable to acquisitions, new locations and expansions of existing businesses. Significant investments have been made in China, Poland, Ireland, Singapore, United Kingdom, Japan, Korea, Australia, France, Germany, Mexico and South America resulting in sales gains from the introduction of the company's products to international markets and the creation of new products and services by the foreign segment. Most of these operations remain in their start-up and expansion phases and accordingly, the growth in foreign net sales (113% since 1991) has outpaced the growth in foreign operating earnings due to normal but significant start-up costs. F-15 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders of R. R. Donnelley & Sons Company: We have audited the accompanying consolidated balance sheets of R. R. Donnelley & Sons Company (a Delaware corporation) and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years ended December 31, 1994. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements 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 the financial statements referred to above present fairly, in all material respects, the financial position of R. R. Donnelley & Sons Company and Subsidiaries as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years ended December 31, 1994, in conformity with generally accepted accounting principles. As explained in the Notes to Consolidated Financial Statements, effective January 1, 1993, the company changed its method of accounting for postretirement benefits other than pensions and its method of accounting for income taxes. Arthur Andersen LLP Chicago, Illinois January 26, 1995 (except with respect to the matter discussed in paragraph 5 in the Commitments and Contingencies footnote, as to which the date is March 8, 1995) F-16 UNAUDITED INTERIM FINANCIAL INFORMATION THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA
YEAR ENDING DECEMBER 31 ------------------------------------------------------- FIRST SECOND THIRD FOURTH FULL QUARTER QUARTER QUARTER QUARTER YEAR ---------- ---------- ---------- ---------- ---------- 1994 Net sales............... $1,070,877 $1,117,338 $1,242,973 $1,457,598 $4,888,786 Gross profit............ 193,853 217,819 255,046 283,574 950,292 Net income.............. 42,796 58,338 80,070 87,399 268,603 Net income per common share.................. 0.28 0.38 0.52 0.57 1.75 1993 Net sales............... $ 960,341 $ 993,964 $1,123,848 $1,309,608 $4,387,761 Gross profit............ 174,835 195,351 232,022 267,385 869,593 Net income (loss) from operations before cumulative effect of accounting changes..... (22,108) 52,771 69,451 78,806 178,920 Cumulative effect of accounting changes..... (69,500) -- -- -- (69,500) Net income (loss)....... (91,608) 52,771 69,451 78,806 109,420 Per common share Net income (loss) from operations before cumulative effect of accounting changes... (0.14) 0.34 0.45 0.51 1.16 Cumulative effect of accounting changes... (0.45) -- -- -- (0.45) Net income (loss)..... (0.59) 0.34 0.45 0.51 0.71
F-17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Stockholders of R. R. Donnelley & Sons Company: We have audited, in accordance with generally accepted auditing standards, the financial statements included in the Company's Annual Report to Shareholders included in this Form 10-K, and have issued our report thereon dated January 26, 1995. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the index to the financial statements and financial statement schedule is the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois January 26, 1995 F-18 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Transactions affecting the allowances for doubtful accounts during the years ended December 31, 1994, 1993 and 1992 were as follows:
1994 1993 1992 -------- -------- -------- (IN THOUSANDS OF DOLLARS) Allowance for trade receivable losses: Balance, beginning of year................ $ 14,795 $ 17,745 $ 23,928 Balance, acquired companies at acquisi- tion..................................... 5,257 312 1,066 Provisions charged to income.............. 14,047 22,658 12,931 -------- -------- -------- 34,099 40,715 37,925 Uncollectible accounts written off, net of recoveries............................... (14,931) (25,920) (20,180) -------- -------- -------- Balance, end of year...................... $ 19,168 $ 14,795 $ 17,745 ======== ======== ========
F-19
INDEX TO EXHIBITS* DESCRIPTION EXHIBIT NO. ----------- ---------- Certificate of Incorporation(10)............................... 3(i)(a) Certificate of Stock Designation filed as Exhibit A to the Rights Agreement dated July 24, 1986 between R. R. Donnelley & Sons Company and Morgan Shareholder Services Trust Compa- ny(2)......................................................... 3(i)(b) By-Laws........................................................ 3(ii)(a) Amendment to By-Laws adopted January 26, 1995.................. 3(ii)(b) Form of Rights Agreement, dated as of July 24, 1986 between R.R. Donnelley & Sons Company and Morgan Shareholder Services Trust Company(2).............................................. 4(a) First Amendment to Rights Agreement, dated as of March 24, 1988 between R. R. Donnelley & Sons Company and Morgan Share- holder Services Trust Company(4).............................. 4(b) Instruments Defining the Rights of Security Holders(1)......... 4(c) Indenture dated as of November 1, 1990 between the Company and Citibank, N.A. as Trustee(8).................................. 4(d) Credit Agreement dated December 21, 1994 among R. R. Donnelley & Sons Company, the Banks named therein and Citibank, N.A., as Administrative Agent....................................... 4(e) Directors' Retirement Benefit Plan, as amended(6)**............ 10(a) Directors' Deferred Compensation Agreement(12)**............... 10(b) Donnelley Shares Stock Option Plan, as amended................. 10(c) 1993 Stock Ownership Plan for Non-Employee Directors(9)**...... 10(d) Senior Management Annual Incentive Plan, as amended(8)**....... 10(e) Form of Severance Agreement for Senior Officers, as amend- ed(12)**...................................................... 10(f) 1993 Stock Purchase Plan for Selected Managers and Key Staff Employees, as amended(13)**................................... 10(g) 1981 Stock Incentive Plan(5)**................................. 10(h) 1986 Stock Incentive Plan(5)**................................. 10(i) 1991 Stock Incentive Plan, as amended(11)**.................... 10(j) 1995 Stock Incentive Plan**.................................... 10(k) Form of premium priced option agreement with certain executive officers**..................................................... 10(l) Unfunded Supplemental Benefit Plan(8)**........................ 10(m) Amendment to Unfunded Supplemental Benefit Plan adopted on April 25, 1991(7)**........................................... 10(n) Agreement with John R. Walter for 1988 award of stock units(3)**.................................................... 10(o) Statement of Computation of Ratio of Earnings to Fixed Charges....................................................... 12 Subsidiaries of R. R. Donnelley & Sons Company................. 21 Consent of Independent Public Accountants dated March 27, 1995.......................................................... 23 Financial Data Schedule........................................ 27
-------- *Filed with the Securities and Exchange Commission. Each such exhibit may be obtained by a shareholder of the Company upon payment of $5.00 per exhibit. **Management contract or compensatory plan or arrangement. (1) Instruments, other than that described in 4(d) and 4(e), defining the rights of holders of long-term debt not registered under the Securities Exchange Act of 1934 of the registrant and of all subsidiaries for which consolidated or unconsolidated financial statements are required to be filed are being omitted pursuant to paragraph (4)(iii)(A) of Item 601 of Regulation S-K. Registrant agrees to furnish a copy of any such instrument to the Commission upon request. E-1 (2) Filed as Exhibit with Form SE filed on July 31, 1986, and incorporated herein by reference. (3) Filed as Exhibit with Form SE filed on March 24, 1988, and incorporated herein by reference. (4) Filed as Exhibit with Form SE filed on May 10, 1988, and incorporated herein by reference. (5) Filed as Exhibit with Form SE filed on March 23, 1990, and incorporated herein by reference. (6) Filed as Exhibit with Form SE filed on March 25, 1991, and incorporated herein by reference. (7) Filed as Exhibit with Form SE filed on May 9, 1991 and incorporated herein by reference. (8) Filed as Exhibit with Form SE filed on March 26, 1992 and incorporated herein by reference. (9) Filed as Exhibit with Form SE filed on March 30, 1993 and incorporated herein by reference. (10) Filed on May 14, 1993 as Exhibit to Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1993. (11) Filed on November 12, 1993 as Exhibit to Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1993. (12) Filed on March 28, 1994 as Exhibit to Annual Report on Form 10-K for the year ended December 31, 1993. (13) Filed on November 14, 1994 as Exhibit to Quarterly Report on Form 10-Q for the quarter ended September 30, 1994. E-2 EX-3.(II).A 2 BY-LAWS Exhibit 3(ii)(a) Form 10-K for year ended 12/31/94 As Amended through January 26, 1995 BY-LAWS OF R. R. DONNELLEY & SONS COMPANY ARTICLE I --------- SECTION 1.1. PRINCIPAL OFFICE. The principal office in the State of Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware, and the name of the resident agent in charge thereof is The Corporation Trust Company. SECTION 1.2. OTHER OFFICES. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II ---------- Meetings of Stockholders ------------------------ SECTION 2.1. ANNUAL MEETING. The annual meeting of the stockholders shall be held on the fourth Thursday in March of each year for the purpose of electing Directors of the class for which the term expires on that date and for the transaction of such other business as may properly be brought before the meeting. Such meeting shall be held at eight o'clock in the morning or such other time during normal business hours as may be fixed by the Board of Directors and stated in the notice of the meeting. If the day fixed for the annual meeting shall be a legal holiday, the Board of Directors may, subject to the provisions of Article X hereof, designate another day on which such meeting shall be held. If the election of Directors shall not be held on the date designated for any annual meeting, or any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as conveniently may be. Except as otherwise provided by statute or the certificate of incorporation, the only business which properly shall be conducted at any annual meeting of the stockholders shall (i) have been specified in the written notice of the meeting (or any supplement thereto) given as provided in Section 2.4, (ii) be brought before the meeting by or at the direction of the Board of Directors or the officer of the corporation presiding at the meeting or (iii) have been specified in a written notice (a "Stockholder Meeting Notice") given to the corporation, in accordance with all of the following requirements, by or on behalf of any stockholder who is entitled to vote at such meeting. Each Stockholder Meeting Notice must be delivered personally to, or be mailed to and received by, the Secretary of the corporation at the principal executive offices of the corporation in the City of Chicago, State of Illinois, not less than 60 days nor more than 90 days prior to the annual meeting; provided, however, that in the event that less than 75 days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by the stockholder to be timely must be received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. Each Stockholder Meeting Notice shall set forth: (i) a description of each item of business proposed to be brought before the meeting and the reasons for conducting such business at the annual meeting; (ii) the name and record address of the stockholder proposing to bring such item of business before the meeting and the reasons for conducting such business at the annual meeting; (iii) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such stockholder as of the record date for the meeting (if such date shall then have been made publicly available) and as of the date of such Stockholder Meeting Notice and (iv) all other information which would be required to be included in a proxy statement filed with the Securities and Exchange Commission if, with respect to any such item of business, such stockholder were a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934. No business shall be brought before any annual meeting of stockholders of the corporation otherwise than as provided in this Section; provided, however, that nothing contained in this Section shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting. The officer of the corporation presiding at the annual meeting of stockholders shall, if the facts so warrant, determine that business was not properly brought before the meeting in accordance with the provisions of this Section and, if he should so determine, he should so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. (Amended 10/27/94) SECTION 2.2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the Chief Executive Officer, President, or the Chairman of the Board, and shall be called by the Secretary pursuant to a resolution duly adopted by the affirmative vote of a majority of the whole Board of Directors. Such call shall state the purposes of the proposed meeting. Business transacted at any special meeting shall be limited to the general objectives stated in the call. (Amended 12/15/88) SECTION 2.3. PLACE OF MEETING. All meetings of stockholders for the election of Directors shall be held in the City of Chicago, County of Cook, State of Illinois and the Board of Directors is authorized to fix the place within the City of Chicago for the holding of such meeting. Meetings of stockholders for any other purpose may be held at such place, within or without the State of Delaware, and time as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. (Amended 1/9/57) 2 SECTION 2.4. NOTICE OF MEETINGS. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than fifty days before the date of the meeting, either personally or by mail, by or at the direction of the Board of Directors, the Chief Executive Officer, the Chairman of the Board or the President, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail in a sealed envelope addressed to the stockholder at his address as it appears on the records of the corporation, with postage thereon prepaid. (Amended 12/15/88) SECTION 2.5. CLOSING TRANSFER BOOKS OR FIXING RECORD DATE. The Board of Directors may close the stock transfer books of the corporation for a period not exceeding fifty (50) days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights or the date when any change, or conversion or exchange of capital stock shall go into effect or for a period of not exceeding fifty (50) days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books as aforesaid, the Board of Directors may fix in advance a date, not exceeding fifty (50) days preceding the date of any meeting of the stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change, or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of and to vote at, such meeting and any adjournment thereof, or to receive payments of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. SECTION 2.6. VOTING LIST. At least ten days before every election of Directors, a complete list of the stockholders entitled to vote at such election, arranged in alphabetical order with the residence of and the number of voting shares held by each, shall be prepared by the Secretary. Such list shall be open at the place where said election is to be held for ten days, to the examination of any stockholders, and shall be produced and kept at the time and place of election during the whole time thereof, and subject to the inspection of any stockholder who may be present. SECTION 2.7. QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of 3 stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 2.8. PROXIES. At all meetings of stockholders a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. SECTION 2.9. VOTING. When a quorum is present at any meeting of stockholders, the affirmative vote of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes, the certificate of incorporation or these by-laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than eleven months prior to voting, unless such instrument provides for a longer period. Every such stockholder shall have one vote for each share of stock having voting power registered in his name on the books of the corporation. Except where the transfer books of the corporation shall have been closed or a date shall have been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for Directors which has been transferred on the books of the corporation within twenty days next preceding such election of Directors. (Amended 1/28/93) SECTION 2.10. VOTING OF STOCK OF CERTAIN HOLDERS. Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares standing in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledger or on the books of the corporation, he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent the stock and vote thereon. 4 SECTION 2.11. TREASURY STOCK. The corporation shall not vote shares of its own stock directly or indirectly; and such shares shall not be counted in determining the total number of outstanding shares. SECTION 2.12. ELECTION OF DIRECTORS. When a quorum is present at any meeting of stockholders, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at such meeting of stockholders and entitled to vote on the election of directors. (New Section 10/22/92) ARTICLE III ----------- Directors --------- SECTION 3.1. GENERAL POWERS. The property and business of the corporation shall be managed by its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. (Amended 9/28/90) Without limiting the generality of the foregoing, it shall be the responsibility of the Board of Directors to establish broad objectives and the general course of the business, determine basic policies, appraise the adequacy of overall results, and generally represent and further the interests of the Company's stockholders and insure the most effective use of the Company's assets. Several examples of the responsibilities of the Board are as follows: 1. Establish broad Company objectives and basic policies and maintain overall control of the business. 2. Make necessary revisions of the by-laws (in accordance with Article X). 3. Determine dividend action (in accordance with Article VIII). 4. Authorize necessary action with respect to issuance of new securities and listing securities for trading on exchanges. 5. Fix time and place and take other necessary action with respect to stockholders meetings (in accordance with Article II). 6. Approve issuance of stock certificates to replace those lost or destroyed (in accordance with Section 7.2). 7. Fill Vacancies in the Board of Directors (in accordance with Section 3.8). 5 8. Elect the officers of the corporation (in accordance with Section 4.2.) and appraise their performance. 9. Determine the basic organization structure of the business. 10. Authorize any necessary action with respect to loans and pledging of assets (in accordance with Section 6.2.). 11. Designate officers authorized to buy or sell corporate investment securities. 12. Designate persons authorized to execute contracts and other documents requiring signatures of officers or specific individuals (in accordance with Section 6.1). 13. Select, or designate those authorized to select, depositaries for corporate funds and investment securities and designate check signatories and persons authorized to have access to safe deposit boxes (in accordance with Sections 6.3 and 6.4). 14. Approve proposals to convey corporate-owned land or buildings or designate those authorized to take such action. 15. Designate the person or persons authorized to appoint proxies to vote stock in subsidiary and other concerns in which the corporation has a significant interest and the person or persons authorized to determine who shall serve as Directors in representing the parent corporation in such concerns. 16. Designate stock transfer agents, registrars, and paying agents with respect to corporate securities and other special purpose agents. 17. Procure special professional services required by and for the Board. 18. Provide for issuance of an annual report to stockholders and such other reports and notices as the Board deems advisable. 19. Employ, upon recommendation of the Audit Committee (in accordance with Section 3.13), public accountants to audit the corporation's financial statements. 20. Review and approve new employee benefit plans and major revisions of employee stock incentive plans. 21. Review and approve the actions of the Executive Committee as reported in the minutes of their meetings. 6 22. Approve the annual operating budget. 23. Review and approve the annual capital budget. 24. Direct the manner of handling matters outside the ordinary course of business of the corporation. SECTION 3.2. NUMBER, ELECTION AND TERM. The number of Directors which shall constitute the whole Board shall be thirteen (13) of whom five (5) shall be Directors of the First Class, four (4) shall be Directors of the Second Class and four (4) shall be Directors of the Third Class. The term of office of each class shall be three years, with the term of one class expiring in each year, and the successors to the class of Directors whose terms shall expire shall be elected at each annual election or adjournment thereof. Each Director shall hold office until his successor shall be elected and shall qualify or until his earlier resignation or removal. Directors need not be residents of Delaware or stockholders. (Amended 1/26/95) SECTION 3.3. MEETINGS. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and such place as may from time to time be determined by the Board. Special meetings of the Board of Directors may be called by or at the request of the Chief Executive Officer, the Chairman of the Board, a Vice Chairman, President, or any two directors. (Amended 12/15/88) SECTION 3.4. NOTICE. Notice of any special meeting of the Board of Directors stating the place, date and hour of the special meeting shall be given in writing to each director, either personally, or by mail, telex, telegram or cable, addressed to the director's residence or usual place of business, not less than two days before the date of such meeting, or by such other means, whether or not in writing, and within such lesser period, as circumstances require in the reasonable judgment of the person calling the meetings. If mailed, such notice shall be deemed to be given at the time when it is deposited in the United States mail with first class postage prepaid. Notice by telegram or cable shall be deemed given when the notice is delivered to the telegraph or cable company; notice by telex shall be deemed given when the notice is transmitted by telex. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice at such meeting, except where the director attends the meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, unless otherwise provided by statute, the Certificate of Incorporation or these By-Laws. (Amended 6/24/76) SECTION 3.5. QUORUM. A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, 7 provided, that if less than a majority of the Directors are present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. (Renumbered 6/24/76) SECTION 3.6. MANNER OF ACTING. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. (Renumbered 6/24/76) SECTION 3.7. USE OF COMMUNICATIONS EQUIPMENT. Members of the Board of Directors, or any committee thereof, may participate in a meeting of the Board of Directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting. (New Section 6/24/76) SECTION 3.8. VACANCIES AND ADDITIONAL DIRECTORS. Any director may resign at any time upon written notice to the corporation. If any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any Director, or otherwise, or if any new directorship is created by any increase in the authorized number of Directors, a majority of the Directors then in office, though less than a quorum may choose a successor or fill the newly created directorship; and a Director so chosen shall hold office until the next annual election at which Directors of the class to which he was chosen are elected and until his successor shall be duly elected and shall qualify or until his earlier resignation or removal. (Amended 3/26/70) SECTION 3.9. COMPENSATION. Directors who are not full-time employees of the Company shall receive a stated salary and may receive options to purchase shares of the Company's stock as provided under the Company's stock plans, for their services, and, in addition thereto, shall receive a fixed fee and expenses, if any, for attendance at each regular or special meeting of the Board of Directors from time to time. Directors who are full-time employees of the Company shall not receive any compensation for their services as such; provided that nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation thereof. (Amended 3/28/91) SECTION 3.10. EXECUTIVE COMMITTEE. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate three, four or five Directors to constitute an Executive Committee. The Chairman of the Executive Committee shall be the Chief Executive Officer. The Executive Committee shall have and exercise all of the authority of the Board of Directors in the management of the corporation, except that such Committee shall not have the power to take specific actions which have been delegated to other committees of the Board and shall not be empowered to take action with respect to: declaring dividends; issuing bonds, debentures, or the borrowing of moneys except within limits expressly approved by the Board of Directors; amending by-laws; filling vacancies and newly created directorships in the 8 Board of Directors; removing Directors of the corporation; mergers or consolidations; the sale, lease or exchange of all or substantially all of the assets of the corporation; dissolution; or any other action requiring the approval of stockholders. The designation of such Committee and the delegation thereto of authority shall not operate to relieve the Board of Directors or any member thereof of any responsibility imposed upon it or him by law. (Amended 9/28/90) SECTION 3.11. FINANCE COMMITTEE. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate three, four or five Directors, a majority of whom shall not be employees of the Company, to constitute a Finance Committee, which Committee is charged with reviewing the overall financial policies of the Company and making recommendations to the Board regarding the Company's financial condition and requirements for and disposition of funds, including: capital structure, raising long-term capital, dividend policy, and material changes in the Company's financial position with respect to cash, investments, debt and accounts receivable. The Committee shall review the performance and management of the Company's Retirement Benefit Plan including the investment policy, the performance of the Investment Trustee on a regular periodic basis, the reasonableness of the actuarial assumptions in relation to investment performance, the funding status of the Plan and shall make recommendations with respect to the selection of one or more investment trustees or other investment agencies, and undertake such other studies and make such other recommendations to the Board as it may deem desirable with respect to the Investment Trust of the Retirement Benefit Plan. (Amended and Renamed 9/28/90) SECTION 3.12. COMPENSATION COMMITTEE. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate three, four or five Directors who are not employees of the Company, to constitute a Compensation Committee. The Compensation Committee shall determine the annual salary, bonus and other benefits of selected senior officers and key management employees of the Company and review, as appropriate, performance standards under compensation programs for key employees. The Compensation Committee shall also recommend to the Board candidates for election as corporate officers. The Compensation Committee shall recommend new employee benefit plans and changes to stock incentive plans to the Board, approve amendments to the non- stock employee benefit plans of the Company and oversee the administration of all of the Company's employee benefit plans. The Compensation Committee may delegate to one or more officers of the Company the power to approve any amendment of any non-stock employee benefit plan of the Company or the Donnelley Tax Credit Stock Ownership Plan which in the reasonable opinion of such officer will not materially affect the costs to the Company of, or benefits under, such plans. (Amended 7/22/93) SECTION 3.13. AUDIT COMMITTEE. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate three, four or five Directors who are not employees of the Company to constitute an Audit Committee, which 9 Committee shall review on behalf of the stockholders of the Company: the qualifications and services of the independent public accountants employed by the Company from time to time to audit the books of the Company, the scope of their audits, the adequacy of their audit reports, and recommendations made by them. The Committee may also make such reviews of internal financial audits and controls as the Committee considers desirable. The Audit Committee will recommend to the Board the selection of the independent public accountants. The Audit Committee shall review the Company's financial disclosure documents, management perquisites, significant developments in accounting principles and significant proposed changes in financial statements. The Audit Committee shall also review and monitor the Company's codes of conduct to guard against significant conflicts of interest and dishonest, unethical or illegal activities. The Audit Committee shall review periodically the performance of the Company's accounting and financial personnel, and shall review material litigation and regulatory proceedings and other issues relating to potentially significant corporate liability. (Amended 9/28/90) SECTION 3.14. NOMINATING COMMITTEE. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate three, four or five Directors to constitute a Nominating Committee, which Committee shall recommend to the Board nominees for election to the Board of Directors in connection with any meeting of stockholders at which directors are to be elected and persons for appointment to fill any Board vacancy which the Board of Directors is authorized under the By-Laws to fill. The Committee may also recommend to the Board policies or guidelines concerning criteria for Board membership, the structure and composition of Board Committees, the size and composition of the Board and the selection, tenure and retirement of Directors and matters related thereto. (Amended 9/28/90) SECTION 3.15. OTHER COMMITTEES. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate two or more Directors to constitute committees other than the Executive Committee, Finance Committee, Compensation Committee, Audit Committee and Nominating Committee, which committees shall have and exercise such authority as may be provided for in the resolution creating such committee. (Amended 9/28/90) SECTION 3.16. HONORARY DIRECTORS. The Board of Directors may select from time to time, and for such periods of time as it may deem appropriate, one or more past Chairmen of the Board, Presidents or Chief Executive Officers elected a Director prior to September 28, 1990, to serve as Honorary Directors. Honorary Directors shall be entitled to receive notice of and to attend all meetings of the Board of Directors, to receive copies of all reports or other communications made to the Board of Directors, to give counsel and advice on any subject, to receive such fees and expense reimbursements as may be provided from time to time by the Board of Directors. The Board of Directors, Chief Executive Officer, Chairman of the Board or 10 President may invite an Honorary Director to attend meetings of any committee of the Board of Directors or to undertake temporary assignments, but this shall not preclude any other arrangements, consulting or otherwise, between the corporation and an Honorary Director. The presence or absence of an Honorary Director shall not be counted for purposes or determining the existence of a quorum. Honorary Directors shall not have the right to vote on any matters voted on by the Board of Directors or any of the rights, duties, privileges, or responsibilities of Directors of the corporation. (Amended 9/28/90) SECTION 3.17. NOMINATION OF DIRECTORS. Except as otherwise fixed pursuant to the certificate of incorporation relating to the rights of the holders of any one or more classes or series of Preferred Stock issued by the corporation, acting separately by class or series, to elect, under specified circumstances, directors at a meeting of stockholders, nominations for the election of directors may be made by the Board of Directors or a committee appointed by the Board of Directors pursuant to Section 3.14 or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting at which directors are to be elected only if written notice of such stockholder's intent to make such nomination or nominations has been delivered personally to, or been mailed to and received by, the Secretary of the corporation at the principal executive offices of the corporation in the City of Chicago, State of Illinois, not less than 60 days nor more than 90 days prior to the meeting; provided, however, that, in the event that less than 75 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Each such notice shall set forth: (i) the name and record address of the stockholder who intends to make the nomination; (ii) the name, age, principal occupation or employment, business address and residence address of the person or persons to be nominated; (iii) the class and number of shares of stock held of record, owned beneficially and represented by proxy by such stockholder and by the person or persons to be nominated as of the record date for the meeting (if such date shall then have been made publicly available) and of the date of such notice; (iv) a representation that the stockholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (v) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by such stockholder; (vi) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the Securities Exchange Act of 1934 and the proxy rules of the Securities and Exchange Commission; and (vii) the consent of each nominee to serve as a director of the corporation if so elected. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the 11 corporation. The officer of the corporation presiding at the annual meeting of stockholders shall, if the facts so warrant, determine that a nomination was not made in accordance with the provisions of this Section, and if he should so determine, he should so declare to the meeting and the defective nomination shall be disregarded. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein. (Added 3/24/88) ARTICLE IV ---------- Officers of the Corporation --------------------------- SECTION 4.1. OFFICERS AND NUMBER. The officers of the corporation shall be a Chief Executive Officer, a Chairman of the Board, one or more Vice Chairmen, a President, one or more Executive Vice Presidents, one or more Sector Presidents, one or more Business Unit Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer, a Controller, a General Counsel, one or more Assistant Secretaries, one or more Assistant General Counsels, one or more Assistant Treasurers and one or more Assistant Controllers. Any two or more offices may be held by the same person except the offices of President and Secretary. The Chief Executive Officer shall be either the Chairman, a Vice Chairman or the President, as designated by the Board of Directors. The Board of Directors may elect one or more Vice Chairmen of the Board and one or more Executive Vice Presidents. The Board of Directors may elect an Honorary Director to the office of Honorary Chairman of the Board. (Amended 1/27/94) SECTION 4.2. ELECTION AND TERM OF OFFICE. The officers of the corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. (Adopted 10/21/60) SECTION 4.3. REMOVAL. Any officer elected by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interests of the corporation would be served thereby. (Amended 12/15/88) SECTION 4.4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. (Adopted 10/21/60) 12 SECTION 4.5. SALARIES. No officer shall be prevented from receiving a salary for his services as an officer by reason of the fact that he is also a Director of the corporation. SECTION 4.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have overall supervision of, and responsibility for, the business, and shall direct the affairs and policies of the corporation. (Adopted 12/15/88) SECTION 4.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at all meetings of the stockholders and Board of Directors. The Chairman of the Board shall perform such other duties and responsibilities as may be assigned to him by the Board of Directors. (Amended 9/28/90) SECTION 4.8. VICE CHAIRMEN OF THE BOARD. The Vice Chairmen of the Board shall, in the absence of the Chairman of the Board (in the order prescribed by the Board), preside at all meetings of the stockholders and Board of Directors, and shall perform such other duties as may be assigned to them by the Board of Directors. (Amended 12/15/88) SECTION 4.9. HONORARY CHAIRMAN OF THE BOARD. The Honorary Chairman of the Board shall consult with the Chief Executive Officer and other officers of the corporation, as he or they shall determine, with respect to the general policies and affairs of the corporation, and shall have such authority and perform such duties as from time to time may be prescribed by the Board of Directors or as may be granted by the Chief Executive Officer. (Renumbered 9/28/90) SECTION 4.10. PRESIDENT. Subject to the supervision and direction of the Chief Executive Officer, the President shall have responsibility for such of the operations and other functions of the corporation as may be assigned to him. The President shall perform such other duties and responsibilities as may be assigned to him by the Chief Executive Officer. In the absence of the Chairman of the Board and Vice Chairmen of the Board, the President shall preside at meetings of the stockholders and Board of Directors. (Renumbered and Amended 9/28/90) SECTION 4.11. VICE PRESIDENTS. Each Vice President shall have such corporate powers, if any, as may be assigned to him from time to time by the Board of Directors, Chief Executive Officer, Chairman of the Board or the President. (Renumbered 9/28/90) SECTION 4.12. SENIOR VICE PRESIDENTS. Each Senior Vice President shall have such corporate powers, if any, as may be assigned to him by the Board of Directors, Chief Executive Officer, Chairman of the Board or the President. (Renumbered 9/28/90) SECTION 4.13. SECTOR PRESIDENTS. The Board of Directors may from time to time designate as Sector President one or more of the individuals who occupies the position 13 of senior officer heading a Sector consisting of one or more business units and to whom one or more of the Business Unit Presidents reports. (Amended 1/27/94) SECTION 4.14. BUSINESS UNIT PRESIDENTS. The Board of Directors may from time to time designate as Business Unit President one or more of the individuals who occupies the position of senior officer heading a business unit consisting of one or more divisions and one or more sales units and who reports to one or more of the Sector Presidents or other senior officers of the corporation. (Added 1/27/94) SECTION 4.15. EXECUTIVE VICE PRESIDENTS. The Board of Directors may designate as an Executive Vice President the officer to whom one or more other senior officers of this corporation reports. (Amended and Renumbered 1/27/94) SECTION 4.16. ORDER OF SUCCESSION. Such of the directors of the corporation as shall be designated by resolution of the Board of Directors, and in the order of such designation, shall in the absence of the Chairman of the Board perform the duties of the Chairman of the Board and shall have all of the powers and shall be subject to any restrictions imposed upon the Chairman. Such of the officers of the corporation as may be designated by resolution of the Board of Directors, and in the order of such designation, shall in the absence of the Chief Executive Officer, perform the duties of the Chief Executive Officer and when so acting shall have all the powers of and be subject to any restrictions imposed upon the Chief Executive Officer. Such of the officers of the corporation as may be designated by resolution of the Board of Directors, and in the order of such designation, shall in the absence of the President perform the duties of the President and when so acting shall have all the powers of and be subject to any restrictions imposed upon the President. (Renumbered 1/27/94) SECTION 4.17. SECRETARY. The Secretary shall keep the minutes of all meetings of the stockholders and Board of Directors of the corporation, shall have charge of the corporate records and the corporate seal, and shall have the power to attach the seal to all instruments which shall require sealing after the same shall have been signed as authorized by the Board of Directors. (Renumbered 1/27/94) SECTION 4.18. TREASURER. The Treasurer shall be responsible for the receipt, custody and disbursement of all funds of the corporation in the form of both cash and securities. He may delegate the details of his office to someone in his stead, but this shall nowise relieve him of the responsibilities and liability of his office. The Treasurer shall have the power to attach the seal to all instruments which shall require sealing after the same shall have been signed as authorized by the Board of Directors. (Renumbered 1/27/94) SECTION 4.19. CONTROLLER. The Controller reports to the Chief Executive Officer 14 directly or through such other management executives as the Chief Executive Officer may direct. The Controller, however, may directly submit any matter to the Board of Directors for their consideration. The Controller shall maintain adequate records of all assets, liabilities, and transactions of the corporation, and in conjunction with other officers and department heads, shall initiate and enforce measures and procedures whereby the business of the corporation shall be conducted with the maximum of safety, efficiency and economy. He shall attend that part of the meetings of the Board of Directors which is concerned with the review of the financial and operating reports of the business, except when, in the discretion of the Board, he shall be asked not to attend. (Renumbered 1/27/94) SECTION 4.20. GENERAL COUNSEL. The General Counsel shall be the chief legal officer of the corporation and have legal responsibility for all aspects of the business. The General Counsel shall have the power to attach the seal to all instruments which shall require sealing after the same shall have been signed as authorized by the Board of Directors. (Renumbered 1/27/94) SECTION 4.21. ASSISTANT TREASURERS. The Assistant Treasurers shall in the absence of the Treasurer perform all functions and duties of the Treasurer and in addition shall perform such functions and duties as the Treasurer may delegate, but this shall in nowise relieve the Treasurer of the responsibilities and liability of his office. (Renumbered 1/27/94) SECTION 4.22. ASSISTANT SECRETARIES. The Assistant Secretaries shall in the absence of the Secretary perform all functions and duties of the Secretary and in addition shall assume such functions and duties as the Secretary may delegate, but this shall in nowise relieve the Secretary of the responsibilities and liability of his office. (Renumbered 1/27/94) SECTION 4.23. ASSISTANT GENERAL COUNSELS. The Assistant General Counsels shall in the absence of the General Counsel perform all functions and duties of the General Counsel and in addition shall assume such functions and duties as the General Counsel may delegate, but this shall in nowise relieve the General Counsel of the responsibilities and liabilities of his office. (Renumbered 1/27/94) SECTION 4.24. ASSISTANT CONTROLLERS. The Assistant Controllers shall in the absence of the Controller perform all functions and duties of the Controller and in addition shall assume such functions and duties as the Controller may delegate, but this shall in nowise relieve the Controller of the responsibilities and liabilities of such office. (Renumbered 1/27/94) 15 ARTICLE V --------- Appointed Officers ------------------ The Chief Executive Officer may appoint officials assigned to a particular Sector or other business unit as such officers of such Sector or business unit and having such titles as he shall deem appropriate. Any such officer appointed by the Chief Executive Officer may be removed by the Chief Executive Officer whenever in his judgment the best interests of the corporation would be served thereby. The term of office, compensation, powers and duties and other terms of employment of appointed officers shall be such as the Chief Executive Officer may from time to time deem proper, and the authority of such officers shall be limited to acts pertaining to the business of such Sector or business unit. (Amended 1/27/94) ARTICLE VI ---------- Contracts, Loans, Checks and Deposits ------------------------------------- SECTION 6.1. CONTRACTS. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 6.2. LOANS. No loans shall be contracted on behalf of the corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors (or a resolution of a committee of Directors pursuant to authority conferred upon that committee). Such authority may be general or confined to specific instances. SECTION 6.3. CHECKS, ETC. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers or such agent or agents of the corporation, and in such manner, as may be designated by the Board of Directors or by one or more officers of the corporation named by the Board of Directors for such purpose. SECTION 6.4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies and other depositaries as the Board of Directors may select. (Entire Article Renumbered 6/28/84) ARTICLE VII ----------- 16 Certificates of Stock and Their Transfer ---------------------------------------- SECTION 7.1. CERTIFICATES OF STOCK. Certificates of stock of the corporation shall be in such form as may be determined by the Board of Directors, shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the Chief Executive Officer, Chairman of the Board or President or a Vice President and by the Secretary or Assistant Secretary or the Treasurer or an Assistant Treasurer. If any stock certificate is signed manually (a) by a transfer agent other than the corporation or its employee or (b) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may nevertheless be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. All certificates properly surrendered to the corporation for transfer shall be cancelled and no new certificates shall be issued to evidence transferred shares until the former certificate for at least a like number of shares shall have been surrendered and cancelled and the corporation reimbursed for any applicable taxes on the transfer, except that in the case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms, and with such indemnification (if any) to the corporation, as the Board of Directors may prescribe specifically or in general terms or by delegation to a transfer agent for the corporation. Certificates shall not be issued representing fractional shares of stock. (Amended 12/15/88) SECTION 7.2. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed. SECTION 7.3. TRANSFERS. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the corporation by the registered holder thereof or by his attorney thereunto authorized by power of attorney and filed with the Secretary or 17 transfer agent of the corporation. SECTION 7.4. REGISTERED STOCKHOLDERS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (Entire Article Renumbered 6/28/84) ARTICLE VIII ------------ Dividends --------- SECTION 8.1. DECLARATION. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. SECTION 8.2. RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or such other purposes as the Directors shall think conducive to the interest of the corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. (Entire Article Renumbered 6/28/84) ARTICLE IX ---------- Miscellaneous ------------- SECTION 9.1. FISCAL YEAR. Unless otherwise fixed by the resolution of the Board of Directors, the fiscal year of the corporation shall be the calendar year. SECTION 9.2. SEAL. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. SECTION 9.3. BOOKS. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at the offices of the corporation at Chicago, Illinois, or at such other place or places as may be designated 18 from time to time by the Board of Directors. (Entire Article Renumbered 6/28/84) ARTICLE X --------- Amendment --------- These by-laws may be altered or repealed at any regular meeting of the Board of Directors or at any special meeting of the Board of Directors if notice of such alteration or repeal be contained in the notice of such special meeting, provided that no amendment of these by-laws shall conflict with the provisions of the Certificate of Incorporation, whether relating to the number of Directors which shall constitute the whole Board or the number of Directors of any class or otherwise. (Renumbered 6/28/84) 19 EX-3.(II).B 3 AMDMNT TO BY-LAWS Exhibit 3(ii)(b) Form 10-K Year ended 12/31/94 R. R. DONNELLEY & SONS COMPANY AMENDMENT TO BY-LAWS ADOPTED JANUARY 26, 1995 RESOLVED, that Section 3.2 of the Company's By-Laws be and hereby is amended, effective immediately, to delete the first sentence thereof and substitute the following therefor: "The number of Directors which shall constitute the whole Board shall be thirteen (13) of whom five (5) shall be Directors of the First Class, four (4) shall be Directors of the Second Class and four (4) shall be Directors of the Third Class." EX-4.E 4 CREDIT AGREEMENT EXECUTION COPY CREDIT AGREEMENT Dated as of December 21, 1994 Among R.R. DONNELLEY & SONS COMPANY as Borrower, -- -------- THE BANKS NAMED HEREIN as Banks -- ----- and CITIBANK, N.A. as Administrative Agent ----------------------- TABLE OF CONTENTS ----------------- Section Page ------- ---- ARTICLE I DEFINITIONS AND ACCOUNTING TERMS...................... 1 SECTION 1.01. Certain Defined Terms................................. 1 SECTION 1.02. Computation of Time Periods........................... 14 SECTION 1.03. Accounting Terms...................................... 14 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES..................... 14 SECTION 2.01. The Committed Advances................................ 14 SECTION 2.02. Making the Committed Advances......................... 14 SECTION 2.03. The Uncommitted Advances.............................. 19 SECTION 2.04. Facility Fee and Utilization Fee...................... 23 SECTION 2.05. Reduction and Termination of the Commitments.......... 23 SECTION 2.06. Payment; Conversion and Continuation.................. 24 SECTION 2.07. Interest on Committed Advances........................ 24 SECTION 2.08. Additional Interest on Eurocurrency Rate Advances..... 25 SECTION 2.09. Interest Rate Determination........................... 26 SECTION 2.10. Prepayments........................................... 26 SECTION 2.11. Funding Indemnification............................... 27 SECTION 2.12. Increased Costs and Reduced Return.................... 27 SECTION 2.13. Illegality............................................ 28 SECTION 2.14. Payments and Computations............................. 29 SECTION 2.15. Sharing of Payments, Etc. ............................ 30 SECTION 2.16. Currency Equivalents.................................. 30 SECTION 2.17. Borrowing Subsidiaries................................ 31 SECTION 2.18. Reserved.............................................. 31 SECTION 2.19. Taxes................................................. 31 SECTION 2.20. Defaulting Banks...................................... 33 SECTION 2.21. Mitigation............................................ 36 ARTICLE III CONDITIONS PRECEDENT.................................. 36 SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and 2.03....................................... 36 SECTION 3.02. Conditions Precedent to Initial Advance to Each Borrowing Subsidiary................................ 38 -i- SECTION 3.03. Conditions Precedent to Each Committed Borrowing...... 38 SECTION 3.04. Conditions Precedent to Each Uncommitted Borrowing.... 39 ARTICLE IV REPRESENTATIONS AND WARRANTIES........................ 40 SECTION 4.01. Representations and Warranties of the Company......... 40 ARTICLE V COVENANTS OF THE COMPANY.............................. 42 SECTION 5.01. Compliance with Laws, Etc. ........................... 42 SECTION 5.02. Consolidated Debt to Capitalization Ratio............. 42 SECTION 5.03. Reporting Requirements................................ 42 SECTION 5.04. Use of Proceeds....................................... 43 SECTION 5.05. Limitation on Liens, Etc. ............................ 44 SECTION 5.06. Merger; Sale of Assets................................ 45 SECTION 5.07. Books and Records; Inspection......................... 46 SECTION 5.08. Corporate Existence................................... 46 SECTION 5.10. Payment of Taxes...................................... 46 ARTICLE VI EVENTS OF DEFAULT..................................... 46 SECTION 6.01. Events of Default..................................... 46 ARTICLE VII GUARANTEE............................................. 49 SECTION 7.01. Unconditional Guarantee............................... 49 SECTION 7.02. Validity.............................................. 49 SECTION 7.03. Waivers............................................... 50 SECTION 7.04. Subrogation........................................... 50 SECTION 7.05. Acceleration.......................................... 50 SECTION 7.06. Reinstatement......................................... 50 SECTION 7.07. Continuing Guaranty; Assignments...................... 50 ARTICLE VIII THE ADMINISTRATIVE AGENT -ii- ...................................................... 50 SECTION 8.01. ...................................................... 50 SECTION 8.02. Authorization and Action.............................. 51 SECTION 8.03. Administrative Agent's Reliance, Etc. ................ 51 SECTION 8.04. The Administrative Agent and Affiliates............... 52 SECTION 8.05. Bank Credit Decision.................................. 52 SECTION 8.06. Indemnification....................................... 52 SECTION 8.07. Successor Administrative Agent........................ 52 ARTICLE IX MISCELLANEOUS......................................... 53 SECTION 9.01. Amendments, Etc. ..................................... 53 SECTION 9.02. Notices, Etc. ........................................ 53 SECTION 9.03. No Waiver; Remedies................................... 54 SECTION 9.04. Costs and Expenses.................................... 55 SECTION 9.05. Right of Set-off...................................... 55 SECTION 9.06. Binding Effect........................................ 55 SECTION 9.07. Assignments, Designations and Participations.......... 55 SECTION 9.08. Governing Law......................................... 60 SECTION 9.09. Execution in Counterparts............................. 60 SECTION 9.10. Confidentiality....................................... 60 SECTION 9.11. Non-Reliance by the Banks............................. 60 SECTION 9.12. No Indirect Security.................................. 60 SECTION 9.13. Indemnification....................................... 61 SECTION 9.14. Partial Invalidity.................................... 61 SECTION 9.15. WAIVER OF JURY TRIAL.................................. 61 SECTION 9.16. Jurisdiction, Etc. ................................... 62 SECTION 9.17. Termination of Existing Credit Agreements............. 62 -iii- EXHIBITS EXHIBIT A - Form of Assignment and Acceptance EXHIBIT B - Form of Assumption Letter EXHIBIT C - Form of Designation Agreement EXHIBIT D-1 - Form of Committed Note EXHIBIT D-2 - Form of Uncommitted Note EXHIBIT E-1 - Form of Notice of Committed Borrowing EXHIBIT E-2 - Form of Notice of Uncommitted Borrowing EXHIBIT F - Form of Notice of Continuation/Conversion EXHIBIT G - Form of Sidley & Austin Opinion EXHIBIT H - Form of Opinion of Counsel to Borrowing Subsidiary -iv- CREDIT AGREEMENT Dated as of December 21, 1994 R.R. DONNELLEY & SONS COMPANY, a Delaware corporation (the "Company"), the banks listed on the signature pages hereof and CITIBANK, N.A., as Administrative Agent (as hereinafter defined), agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS -------------------------------- SECTION 1.01. Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Acceptance Deadline" has the meaning specified in Section 2.03(a)(iii). "Administrative Agent" means Citibank, in its capacity as the administrative agent for all of the Banks for purposes of this Agreement, as designated and appointed in accordance with Article VIII, and any successor thereto as provided herein. "Advance" mean a Committed Advance or an Uncommitted Advance. "Affordable Housing Debt" means Debt of the Company or of any of its Subsidiaries which is associated with the direct or indirect investment by the Company or such Subsidiary in affordable housing where the expected tax benefits of such investment exceed the total amount of the future annual payments required as part of such investment. "Agreement" shall mean this Credit Agreement, as the same may be amended, modified, supplemented or restated from time to time. "Alternative Currency" means Sterling, German Marks, Swiss Francs, Yen and any other currency (other than Dollars) which is freely transferable and convertible into Dollars in the London interbank market. "Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office in the case of a Base Rate Advance, and such Bank's Eurocurrency Lending Office in the case of a Eurocurrency Rate Advance and, in the case of an Uncommitted Advance, the office of such Bank notified by such Bank to the Administrative Agent as its Applicable Lending Office with respect to such Uncommitted Advance. "Applicable Margin" means on any day: (i) 0.155% if Category 1 Status exists on such day, (ii) 0.17% if Category 2 Status exists on such day, (iii) 0.20% if Category 3 Status exists on such day, (iv) 0.25% if Category 4 Status exists on such day, and (v) 0.40% if Category 5 Status exists on such day. "Assignment and Acceptance" means an Assignment and Acceptance executed by a Bank (other than a Designated Bidder) and an Eligible Assignee and accepted by the Administrative Agent and the Company, substantially in the form of Exhibit A hereto. "Assumption Letter" means a letter of a Subsidiary of the Company addressed to the Banks in substantially the form of Exhibit B hereto pursuant to which such Subsidiary agrees to become a "Borrowing Subsidiary" and agrees to be bound by the terms and conditions hereof. "Available Commitment" has the meaning specified in Section 2.01. "Banks" means the banks listed on Schedule I hereto and each Person that becomes a party hereto pursuant to Section 9.07(a), (b) and (c), and, except when used in reference to a Committed Advance, a Committed Borrowing, a Committed Note, a Commitment or a related term, each Designated Bidder. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank in New York, New York from time to time as Citibank's base rate; and (b) 1/2 of 1% per annum above the Federal Funds Rate. "Base Rate Advance" means a Committed Advance which bears interest at a rate based upon the Base Rate, as provided in Section 2.07(a). "Borrower" means the Company or any Borrowing Subsidiary. "Borrowing" means a Committed Borrowing or an Uncommitted Borrowing. "Borrowing Subsidiary" means any Subsidiary of the Company duly designated by the Company pursuant to Section 2.17 hereof to make Borrowings hereunder, which Subsidiary shall have delivered to the Administrative Agent an Assumption Letter in accordance with Section 2.17. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and Chicago and, if the applicable Business Day relates to any Eurocurrency Rate Advances, on which dealings are carried on in the London interbank market. -2- "Capitalization" means, as of any date, the sum of (a) the (i) par or stated value of the outstanding shares of all classes of capital stock of the Company, (ii) paid-in capital and capital surplus of the Company and (iii) retained earnings of the Company, each as would appear on a consolidated balance sheet of the Company and its Consolidated Subsidiaries prepared as of the last day of the most recently completed fiscal quarter in accordance with GAAP, and (b) Consolidated Debt as of such date. "Category Status" means Category 1 Status, Category 2 Status, Category 3 Status, Category 4 Status or Category 5 Status, as appropriate. "Category 1 Status" exists at any date if at such date the Public Debt Rating announced by S&P is AA- (or the equivalent) or better or the Public Debt Rating announced by Moody's is AA3 (or the equivalent) or better. "Category 2 Status" exists at any date if at such date (i) the Public Debt Rating announced by S&P is A+ (or the equivalent) or better or the Public Debt Rating announced by Moody's is A1 (or the equivalent) or better, and (ii) Category 1 Status does not exist. "Category 3 Status" exists at any date if at such date (i) the Public Debt Rating announced by S&P is A- (or the equivalent) or better or the Public Debt Rating announced by Moody's is A3 (or the equivalent) or better, and (ii) neither Category 1 Status nor Category 2 Status exists. "Category 4 Status" exists at any date if at such date (i) the Public Debt Rating announced by S&P is BBB (or the equivalent) or better or the Public Debt Rating announced by Moody's is Baa2 (or the equivalent) or better, and (ii) none of Category 1 Status, Category 2 Status or Category 3 Status exists. "Category 5 Status" exists at any date if at such date (i) the Public Debt Rating announced by S&P is lower than BBB (or the equivalent) and the Public Debt Rating announced by Moody's is lower than Baa2 (or the equivalent), or (ii) neither S&P nor Moody's shall have a Public Debt Rating in effect at such date. "Citibank" means Citibank, N.A., a national banking association, in its individual capacity, and its successors. "Commission" means the Securities and Exchange Commission or any federal body succeeding to its functions. "Commitment" has the meaning specified in Section 2.01. "Committed Advance" means an advance by a Bank to a Borrower as part of a Committed Borrowing and refers to a Base Rate Advance or a Eurocurrency Rate Advance, each of which shall be a "Type" of Committed Advance. -3- "Committed Borrowing" means a borrowing consisting of simultaneous Committed Advances of the same Type made by each of the Banks to a Borrower pursuant to Section 2.01. "Committed Note" means a promissory note, in substantially the form of Exhibit D-1 hereto, duly executed by the Company or a Borrowing Subsidiary and payable to the order of a Bank in the amount of its Commitment, including any amendment, modification, renewal or replacement of such promissory note. "Consolidated Debt" means as of any date the consolidated Debt of the Company and its Consolidated Subsidiaries as of such date, without regard to whether such Debt would be characterized as being short-term or long-term, but excluding all Affordable Housing Debt and Insurance Policy Debt. "Consolidated Subsidiary" means at any date any Subsidiary the accounts of which would be consolidated with those of the Company in its consolidated financial statements at such date in accordance with GAAP. "Consolidated Tangible Net Worth" means, as of any date, an amount equal to the sum of (i) the par or stated value of the outstanding shares of all classes of capital stock of the Company, (ii) paid-in capital and capital surplus of the Company and (iii) retained earnings of the Company, as each of which would appear on a consolidated balance sheet of the Company and its Consolidated Subsidiaries prepared as of the last day of the most recently completed fiscal quarter in accordance with GAAP, less the aggregate net amount of (i) all assets so appearing which in accordance with GAAP are deemed intangible, such intangible assets to specifically include, but not be limited to, licenses, copyrights, trademarks, tradenames, patents and goodwill, and (ii) any write-up in the book value of assets made after December 31, 1993, other than any such write-up to an appraised fair market value in accordance with the purchase accounting requirements of GAAP. "Debt" means (but without duplication of any item) (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations as lessee under leases which shall have been or should be, in accordance with generally accepted accounting principles, recorded as capital leases, and (iv) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (i), (ii) or (iii) above. "Defaulted Advance" means, with respect to any Bank at any time, the amount of any Advance required to be made by such Bank to the Borrower pursuant to Section 2.01 or Section 2.03(a) at or prior to such time that has not been so made as of such time; provided, however, that any Advance made by the Administrative Agent for the account of such Bank pursuant to Section 2.02(e) shall not be considered a Defaulted Advance even if, at such time, such Bank shall not have reimbursed the Administrative Agent therefor as provided in Section -4- 2.02(e). If part of a Defaulted Advance shall be deemed made pursuant to Section 2.20(a), the remaining part of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 or Section 2.03(a) on the same date as the Defaulted Advance so deemed made in part. "Defaulted Amount" means, with respect to any Bank at any time, any amount required to be paid by such Bank to the Administrative Agent or any other Bank hereunder at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Bank to (a) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Bank, (b) any other Bank pursuant to Section 2.15 to purchase any participation in Advances owing to such other Bank and (c) the Administrative Agent pursuant to Section 8.06 to reimburse the Administrative Agent for such Bank's ratable share of any amount required to be paid by the Banks to the Administrative Agent as provided therein. If part of a Defaulted Amount shall be deemed paid pursuant to Section 2.20(b), the remaining part of such Defaulted Amount shall be considered a Defaulted Amount originally required to be made hereunder on the same date as the Defaulted Amount so deemed paid in part. "Defaulting Bank" means, at any time, any Bank that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take or be the subject of any action or proceeding of a type described in Section 6.01(f). "Designated Bidder" means (a) an Eligible Assignee or (b) a special purpose corporation that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and that issues (or the parent of which issues) commercial paper rated at least "Prime-1" (or the then equivalent grade) by Moody's or "A- 1" (or the then equivalent grade) by S&P that, in the case of either clause (a) or clause (b), (i) is organized under the laws of the United States or any State thereof, (ii) shall have become a party hereto pursuant to Section 9.07(d), (e) and (f), and (iii) is not otherwise a Bank. "Designation Agreement" means a designation agreement entered into by a Bank (other than a Designated Bidder) and a Designated Bidder, and accepted by the Administrative Agent and the Company, in substantially the form of Exhibit C hereto. "Dollar Amount" means, for any date of determination: (a) with respect to any amount denominated in Dollars, such amount; and (b) with respect to an amount denominated in any Alternative Currency, the amount of Dollars into which the Administrative Agent could, in accordance with its practice from time to time in the London interbank foreign exchange market, convert such amount of Alternative Currency at its spot rate of exchange -5- applicable to the relevant transaction at or about 11:00 a.m., London time, on the date of such determination, for the delivery of Dollars two Business Days thereafter. For purposes of this Agreement, the Dollar Amount of any amount received by a Bank hereunder shall be determined as of the date of such receipt. "Dollars" and the sign "$" each means the lawful currency of the United States. "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Bank, as the case may be, or such other office of such Bank as such Bank may from time to time specify to the Company and the Administrative Agent. "Effective Date" has the meaning specified in Section 3.01. "Eligible Assignee" means (i) a Bank (other than a Designated Bidder); (ii) an Affiliate of a Bank (other than a Designated Bidder); (iii) a commercial bank organized under the laws of the United States or any State thereof, and having a combined capital and surplus of at least $500,000,000; (iv) a commercial bank organized under the laws of any other country that is a member of the Organization for Economic Cooperation and Development, has a combined capital and surplus of at least $500,000,000 and is acting through a branch or agency located in the United States, and (v) any other Person approved by the Company and the Administrative Agent, such approvals not to be unreasonably withheld or delayed (it being understood that the Company may reasonably withhold its approval of any such other Person if at the time it would become a Bank hereunder payments to it would not be exempt from United States withholding tax). "Environmental Action" means any administrative, regulatory or judicial action, suit, demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, Environmental Permit or Hazardous Materials or arising from alleged injury or threat of injury to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or any third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial interpretation relating to the environment, health, safety or Hazardous Materials. "Environmental Permit" means any permit, approval, indemnification number, license or other authorization required under any Environmental Law. -6- "ERISA" means the Employee Retirement Income Security Act of 1974 as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the Company's controlled group, or under common control with the Company, as determined under Section 414 of the Internal Revenue Code. "ERISA Event" means (a) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of the Company or any of its ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by the Company or any of its ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the failure by the Company or any of its ERISA Affiliates to make a payment to a Plan if the conditions for the imposition of a lien under Section 302(f)(1) of ERISA are satisfied; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan, pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan, pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that could constitute grounds for the termination of, or the appointment of trustee to administer, a Plan. "Eurocurrency Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Eurocurrency Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Bank (or, if no such office is specified, its Domestic Lending Office), or such other office of such Bank as such Bank may from time to time specify to the Company and the Administrative Agent. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurocurrency Rate" means, for any Interest Period for all Eurocurrency Rate Advances comprising part of the same Committed Borrowing or for the term of any Uncommitted Advance with respect to which interest is calculated by reference to the Eurocurrency Rate, an interest rate per annum equal to the average (rounded upward to the nearest whole multiple of 1/100 of 1% per annum, if such average is not such a multiple) of the rate per annum at which deposits in the currency in which such Advance is denominated are offered by the principal office of each of the Reference Banks in London, England to prime banks -7- in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period or term in an amount substantially equal to such Reference Bank's Eurocurrency Rate Advance comprising part of such Committed Borrowing (in the case of a Committed Borrowing) or such Reference Bank's share of the aggregate amount of such Borrowing (in the case of an Uncommitted Borrowing) and for a period equal to such Interest Period or term. The Eurocurrency Rate for any Interest Period for each Eurocurrency Rate Advance comprising part of the same Committed Borrowing, and the Eurocurrency Rate for the term of each Uncommitted Advance bearing interest at a rate based upon the Eurocurrency Rate, shall be determined by the Administrative Agent on the basis of the applicable rates furnished to and received by the Administrative Agent from the Reference Banks two Business Days before the first day of such Interest Period or term, subject, however, to the provisions of Section 2.09. "Eurocurrency Rate Advance" means a Committed Advance which bears interest at a rate based upon the Eurocurrency Rate, as provided in Section 2.07(c). "Eurocurrency Rate Reserve Percentage" of any Bank (other than a Designated Bidder) for any Interest Period for a Eurocurrency Rate Advance means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Bank with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Rate Advances of such currency is determined) having a term equal to such Interest Period. "Eurocurrency Rate Uncommitted Borrowing" means an Uncommitted Borrowing comprised of Uncommitted Advances denominated in Dollars, bearing interest based upon the Eurocurrency Rate. "Events of Default" has the meaning specified in Section 6.01. "Facility Fee" has the meaning specified in Section 2.04. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the immediately preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. -8- "Fixed Rate Uncommitted Borrowing" means an Uncommitted Borrowing consisting of Uncommitted Advances bearing interest at a fixed percentage rate per annum (expressed in the form of a decimal to no more than four decimal places) specified by the respective Banks making such Uncommitted Advances pursuant to the procedure described in Section 2.03. "GAAP" has the meaning specified in Section 1.03. "German Marks" means the lawful currency of the Federal Republic of Germany. "Hazardous Materials" means petroleum and petroleum products, byproducts or breakdown products, radioactive materials, asbestos- containing materials, radon gas and any other chemicals, materials or substances designated, classified or regulated as being "hazardous" or "toxic", or words of similar import, under any federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, judgment, decree or judicial interpretation. "Insurance Policy Debt" means Debt of the Company or any of its Subsidiaries under policies of life insurance now or hereafter owned by the Company or any of its Subsidiaries under which policies the sole recourse for such borrowing is against such policies. "Interest Period" means, for each Eurocurrency Rate Advance comprising part of the same Committed Borrowing, the period commencing on the date of such Eurocurrency Rate Advance or the date of any conversion or continuation thereof, and ending on the last day of the period selected by a Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months, in each case as a Borrower may select, upon notice received by the Administrative Agent pursuant to Section 2.02 or 2.06; provided, however, that (i) Interest Periods commencing on the same date for Eurocurrency Rate Advances comprising part of the same Committed Borrowing shall be of the same duration; (ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; (iii) whenever the first day of any Interest Period occurs on a day in an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the -9- number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month; and (iv) no Interest Period may terminate later than the Termination Date. "Lien" means, with respect to any asset, any security interest, mortgage, pledge, lien, claim, charge or encumbrance of any kind in respect of such asset. "Majority Banks" means at any time Banks holding more than 50% of the then aggregate unpaid principal amount of the Committed Advances held by the Banks, or, if no such principal amount is then outstanding, Banks having more than 50% of the Commitments. "Margin Stock" has the meaning specified in Regulation U issued by the Board of Governors of the Federal Reserve System. "Material Adverse Effect" means a material adverse effect on (i) the business, financial condition, operations, properties or performance of the Company and its Subsidiaries, taken as a whole, (ii) the legality, validity or enforceability of this Agreement or the Notes or (iii) the ability of the Company to perform its obligations under this Agreement and the Notes. "Material Subsidiary" means a Subsidiary of the Company which, at the time of determination, (i) shall own assets comprising in excess of 10% of all of the assets of the Company and its consolidated Subsidiaries on a consolidated basis, or (ii) has operating income for the four fiscal quarters most recently ended in excess of 10% of the operating income of the Company and its consolidated Subsidiaries on a consolidated basis. "Moody's" means Moody's Investors Services, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Company or any of its ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Company or any of its ERISA Affiliates and at least one Person other than the Company and its ERISA Affiliates or (b) was so maintained and in respect of which the Company or any of its ERISA Affiliates could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Note" means a Committed Note or an Uncommitted Note. -10- "Notice of Committed Borrowing" has the meaning specified in Section 2.02(a). "Notice of Conversion or Continuation" has the meaning specified in Section 2.06(b). "Notice of Uncommitted Borrowing" has the meaning specified in Section 2.03(a). "PBGC" means the Pension Benefit Guaranty Corporation and its successors and assigns. "Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pro Rata Share" means, at any time with respect to any Bank, the percentage amount that such Bank's Commitment bears to the aggregate Commitments of all Banks at such time. "Public Debt Rating" means, on any date, the rating that has been most recently announced by S&P or Moody's, as the case may be, for any class of long-term senior non-credit-enhanced unsecured debt issued by the Company, changing when and as the applicable rating agency publicly announces a change in its Public Debt Rating. "Quote Deadline" has the meaning specified in Section 2.03(a)(ii). "Reference Banks" means each of the following Banks so long as they remain Banks under the terms of this Agreement: Citibank, The First National Bank of Chicago and Royal Bank of Canada, or any other group of three Banks designated by the Company, and acceptable to the Majority Banks, as being the "Reference Banks" hereunder. "Register" has the meaning specified in Section 9.07(g). "Request Deadline" has the meaning specified in Section 2.03(a) (i). "Responsible Officer" means the Executive Vice President and Chief Financial Officer of the Company, the Senior Vice President and Treasurer of the Company, or any other officer of the Company or any other Borrower responsible for overseeing or reviewing compliance with this Agreement or any Note. "S&P" means Standard & Poor's Ratings Group. -11- "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Company or any of its ERISA Affiliates and no Person other than the Company and its ERISA Affiliates or (b) was so maintained and in respect of which the Company or any of its ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Sterling" means the lawful currency of the United Kingdom. "Subsidiary" means, with respect to any Person, any corporation, partnership, limited liability company, association or other business entity of which securities or other ownership interests having (a) ordinary voting power to elect a majority of the board of directors or other persons performing similar functions or (b) having the ability to direct the management of such corporation, partnership, limited liability company, association or other business entity, are at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Swiss Francs" means the lawful currency of Switzerland. "Termination Date" means the earlier of (i) December 21, 1999 or (ii) the date the Commitments are terminated in whole pursuant to Section 2.05 or 6.01. "Uncommitted Advance" means an advance by a Bank to a Borrower as part of an Uncommitted Borrowing resulting from the auction bidding procedure described in Section 2.03. "Uncommitted Borrowing" means a borrowing consisting of simultaneous Uncommitted Advances from each of the Banks whose offer to make one or more Uncommitted Advances as part of such borrowing has been accepted by a Borrower under the auction bidding procedure described in Section 2.03. "Uncommitted Borrowing Margin" means, with respect to any Eurocurrency Rate specified by a Borrower in a Notice of Uncommitted Borrowing and any offer made by a Bank in response to such Notice of Uncommitted Borrowing, the margin (expressed as a percentage rate per annum) to be added to or subtracted from such Eurocurrency Rate in order to determine the interest rate per annum at which such Bank is willing to, and offers to, make an Uncommitted Advance to such Borrower as part of a Eurocurrency Rate Uncommitted Borrowing. "Uncommitted Note" means a promissory note, in substantially the form of Exhibit D-2 hereto, duly executed by the Company or a Borrowing Subsidiary and evidencing an Uncommitted Advance made by such Bank, including any amendment, modification, renewal or replacement of such promissory note. "Utilization Fee" has the meaning specified in Section 2.04. -12- "Withdrawal Liability" has the meaning specified in Part 1 of Subtitle E of Title IV of ERISA. "Yen" means the lawful currency of Japan. "1992 Credit Agreements" means that certain Amended and Restated Credit Agreement and that certain Credit Agreement, each dated as of March 31, 1992, among the Company, the banks listed on the signature pages thereto, and Morgan Guaranty Trust Company of New York as Administrative Agent, as the same have been amended, modified, restated or supplemented from time to time. SECTION 1.02. Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements then most recently delivered by the Company to the Banks in accordance with Section 5.03 ("GAAP"). ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES --------------------------------- SECTION 2.01. The Committed Advances. Each Bank severally agrees, on the terms and conditions hereinafter set forth, to make Committed Advances to the Borrowers from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount with respect to all Borrowers not to exceed at any time outstanding an amount (such Bank's "Available Commitment") equal to (i) the amount set forth opposite such Bank's name on Schedule I hereto or, if such Bank has entered into any Assignment and Acceptance, set forth for such Bank in the Register, as such amount may be reduced pursuant to Section 2.05 (such Bank's "Commitment") minus (ii) such Bank's Pro Rata Share of the aggregate amount of the Uncommitted Advances then outstanding. Each Committed Borrowing shall be in an aggregate amount of not less than $20,000,000 or an integral multiple of $1,000,000 in excess thereof or, if the requested currency for such Committed Advance is not Dollars, an equivalent amount (determined in accordance with Section 2.16) and multiple in the requested Alternative Currency, and, subject to Section 2.02, shall consist of Committed Advances of the same Type made on the same day to the same Borrower by the Banks ratably according to their respective Commitments in the currency so requested. Within the limits of each Bank's Available Commitment, a Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.10, and reborrow under this Section 2.01. SECTION 2.02. Making the Committed Advances. (a) Each Committed Borrowing shall be made on notice by the Company (or, if such Borrower is a Borrowing Subsidiary, by the Company on behalf of such Borrowing Subsidiary) to the Administrative Agent (which shall give each Bank prompt notice thereof by telecopy, telex or cable), given not later than 10:00 A.M. (Chicago time) on (i) the date of a proposed Committed Borrowing comprised of -13- Base Rate Advances, (ii) the third Business Day prior to the date of a proposed Committed Borrowing comprised of Eurocurrency Rate Advances to be denominated in Dollars, and (iii) the fourth Business Day prior to the date of a proposed Committed Borrowing comprised of Eurocurrency Rate Advances to be denominated in an Alternative Currency. Each such notice of a Committed Borrowing (a "Notice of Committed Borrowing") shall be by telecopy, telex or cable, confirmed immediately in writing, in substantially the form of Exhibit E-1 hereto, specifying therein the requested (i) date of such Committed Borrowing, (ii) Type of Committed Advances comprising such Committed Borrowing, which, in the case of a Committed Borrowing denominated in an Alternative Currency, shall be Eurocurrency Rate Advances, (iii) currency for such Committed Borrowing, which shall be in Dollars or an Alternative Currency, (iv) aggregate amount of such Committed Borrowing, (v) in the case of a Committed Borrowing consisting of Eurocurrency Advances, the initial Interest Period for each Committed Advance comprising such Committed Borrowing, and (vi) whether such Committed Borrowing is to be made by the Company or by a specified Borrowing Subsidiary. The Administrative Agent shall, promptly after such time as the Company or such Borrower may no longer revoke the Notice of Committed Borrowing without any liability to the Banks, notify each Bank and the Company or such Borrower of the applicable interest rate under Section 2.07(a) or (b). Each Bank shall, before 12:00 P.M. (Chicago time) on the date of such Committed Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Domestic Lending Office of the Bank then acting as Administrative Agent, in federal or otherwise immediately available funds, such Bank's Pro Rata Share of such Committed Borrowing. After the Administrative Agent receives such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the applicable Borrower at the Administrative Agent's aforesaid address. (b) Anything in subsection (a) above to the contrary notwithstanding: (i) If with respect to a request for a Committed Borrowing of an Alternative Currency other than Sterling, German Marks, Swiss Francs or Yen, any Bank shall, prior to 10:00 A.M. (Chicago time) on the third Business Day before the requested date of such Committed Borrowing, notify the Administrative Agent that the requested Alternative Currency is not practically available to such Bank in the amount required to make its Committed Advance in connection therewith; or (ii) If any Bank shall, prior to the making of any requested Committed Borrowing consisting of Eurocurrency Rate Advances in an Alternative Currency, notify the Administrative Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other governmental authority asserts that it is unlawful, for such Bank or its Eurocurrency Lending Office or any other Applicable Lending Office to perform its obligations hereunder to make Eurocurrency Rate Advances in such currency or to fund or maintain Eurocurrency Rate Advances in such currency hereunder; then, upon receipt of such notice, the Administrative Agent shall so notify the Company and the applicable Borrower (if other than the Company) and the Company or such Borrower may, without incurring an obligation to indemnify for losses, costs or expenses under Section 2.02(d), by notice to the Administrative Agent (which shall promptly notify each Bank), either -14- (x) withdraw the applicable Notice of Committed Borrowing, in which case the Committed Borrowing shall not occur; (y) request that such Committed Borrowing be made by the Banks in Dollars as a Committed Borrowing comprised of either Eurocurrency Rate Advances or Base Rate Advances, in which case the original Notice of Committed Borrowing shall be deemed to be a Notice of Committed Borrowing which requests a Committed Borrowing in an aggregate principal amount in Dollars equivalent, on the date the Company or such Borrower so notifies the Administrative Agent, to the amount of the originally requested currency for such Type of Committed Advances (determined in accordance with Section 2.16); provided that such request may not be made by the Company or such Borrower if the requested Type of Committed Advances is Eurocurrency Rate Advances and the request by the Company or such Borrower is not given to the Administrative Agent prior to 2:00 P.M. (London time) on the second Business Day before the requested date of such Committed Borrowing; or (z) only in the case of a Bank giving a notice described in Section 2.02(b)(ii) above, request that such Committed Borrowing be made by the Banks (other than the notifying Bank) and that no Committed Advance be made by the notifying Bank in connection with such Committed Borrowing. In the case of any notice given under clause (y) above, the Company or such Borrower shall specify in such notice the amount and type of Committed Advance to be made by each Bank in connection therewith. Any notice under this subsection (b) shall be given no later than 2:00 P.M. (London time) two Business Days before the date of the requested Committed Borrowing, may be given by telephone and, if by telephone, shall be confirmed promptly in writing. If neither the Company nor the applicable Borrower shall provide a timely notice as contemplated in clause (x), (y) or (z) above in response to a notice by any Bank under clause (i) or (ii) above, the applicable Notice of Committed Borrowing shall be deemed withdrawn. (c) Anything in subsection (a) above to the contrary notwithstanding, if: (i) No Reference Bank shall have furnished timely information to the Administrative Agent for determining the requested Eurocurrency Rate for the Dollars or the Alternative Currency requested for a Committed Borrowing, or a continuation or conversion thereof; or (ii) The Majority Banks shall, no later than 5:00 P.M. (Chicago time) three Business Days before the date of any requested Committed Borrowing, continuation or conversion consisting of Eurocurrency Rate Advances, or any continuation thereof or conversion thereto, notify the Administrative Agent that the Eurocurrency Rate for any Interest Period for such Eurocurrency Rate Advances, plus additional interest, if any, payable under Section 2.08, will not adequately reflect the cost to such Majority Banks of making, funding, converting to or continuing their respective Eurocurrency Rate Advances for such Committed Borrowing for such Interest Period; -15- then, the Administrative Agent shall promptly notify the Company, the applicable Borrower (if other than the Company) and the Banks of such circumstances and upon receipt of such notice, the Company or such Borrower may, without incurring an obligation to indemnify for losses, costs or expenses under Section 2.02(d), by notice to the Administrative Agent (which shall promptly notify each Bank), either: (x) withdraw the applicable Notice of Committed Borrowing, in which case the Committed Borrowing shall not occur; (y) withdraw the applicable Notice of Conversion or Continuation, in which case the conversion or continuation of such Committed Borrowing shall not occur; or (z) request that such Committed Borrowing, continuation or conversion be made by the Banks in Dollars as a Committed Borrowing, continuation or conversion, in which case the original Notice of Committed Borrowing, or Notice of Conversion or Continuation shall be deemed to be a Notice of Committed Borrowing, or Notice of Conversion or Continuation which requests a Committed Borrowing, continuation or conversion in an aggregate principal amount in Dollars equivalent, on the date the Company or such Borrower so notifies the Administrative Agent, to the amount of the originally- requested currency for such Committed Advances; provided that such request may not be made by the Company or such Borrower if the request by the Company or such Borrower is not given to the Administrative Agent prior to 2:00 P.M. (London time) on the second Business Day before the requested date of such Committed Borrowing, continuation or conversion. In the case of any notice given under clause (z) above, the Company or such Borrower shall specify in such notice the amount and Type of Committed Advances to be made, continued or converted by the Banks in connection therewith. Any notice under this subsection (c) shall be given no later than 2:00 P.M. (London time) two Business Days before the date of the requested Committed Borrowing, may be given by telephone, and, if by telephone, shall be confirmed promptly in writing. From and after the date the Administrative Agent receives the notice described in Section 2.02(c)(ii), the Banks' obligation to make Eurocurrency Advances for any affected Interest Period shall be suspended until the Majority Banks notify the Administrative Agent that the circumstances giving rise to such notice no longer exist. If neither the Company nor the applicable Borrower shall provide a timely notice as contemplated in clauses (x), (y) or (z) above with respect to a Notice of Committed Borrowing, the applicable Notice of Committed Borrowing shall be deemed withdrawn. If neither the Company nor the applicable Borrower shall provide timely a notice as contemplated in clauses (x), (y) or (z) above with respect to a Notice of Continuation or Conversion, the Company or such applicable Borrower shall be deemed to have made the request described in clause (z). (d) Each Notice of Committed Borrowing and Notice of Conversion or Continuation may be revoked by the Company or, if other than the Company, the applicable Borrower, by notice to the Administrative Agent without any liability on the part of the Company or such Borrower at any time prior to (i) 10:00 A.M. (Chicago time) on the date of a proposed Committed Borrowing, continuation or conversion comprised of Base Rate Advances, (ii) 11:00 -16- A.M. (London time) on the second Business Day prior to the date of a proposed Committed Borrowing, continuation or conversion comprised of Eurocurrency Rate Advances to be denominated in Dollars, and (iii) 11:00 A.M. (London time) on the third Business Day prior to the date of a proposed Committed Borrowing, continuation or conversion comprised of Eurocurrency Rate Advances to be denominated in an Alternative Currency. In the case of any Committed Borrowing, continuation or conversion which the related Notice of Committed Borrowing, or Notice of Conversion or Continuation, specifies is to be comprised of Eurocurrency Rate Advances, unless the Company or the applicable Borrower revokes such Notice of Committed Borrowing, or Notice of Conversion or Continuation in accordance with the preceding sentence and except as otherwise provided in Sections 2.02(b) and (c), the Company or such Borrower shall indemnify each Bank against any loss, cost or expense reasonably incurred by such Bank as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing or Notice of Conversion or Continuation for such Committed Borrowing, conversion or continuation, the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense reasonably incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Bank to fund the Committed Advance to be made by such Bank as part of such Committed Borrowing, conversion or continuation, when such Committed Advance, as a result of such failure, is not made, continued or converted on such date. (e) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Committed Borrowing that such Bank will not make available to the Administrative Agent such Bank's Pro Rata Share of such Committed Borrowing, the Administrative Agent may assume that such Bank has made such Pro Rata Share available to the Administrative Agent on the date of such Committed Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make a corresponding amount available to the applicable Borrower on such date. If and to the extent that such Bank shall not have so made such Pro Rata Share available to the Administrative Agent, such Bank and such Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of such Borrower, the interest rate applicable at the time to Committed Advances comprising such Committed Borrowing and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay such corresponding amount to the Administrative Agent, such amount so repaid shall constitute such Bank's Committed Advance as part of such Committed Borrowing for purposes of this Agreement. (f) A Bank's failure to make the Committed Advance to be made by it as part of any Committed Borrowing shall not relieve any other Bank of its obligation, if any, hereunder to make its Committed Advance on the date of such Committed Borrowing. No Bank shall be responsible for the failure of any other Bank to make the Committed Advance to be made by such other Bank on the date of any Committed Borrowing. SECTION 2.03. The Uncommitted Advances. (a) Each Bank severally agrees that any Borrower may make Uncommitted Borrowings in Dollars from time to time on any Business Day during the period from the date hereof until 30 days before the Termination Date in the manner set forth below; provided that, following the making of each Uncommitted Borrowing, -17- the aggregate amount with respect to all Borrowers of the Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Banks. (i) A Borrower may request, and the Company may request for the benefit of any Borrowing Subsidiary, an Uncommitted Borrowing to be made by such Borrower under this Section 2.03 by delivering to the Administrative Agent, by telecopier, telex or cable, not later than the applicable Request Deadline a notice of an Uncommitted Borrowing (a "Notice of Uncommitted Borrowing"), in substantially the form of Exhibit E-2 hereto, specifying therein (A) the requested date of the proposed Uncommitted Borrowing, (B) the aggregate amount of the proposed Uncommitted Borrowing, (C) that each Bank submitting an offer shall quote an Uncommitted Borrowing Margin, or that each Bank submitting an offer shall quote a fixed interest rate per annum without reference to the Eurocurrency Rate, (D) maturity date for repayment of each Uncommitted Advance to be made as part of such Uncommitted Borrowing (which maturity date may not be earlier than thirty (30) days after the date of the proposed Uncommitted Borrowing or later than the Termination Date) and whether such Uncommitted Advance may be prepaid, and if so, whether with or without penalty, (E) interest payment date or dates relating thereto, (F) Borrower and (G) other material terms to be applicable to such Uncommitted Borrowing. The Administrative Agent shall promptly notify each Bank of its receipt of each such Notice of Uncommitted Borrowing by sending each Bank a copy thereof. "Request Deadline" means (x) in the case of an Uncommitted Borrowing to be a Fixed Rate Uncommitted Borrowing, 5:00 P.M. (New York time) on the Business Day prior to the date of such proposed Uncommitted Borrowing and (y) in the case of a Eurocurrency Rate Uncommitted Borrowing, 5:00 P.M. (New York time) four (4) Business Days prior to the date of such proposed Uncommitted Borrowing. (ii) Each Bank shall, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Uncommitted Advances to such Borrower as part of such proposed Uncommitted Borrowing at a rate or rates of interest specified by such Bank, in its sole discretion, by notifying the Administrative Agent not later than the applicable Quote Deadline of the minimum amount (if any) and maximum amount of each Uncommitted Advance which such Bank would be willing to make as part of such proposed Uncommitted Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Bank's Commitment, if any), the Uncommitted Borrowing Margin or Margins to be applied in the determination of the rate or rates of interest therefor (or, if the Notice of Uncommitted Borrowing shall have requested that fixed rates per annum be quoted, the fixed rate or rates per annum therefor) and such Bank's Applicable Lending Office with respect to such Uncommitted Advance. If any Bank shall elect not to make such an offer, such Bank shall so notify the Administrative Agent before the applicable Quote Deadline, and such Bank shall not be obligated to, and shall not, make any Uncommitted Advance as part of such Uncommitted Borrowing; provided that the failure by any Bank to give such notice shall not cause such Bank to be obligated to make any Uncommitted Advance as part of such proposed Uncommitted Borrowing. The Administrative Agent shall promptly notify the Company and, if applicable, the Borrowing Subsidiary of each -18- Bank's response pursuant to this paragraph (ii); provided, that if Citibank shall elect to make an offer under this paragraph (ii), such offer shall be delivered to the Company and, if applicable, the Borrowing Subsidiary not later than one-half hour prior to the applicable Quote Deadline. Each Borrower shall be entitled to assume that each quote of an Uncommitted Borrowing Margin or a fixed rate per annum by a Bank includes, and such Bank shall not be entitled to claim as additional interest or costs under Section 2.08 or otherwise, any costs to such Bank in the nature of a reserve requirement, assessment or other charge in connection with the Uncommitted Advance to which such quote relates, except that such Bank shall be entitled to claim increased costs and additional compensation under Section 2.12(a) and (b) and Section 2.19, but solely with respect to the changes described in such provisions that occur after the date such Uncommitted Advance is made. "Quote Deadline" means, (x) in the case of a Fixed Rate Uncommitted Borrowing, 9:00 A.M. (Chicago time) on the date of such proposed Uncommitted Borrowing and (y) in the case of a Eurocurrency Rate Uncommitted Borrowing, 9:00 A.M. (Chicago time) three Business Days prior to the date of such proposed Uncommitted Borrowing. (iii) Such Borrower, or the Company on behalf of such Borrower, shall, in turn, before the applicable Acceptance Deadline, either (A) cancel, without incurring an obligation on the part of such Borrower or the Company to indemnify for losses, costs or expenses under Section 2.02(d), such Uncommitted Borrowing by giving the Administrative Agent notice to that effect, in which case such Uncommitted Borrowing shall not be made, or (B) accept one or more of the offers made by any Bank or Banks pursuant to paragraph (ii) above, in its sole discretion but in any event in ascending order of the fixed rates of interest or Uncommitted Borrowing Margins (as applicable) offered by all of the Banks responding to such Notice of Uncommitted Borrowing, by giving notice to the Administrative Agent of the relevant Banks and the respective amounts of each Uncommitted Advance (each of which amounts shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, offered to be made by the respective Bank for such Uncommitted Advance pursuant to Section 2.02(a)(ii) above) and reject any remaining offers made by Banks pursuant to such Section by giving the Administrative Agent notice to that effect. The Company (either for itself or on behalf of a Borrowing Subsidiary) may not accept offers which, in the aggregate, exceed the requested Uncommitted Borrowing specified in the applicable Notice of Uncommitted Borrowing. If two or more Banks bid at the same Uncommitted Borrowing Margin or fixed rate of interest, as the case may be, and the amount of accepted offers is less than the aggregate amount of such offers, the amount to be borrowed from such Banks as part of such Uncommitted Borrowing shall be allocated pro rata on the -19- basis of the maximum amount offered by each such Bank at such fixed rates or Uncommitted Borrowing Margins in connection with such Uncommitted Borrowing. The Administrative Agent shall promptly notify the Banks of each notice it receives pursuant to this paragraph (iii). "Acceptance Deadline" means, (x) in the case of an Uncommitted Borrowing to be denominated in Dollars, 10:00 A.M. (Chicago time) on the date of such proposed Uncommitted Borrowing and (y) in the case of an Uncommitted Borrowing to be denominated in an Alternative Currency, 5:00 P.M. (New York time) three Business Days prior to the date of such proposed Uncommitted Borrowing. (iv) If such Borrower accepts, or the Company accepts on such Borrower's behalf, one or more of the offers made by any Bank or Banks pursuant to Section 2.03(a)(iii)(B) above, the Administrative Agent shall in turn promptly notify (A) each Bank that has made an offer pursuant to Section 2.03(a)(ii) of the date and aggregate amount of such Uncommitted Borrowing and whether or not any offer or offers so made by such Bank have been accepted by such Borrower, (B) each Bank that is to make an Uncommitted Advance as a part of such Uncommitted Borrowing, of the amount of each Uncommitted Advance to be made by such Bank as part of such Uncommitted Borrowing, and (C) each Bank that is to make an Uncommitted Advance as part of such Uncommitted Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Bank that is to make an Uncommitted Advance as part of such Uncommitted Borrowing shall, before 1:00 P.M. (Chicago time) on the date of such Uncommitted Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Bank shall have received notice from the Administrative Agent pursuant to subclause (C) of the preceding sentence, make available to the Administrative Agent at the Administrative Agent's Domestic Lending Office, in federal or otherwise immediately available funds, such Bank's portion of such Uncommitted Borrowing. After the Administrative Agent receives such funds and when the applicable conditions set forth in Article III have been fulfilled, the Administrative Agent will make such funds available to the applicable Borrower at the Administrative Agent's aforesaid address. Promptly after (x) each Uncommitted Borrowing, the Administrative Agent will notify each Bank of the amount and date of the Uncommitted Borrowing and the maturity date thereof and the Available Commitment of each Bank after giving effect to such Uncommitted Borrowing and (y) the prepayment of any Uncommitted Borrowing by or on behalf of such Borrower, the Administrative Agent will notify each Bank of the amount and date of each such prepayment and the Available Commitment of each Bank after giving effect thereto. (b) Each Uncommitted Borrowing shall be in an aggregate amount of not less than $25,000,000 or an integral multiple of $1,000,000 in excess thereof, or if the requested currency for such Advance is not Dollars, the equivalent of such amount (determined in accordance with Section 2.16) or multiple in the requested Alternative Currency. -20- (c) Within the limits and on the conditions set forth in this Section 2.03, each Borrower may from time to time borrow under this Section 2.03, repay pursuant to subsection (d) below, and reborrow under this Section 2.03; provided that an Uncommitted Borrowing shall not be made within three Business Days of any other Uncommitted Borrowing. (d) Each Borrower shall repay to the Administrative Agent, for the account of each Bank which has made an Uncommitted Advance to such Borrower, on the maturity date of each such Uncommitted Advance (such maturity date being that specified for repayment of such Uncommitted Advance in the related Notice of Uncommitted Borrowing delivered pursuant to Section 2.03(a)(i) above) the then unpaid principal amount of such Uncommitted Advance. A Borrower shall not have the right to prepay any principal amount of any Uncommitted Advance without the consent of the Bank making such Advance. (e) Each Borrower shall pay interest on the unpaid principal amount of each Uncommitted Advance made to it, from the date of such Uncommitted Advance to the date the principal amount of such Uncommitted Advance is repaid in full, at the rate of interest for such Uncommitted Advance specified by the Bank making such Uncommitted Advance in its notice with respect thereto delivered pursuant to Section 2.03(a)(ii) above, payable on the interest payment date or dates specified for such Uncommitted Advance in the related Notice of Uncommitted Borrowing delivered pursuant to Section 2.03(a)(i) above. (f) The Borrower of any Uncommitted Advance shall, promptly upon request by the Bank making such Uncommitted Advance (either in the quote delivered by such Bank pursuant to Section 2.03(a)(ii) or by notice to the Administrative Agent), execute and deliver to the Administrative Agent an Uncommitted Note payable to the order of such Bank in a principal amount equal to the principal amount of such Uncommitted Advance and otherwise on such terms as were agreed to for such Uncommitted Advance in accordance with Section 2.03. SECTION 2.04. Facility Fee and Utilization Fee. (a) The Company and each Borrowing Subsidiary jointly and severally agree to pay to the Administrative Agent, for the account of each Bank other than a Designated Bidder, a facility fee ("Facility Fee") on the average daily Commitment of such Bank from the date hereof until the Termination Date, payable in arrears on the first day of each January, April, July and October during the term of such Bank's Commitment, commencing April 1, 1995, and on the Termination Date, at a rate per annum equal to the following percentage in effect from time to time: (i) 0.07% for each day Category 1 Status exists, (ii) 0.08% for each day Category 2 Status exists, (iii) 0.10% for each day Category 3 Status exists, (iv) 0.15% for each day Category 4 Status exists, and (v) 0.25% for each day Category 5 Status exists. (b) To the extent, and for so long as, (i) the average daily aggregate outstanding principal amount of Advances at any time exceeds one-half of the aggregate -21- Commitments at such time, and (ii) Category 3 Status, Category 4 Status or Category 5 Status exists, the Company and each Borrowing Subsidiary, jointly and severally, agree to pay to each Bank other than a Designated Bidder a utilization fee (the "Utilization Fee") equal to 0.05% per annum of the aggregate principal amount of such Bank's Advances at such time. The Utilization Fee shall be payable on each date the Facility Fee is payable. (c) Notwithstanding the foregoing, (i) any Facility Fee or Utilization Fee accrued with respect to any Commitment of a Defaulting Bank during the period prior to the time such Bank became a Defaulting Bank and unpaid at such time shall not be payable by the Borrowers so long as such Bank shall be a Defaulting Bank, except to the extent such Facility Fee or Utilization Fee was due and payable prior to such time, and (ii) no Facility Fee or Utilization Fee shall accrue on the Commitment of a Defaulting Bank so long as such Bank is a Defaulting Bank. SECTION 2.05. Reduction and Termination of the Commitments. (a) The Company shall have the right, upon at least four (4) days' notice to the Administrative Agent to terminate in whole or reduce ratably in part the unused portions of the respective Commitments of the Banks, provided that the aggregate amount of the Commitments of the Banks shall not be reduced to an amount which is less than the aggregate principal amount of the Uncommitted Advances then outstanding and provided, further, that each partial reduction shall be in an aggregate amount of $10,000,000 or any integral multiple of $1,000,000 in excess thereof. (b) Provided that no Event of Default shall have occurred and be continuing, the Company may at any time replace any Bank, in whole but not in part, by (i) giving such Bank and the Administrative Agent not less than ten (10) Business Days' prior notice thereof, which notice shall be irrevocable and effective only when received by such Bank and the Administrative Agent and shall specify the effective date of such replacement, and (ii) effecting an assignment of all of the Bank's Commitment and Advances in accordance with Section 9.07. SECTION 2.06. Payment; Conversion and Continuation. (a) On the Termination Date, the Borrowers shall repay, to the Administrative Agent for the ratable account of the Banks, the entire unpaid principal amount of the Advances made by each Bank. (b) Any Borrower may elect (x) to convert Base Rate Advances or any portion thereof to Eurocurrency Rate Advances, (y) to convert Eurocurrency Rate Advances or any portion thereof into Base Rate Advances, or (z) to continue any Eurocurrency Rate Advance or any portion thereof for an additional Interest Period; provided, however, that the aggregate amount of Base Rate Advances being converted into Eurocurrency Rate Advances or of Eurocurrency Rate Advances being continued shall, in the aggregate, equal $20,000,000 or an integral multiple of $1,000,000 in excess thereof. The applicable Interest Period for the continuation of any Eurocurrency Rate Advance shall commence on the day on which the immediately-preceding Interest Period expires. Each conversion or continuation shall be allocated among the Committed Advances of each Bank in accordance with its Pro Rata Share of the amount so converted or continued. Each such election shall be in substantially the form of Exhibit F (a "Notice of Conversion or Continuation") and shall be made by giving the Administrative Agent notice by 10:00 a.m. (Chicago time) on the date of such conversion or continuation, in the case of a conversion to a Base Rate Advance, giving the Administrative Agent at least three Business Days' prior written notice thereof in the event of a conversion to or continuation of a Eurocurrency Advance specifying, in each case (i) whether a conversion or continuation is to take place, (ii) what -22- Advances are to be converted or continued, and if converted, the Type of Advance to which it is to be converted, (iii) the amount of the conversion or continuation, (iv) the Interest Period therefor and (v) in the case of a conversion, the date of conversion (which date shall be a Business Day). The Administrative Agent shall promptly notify each Bank of its receipt of a Notice of Conversion or Continuation by sending such Bank a copy thereof. If, within the time period required under the terms of this Section 2.06(b), the Administrative Agent does not receive a Notice of Conversion or Continuation from the applicable Borrower containing an election to continue or convert any Advances for an additional Interest Period, then, upon the expiration of the Interest Period therefor, such Advances will be automatically converted to Base Rate Advances. SECTION 2.07. Interest on Committed Advances. Each Borrower shall pay interest on the unpaid principal amount of each Committed Advance made by each Bank to it from the date of such Committed Advance until such principal amount shall be paid in full, at the following rates per annum: (a) Base Rate Advances. During such period as such Committed Advance is a Base Rate Advance, a rate per annum equal at all times to the Base Rate in effect from time to time, payable quarterly in arrears on the first day of each January, April, July and October, commencing April 1, 1995. The Administrative Agent shall give notice to the Company and the applicable Borrower (if other than the Company) and each Bank of any change in the Base Rate promptly after such change occurs, but the Administrative Agent's failure to give such notice shall not affect the obligation of the Company or such Borrower to pay interest at such rate when it becomes due and payable. (b) Eurocurrency Rate Advances. During such period as such Committed Advance is a Eurocurrency Rate Advance, a rate per annum equal at all times during each Interest Period for such Committed Advance to the sum of the Eurocurrency Rate for such Interest Period plus the Applicable Margin, payable on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurocurrency Rate Advance shall be converted or paid in full. (c) Default Interest. Notwithstanding the foregoing provisions of this Section 2.07, any amount of principal and fees and, to the extent permitted by law, interest, that is not paid when due (whether at stated maturity, by acceleration or otherwise) shall bear interest, from the date on which such amount is due until such amount is paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 1% per annum above (i) in the case of principal, the rate of interest otherwise thereto from time to time in accordance with the terms hereof, and (ii) in the case of interest and fees, the Base Rate in effect from time to time. SECTION 2.08. Additional Interest on Eurocurrency Rate Advances. Each Borrower shall pay to each Bank other than Designated Bidders, so long as and to the extent such Bank shall be required under regulations of the Board of Governors of the Federal Reserve System (or any similar authority outside the United States, in the case of Committed Advances in Alternative Currencies) to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or any other category of liabilities that includes deposits by reference to which the interest rate on Eurocurrency Rate Advances in the applicable Alternative -23- Currency is determined) and such Bank's performance under this Agreement (and other like agreements) shall have given rise to additional reserve requirements for such Bank thereunder, additional interest on the unpaid principal amount of each Committed Advance constituting a Eurocurrency Rate Advance of such Bank made to such Borrower, from the date of such Committed Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurocurrency Rate for the applicable Interest Period for such Committed Advance from (ii) the rate obtained by dividing such Eurocurrency Rate by a percentage equal to 100% minus the Eurocurrency Rate Reserve Percentage of such Bank for such Interest Period, payable on each date on which interest is payable on such Committed Advance. Such Bank shall, not later than the last day of the applicable Interest Period, provide notice to the Administrative Agent, the Company and, if other than the Company, the applicable Borrower of any such additional interest arising in connection with such Committed Advance. Such additional interest so notified on a timely basis by any Bank shall be payable to the Administrative Agent for the account of such Bank on the dates specified for payment of interest for such Committed Advance in Section 2.07. SECTION 2.09. Interest Rate Determination. (a) Each Reference Bank agrees to furnish to the Administrative Agent timely information for the purpose of determining each Eurocurrency Rate. If any one or two of the Reference Banks shall not furnish such timely information to the Administrative Agent for the purpose of determining any such interest rate, the Administrative Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Bank or Banks. (b) The Administrative Agent shall give prompt notice to the Company and the applicable Borrower (if other than the Company) and each of the Banks (other than the Designated Bidders) of the applicable interest rate determined by the Administrative Agent for purposes of Section 2.07(a) or (b), and the applicable rate, if any, furnished by each Reference Bank for the purpose of determining the applicable interest rate under Section 2.07(b). (c) On the date on which the aggregate unpaid principal amount of Eurocurrency Rate Advances comprising any Committed Borrowing shall be reduced, by payment, prepayment or otherwise, to less than $20,000,000, such Advances shall automatically convert into Base Rate Advances and such conversion shall be subject to Section 2.11. SECTION 2.10. Prepayments. A Borrower may prepay, upon at least one Business Day's (in the case of Base Rate Advances) and three Business Days' (in the case of Eurocurrency Rate Advances) prior notice to the Administrative Agent, each Committed Borrowing made to such Borrower, in whole or in part. Such notice shall include the proposed date and aggregate principal amount of such prepayment, and if such notice is given, such Borrower shall prepay such principal amount, together with accrued interest to the date of such prepayment on the principal amount prepaid, and any amounts payable, if any, pursuant to Section 2.11 hereof in connection therewith shall be paid on the date of such prepayment; provided, however, that each partial prepayment shall be in an aggregate principal amount of not less than $10,000,000 or an integral multiple of $1,000,000 in excess thereof. Subject to Sections 2.12) and 2.13, each prepayment of a Committed Borrowing shall be made to each Bank in accordance with such Bank's Pro Rata Share thereof. The Company shall, on the first Business Day of each January, April, July and October, if the aggregate outstanding principal Dollar Amount of all Advances, calculated by the Administrative Agent on the seventh Business Day -24- prior to such payment date and reported to the Company by the fifth Business Day prior to such payment date, exceeds (as the result of fluctuations in applicable foreign exchange rates or otherwise) 105% of the then aggregate amount of the Banks' Commitments (calculated as aforesaid), prepay a Committed Borrowing or Borrowings (in whole or in part, and in any case as selected by the Company) in an aggregate Dollar Amount (calculated as aforesaid, and rounded upward, if necessary, to the nearest $1,000,000) equal to the excess of: (i) the aggregate principal Dollar Amount (calculated as aforesaid) of Advances outstanding, over (ii) the then aggregate amount of the Banks' Commitments (calculated as aforesaid). Each prepayment of any Committed Borrowing (in whole or in part) made pursuant to this Section 2.10 shall be without premium or penalty, but shall be subject to the provisions of Section 2.11. Any mandatory prepayment of a Committed Borrowing shall be made to the Administrative Agent for the account of each Bank based on such Bank's Pro Rata Share of such Committed Borrowing and shall include accrued and unpaid interest on the principal amount prepaid and all amounts owing under Section 2.11. SECTION 2.11. Funding Indemnification. If any payment of principal of any Advance (other than a Base Rate Advance) is made other than on the last day of an Interest Period for such Advance, as a result of acceleration of the maturity of the Advances pursuant to Section 6.01 or for any other reason, or if any Eurocurrency Rate Advance is converted to a Base Rate Advance pursuant to Section 2.13(b) on any day other than the last day of an Interest Period for such Eurocurrency Rate Advance, the applicable Borrower shall, upon demand by any Bank (with a copy of such demand to the Administrative Agent), pay to the Administrative Agent for the account of such Bank any amounts required to compensate such Bank for any additional losses, costs or expenses which it may reasonably incur as a result of such payment or conversion, including without limitation any loss (excluding loss of anticipated profits), cost or expense reasonably incurred as a result of the liquidation or re-employment of deposits or other funds acquired by such Bank to fund or maintain such Advance. SECTION 2.12. Increased Costs and Reduced Return. (a) Subject to the limitation in Section 2.03(a)(ii), if, due to either (i) the introduction of or any change (other than any change by way of imposition or increase of reserve requirements, in the case of Eurocurrency Rate Advances, included in the Eurocurrency Rate Reserve Percentage), after the date hereof, in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law) issued after the date hereof, there shall be any increase in the cost to any Bank of agreeing to make, making, funding or maintaining Eurocurrency Rate Advances, by an amount reasonably deemed by such Bank to be material, then from time to time, within ten days after demand by such Bank (with a copy of such demand to the Administrative Agent), such Borrower shall pay to the Administrative Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such increased cost; provided that no Borrower shall be obligated to pay any such amount to the extent such amount results from a change, guideline or request which took effect more than 90 days prior to the date of such demand. -25- (b) Subject to the limitation in Section 2.03(a)(ii), if any Bank shall have determined that the adoption, after the date hereof, of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive issued after the date hereof regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to a level below that which such Bank could have achieved but for such adoption, change or compliance by an amount reasonably deemed by such Bank to be material, then from time to time, within ten days after demand by such Bank (with a copy of such demand to the Administrative Agent), the Company shall pay to the Administrative Agent for the account of such Bank such additional amount or amounts as will compensate such Bank, in light of such circumstances, to the extent such Bank reasonably determines such reduction to be allocable to the existence of such Bank's Commitment; provided that no Borrower shall be obligated to pay any such amount to the extent such amount results from an adoption, change, request or directive which took effect or was issued more than 90 days prior to the date of such demand. (c) Each Bank will promptly notify the Administrative Agent and the Company of any event of which it has knowledge, occurring after the date hereof, which would entitle such Bank to compensation pursuant to this Section 2.12. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall create a rebuttable presumption as to the correctness of such additional amount or amounts. Each Bank agrees not to request any payment under this Section 2.12 unless similar requests are then generally being made by such Bank of other borrowers similarly situated, and to use a reasonable basis for calculating amounts allocable to its Commitment hereunder. SECTION 2.13. Illegality. (a) If any Bank shall determine (which determination shall be rebuttably presumed correct as to all parties) at any time that the making or continuance of its Eurocurrency Rate Advances has become unlawful because of the introduction of or any change in or in the interpretation of any law or regulation or because of the assertion of unlawfulness by any central bank or other governmental authority, then, in any such event, such Bank shall give prompt notice (by telephone confirmed in writing) to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each Borrower and the other Banks). (b) Upon the giving of the notice to the Company referred to in subsection (a) above, if the affected Advances are then outstanding, each Borrower shall, upon at least one Business Day's written notice to the Administrative Agent and the affected Bank, or if permitted by applicable law no later than the date permitted thereby, in such Borrower's sole discretion, either (i) prepay the principal amount of all outstanding Advances of such Bank to which such notice relates, together with accrued interest thereon to the date of payment, or (ii) convert each such Advance into a Base Rate Advance denominated in Dollars and, in each case, be obligated to reimburse the Banks in respect thereof pursuant to Section 2.11 hereof. If more than one Bank gives notice pursuant to Section 2.13(a) at any time, then all outstanding Advances of the affected Type or currency of such Banks must be treated in the same manner by the Borrowers pursuant to this subsection 2.13(b) and the Banks' obligations to make, convert or continue Eurocurrency Rate -26- Advances shall be suspended until the Administrative Agent notifies the Borrowers that the circumstances causing such suspension no longer exist. SECTION 2.14. Payments and Computations. (a) The Company and each Borrowing Subsidiary shall make each payment hereunder and under the Notes by causing a wire transfer of immediately-available funds to be initiated to the Administrative Agent in an amount equal to such payment not later than 12:00 noon (Chicago time) on the day when due from the Company or such Borrowing Subsidiary. The Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or fees ratably (other than amounts payable pursuant to Sections 2.03, 2.05(b), 2.08, 2.11, 2.12, 2.15, 2.19 or 2.20) to the Banks for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Bank to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. All such payments shall be made in Dollars, except that payments of principal of and interest on Borrowings in an Alternative Currency shall be made in such Alternative Currency; provided that if the applicable Borrower fails to make any payment of principal or interest with respect to any Borrowing in an Alternative Currency on the due date thereof because such Alternative Currency has ceased to be freely transferable and convertible into Dollars in the London interbank market, such failure shall not constitute an Event of Default or an event which would constitute an Event of Default but for the requirement that notice be given or time elapse or both, if such Borrower pays the equivalent in Dollars of such payment on the due date thereof. In addition to any such Dollar payment, such Borrower agrees to pay to each affected Bank an indemnity payment within five Business Days after such Borrower shall have received a certificate from such Bank setting forth in reasonable detail the amount of any loss, cost, damage or expense suffered by such Bank as a consequence of such inability to make any such payment in such Alternative Currency on the due date thereof. Each Bank agrees to use reasonable efforts to avoid or minimize all such loss, cost, damage or expense. (b) All computations of interest based on the Base Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurocurrency Rate or the Federal Funds Rate, all computations of interest pursuant to Section 2.08 and all computations of the Facility Fee and the Utilization Fee shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent (or, in the case of Section 2.08, by a Bank) of an interest rate or fee owing hereunder shall create a rebuttable presumption as to the correctness of such determination. (c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; provided, however, if such extension would cause payment of interest on or principal of Eurocurrency Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the applicable Borrower prior to the date on which any payment is due to the Banks hereunder that such -27- Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent such Borrower shall not have so made such payment in full to the Administrative Agent, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.15. Sharing of Payments, Etc. If any Bank shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Committed Advances made by it (other than pursuant to Sections 2.08, 2.11, 2.12, 2.13(b), 2.19 or 2.20) in excess of its ratable share of payments on account of the Committed Advances obtained by all the Banks, such Bank shall forthwith purchase from the other Banks such participations in the Committed Advances made by them as shall be necessary to cause such purchasing Bank to share the excess payment ratably with each of them, provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each Bank shall be rescinded and such Bank shall repay to the purchasing Bank the purchase price to the extent of such recovery together with an amount equal to such Bank's ratable share (according to the proportion of (i) the amount of such Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. Each Borrower agrees that any Bank so purchasing a participation from another Bank with respect to Advances made to such Borrower pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Bank were the direct creditor of such Borrower in the amount of such participation. SECTION 2.16. Currency Equivalents. (a) For purposes of this Article II, (i) the equivalent in Dollars of any Alternative Currency shall be determined by using the spot rate at which Citibank's principal office in London offers to exchange Dollars for such Alternative Currency in the interbank market in London at 11:00 A.M. (London time) two Business Days prior to the date on which such equivalent is to be determined, (ii) the equivalent in any Alternative Currency of any other Alternative Currency shall be determined by using the spot rate at which Citibank's principal office in London offers to exchange such Alternative Currency for the equivalent in such other Alternative Currency in London at 11:00 A.M. (London time) two Business Days prior to the date on which such equivalent is to be determined, and (iii) the equivalent in any Alternative Currency of Dollars shall be determined by using the spot rate at which Citibank's principal office in London offers to exchange such Alternative Currency for Dollars in London at 11:00 A.M. (London time) two Business Days prior to the date on which such equivalent is to be determined. The equivalent in Dollars of each Eurocurrency Rate Advance made in an Alternative Currency shall be recalculated hereunder on each day that it is necessary to determine the unused portion of each Bank's Commitment, or any or all of the Advances on such date. (b) If for the purpose of obtaining a judgment in any court with respect to any obligation of a Borrower hereunder, it shall become necessary for the Administrative Agent or any Bank entitled to receive payments hereunder to convert any amount into a currency other than the -28- currency denominated hereunder for such obligation, then such conversion shall be made on the basis of rates (the "Exchange Rates") determined in the manner described in subsection (a) above (or, if the applicable currency to be converted is not at the time of conversion available in the interbank market in London, then in such other interbank market as the Administrative Agent shall determine to have adequate availability of such currency) and the date with respect to which such an equivalent is to be determined shall be the first Business Day preceding the date on which final judgment is entered. If pursuant to any such judgment conversion is to be made with respect to a date other than the date referred to above, and there shall occur a change between the Exchange Rates in effect on such date and the Exchange Rates in effect on the date of payment, (i) the applicable Borrower agrees to pay such additional amounts (if any) as may be necessary to ensure that the amount paid is the amount in such other currency which, when converted at the Exchange Rates as in effect on the date of payment or distribution, is the amount then due hereunder in the relevant currency and (ii) such Borrower shall not be required to pay any amount in excess of the amount determined to be payable in connection with such obligation, calculated on the basis of the Exchange Rates in effect on the first Business Day preceding the date on which final judgment is entered. Any amount due from a Borrower under this subsection (b) shall be due as a separate debt and is not to be affected by or merged into any judgment being obtained for any other sums due hereunder. SECTION 2.17. Borrowing Subsidiaries. The Company may at any time or from time to time add as a party to this Agreement any Subsidiary of the Company to be a "Borrowing Subsidiary" hereunder by causing such Subsidiary to execute and deliver a duly completed Assumption Letter to the Administrative Agent, with the written consent of the Company at the foot thereof. Upon such execution, delivery and consent such Subsidiary shall for all purposes be a party hereto as a Borrowing Subsidiary as fully as if it had executed and delivered this Agreement. So long as the principal of and interest on all Advances made to any Borrowing Subsidiary under this Agreement shall have been paid in full and all other obligations of such Borrowing Subsidiary shall have been fully performed, such Borrowing Subsidiary may, by not less than five Business Days' prior notice to the Administrative Agent (which shall promptly notify the Banks thereof), terminate its status as a "Borrowing Subsidiary." SECTION 2.18. Reserved. SECTION 2.19. Taxes . (a) Any and all payments by a Borrower hereunder or under the Notes shall be made in accordance with Section 2.14, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Bank or the Administrative Agent is organized or any political subdivision thereof and taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If any Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Bank or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.19) such Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no deductions been made, (ii) such Borrower shall -29- make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). (c) Each Borrower will indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.19) paid by such Bank or the Administrative Agent and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted; provided, that the Borrowers shall have no obligation under this subsection (c) to indemnify any Bank or the Administrative Agent if a Borrower shall have performed its obligations under subsection (a) and (b), thereby providing such Bank or the Administrative Agent (as the case may be) the wherewithal to make payment, or demonstrate that payment has been made, of any such Taxes or Other Taxes, and such Bank or the Administrative Agent (as the case may be) shall not have effected such payment or made such demonstration of payment on a timely basis to the relevant taxing authorities. This indemnification shall be made to the Administrative Agent for the account of such Bank or the Administrative Agent (as the case may be) within 30 days from the date such Bank or the Administrative Agent makes written demand therefor (with a copy, in the case of a demand by a Bank, of such demand to the Administrative Agent). (d) Notwithstanding the foregoing, unless, prior to the date of the initial Committed Borrowing (in the case of a Bank listed on Schedule I hereto), and prior to the effective date of the Assignment and Acceptance by which it became a Bank (in the case of bank that became a Bank pursuant to such Assignment and Acceptance), and in each case from time to time thereafter, if requested by any Borrower, (i) each Bank organized under the laws of a jurisdiction outside the United States shall have provided the Company with the forms prescribed by the Internal Revenue Service of the United States certifying as to such Bank's status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to such Bank hereunder or other documents satisfactory to the Company which shall indicate that all payments to be made to such Bank hereunder are not subject to United States withholding tax or are subject to such taxes at a rate reduced to zero by an applicable tax treaty, neither the Company nor any other Borrower shall have any obligation under the last sentence of Section 2.19(a) to make any payments to or for the benefit of such Bank in excess of the amounts otherwise payable under this Agreement, and (ii) each Bank organized under the laws of a jurisdiction outside the jurisdiction where any Borrowing Subsidiary is incorporated shall have taken all steps prescribed by the applicable governmental authority in the jurisdiction where such Borrowing Subsidiary is located so that such Bank is exempt from applicable withholding taxes with respect to all payments to be made to such Bank hereunder or so that all payments to be made to such Bank hereunder are not subject to -30- applicable withholding taxes or are subject to such taxes at a rate reduced to zero by an applicable tax treaty, neither the Company nor any other Borrower shall have any obligation under the last sentence of Section 2.19(a) to make any payments to or for the benefit of such Bank in excess of the amounts otherwise payable under this Agreement; provided, however, that the applicable Borrower shall make the payments required by the last sentence of Section 2.19(a) if the obligation to withhold arises from a change in applicable law after the date hereof (or, with respect to payments to a new Applicable Lending Office designated pursuant to Section 2.21, after the date such Bank designates such new Applicable Lending Office). Unless the applicable Borrower has received forms or other documents, including Form 1001, Form 4224 or any other applicable tax forms from the United States or any other applicable jurisdiction, such forms to be satisfactory to the Company, indicating that payments hereunder are not subject to any withholding tax or are subject to such tax at a rate reduced to zero by an applicable tax treaty, the applicable Borrower shall withhold taxes from such payments at the applicable statutory rate in the case of payments to or for any Bank organized under the laws of a jurisdiction outside the United States (or in the case of a Borrowing Subsidiary incorporated outside the United States, any Bank organized under the laws outside of the jurisdiction where such Borrowing Subsidiary is incorporated). Should a Bank become subject to Taxes because of its failure or inability to deliver a form required hereunder, the Company shall take such steps not requiring the expenditure of money as the Bank shall reasonably request to assist the Bank to recover such Taxes. SECTION 2.20. Defaulting Banks. (a) If at any time (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be required to make any payment hereunder or under any Note to or for the account of such Defaulting Bank, then the Borrower may, so long as no Event of Default shall have occurred and be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the amount owed by the Borrower to or for the account of such Defaulting Bank against the obligation of such Defaulting Bank to make such Defaulted Advance. If the Borrower shall so set off and otherwise apply the amount owed by the Borrower to or for the account of such Defaulting Bank against the obligation of such Defaulting Bank to make any such Defaulted Advance on any date, the amount so set off and otherwise applied by the Borrower shall constitute for all purposes of this Agreement and the Notes an Advance by such Defaulting Bank made on the date of such setoff. Such Advance shall be a Base Rate Advance and shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01 or Section 2.03(a), as the case may be, even if the other Advances comprising such Borrowing shall be Eurocurrency Rate Advances on the date such Advance is deemed to be made pursuant to this Section 2.20(a). The Borrower shall notify the Administrative Agent at any time the Borrower makes a setoff under this Section 2.20(a) and shall specify in such notice (A) the name of the Defaulting Bank and the Defaulted Advance required to be made by such Defaulting Bank and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this Section 2.20(a). Any part of such payment otherwise required to be made by the Borrower to or for the account of such Defaulting Bank that is paid by the Borrower, after giving effect to the amount set off and otherwise applied by the Borrower pursuant to this Section 2.20(a), shall be applied by the Administrative Agent as specified in Section 2.20(b) or 2.20(c). -31- (b) If at any time (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall owe a Defaulted Amount to the Administrative Agent or any of the other Banks and (iii) the Borrower shall make any payment hereunder or under any Note to the Administrative Agent for the account of such Defaulting Bank, then the Administrative Agent may, on its behalf or on behalf of such other Banks and to the fullest extent permitted by applicable law, apply at such time the amount so paid by the Borrower to or for the account of such Defaulting Bank to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. If the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the Notes payment to such extent of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Banks, ratably in accordance with their respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Banks and, if the amount of such payment made by the Borrower shall at any time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent and the other Banks, in the following order of priority: (A) first, to the Administrative Agent for any Defaulted Amounts owing to the Administrative Agent (solely in its capacity as Administrative Agent) at such time; and (B) second, to the other Banks for any Defaulted Amounts owing to the other Banks (solely in their capacity as Banks) at such time, ratably in accordance with such respective Defaulted Amounts owing to each other Bank (solely in its capacity as a Bank) at such time. Any part of such payment made by the Borrower for the account of such Defaulting Bank remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this Section 2.20(b), shall be applied by the Administrative Agent as specified in Section 2.20(c). (c) If at any time, (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, the Administrative Agent or any other Bank shall be required to pay or to distribute any amount hereunder or under any Note to or for the account of such Defaulting Bank, then the Borrower or such other Bank shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this Section 2.20(c) shall be deposited by the Administrative Agent in an account with Citibank, in the name and under the control of the Administrative Agent, but subject to the provisions of this Section 2.20(c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be Citibank's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this Section 2.20(c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Bank and to pay any amount payable by such Defaulting Bank hereunder to the Administrative Agent or any -32- other Bank, as and when such Advances or such amounts are required to be made or paid and, if the amount so held in escrow shall any time be insufficient to make and pay all such Advances and all such amounts required to be made or paid at such time, in the following order of priority: (A) first, to the Administrative Agent for any amounts due and payable by such Defaulting Bank to the Administrative Agent hereunder (solely in its capacity as Administrative Agent) at such time; (B) second, to the other Banks for any amounts due and payable by such Defaulting Bank to the other Banks hereunder (solely in their capacity as Banks) at such time, ratably in accordance with such respective amounts due and payable to each other Bank (solely in its capacity as Bank) at such time; and (C) third, to the Borrower for any Advances required to be made by such Defaulting Bank pursuant to the Commitment of such Defaulting Bank at such time. If such Defaulting Bank shall, at any time, cease to be a Defaulting Bank, any funds held by the Administrative Agent in escrow at such time with respect to such Defaulting Bank shall be distributed by the Administrative Agent to such Defaulting Bank and applied by such Defaulting Bank to the amounts owing to such Defaulting Bank at such time under this Agreement in accordance with the terms of this Agreement. (d) The rights and remedies against a Defaulting Bank under this Section 2.20 are in addition to other rights and remedies that the Borrower may have against such Defaulting Bank with respect to any Defaulted Advance and that the Administrative Agent or any other Bank may have against such Defaulting Bank with respect to any Defaulted Amount. SECTION 2.21. Mitigation. Any Bank claiming any additional amounts payable pursuant to Sections 2.12 or 2.19 or subject to Section 2.13 shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue under Sections 2.12 or 2.19 or would avoid the unavailability of Eurocurrency Rate Advances under Section 2.13 and would not, in any such case, in the judgment of such Bank, be otherwise disadvantageous to such Bank. ARTICLE III CONDITIONS PRECEDENT SECTION 3.01. Conditions Precedent to Effectiveness of Sections 2.01 and 2.03. Sections 2.01 and 2.03 shall become effective on the first day (the "Effective Date") on which all of the following conditions precedent have been satisfied: -33- (a) The Administrative Agent shall have received the following, in form and substance reasonably satisfactory to the Administrative Agent and (except for the Committed Notes) in sufficient copies for the Banks: (i) This Agreement, executed by the Company, the Administrative Agent and each of the Banks; (ii) A Committed Note executed by the Company, payable to each Bank; (iii) A certificate of the Secretary of the Company certifying (A) copies attached thereto of the resolutions of the Board of Directors of the Company authorizing and empowering certain officers of the Company to effect such borrowings as such officers may deem necessary or desirable for proper corporate purposes, subject to the limitations set forth in such resolutions, (B) copies attached thereto of the Certificate of Incorporation and by-laws of the Company, and (C) the names and true signatures of the officers of the Company authorized to sign this Agreement and the Notes and other documents to be executed and delivered by the Company hereunder; (iv) A certificate of a duly authorized officer of the Company, dated the Effective Date, certifying that as of such date, (A) the representations and warranties contained in Section 4.01 are correct on and as of the Effective Date and (B) no event shall have occurred and be continuing that constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both; (v) A favorable opinion of Sidley & Austin, counsel for the Company, substantially in the form of Exhibit G hereto; and (vi) A favorable opinion of Shearman & Sterling, counsel for the Administrative Agent; and (vii) Evidence that all amounts owing under the 1992 Credit Agreements are being paid in full, and that the 1992 Credit Agreements are being terminated, no later than the Effective Date; (b) The Company shall have paid all accrued fees and expenses of the Administrative Agent and the Banks which are due and payable on the Effective Date (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent); (c) There shall have occurred no material adverse change in the business, financial condition, operations, properties or performance of the Company and its Subsidiaries, taken as a whole, since December 31, 1993; -34- (d) There shall exist no action, suit or proceeding (investigative, judicial or otherwise) against the Company or any of its Subsidiaries pending before any court or arbitrator or any governmental body, agency or official, or to the knowledge of any Responsible Officer of the Company, threatened, that could reasonably be expected (i) to have a Material Adverse Effect or (ii) to materially and adversely affect the legality, validity or enforceability of this Agreement or any Note; (e) The representations and warranties contained in Section 4.01 shall be correct on and as of the Effective Date, as though made on and as of such date; and (f) No event shall have occurred and be continuing which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both. For purposes of determining compliance with the conditions specified above, each Bank shall be deemed to have consented to, approved and accepted, and to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Banks unless the officer of the Administrative Agent responsible for the transactions contemplated by this Agreement shall have received notice from such Bank prior to the proposed Effective Date, as notified by the Administrative Agent to the Banks, specifying its objection thereto. The Administrative Agent shall promptly notify the Banks of the occurrence of the Effective Date. SECTION 3.02. Conditions Precedent to Initial Advance to Each Borrowing Subsidiary. The obligation of each Bank to make its initial Advance hereunder to any Borrowing Subsidiary is subject to the conditions precedent that the Effective Date shall have occurred and the Administrative Agent shall have received on or before the day of the initial Borrowing by such Borrowing Subsidiary the following, each in form and substance reasonably satisfactory to the Administrative Agent and in sufficient copies for the Banks: (a) The Assumption Letter executed and delivered by such Borrowing Subsidiary and containing the written consent of the Company at the foot thereof, as contemplated by Section 2.17 hereof; (b) A Committed Note executed by such Borrowing Subsidiary, payable to each Bank; (c) Certified copies of the resolutions of the Board of Directors of such Borrowing Subsidiary approving the Assumption Letter and all other documents evidencing corporate action and governmental approvals, if any, required with respect to the Assumption Letter; (d) A certificate of the Secretary or an Assistant Secretary of such Borrowing Subsidiary certifying the names and true signatures of the officers of such Borrowing Subsidiary authorized to sign the Assumption Letter and the other -35- documents to be executed and delivered by such Borrowing Subsidiary hereunder; and (d) An opinion of counsel to such Borrowing Subsidiary, substantially in the form of Exhibit H hereto and as to such other matters as the Administrative Agent shall reasonably request. SECTION 3.03. Conditions Precedent to Each Committed Borrowing. The obligation of each Bank to make a Committed Advance on the occasion of each Committed Borrowing (including the initial Committed Borrowing) shall be subject to the further conditions precedent that the Effective Date shall have occurred and on the date of such Committed Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Committed Borrowing and the acceptance by the applicable Borrower of the proceeds of such Committed Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Committed Borrowing such statements are true): (i) The representations and warranties contained in subsections (a), (b), (c), (d), (f)(ii) and (h) through (p) of Section 4.01 are correct on and as of the date of such Committed Borrowing, before and after giving effect to such Committed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; (ii) No event has occurred and is continuing, or would result from such Committed Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (iii) The aggregate principal amount (or, in the case of securities issued at a discount from the principal amount at maturity, the accreted amount) of indebtedness for borrowed money (after giving effect to such Committed Borrowing and the application of the proceeds thereof) of the Company and its Subsidiaries does not exceed the maximum amount then authorized by the Company's Board of Directors. SECTION 3.04. Conditions Precedent to Each Uncommitted Borrowing. Each bidding Bank's obligation to make an Uncommitted Advance as part of an Uncommitted Borrowing (including the initial Uncommitted Borrowing) is subject to the conditions precedent that on the date of such Uncommitted Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Uncommitted Borrowing and the acceptance by such Borrower of the proceeds of such Uncommitted Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Uncommitted Borrowing such statements are true): (a) The representations and warranties contained in subsections (a), (b), (c), (d), f(ii) and (h) through (p) of Section 4.01 are correct on and as of the date of such Uncommitted Borrowing, before and after giving effect to such Uncommitted Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, -36- (b) No event has occurred and is continuing, or would result from such Uncommitted Borrowing or from the application of the proceeds therefrom, which constitutes an Event of Default or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both, and (c) The aggregate principal amount (or, in the case of securities issued at a discount from the principal amount at maturity, the accreted amount) of indebtedness for borrowed money (after giving effect to the application of the proceeds of such Uncommitted Borrowing) of the Company and its Subsidiaries does not exceed the maximum amount thereof then authorized by the Company's Board of Directors. ARTICLE IV REPRESENTATIONS AND WARRANTIES ------------------------------ SECTION 4.01. Representations and Warranties of the Company. The Company represents and warrants to the Banks as follows: (a) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Agreement. (b) The execution, delivery and performance by the Company of this Agreement and the Notes are within the Company's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) the Company's certificate of incorporation, as amended, or by-laws or (ii) law or any contractual restriction binding on or affecting the Company. (c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Company of this Agreement. (d) This Agreement has been, and each of the Notes when delivered hereunder will have been, duly executed and delivered by the applicable Borrower. This Agreement is, and each of the Notes when delivered hereunder will be, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with their respective terms, subject to any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally and to general principles of equity. (e) The consolidated balance sheets of the Company and its Consolidated Subsidiaries as of December 31, 1993, and the related consolidated statements of income, cash flow and shareholders' equity of the Company and its Consolidated Subsidiaries for the fiscal year then ended, copies of which have been furnished to each Bank, fairly present the financial condition of the Company and its Consolidated Subsidiaries as at such date and the consolidated results of the operations of the Company and its Consolidated Subsidiaries for the period ended -37- on such date, all in accordance with generally accepted accounting principles, and since December 31, 1993, there has been no material adverse change in the business, financial condition, operations, properties or performance of the Company and its Subsidiaries, taken as a whole. (f) There are no actions, suits or proceedings (investigative, judicial or otherwise) against the Company or any of its Subsidiaries pending before any court or arbitrator or any governmental body, agency or official, or, to the knowledge of any Responsible Officer of the Company, threatened, that could reasonably be expected (i) to have a Material Adverse Effect or (ii) to materially and adversely affect the legality, validity or enforceability of this Agreement or any Note. (g) Reserved. (h) Following application of the proceeds of each Advance to the Company, not more than 25% of the value of the assets (either of the Company only or of the Company and its Consolidated Subsidiaries) will be Margin Stock subject to any restriction contained in any agreement or instrument between the Company and any Bank or any affiliate of any Bank relating to Debt within the scope of Section 6.01(e). (i) The Company is not principally engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (j) The Advances to each Borrower, and all related obligations of such Borrower under this Agreement, rank pari passu with all other unsecured indebtedness for money borrowed or raised by such Borrower that is not, by its terms, expressly subordinated to other such indebtedness of such Borrower. (k) No Borrower is an "investment company" or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. (l) (i) All necessary Environmental Permits have been obtained and are in effect for the operations and properties of the Company and its Subsidiaries, and the Company and its Subsidiaries are in compliance with all such Environmental Permits, except to the extent that the failure to so obtain or comply could not reasonably be expected to have a Material Adverse Effect; and (ii) no circumstances exist that could reasonably be expected to (A) form the basis of an Environmental Action against the Company or any of its Subsidiaries or any of their properties that could reasonably be expected to have a Material Adverse Effect or (B) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law that could reasonably be expected to have a Material Adverse Effect. (m) None of the properties owned or leased (i) by the Company or any of its Consolidated Subsidiaries is listed or proposed for listing on the National Priorities List under CERCLA or (ii) by the Company or any of its Subsidiaries is -38- the subject of any investigation or cleanup, whether voluntary or required pursuant to any Environmental Law or ordered by any governmental authority, that could reasonably be expected to have a Material Adverse Effect. (n) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan. (o) Neither the Company nor any of its ERISA Affiliates (i) has incurred or is reasonably expected to incur any Withdrawal Liability with respect to any Multiemployer Plan or (ii) has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (p) As of the last annual actuarial valuation date, the aggregate current liability (as defined in Section 412 of the Internal Revenue Code) under the Plans does not exceed the aggregate fair market value of the assets of such Plans by more than $50,000,000. ARTICLE V COVENANTS OF THE COMPANY ------------------------ So long as any Advance shall remain unpaid or any Bank shall have any Commitment hereunder, unless the Majority Banks shall otherwise consent in writing: SECTION 5.01. Compliance with Laws, Etc. The Company will comply, and cause each of its Subsidiaries to comply, in all material respects with all applicable laws, rules, regulations and orders, except for laws, rules, regulations and orders the violation of which, in the aggregate, could not reasonably be expected to have a Material Adverse Effect. SECTION 5.02. Consolidated Debt to Capitalization Ratio. The Company will at all times maintain a ratio of Consolidated Debt to Capitalization, expressed as a percentage, of not more than 55%. SECTION 5.03. Reporting Requirements. The Company will furnish to the Banks: (a) within 60 days after the end of each of the first three quarters of each fiscal year of the Company, but in no case earlier than when such report shall be required to be filed with the Commission, a copy of the Company's Form 10-Q filed with the Commission for such quarter, or any similar quarterly report required to be filed by the Company with the Commission; provided that if the Company shall no longer be required to so file with the Commission, the Company will nonetheless thereafter continue to furnish to the Banks such financial statements and related materials as would have comprised such filings, at such -39- times as the Company would have otherwise delivered the same to the Commission; (b) within 120 days after the end of each fiscal year of the Company, but in no case earlier than when such report shall be required to be filed with the Commission, a copy of the Company's Form 10-K filed with the Commission for such year, or any similar annual report required to be filed by the Company with the Commission; provided that if the Company shall no longer be required to so file with the Commission, the Company will nonetheless thereafter continue to furnish to the Banks such financial statements and related materials as would have comprised such filings, at such times as the Company would have otherwise delivered the same to the Commission; (c) simultaneously with the delivery of the reports referred to in clauses (a) and (b) above, a certificate of a designated financial officer of the Company (A) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Section 5.02 on the date of such financial statements and (B) stating whether there exists on the date of such certificate any Event of Default or condition or event which with notice or lapse of time or both would become an Event of Default and, if any Event of Default or any such condition or event then exists, setting forth the details thereof and the action which the Company is taking with respect thereto; (d) promptly after the sending or filing thereof, copies of all reports which the Company sends to any of its security holders, and copies of all reports and registration statements (other than Form S-8 or any similar form) which the Company or any Borrowing Subsidiary files with the Commission or any national securities exchange; (e) promptly following any Responsible Officer's knowledge thereof, notice in writing of (i) the occurrence of any Event of Default or condition or event which with notice or lapse of time or both would become an Event of Default and, if any Event of Default or any such condition or event then exists, setting forth the details thereof and the action which the Company is taking with respect thereto, or (ii) the institution of, or any adverse final judgment in, any litigation, arbitration proceeding or governmental proceeding which, in the Company's judgment, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and (f) such other pertinent information as any Bank may reasonably request. SECTION 5.04. Use of Proceeds. The Borrowers will use the proceeds of the Advances made under this Agreement only for general corporate purposes otherwise permitted under this Agreement, including, without limitation, mergers and acquisitions, the purchase of stock of other Persons, the repurchase of shares of capital stock of the Company, the repayment of indebtedness, the funding of employee benefit plans of the Company or its Subsidiaries and for other lawful purposes; provided that, no Borrower shall use the proceeds of any Advances made hereunder to acquire 20% or more of the outstanding shares of the capital stock of any Person unless (a) at the time of such acquisition, such Person shall have consented to such acquisition -40- either by having entered into an agreement with the Company or a subsidiary of the Company contemplating a merger of such Person with or into the Company or such subsidiary or by its Board of Directors having authorized, approved or consented to such acquisition or (b) such Borrower shall have obtained the prior written consent with respect thereto of (i) in the case of any Committed Borrowing the proceeds of which shall be used to facilitate such acquisition, the Banks and (ii) in the case of any Uncommitted Borrowing the proceeds of which shall be used to facilitate such acquisition, the Banks extending Uncommitted Advances in connection therewith; provided further that if the applicable Borrower shall have specified the intended use of proceeds of an Uncommitted Borrowing in the Notice of Uncommitted Borrowing with respect thereto, each Bank electing to offer to make one or more Uncommitted Advances in response thereto shall be deemed to have provided the written consent required under this Section 5.04 for such use of the proceeds of such Uncommitted Advances. SECTION 5.05. Limitation on Liens, Etc. The Company will not create or suffer to exist, or permit any of its Consolidated Subsidiaries to create or suffer to exist, any Lien, upon or with respect to any of its properties (other than Margin Stock), whether now owned or hereafter acquired, or assign, or permit any of its Consolidated Subsidiaries to assign, any right to receive income, in each case to secure any Debt of any Person or entity, other than: (a) Liens arising in connection with the obligations of the Company or any Subsidiary under industrial revenue bonds; (b) Liens on assets of a Subsidiary of a Borrower to secure Debt of such Subsidiary to any Borrower; (c) Purchase money Liens claimed by sellers of goods on ordinary trade terms provided that no financing statement has been filed to perfect such Liens, and provided that no such Lien shall extend to assets of any character other than the goods being acquired; (d) Liens securing Debt existing as of December 31, 1993; (e) Liens securing Debt on property of a corporation or firm (or division thereof) that becomes a Subsidiary of the Company or of any of its Subsidiaries after the date hereof in accordance with Section 5.06 and existing at the time such corporation is merged or consolidated with the Company or any Subsidiary, at the time such corporation or firm (or division thereof) becomes a Subsidiary of the Company or any of its Subsidiaries, or at the time of a sale, lease or other disposition of the properties of a corporation or a firm (or division thereof) as an entirety or substantially as an entirety to the Company or a Subsidiary, provided that such Liens were not created in contemplation of such merger, consolidation, acquisition, sale, lease or disposition and do not extend to assets other than those of the Person merged into or consolidated with the Company or such Subsidiary or acquired by the Company or such Subsidiary; (f) Liens on life insurance policies owned by the Company or any Subsidiary, securing Insurance Policy Debt; -41- (g) Purchase money Liens constituting the interest of a lessor under a lease that would be capitalized on the lessee's balance sheet in accordance with GAAP, or under a sale-leaseback transaction, in each case relating to equipment, provided that after giving effect thereto, no Event of Default under Section 5.02 shall exist; (h) Any extension, renewal or replacement (or successive extensions, renewals or replacements) in whole or in part of any Liens referred to in the foregoing subsections (a) through (g); provided that, in the case of Liens referred to in the foregoing subsections (c), (d), (e), (f) and (g), the principal amount of Debt secured thereby shall not exceed the principal amount of Debt so secured at the time of such extension, renewal or replacement, and that such extension, renewal or replacement Lien shall be limited to all or a part of the property which is subject to the Lien so extended, renewed or replaced (plus improvements on such property); and (i) Additional Liens securing Debt other than as may be included in the foregoing subsections (a) through (h), provided, that the aggregate outstanding principal amount of such Debt shall not at any time exceed 10% of Consolidated Tangible Net Worth at such time. SECTION 5.06. Merger; Sale of Assets. The Company will not, and will not permit its Material Subsidiaries to, merge or consolidate with or into any other Person, or sell, transfer, lease or otherwise dispose of all or substantially all of its assets (whether now owned or hereafter required), except that: (i) the Company or a Material Subsidiary may acquire another corporation by merger, provided that, if the Company is a party to such merger, the Company is the surviving corporation, and provided further that after giving effect to such merger, no Event of Default (or event which, with the giving of notice or the passing of time or both would constitute an Event of Default) shall exist; and (ii) any Material Subsidiary may merge or consolidate with or into, or sell or otherwise dispose of any or all of its assets to, the Company or another Subsidiary, and any Material Subsidiary that is not a Borrowing Subsidiary may sell all or substantially all of its assets; provided that (a) after giving effect to such merger, consolidation, sale or other disposition, no Event of Default (or any event which, with the giving of notice or the passing of time or both would constitute an Event of Default) shall exist, and (b) in the case of an asset sale by such a Material Subsidiary, the assets to be sold do not constitute all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole. SECTION 5.07. Books and Records; Inspection. The Company will, and will cause each of its Subsidiaries to, (a) maintain complete and accurate books and records, in which full and correct entries shall be made of all financial transactions of the Company and each such Subsidiary in accordance with generally accepted accounting principles, and (b) permit any Bank, the Administrative Agent and their respective employees and agents, at such reasonable times during normal business hours and as often as may be reasonably requested, to inspect any of the -42- properties of the Company or any of its Subsidiaries and to inspect and make copies of the material books and records of the Company and its Subsidiaries and to discuss the affairs and finances of the Company and its Subsidiaries with their officers; provided that such Bank or the Administrative Agent shall have delivered a written request for such inspection to the Company prior to the date of any such inspection. SECTION 5.08. Corporate Existence. Subject to the Company's rights under Section 5.06, the Company will, and will cause each of its Material Subsidiaries to, at all times maintain its corporate existence and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses. SECTION 5.09. Conduct of Business. The Company shall not, and shall not permit any Material Subsidiary to, engage in any line of business other than (A) the businesses engaged in by the Company and its Subsidiaries on the date hereof and (B) any business or activities substantially similar or related thereto (which shall include, without limitation, other businesses related to the handling and/or distribution of data used or processed in the businesses engaged in by the Company and its Subsidiaries on the date hereof). SECTION 5.10. Payment of Taxes. The Company will pay and discharge, and cause each of its Material Subsidiaries to pay and discharge, before the same shall become delinquent, all material taxes, assessments and governmental charges or levies imposed upon it or its property; provided, however, that neither the Company nor any of its Material Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or levy that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained in accordance with GAAP, as long as no action has been commenced to enforce any Lien securing any such tax, assessment, charge or levy. ARTICLE VI EVENTS OF DEFAULT ----------------- SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) A Borrower shall fail to pay when due any installment of principal of any Advance; or (b) A Borrower shall fail to pay any fee under this Agreement, or any installment of interest on any Advance, within ten (10) days after the due date thereof; or (c) Any written representation or warranty made by a Borrower herein or in connection with this Agreement shall prove to have been incorrect in any material respect when made; or (d) The Company shall fail to perform or observe (i) any term, covenant or agreement contained in Section 5.02, 5.03(a), (b) or (e), 5.04, 5.05, 5.06, 5.07, -43- 5.08, 5.09 or 5.10, or (ii) any other term, covenant or agreement contained in this Agreement, other than in (a) or (b) above, on its part to be performed or observed if such failure shall remain unremedied for 30 days after written notice thereof shall have been given to the Company by the Majority Banks through the Administrative Agent; or (e) The Company or any Material Subsidiary shall fail to pay any principal of or premium or interest on any Debt, or any obligations in respect of acceptances, letters of credit or other similar instruments, of the Company or such Material Subsidiary which is outstanding in a principal amount of at least $50,000,000 in the aggregate (but excluding Debt arising under this Agreement), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt or other obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt or other obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or permit the acceleration of, the maturity of such Debt or other obligation; or any Debt or other such obligation in which the outstanding principal exceeds $50,000,000 shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed, defeased or otherwise repurchased by the Company or any Material Subsidiary (other than by a regularly-scheduled required prepayment), or any offer to prepay, redeem, defease or purchase such Debt shall be required to be made, prior to the stated maturity thereof; or (f) The Company or any Material Subsidiary shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Company or any Material Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property, and in the event of any such proceeding instituted against the Company or any Material Subsidiary (but not instituted by it), such proceeding shall remain undismissed or unstayed for a period of 60 days or shall result in the entry of an order for relief, the appointment of a trustee or receiver, or other action in such proceeding or result adverse to the Company or such Material Subsidiary, as applicable, or the Company or any Material Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) Any Person, or a group of Persons acting in concert, shall at any time acquire, directly or indirectly, in excess of 51% of the securities having ordinary voting power to elect members of the board of directors of the Company; or -44- (h) The Company shall incur liability in excess of $50,000,000 in the aggregate as a result of one or more of the following: (i) the occurrence of any ERISA Event; (ii) the partial or complete withdrawal of the Company or any of its ERISA Affiliates from a Multiemployer Plan; or (iii) the reorganization or termination of a Multiemployer Plan; or (i) One or more final judgments or orders for the payment of money, in an aggregate amount exceeding $50,000,000 at any one time outstanding (exclusive of judgment amounts fully covered by insurance, to the extent the insurer has admitted liability in respect thereof), shall be rendered against the Company or any Material Subsidiary and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order, or (ii) such judgments or orders shall not be discharged (or provision shall not have been made for such discharge), a stay of execution thereof shall not be obtained, or such judgments or orders shall not be paid or bonded, within 60 days from the date of entry thereof, and the Company or such Material Subsidiary, as the case may be, shall not, within such 60-day period, appeal therefrom and cause the execution thereof to be stayed pending such appeal; then, and in any such event, the Administrative Agent shall at the request, or may with the consent, of the Majority Banks, by notice to the Company, (i) declare the obligation of each Bank to make Advances to any Borrower to be terminated, whereupon the same shall forthwith terminate, and (ii) declare the Notes, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Company under the Federal Bankruptcy Code, (A) the obligation of each Bank to make Advances to any Borrower shall automatically be terminated and (B) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Company. ARTICLE VII GUARANTEE --------- SECTION 7.01. Unconditional Guarantee. For valuable consideration, receipt whereof is hereby acknowledged, and to induce the Banks to make Advances to each Borrowing Subsidiary, the Company hereby unconditionally guarantees to the Banks and the Administrative Agent that the principal of and interest on each Advance and all other amounts payable by each Borrowing Subsidiary hereunder shall be promptly paid in full when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms hereof and thereof, and, in the case of any extension of time of payment, in whole or in part, that all such amounts shall be promptly paid when due (whether at stated maturity, by acceleration or otherwise) in accordance with the terms of such extension. In addition, the Company hereby unconditionally agrees that upon default in the payment when due (whether at stated maturity, by acceleration or otherwise) of any of such principal, interest or other amounts, the Company shall forthwith pay the same. -45- Without limiting the generality of the foregoing, the Company's liability shall extend to all amounts that constitute part of the obligations of any Borrowing Subsidiary guaranteed by the Company under this Article VII and would be owed by any such Borrowing Subsidiary to any Bank or the Administrative Agent under this Agreement or the Notes but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving such Borrowing Subsidiary. SECTION 7.02. Validity. The obligations of the Company under this Article VII are independent of the obligations of the Borrowing Subsidiaries guaranteed hereunder, and a separate action or actions may be brought and prosecuted against the Company to enforce its obligations under this Article VII, irrespective of whether any action is brought against any Borrowing Subsidiary or whether any Borrowing Subsidiary is joined in any such action or actions. The obligations of the Company under this Article VII shall be unconditional irrespective of (i) the genuineness, validity, regularity or enforceability of the obligations of the Borrowing Subsidiaries under this Agreement, any Note or any Assumption Letter, (ii) any law, regulation or order of any jurisdiction affecting any term of any obligation of any Borrowing Subsidiary under this Agreement or the rights of any Bank or the Administrative Agent with respect thereto, (iii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of any Borrowing Subsidiary guaranteed by the Company under this Article VII, or any other amendment or waiver of or any consent to departure from this Agreement or the Notes, (iv) any change, restructuring or termination of the corporate structure or existence of any Borrowing Subsidiary or any of its Subsidiaries, or (v) to the fullest extent permitted by applicable law, any other circumstance which might otherwise constitute a legal or equitable discharge of a surety or guarantor. SECTION 7.03. Waivers. The Company hereby expressly waives promptness, diligence, presentment, protest and any other notice with respect to the obligations of the Company under this Article VII and any requirement that any right or power be exhausted or any action be taken against any Borrowing Subsidiary and all notices and demands whatsoever. SECTION 7.04. Subrogation. The Company shall be subrogated to the rights of the Banks or the Administrative Agent against any Borrowing Subsidiary hereunder only after the Banks and the Administrative Agent shall have been paid in full all such amounts, with interest thereon, for which such Borrowing Subsidiary shall have become indebted hereunder. SECTION 7.05. Acceleration. The Company agrees that, as between the Company on the one hand, and the Banks and the Administrative Agent, on the other hand, the obligations of each Borrowing Subsidiary guaranteed under this Article VII may be declared to be forthwith due and payable, or may be deemed automatically to have been accelerated, as provided in Section 6.01 hereof for purposes of this Article VII, notwithstanding any stay, injunction or other prohibition (whether in a bankruptcy proceeding affecting such Borrowing Subsidiary or otherwise) preventing such declaration as against such Borrowing Subsidiary and that, in the event of such declaration or automatic acceleration, such obligations (whether or not due and payable by such Borrowing Subsidiary) shall forthwith become due and payable by the Company for purposes of this Article VII. SECTION 7.06. Reinstatement. The Company's obligations under this Article VII shall be reinstated if at any time any payment received by any Bank or the Administrative Agent -46- from any Borrowing Subsidiary hereunder is required to be repaid or returned by such Bank or the Administrative Agent, all as though such payment had not been made. SECTION 7.07. Continuing Guaranty; Assignments. This guarantee of the Company shall (a) remain in full force and effect until the later of (i) the cash payment in full of the obligation of any Borrowing Subsidiary guaranteed by the Company under this Article VII and (ii) the Termination Date, (b) be binding upon the Company, its successors and assigns and (c) inure to the benefit of, and be enforceable by, the Banks and the Administrative Agent and their successors, transferees and assigns (provided that the applicable transfers and assignments are made in accordance with the terms of this Agreement). ARTICLE VIII The Administrative Agent ------------------------ SECTION 8.01. Reserved. SECTION 8.02. Authorization and Action. Each Bank appoints and authorizes Citibank to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Majority Banks, and such instructions shall be binding upon all Banks and all holders of the Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Bank prompt notice of each notice given to it by any Borrower pursuant to the terms of this Agreement. The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other instrument, document or agreement executed in connection herewith by or through employees, agents, and attorney-in-fact and shall not be answerable to the Banks, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Without limiting the foregoing, the Administrative Agent may appoint Citibank International plc as its agent for all matters relating to Advances made in Alternative Currencies. Each such agent (including, without limitation, Citibank International plc), shall be entitled to all of the rights and benefits granted to the Administrative Agent hereunder, and each Bank shall treat any notice given by any such agent as if it had been given directly by the Administrative Agent. SECTION 8.03. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (i) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Bank that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided -47- in Section 9.07; (ii) may consult with legal counsel (including counsel for any Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations (whether written or oral) made in or in connection with this Agreement; (iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement on the part of any Borrower or to inspect the property (including the books and records) of any Borrower; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; and (vi) shall incur no liability under or in respect of this Agreement by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.04. The Administrative Agent and Affiliates. With respect to any financial institution which shall become the Administrative Agent hereunder, and with respect to such financial institution's Commitment and the Advances made by it, such financial institution shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Administrative Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include such financial institution in its individual capacity, if applicable. Each such financial institution and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, any Borrower, any of their respective Subsidiaries and any Person who may do business with or own securities of any Borrower or any such Subsidiary, all as if such financial institution were not the Administrative Agent and without any duty to account therefor to the Banks. SECTION 8.05. Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Bank and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.06. Indemnification. The Banks (other than the Designated Bidders) agree to indemnify the Administrative Agent (to the extent not reimbursed by the Borrowers), ratably according to the respective principal amounts of the Notes held by each of them (or, if no Notes are outstanding at the time or if any Notes are held by Persons that are not Banks, ratably according to the respective amounts of their Commitments) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent under this Agreement; provided that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct. Without limiting the foregoing, each Bank (other than the Designated Bidders) -48- agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrowers. SECTION 8.07. Successor Administrative Agent. The Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Company and may be removed at any time with or without cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint another Bank as successor Administrative Agent or, if acceptable to the Company, any other commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000. If no successor Administrative Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent gives notice of resignation or the Majority Banks remove the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $500,000,000 and otherwise acceptable to the Company. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent. ARTICLE IX MISCELLANEOUS ------------- SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes, nor any consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Majority Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all the Banks (other than the Designated Bidders), directly do any of the following: (i) waive any of the conditions specified in Section 3.01 or 5.04, (ii) increase the Commitments of the Banks or subject the Banks to any additional obligations, (iii) reduce the principal of, or the stated rate at which interest accrues on, the Notes or reduce the stated rate at which the Facility Fee and the Utilization Fee are calculated, (iv) postpone any date fixed for any payment of principal of, or interest on, the Committed Advances or any fees or other amounts payable hereunder, (v) change the percentage of the Commitments, or of the aggregate unpaid principal amount of the Notes, or the number of Banks which shall be required for the Banks or any of them to take any action hereunder or (vi) amend this Section 9.01; provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in -49- addition to the Banks required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any Note. SECTION 9.02. Notices, Etc. (a) All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy, telex or cable communication) and mailed, telegraphed, telecopied, telexed, cabled or delivered, (i) if to the Company, at its address at 77 West Wacker Drive, Chicago, Illinois 60601 Attention: Treasurer, telecopy number (312) 326- 7156; (ii) if to any Borrowing Subsidiary, at the address specified in the Assumption Letter pursuant to which it became a Borrowing Subsidiary, with a copy to the Company at the address specified herein; provided that any such notice may be given solely to the Company, at the option of the party giving such notice; (iii) if to any bank listed on the signature pages hereof, at its Domestic Lending Office specified opposite its name on Schedule I hereto; (iv) if to any other Bank, at its Domestic Lending Office specified in the Assignment and Acceptance or Designation Agreement pursuant to which it became a Bank; (v) if to the Administrative Agent, at the Domestic Lending Office specified opposite its name on Schedule I hereto; or as to the Borrowers and the Administrative Agent, at such other address as shall be designated by such party in a written notice to the other parties, and as to each such other party, at such other address as shall be designated by such party in a written notice to the Company and the Administrative Agent. All such notices and communications shall, when sent by overnight courier, mailed, telecopied, telexed or cabled, be effective when delivered to such courier, deposited in the mails, telecopied and confirmed by return telecopy, telex answerback or delivered to the cable company, respectively, except that notices and communications to the Administrative Agent pursuant to Articles II, III and VIII shall not be effective until received by the Administrative Agent. (b) If any notice required under this Agreement is permitted to be made, and is made, by telephone, actions taken or omitted to be taken in reliance thereon by the Administrative Agent or by any Bank shall be binding upon the Company and each other Borrower notwithstanding any inconsistency between the notice provided by telephone and any subsequent writing in confirmation thereof provided to the Administrative Agent or such Bank; provided that any such action taken or omitted to be taken by the Administrative Agent or such Bank shall have been in good faith and in accordance with the terms of this Agreement. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Bank or the Administrative Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. -50- SECTION 9.04. Costs and Expenses. (a) The Company agrees to pay on demand all reasonable out-of-pocket costs and expenses of the Administrative Agent (including, without limitation, reasonable fees and expenses of counsel), in connection with any amendments, modifications or waivers of the provisions hereof, or in determining the rights and obligations of the parties hereto under this Agreement and the Notes, or the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other documents to be delivered hereunder; provided that if, in the event of any enforcement undertaken by the Banks hereunder, it shall be determined that sufficient conflicts exist such that a single law firm engaged by the Administrative Agent or the Majority Banks is precluded by law or by standards of conduct from representing the Banks as a group, and such conflicts would exist with respect to any other law firm representing the Banks as a group, the Company agrees to pay on demand all reasonable out-of-pocket costs and expenses of each Bank, if any (including, without limitation, reasonable fees and expenses of counsel), in connection with such enforcement undertaking. (b) The Company agrees to pay to the Administrative Agent such fees as shall have been agreed to by the Administrative Agent and the Company in a separate agreement regarding the provision by the Administrative Agent of services as Administrative Agent under this Agreement. SECTION 9.05. Right of Set-off. Upon (i) the occurrence and during the continuance of any Event of Default and (ii) the declaration that the Advances are due and payable pursuant to the provisions of Section 6.01, each Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Bank to or for the credit or the account of any Borrower against any and all of the obligations of such Borrower now or hereafter existing under this Agreement and the Notes held by such Bank, irrespective of whether or not such Bank shall have made any demand under this Agreement or such Notes and although such obligations may be unmatured. Each Bank shall promptly notify the Company after any such set-off and application made by such Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Bank under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Bank may have. SECTION 9.06. Binding Effect. This Agreement (other than Sections 2.01 and 2.03, which shall only become effective upon satisfaction of the conditions set forth in Section 3.01) shall become effective when it shall have been executed by the Company and the Administrative Agent and when the Administrative Agent shall have been notified by each bank listed on the signature pages hereof that it has executed this Agreement and thereafter shall be binding upon and inure to the benefit of the Company, the Administrative Agent and each Bank and their respective successors and assigns, except that neither the Company nor any Borrowing Subsidiary shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Banks. SECTION 9.07. Assignments, Designations and Participations. (a) Each Bank (other than the Designated Bidders) MAY, upon obtaining the prior written consent of the Company and the Administrative Agent (which consents shall not be unreasonably withheld or delayed), and each Bank (including, without limitation, the Designated Bidders) SHALL, if demanded by the Company in accordance with Section 2.05(b), assign to one or more Eligible Assignees all or a -51- portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Committed Advances owing to it and the Committed Notes held by it); provided, however, that: (i) each such assignment shall be of a constant, and not a varying, percentage of all rights and obligations under this Agreement (other than any right to make Uncommitted Advances, Uncommitted Advances owing to it and Uncommitted Notes owing to it); (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Bank or an assignment of all of a Bank's rights and obligations under this Agreement, the amount of the Commitment of the assigning Bank being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $20,000,000 (or an integral multiple of $1,000,000 in excess thereof); (iii) each such assignment made as a result of a demand by the Company pursuant to Section 2.05(b) and this Section 9.07(a) shall be arranged by the Company with the approval of the Administrative Agent, which approval shall not be unreasonably withheld or delayed, and shall be either an assignment of all of the rights and obligations of the assigning Bank under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that, in the aggregate, cover all of the rights and obligations of the assigning Bank under this Agreement; (iv) no Bank shall be obligated to make any such assignment as a result of a demand by the Company pursuant to this Section 9.07(a) unless and until such Bank shall have received one or more payments from one or more Eligible Assignees in an aggregate amount equal to the aggregate outstanding principal amount of the Advances owing to such Bank, together with accrued interest thereon to the date of payment of such principal amount and from the Company or one or more Eligible Assignees in an aggregate amount equal to all other amounts payable to such Bank under this Agreement and the Notes (including, without limitation, any amounts owing under Sections 2.12, 2.13 or 2.19); and (v) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note subject to such assignment and a processing and recordation fee of $3,000. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank hereunder and (y) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all -52- or the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto). Notwithstanding the foregoing, each Bank may, without the Company's or the Administrative Agent's consent, assign all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and the Advances owing to it) to an affiliate of such Bank or to another Bank. (b) By executing and delivering an Assignment and Acceptance, the Bank assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any Borrowing Subsidiary or the performance or observance by the Company or any Borrowing Subsidiary of any of their respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such assigning Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Bank. (c) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an assignee representing that it is an Eligible Assignee, and consented to by the Company, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit A hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company. Within ten Business Days after its receipt of such notice, the Company shall execute and deliver to the Administrative Agent in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it (in the case of a Committed Note) or the Uncommitted Advance or part thereof purchased by it (in the case of an Uncommitted Note) pursuant to such Assignment and Acceptance and, if the assigning Bank has retained a Commitment or a part of such Uncommitted Advance hereunder, a new Note to the order of the assigning Bank in an amount equal to the Commitment or of such Uncommitted Advance retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit D-1 or Exhibit D-2 hereto (as the case may be). -53- (d) Each Bank (other than the Designated Bidders) may, upon obtaining the prior written consent of the Company and the Administrative Agent (which consents shall not be unreasonably withheld or delayed), designate one or more banks or other entities to have a right to make Uncommitted Advances as a Bank pursuant to Section 2.03; provided, however, that (i) no such Bank shall be entitled to make more than one such designation, (ii) each such Bank making such a designation shall retain the right to make Uncommitted Advances as a Bank pursuant to Section 2.03, (iii) each such designation shall be to a Designated Bidder and (iv) the parties to each such designation shall execute and deliver a Designation Agreement to the Administrative Agent, for its acceptance and recording in the Register, together with the consent thereto executed by the Company. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Designation Agreement, the designee thereunder shall be a party hereto with a right to make Uncommitted Advances as a Bank pursuant to Section 2.03 and the obligations related thereto. (e) By executing and delivering a Designation Agreement, the Bank making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any Borrowing Subsidiary or the performance or observance by the Company or any Borrowing Subsidiary of any of their respective obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Designation Agreement; (iv) such designee will, independently and without reliance upon the Administrative Agent, such designating Bank or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such designee confirms that it is a Designated Bidder; (vi) such designee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Bank. (f) Upon its receipt of a Designation Agreement executed by a designating Bank and a designee representing that it is a Designated Bidder, and consented to by the Company, the Administrative Agent shall, if such Designation Agreement has been completed and is substantially in the form of Exhibit C hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Company. (g) The Administrative Agent shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance and each Designation Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the -54- Banks and, with respect to Banks other than Designated Bidders, the Commitment of, and principal amount of the Advances owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Company, the Administrative Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Bank at any reasonable time and from time to time upon reasonable prior notice. (h) Each Bank (other than a Designated Bidder) may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) such Bank's obligations under this Agreement (including, without limitation, its Commitment hereunder) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Bank shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Company, the Administrative Agent and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of this Agreement or any Note, or any consent to any departure by the Company or any Borrowing Subsidiary therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of the Notes or the stated rate at which interest, the Facility Fee or the Utilization Fee is calculated, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. (i) Any Bank may, in connection with any assignment, designation or participation or proposed assignment, designation or participation pursuant to this Section 9.07, disclose to the assignee, designee or participant or proposed assignee, designee or participant, any information relating to the Company or any other Borrower furnished to such Bank by or on behalf of the Company or such other Borrower; provided that, prior to any such disclosure of non-public information, such Bank shall have obtained the Company's consent and the assignee or participant or proposed assignee or participant shall agree in a manner satisfactory to the Company to preserve the confidentiality of any confidential information relating to the Company received by it from such Bank. (j) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 9.08. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.09. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which -55- when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 9.10. Confidentiality. Each Bank hereby agrees that it will use reasonable efforts to keep confidential any information from time to time supplied to it by the Company which the Company designates in writing at the time of its delivery to the Bank is to be treated confidentially; provided, however, that nothing herein shall affect the disclosure of any such information to: (i) the extent required by statute, rule, regulation or judicial process; (ii) counsel for any Bank or to their respective accountants; (iii) bank examiners and auditors; (iv) any other Bank, or, subject to Section 9.07(c), any transferee or prospective transferee of any Advance, any Note or any Commitment; or (v) any other Person in connection with any litigation to which any one or more of the Banks is a party; provided further, however, that each Bank hereby agrees that it will use reasonable efforts to promptly notify the Company of any request for information under this clause (v) or with respect to any request for information not enumerated in this Section 9.10, if not otherwise prohibited from doing so. SECTION 9.11. Non-Reliance by the Banks. Each Bank by its signature to this Agreement represents and warrants that (i) it has not relied in the extension of the credit contemplated by this Agreement, nor will it rely in the maintenance thereof, upon any assets of the Company or its Subsidiaries consisting of Margin Stock as collateral and (ii) after reviewing the financial statements of the Company and its Consolidated Subsidiaries referred to in Section 4.01(e), such Bank has concluded therefrom that the consolidated cash flow of the Company and its Consolidated Subsidiaries is sufficient to support the credit extended to the Company pursuant to this Agreement. SECTION 9.12. No Indirect Security. Notwithstanding any Section or provision of this Agreement to the contrary, nothing in this Agreement shall (i) restrict or limit the right or ability of the Company or any of its Subsidiaries to pledge, mortgage, sell, assign, or otherwise encumber or dispose of any Margin Stock, or (ii) create an Event of Default arising out of or relating to any such pledge, mortgage, sale, assignment or other encumbrance or disposition. SECTION 9.13. Indemnification. The Company agrees to indemnify and hold harmless the Administrative Agent, each Bank, and their respective officers, directors, employees, and agents (any one of the foregoing being an "Indemnified Party" and any two or more of the foregoing being "Indemnified Parties") from and against, and pay the Indemnified Parties the amount of, any and all claims, damages, liabilities, costs, and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against an Indemnified Party relating in whole or in part to this Agreement, the Notes, any documents delivered in connection herewith and the transactions contemplated hereby, and in connection with or arising out of or by reason of, or in connection with the preparation of a defense of, any investigation, litigation or proceeding arising out of, related to or in connection with (i) this Agreement, the Notes, any of the transactions contemplated herein or the use or proposed use of the proceeds of any Advances, (ii) any acquisition or proposed acquisition by the Company or any of its Subsidiaries of all or any portion of the stock or all or substantially all of the assets of any Person, or (iii) the actual or alleged presence of Hazardous Materials on any property of the Company or any of its Subsidiaries or any Environmental Action relating to any of them, in each case whether or not such investigation, litigation or proceeding is brought by the Company, any other Borrower, their respective shareholders or creditors, an Indemnified Party or any other -56- Person, and whether or not an Indemnified Party is otherwise a party thereto, provided, however, that this indemnification shall not apply to any claim, damage, liability, cost or expense (i) arising from a dispute among Banks or a dispute between any Bank and the Administrative Agent, or (ii) that is found in a final, nonappealable judgment by a court of competent jurisdiction to have resulted from an Indemnified Party's gross negligence or willful misconduct. The covenants of the Company contained in this Section 9.13 and in Sections 9.04, 2.12 and 2.19 shall survive the repayment of all amounts due and payable under this Agreement and the termination of this Agreement. SECTION 9.14. Partial Invalidity. Wherever possible, each provision hereof shall be interpreted in such manner as to be effective and valid under applicable law, but in case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such provision shall be ineffective to the extent, but only to the extent, of such invalidity, illegality or unenforceability without invalidating the remainder of such invalid, illegal or unenforceable provision or provisions or any other provisions hereof, unless such a construction would be unreasonable. SECTION 9.15. WAIVER OF JURY TRIAL. Each of the parties hereto irrevocably waives any right to have a jury participate in resolving any dispute, whether sounding in contract, tort or otherwise, arising out of, connected with, related to or incidental to the relationship established among them in connection with this Agreement or the transactions contemplated hereby or the actions of the Company, any Borrowing Subsidiary, the Administrative Agent or any Bank in the negotiation, administration, performance or enforcement thereof. Each of the parties hereto agrees that any such claim, demand, action or cause of action shall be decided by bench trial without a jury and that any party hereto may file an original counterpart or a copy of this Agreement with any court as written evidence of the consent of the parties hereto to the waiver of their right to trial by jury. SECTION 9.16. Jurisdiction, Etc. (a) Each of the parties hereto irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the Notes, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or the Notes in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the Notes in any New York State or federal court. Each of the parties hereto irrevocably waives, to -57- the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.17. Termination of Existing Credit Agreements. The Company and each of the Banks hereunder that is a party to either or both of the 1992 Credit Agreements consents to the termination of the "Commitments" thereunder, effective on the Effective Date, notwithstanding the notice requirements for such termination set forth in Section 2.05 of each of the 1992 Credit Agreements. Because such Banks hereunder constitute the "Majority Banks" (as defined in each of the 1992 Credit Agreements) under each of the 1992 Credit Agreements, the 1992 Credit Agreements shall terminate and all amounts payable thereunder shall be due and payable on the Effective Date. -58- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. R.R. DONNELLEY & SONS COMPANY By:__________________________________ Title: CITIBANK, N.A., as Administrative Agent and as a Bank By:__________________________________ Title: THE FIRST NATIONAL BANK OF CHICAGO By:__________________________________ Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, CHICAGO BRANCH By:__________________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By:__________________________________ Title: -59- ROYAL BANK OF CANADA By:__________________________________ Title: ABN AMRO BANK N.V. By:__________________________________ Title: BANK OF MONTREAL, CHICAGO BRANCH By:__________________________________ Title: COMMERZBANK AKTIENGESELLSCHAFT, GRAND CAYMAN BRANCH By:__________________________________ Title: THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH By:__________________________________ Title: FIRST UNION NATIONAL BANK OF NORTH CAROLINA By:__________________________________ Title: -60- THE NORTHERN TRUST COMPANY By:__________________________________ Title: THE SANWA BANK, LIMITED, CHICAGO BRANCH By:__________________________________ Title: CREDIT LYONNAIS CHICAGO BRANCH By:__________________________________ Title: CREDIT LYONNAIS CAYMAN ISLAND BRANCH By:__________________________________ Title: CREDIT SUISSE By:__________________________________ Title: -61- SCHEDULE I
Domestic Eurocurrency Name of Bank Commitment Lending Office Lending Office ------------ ---------- -------------- -------------- Citibank, N.A. $54,000,000 c/o Citicorp North America One Court Square 200 South Wacker Drive Long Island City, Chicago, Illinois 60606 New York 11120 Attn: John Coons Attn: Sean Bernard Phone: (312) 993-3184 Phone: (718) 248-4483 Fax: (312) 993-6840 Fax: (718) 248-4844 The First National $45,000,000 One First National Plaza One First National Plaza Bank of Chicago Suite 0634 Suite 0634 Chicago, IL 60670 Chicago, IL 60670 Attn: Carlene Hicks, Attn: Carlene Hicks, Customer Service Officer Customer Service Officer Phone: (312) 732-6294 Phone: (312) 732-6294 Fax: (312) 732-4840 Fax: (312) 732-4840 The Industrial Bank of $45,000,000 227 West Monroe Street 227 West Monroe Street Japan, Limited, Chicago Suite 2600 Suite 2600 Branch Chicago, IL 60606 Chicago, IL 60606 Attn: Susanne Stafford, Attn: Susanne Stafford, Loan Administrator Loan Administrator Phone: (312) 855-8447 Phone: (312) 855-8447 Fax: (312) 855-8200 Fax: (312) 855-8200
-62-
Morgan Guaranty $45,000,000 Multi-Option Unit - Loan Department Multi-Option Unit - Loan Department Trust Company of New York Morgan Guaranty Trust Company of New York Morgan Guaranty Trust Company of New York c/o J.P. Morgan Services, Inc. c/o J.P. Morgan Services, Inc. 500 Stanton Christiana Road 500 Stanton Christiana Road P.O. Box 6070 P.O. Box 6070 Newark, DE 19713-2107 Newark, DE 19713-2107 Phone: (302) 634-1800 Phone: (302) 634-1800 Fax: (302) 634-1094 Fax: (302) 634-1094 Royal Bank of Canada $45,000,000 Royal Bank of Canada Royal Bank of Canada New York Branch New York Branch One Financial Square One Financial Square New York, NY 10005 New York, NY 10005 Attn: Manager Loan Admin Attn: Manager Loan Admin Phone: (212) 428-6314 Phone: (212) 428-6314 Fax: (212) 428-2372 Fax: (212) 428-2372 ABN-AMRO Bank N.V. $38,000,000 Loan Operations Loan Operations ABN AMRO Bank N.V. ABN AMRO Bank N.V. 135 S. LaSalle Street 135 S. LaSalle Street Suite 425 Suite 425 Chicago, IL 60674-9135 Chicago, IL 60674-9135 Phone: (312) 904-2961 Phone: (312) 904-2961 Fax: (312) 606-8435 Fax: (312) 606-8435 Bank of Montreal, $38,000,000 115 S. LaSalle Street 115 S. LaSalle Street Chicago Branch Chicago, IL 60603 Chicago, IL 60603 Attn: Josie M. Nichols Attn: Josie M. Nichols Intermediate Officer Intermediate Officer Phone: (312) 750-3748 Phone: (312) 750-3748 Fax: (312) 750-3798 Fax: (312) 750-3798
Commerzbank $38,000,000 311 S. Wacker Drive 311 S. Wacker Drive Aktiengesellschaft, Grand Suite 5800 Suite 5800 Cayman Branch Chicago, IL 60606 Chicago, IL 60606 Attn: Elke Gunn Attn: Elke Gunn Assistant Treasurer Assistant Treasurer Phone: (312) 408-4586 Phone: (312) 408-4586 Fax: (312) 435-1485 Fax: (312) 435-1485 The Dai-Ichi Kangyo Bank, $38,000,000 10 S. Wacker Drive 10 S. Wacker Drive Ltd., Chicago Branch 26th Floor 26th Floor Chicago, IL 60606 Chicago, IL 60606 Attn: G. Marthaler, Attn: G. Marthaler, Officer Officer Phone: (312) 715-6451 Phone: (312) 715-6451 Fax: (312) 876-2011 Fax: (312) 876-2001 First Union National Bank $38,000,000 One First Union Center One First Union Center TW-10 TW-10 Charlotte, NC 28288-0745 Charlotte, NC 28288-0745 Attn: Lisa Dellinger Attn: Lisa Dellinger Phone: (704) 374-4425 Phone: (704) 374-4425 Fax: (704) 374-2802 Fax: (704) 374-2802 The Northern Trust Company $38,000,000 50 S. LaSalle Street 50 S. LaSalle Street Chicago, IL 60675 Chicago, IL 60675 Attn: Laura Watson Attn: Laura Watson Relationship Associate Relationship Associate Phone: (312) 444-3586 Phone: (312) 444-3586 Fax: (312) 630-1566 Fax: (312) 630-1566
The Sanwa Bank, Limited, $38,000,000 10 South Wacker Drive 10 South Wacker Drive Chicago Branch 31st Floor 31st Floor Chicago, IL 60606 Chicago, IL 60606 Attn: Beverly Wyckoff Attn: Beverly Wyckoff Vice President and Manager Vice President and Manager Phone: (312) 368-3016 Phone: (312) 368-3016 Fax: (312) 346-6677 Fax: (312) 346-6677 Credit Lyonnais $30,000,000 Suite 3800 Suite 3800 Chicago, IL 60606 Chicago, IL 60606 Attn: Rosette Lintak Attn: Rosette Lintak 227 W. Monroe Street 227 W. Monroe Street Phone: (312) 220-7319 Phone: (312) 220-7319 Fax: (312) 641-5834 Fax: (312) 641-5834 Credit Suisse $20,000,000 Credit Suisse Credit Suisse 12 East 49th Street 12 East 49th Street 41st Floor 41st Floor New York, NY 10017 New York, NY 10017 Attn: Hazel Leslie Attn: Hazel Leslie Phone: (212) 238-5218 Phone: (212) 238-5218 Fax: (212) 238-5246 Fax: (212) 238-5246 cc: Credit Suisse 227 West Monroe Street Suite 4000 Chicago, IL 60606 Attn: Anne F. Heekin/Jackie Bragen Phone: (312) 630-0086 Fax: (312) 630-0359
EXHIBIT A FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement dated as of December 21, 1994 (as amended or modified from time to time, the "Credit Agreement") among R.R. Donnelley & Sons Company, a Delaware corporation (the "Company"), the Banks (as defined in the Credit Agreement) parties thereto and Citibank, N.A., as agent for the Banks (the "Administrative Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. The "Assignor" and the "Assignee" referred to on Schedule I hereto agree as follows: 1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof (other than in respect of Uncommitted Advances and Uncommitted Notes) equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement (other than in respect of Uncommitted Advances and Uncommitted Notes). After giving effect to such sale and assignment, the Assignee's Commitment and the amount of the Committed Advances owing to the Assignee will be as set forth on Schedule 1 hereto. 2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company or any Borrowing Subsidiary or the performance or observance by the Company or any Borrowing Subsidiary of any of their respective obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iv) attaches the Committed Note held by the Assignor and requests that the Administrative Agent exchange such Committed Note for a new Committed Note payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto or new Committed Notes payable to the order of the Assignee in an amount equal to the Commitment assumed by the Assignee pursuant hereto and the Assignor in an amount equal to the Commitment retained by the Assignor under the Credit Agreement, respectively, as specified on Schedule 1 hereto. 3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Assignor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Bank; and (vi) attaches any U.S. Internal Revenue Service forms required under Section 2.19 of the Credit Agreement. 4. Following the execution of this Assignment and Acceptance, it will be delivered to the Company for acceptance and then to the Administrative Agent for acceptance and recording. The effective date for this Assignment and Acceptance (the "Effective Date") shall be the date of acceptance hereof by the Administrative Agent, unless otherwise specified on Schedule 1 hereto. 5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Bank thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6. Upon such acceptance and recording by the Administrative Agent, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York. 8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon. -2- SCHEDULE I to Assignment and Acceptance dated _______________ Percentage interest assigned: ___% Assignee's Commitment: $_____________ Aggregate outstanding principal amount of Committed Advances assigned: $_____________ Principal amount of Committed Note payable to Assignee: $_____________ Principal amount of Committed Note payable to Assignor: $_____________ Effective Date: _____________, 19__ [NAME OF ASSIGNOR], as Assignor By:___________________ Title: Dated: [NAME OF ASSIGNEE], as Assignee By:___________________ Title: Dated: Applicable Lending Offices: Domestic: [address] Eurocurrency: [address] Uncommitted Advances: [address] Accepted and approved, -3- _____________, 19__ CITIBANK, N.A., as Administrative Agent By:_____________________ Title: Accepted and approved, ______________, 19__ R.R. DONNELLEY & SONS COMPANY By:_____________________ Title: -4- EXHIBIT B [Form of Assumption Letter] _____________________, 199_ To the Banks parties to the Credit Agreement referred to below Ladies and Gentlemen: Reference is made to the Credit Agreement dated as of December 21, 1994 among R.R. Donnelley & Sons Company, the Banks named therein and Citibank, N.A. as Administrative Agent for such Banks (as amended and in effect from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement and capitalized herein are used herein as defined therein. The undersigned, ___________ (the "Subsidiary"), a _________________ corporation, proposes to become a "Borrowing Subsidiary" under the Credit Agreement, and accordingly hereby agrees that from the date hereof it shall become a "Borrowing Subsidiary" under the Credit Agreement and agrees that from the date hereof and until the payment in full of the principal of and interest on all Advances made to it under the Credit Agreement and performance of all of its other obligations thereunder, and termination hereunder of its status as a "Borrowing Subsidiary" as provided below, it shall perform, comply with and be bound by each of the provisions of the Credit Agreement which are stated to apply to the "Company", a "Borrowing Subsidiary" or a "Borrower". Without limiting the generality of the foregoing, that Subsidiary hereby represents and warrants that: (i) each of the representations and warranties set forth in Sections 4(a), (b), (c) and (d) of the Credit Agreement is hereby made by such Subsidiary on and as of the date hereof as if made on and as of the date hereof and as if such Subsidiary is the "Company", this Assumption Letter is the "Agreement" referenced therein and each Note issued by such Borrowing Subsidiary is the "Note" referenced therein, and (ii) it has heretofore received a true and correct copy of the Credit Agreement (including any modifications thereof or supplements or waivers thereto) as in effect on the date hereof. So long as the principal of and interest on all Advances made to the Subsidiary under the Credit Agreement shall have been paid in full and all other obligations of the Subsidiary shall have been fully performed, the Subsidiary may by not less than five Business Days' prior notice to the Banks terminate its status as a "Borrowing Subsidiary." The Subsidiary irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or -1- proceeding arising out of or relating to this Assumption Letter, the Credit Agreement or the Notes, or for recognition or enforcement of any judgment, and the Subsidiary irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the extent permitted by law, in such federal court. The Subsidiary agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Assumption Letter shall affect any right that any Bank or the Administrative Agent may otherwise have to bring any action or proceeding relating to this Assumption Letter, the Credit Agreement or the Notes in the courts of any jurisdiction. The Subsidiary irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Assumption Letter, the Credit Agreement or the Notes in any New York State or federal court. The Subsidiary irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. This Assumption Letter shall be governed by, and construed in accordance with, the laws of the State of New York, United States of America. IN WITNESS WHEREOF, the Subsidiary has duly executed and delivered this Assumption Letter as of the date and year first above written. [NAME OF BORROWING SUBSIDIARY] By _______________________________ Title: Address for Notices under the Credit Agreement: Consented to: R.R. DONNELLEY & SONS COMPANY By:_______________________ Title: -2- EXHIBIT C FORM OF DESIGNATION AGREEMENT Dated _______________, 199_ Reference is made to the Credit Agreement dated as of December 21, 1994 (as amended or modified from time to time, the "Credit Agreement") among R.R. Donnelley & Sons Company, a Delaware corporation (the "Company"), the Banks (as defined in the Credit Agreement) parties thereto and Citibank, N.A., as agent for the Banks (the "Administrative Agent"). Terms defined in the Credit Agreement are used herein with the same meaning. __________________ (the "Designor") and_________________ (the "Designee") agree as follows: 1. The Designor hereby designates the Designee, and the Designee hereby accepts such designation, to have a right to make Competitive Bid Advances pursuant to Section 2.03 of the Credit Agreement. 2. The Designor makes no representation or warranty and assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, the Credit Agreement or any other instrument or document furnished pursuant thereto; and (ii) the financial condition of the Company or any Borrowing Subsidiary or the performance or observance by the Company or any Borrowing Subsidiary of any of their respective obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto. 3. The Designee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.01 thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Designation Agreement; (ii) agrees that it will, independently and without reliance upon the Administrative Agent, the Designor or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is a Designated Bidder; (iv) appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to the Administrative Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; and (v) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement are required to be performed by it as a Bank. 4. Following the execution of this Designation Agreement by the Designor and its Designee, it will be delivered to the Company for acceptance and then to the Administrative Agent for acceptance and recording. The effective date for this Designation Agreement (the "Effective Date") shall be the date of acceptance hereof by the Administrative Agent, unless otherwise specified on the signature page hereto. 5. Upon such acceptance and recording by the Administrative Agent, as of the Effective Date, the Designee shall be a party to the Credit Agreement with a right to make Competitive Bid Advances as a Bank pursuant to Section 2.03 of the Credit Agreement and the rights and obligations of a Bank related thereto. 6. This Designation Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 7. This Designation Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Designation Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Designation Agreement. IN WITNESS WHEREOF, the Designor and Designee have caused this Designation Agreement to be executed by their officers thereunto duly authorized as of the date specified thereon. Effective Date: ____________________, 19__ [NAME OF DESIGNOR], as Designor By:_______________________________ Title: [NAME OF DESIGNEE], as Designee By:_______________________________ Title: Applicable Lending Office (and address for notices): -2- ACCEPTED AND APPROVED, _____________, 19__ CITIBANK, N.A., as Administrative Agent By:_____________________ Title: Accepted and approved, ______________, 19__ R.R. DONNELLEY & SONS COMPANY By:_____________________ Title: -3- EXHIBIT D-1 FORM OF COMMITTED NOTE U.S. ___________________$ Dated: _______________, 19__ FOR VALUE RECEIVED, the undersigned, [R.R. DONNELLEY & SONS COMPANY, a Delaware corporation] [NAME OF APPLICABLE BORROWING SUBSIDIARY, a __________________ corporation] (the "Company"), HEREBY PROMISES TO PAY to the order of ________________________ (the "Bank") for the account of its Applicable Lending Office on the Termination Date (each as defined in the Credit Agreement referred to below) the principal sum of U.S. $[AMOUNT OF THE BANK'S COMMITMENT IN FIGURES] or, if less, the aggregate principal amount of the Committed Advances made by the Bank to the Company pursuant to the Credit Agreement dated as of December 21, 1994 among [the Company] [R.R. Donnelley & Sons Company], the Bank and certain other banks parties thereto, and Citibank, N.A., as Administrative Agent for the Bank and such other banks (as amended or modified from time to time, the "Credit Agreement"); the terms defined therein being used herein as therein defined) outstanding on the Termination Date. The Company promises to pay interest on the unpaid principal amount of each Committed Advance made to it from the date of such Committed Advance until such principal amount is paid in full, at such interest rates, and payable at such times, as are specified in the Credit Agreement. Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., as Agent, at 399 Park Avenue, New York, New York 10043, in same day funds. Each Committed Advance owing to the Bank by the Company pursuant to the Credit Agreement, and all payments made on account of principal thereof, shall be recorded by the Bank and, prior to any transfer hereof, endorsed on the grid attached hereto which is part of this Promissory Note. This Promissory Note is one of the Committed Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, (i) provides for the making of Committed Advances by the Bank to the Company from time to time in an aggregate amount not to exceed at any time outstanding the U.S. dollar amount first above mentioned, the indebtedness of the Company resulting from each such Committed Advance being evidenced by this Promissory Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified. This Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York. [R.R. DONNELLEY & SONS COMPANY] [NAME OF APPLICABLE BORROWING SUBSIDIARY] By:____________________________ Title: ADVANCES AND PAYMENTS OF PRINCIPAL
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-5- EXHIBIT D-2 FORM OF UNCOMMITTED NOTE U.S. ___________________$ Dated: _______________, 19__ FOR VALUE RECEIVED, the undersigned, [R.R. DONNELLEY & SONS COMPANY, a Delaware corporation] [NAME OF APPLICABLE BORROWING SUBSIDIARY, a __________________ corporation] (the "Company"), HEREBY PROMISES TO PAY to the order of ________________________ (the "Bank") for the account of its Applicable Lending Office (as defined in the Credit Agreement dated as of December 21, 1994 among [the Company] [R.R. Donnelley & Sons Company], the Bank and certain other banks parties thereto, and Citibank, N.A., as Administrative Agent for the Bank and such other banks (as amended or modified from time to time, the "Credit Agreement"; the terms defined therein being used herein as therein defined) on _______________, 19__, the principal amount of U.S.$______________. The Company promises to pay interest on the unpaid principal amount hereof from the date hereof until such principal amount is paid in full, at the interest rate and payable on the interest payment date or dates provided below: Interest Rate: ____% per annum (calculated on the basis of a year of _____ days for the actual number of days elapsed). Interest Payment Date(s): Both principal and interest are payable in lawful money of the United States of America to Citibank, N.A., for the account of the Bank, at 399 Park Avenue, New York, New York 10043, in same day funds. This Promissory Note is one of the Uncommitted Notes referred to in, and is entitled to the benefits of, the Credit Agreement. The Credit Agreement, among other things, contains provisions for acceleration of the maturity hereupon upon the happening of certain stated events. The Company hereby waives presentment, demand, protest and notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. This Promissory Note shall be governed by, and construed in accordance with, the laws of the State of New York. [R.R. DONNELLEY & SONS COMPANY] [NAME OF APPLICABLE BORROWING SUBSIDIARY] By:____________________________ Title: EXHIBIT E-1 NOTICE OF COMMITTED BORROWING [Administrative Agent's name and address] [Date] Ladies and Gentlemen: The undersigned, ________________, refers to the Credit Agreement dated as of December 21, 1994 (as amended, modified or supplemented from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among [the undersigned,] [R.R. Donnelley & Sons Company (the "Company"], certain Banks parties thereto and Citibank, N.A., as Administrative Agent for such Banks, and hereby gives you notice, pursuant to Section 2.02 of the Credit Agreement, that the undersigned hereby requests a Committed Borrowing under the Credit Agreement, and in that connection sets forth below the information relating to such Committed Borrowing (the "Proposed Committed Borrowing") as required by Section 2.02(a) of the Credit Agreement: (i) The Business Day of the Proposed Committed Borrowing is __________, 19__. (ii) The Type of Committed Advances comprising the Proposed Committed Borrowing is [Base Rate Advances] [Eurocurrency Rate Advances]. (iii) The currency for the Proposed Committed Borrowing is [Dollars] [type of Alternative Currency]. (iv) The aggregate amount of the Proposed Committed Borrowing is $__________. (v) The Interest Period for each Eurocurrency Rate Advance made as part of the Proposed Committed Borrowing is ______ month[s]. The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Committed Borrowing: (a) the representations and warranties contained in subsections (a), (b), (c), (d), (f)(ii) and (h) through (p) of Section 4.01 of the Credit Agreement are correct, before and after giving effect to the Proposed Committed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; (b) no event has occurred and is continuing, or would result from the Proposed Committed Borrowing or from the application of the proceeds therefrom, that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse or both; and (c) the aggregate principal amount (or, in the case of securities issued at a discount from the principal amount at maturity, the accreted amount) of indebtedness for borrowed money (after giving effect to the Proposed Committed Borrowing and the application of the proceeds thereof) of [the undersigned] [the Company] and its Subsidiaries does not exceed the maximum amount thereof presently authorized by [the undersigned's] [the Company's] Board of Directors. Very truly yours, [NAME OF BORROWER] By: __________________________ Title: -8- EXHIBIT E-2 NOTICE OF UNCOMMITTED BORROWING _________________________ _________________________ _________________________ [Date] Attention: ____________________ Ladies and Gentlemen: The undersigned, _____________, refers to the Credit Agreement, dated as of December 21, 1994 ( as amended, modified or supplemented from time to time, the "Credit Agreement", the terms defined therein being used herein as therein defined), among [the undersigned] [R.R. Donnelley & Sons Company (the "Company")], certain Banks parties thereto and Citibank, N.A., as Administrative Agent for such Banks, and hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that the undersigned requests an Uncommitted Borrowing under the Credit Agreement, and in that connection sets forth the terms on which such Uncommitted Borrowing (the "Proposed Uncommitted Borrowing") is requested to be made:
(A) Date: ___________________ (B) Amount: $__________________ (C) Type of Quote Requested:/1/ Uncommitted Borrowing Margin ___ Fixed Rate ___ (D) Maturity Date: ___________________ Prepayment terms: May [not] be prepaid, [with] [without] penalty Prepayment penalty:/2/ ___________________ (E) Interest Payment Date(s): ___________________ (F) Borrower: ___________________
---------------------------- /1/Select one. /2/Include if applicable. (G) Other terms: The undersigned hereby certifies that the following statements are true on the date hereof, and will be true on the date of the Proposed Uncommitted Borrowing: (a) the representations and warranties contained in subsections (a), (b), (c), (d), (f)(ii) and (h) through (p) of Section 4.01 are correct, before and after giving effect to the Proposed Uncommitted Borrowing and to the application of the proceeds therefrom, as though made on and as of such date; (b) no event has occurred and is continuing, or would result from the Proposed Uncommitted Borrowing or from the application of the proceeds therefrom, that constitutes an Event of Default or that would constitute an Event of Default but for the requirement that notice be given or time elapse or both; (c) the aggregate principal amount (or, in the case of securities issued at a discount from the principal amount at maturity, the accreted amount) of indebtedness for borrowed money (after giving effect to the Proposed Uncommitted Borrowing and to the application of proceeds therefrom) of [the undersigned] [the Company] and its Subsidiaries does not exceed the maximum amount thereof presently authorized by the Board of Directors of [the undersigned] [the Company]; The undersigned confirms that the Proposed Uncommitted Borrowing is to be made available to it in accordance with Section 2.03(a)(iv) of the Credit Agreement. [NAME OF BORROWER] By: __________________________ Title: -10- EXHIBIT F FORM OF NOTICE OF CONVERSION OR CONTINUATION TO: Citibank, N.A., as agent (the "Administrative Agent") under that certain Credit Agreement dated as of December 21, 1994 (the "Credit Agreement") by and among R.R. Donnelley & Sons Company (the "Company"), the Administrative Agent and the Banks parties thereto. Pursuant to the terms and conditions of the Credit Agreement, this Notice of Conversion or Continuation ("Notice") represents the election of the Company to [insert one of the following]: /1/convert $__________ in aggregate principal amount of Base Rate Advances to Eurocurrency Rate Advances on __________, 19___. The initial Interest Period for such Eurocurrency Rate Advances is requested to be a __________ (_____) month period. [and]/2/ /3/convert $__________ in aggregate principal amount of Eurocurrency Rate Advances with a current Interest Period ending _____________ to Base Rate Advances on __________, 19___. /4/continue as Eurocurrency Rate Advances $__________ in aggregate principal amount of presently outstanding Eurocurrency Rate Advances with a current Interest Period ending __________, for a _____ month period commencing on __________, 19___. Unless otherwise defined herein, terms defined in the Credit Agreement shall have the same meanings in this Notice. Dated: __________, 19___. [NAME OF BORROWER] By____________________________ Title:________________________ ------------------------ /1/Use if converting Base Rate Advances to Eurocurrency Rate Advances. /2/Use if converting only a portion of Eurocurrency Rate Advances and continuing the balance as Eurocurrency Rate Advances. /3/Use if converting Eurocurrency Rate Advances to Base Rate Advances. /4/Use if continuing Eurocurrency Rate Advances. EXHIBIT G Opinion of Counsel to the Company December 21, 1994 To each of the Banks parties to the "Credit Agreement" (as defined below), and to Citibank, N.A., as Administrative Agent Re: R.R. Donnelley & Sons Company ----------------------------- Ladies and Gentlemen: We have acted as counsel to R.R. Donnelley & Sons Company, a Delaware corporation (the "Company"), in connection with the Credit Agreement of even date herewith (the "Credit Agreement") among the Company, the financial institutions parties thereto (the "Banks") and Citibank, N.A., as Administrative Agent, and the transactions contemplated thereby. This opinion is furnished to you at the request of the Company pursuant to Section 3.01(a)(v) of the Credit Agreement. Capitalized terms used herein and not otherwise defined are used as defined in the Credit Agreement. In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Credit Agreement and the promissory notes delivered on the date hereof to the Banks signatory to the Credit Agreement (the "Notes"). In rendering the opinions set forth herein, we have also examined originals or copies, certified to our satisfaction, of such (i) certificates of public officials, (ii) certificates of officers and representatives of the Company, and (iii) other documents and records, and we have made such inquiries of officers and representatives of the Company, as we have deemed relevant or necessary as the basis for such opinions. We have relied as to factual matters upon, and assumed the accuracy of, such certificates, the representations and warranties of the Company made in the Credit Agreement, and other statements, documents and records supplied to us by the Company, and we have assumed the genuineness of all signatures (other than signatures of officers of the Company) and the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as certified or photostatic copies. In rendering the opinions set forth herein, we have assumed that: (i) all the parties to the Credit Agreement, other than the Company, are duly organized, validly existing, and in good standing under the laws of their respective jurisdictions of organization and have the requisite corporate power to enter into the Credit Agreement; and December 21, 1994 Page 2 (ii) the execution and delivery of the Credit Agreement have been duly authorized by all necessary corporate action and proceedings on the part of all parties thereto other than the Company; the Credit Agreement has been duly executed and delivered by all parties thereto and constitutes the valid and binding obligation of all parties thereto other than the Company, enforceable against such parties in accordance with its terms. Based upon the foregoing and subject to the qualifications stated herein, we are of the opinion that, as of the date hereof: 1. The Company has been duly organized and is validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite corporate power and authority to conduct its business as currently conducted. 2. The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Credit Agreement and the Notes. Such execution, delivery and performance: (a) have been duly authorized by all necessary and proper corporate action of the Company, (b) do not violate any provision of the certificate of incorporation or by-laws of the Company or require any approval of the Company's stockholders, (c) do not violate the General Corporation Law of the State of Delaware, any law or regulation of the State of New York (including, without limitation, any usury laws) or of the United States of America applicable to the Company, (d) do not contravene that certain Indenture dated as of November 1,1990, between the Company and Citibank, N.A., as Trustee, or, to our knowledge, any other material agreement or instrument binding on the Company. 3. The Credit Agreement constitutes, and from and after the initial Committed Borrowing the Committed Notes will constitute, the valid and binding obligations of the Company, enforceable in accordance with their respective terms. 4. No approval, consent or authorization of, or filing or registration with, any governmental department, agency or instrumentality is necessary for the Company's execution or delivery of the Credit Agreement or the Notes, or for the Company's performance of any of the terms thereof. -2- December 21, 1994 Page 3 Our opinions above are subject to the following qualifications: (a) Our opinions relating to validity, binding effect and enforceability in Paragraph 3 above are subject to limitations imposed by any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally. In addition, our opinions relating to enforceability in paragraph 3 above are subject to (i) the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law) and (ii) limitations imposed by public policy under certain circumstances on the enforceability of provisions indemnifying a party against liability for its own wrongful or negligent acts. In applying principles of equity referred to in clause (i) above, a court, among other things, might not allow a creditor to accelerate maturity of a debt upon the occurrence of a default deemed immaterial. Such principles applied by a court might include a requirement that a creditor act reasonably and in good faith. (b) Certain remedial and waiver provisions of the Credit Agreement may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Credit Agreement; however, the unenforceability of such provisions may result in delays in the enforcement of the Administrative Agent's and the Banks' rights and remedies under the Credit Agreement (and we express no opinion as to the economic consequences, if any, of such delays). (c) We express no opinion as to the effect of the compliance or noncompliance of the Administrative Agent or any of the Banks with any state or federal laws or regulations applicable to the Administrative Agent or any of the Banks because of the Administrative Agent's or any of the Banks' legal or regulatory status, the nature of the business of the Administrative Agent or any of the Banks or the qualification of any such party to conduct business in any jurisdiction. The foregoing opinions are limited to the laws of the United States, the State of New York and the General Corporation Law of the State of Delaware, and we express no opinion with respect to the laws of any other state or jurisdiction. Whenever in this opinion reference is made to our knowledge, such reference is to the conscious awareness of Dennis V. Osimitz and Jeffrey S. Rothstein of information regarding factual matters. With respect to such matters, such persons have not, with your express permission and consent, undertaken any investigation or inquiry either of other lawyers, files maintained by the firm, or officers or employees of the Company or any of its Subsidiaries. The reference to "conscious awareness" as used in this paragraph has the meaning given that phrase in the Third-Party Legal Opinion Report, Including the Legal Opinion Accord, of the Section of Business Law, American Bar Association, 47 Bus. Law. 167, 192 (1991). The opinions expressed herein are being delivered to you as of the date hereof and are solely for your benefit in connection with the transactions contemplated in the Credit Agreement and may not be relied on in any manner or for any purpose by any other person, nor any copies published, communicated or otherwise made available in whole or in part to any other person or entity without our express prior written -3- consent, except that you may furnish copies thereof to each party that becomes a Bank after the date hereof pursuant to the Credit Agreement, and such parties may rely on this opinion as if it had been originally addressed to them. In addition, Shearman & Sterling is authorized to rely on paragraphs 1, 2 and 4 hereof in rendering an opinion to you in connection with the Credit Agreement. We do not express any opinion, either implicitly or otherwise, on any issue not expressly addressed in numbered Paragraphs 1 through 4. The opinions expressed above are based solely on facts, laws and regulations existing and in effect on the date hereof, and we assume no obligation to revise or supplement this opinion should such facts change or should such laws or regulations be changed by legislative or regulatory action, judicial decision or otherwise, notwithstanding that such changes may affect the legal analysis or conclusions contained in this opinion. Very truly yours, CERTIFICATE I, ___________________, am the _____________ ___________________ of R.R. Donnelley & Sons Company, a Delaware corporation (the "Company"). The Company is entering into a Credit Agreement dated as of December 21, 1994, with the banks party thereto ("Banks") and Citibank, N.A., as agent ("Administrative Agent") for such Banks (the "Credit Agreement"). The Credit Agreement requires that Sidley & Austin issue a legal opinion to the Administrative Agent and the Banks. In connection with such legal opinion, the Company certifies to Sidley & Austin that: 1. Not more than twenty-five percent (25%) of the value of the assets subject to any "arrangement" (as such term is used in Section 221.2(g)(1) of Regulation U of the Board of Governors of the Federal Reserve System) under the Credit Agreement is represented by "margin stock" (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System). 2. The Company has not granted to the Administrative Agent or the Banks any direct security for the Company's obligations to the Administrative Agent and the Banks under the Credit Agreement. R.R. DONNELLEY & SONS COMPANY By:_______________________ Title: Dated: December 21, 1994 EXHIBIT H Opinion of Counsel to a Borrowing Subsidiary [Date] To each of the Banks parties to the "Credit Agreement" (as defined below), and to Citibank, N.A., as Administrative Agent Re: [Borrowing Subsidiary] ---------------------- Ladies and Gentlemen: We have acted as counsel to R.R. Donnelley & Sons Company, a Delaware corporation (the "Company") and __________________, a ___________ corporation and Subsidiary of the Company (the "Borrowing Subsidiary"), in connection with the Credit Agreement dated as of December 21, 1994 (as the same has been or may be amended, modified or supplemented, the "Credit Agreement") among the Company, the financial institutions parties thereto (the "Banks") and Citibank, N.A., as Administrative Agent, and the transactions contemplated thereby. This opinion is furnished to you at the request of the Company pursuant to Section 3.02(d) of the Credit Agreement. Capitalized terms used herein and not otherwise defined are used as defined in the Credit Agreement. In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Credit Agreement, the Assumption Letter of even date herewith executed by the Borrowing Subsidiary and delivered to the Banks (the "Assumption Letter") and the promissory notes executed by the Borrowing Subsidiary on the date hereof and delivered to the Banks (the "Notes"). In rendering the opinions set forth herein, we have also examined originals or copies, certified to our satisfaction, of such (i) certificates of public officials, (ii) certificates of officers and representatives of the Company and the Borrowing Subsidiary (including the certificate attached hereto (the "Certificate")), and (iii) other documents and records, and we have made such inquiries of officers and representatives of the Company and the Borrowing Subsidiary, as we have deemed relevant or necessary as the basis for such opinions. We have relied as to factual matters upon, and assumed the accuracy of, such certificates, the representations and warranties of the Company and the Borrowing Subsidiary made (or deemed made) in the Credit Agreement and the Assumption Letter, and other statements, documents and records supplied to us by the Company and the Borrowing Subsidiary, and we have assumed the genuineness of all signatures (other than signatures of officers of the Borrowing Subsidiary) and the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as certified or photostatic copies. In rendering the opinions set forth herein, we have assumed that: (i) all the parties to the Credit Agreement and the Assumption Letter, other than the Borrowing Subsidiary, are duly organized, validly existing and in good standing under the laws of their respective jurisdictions of organization and have the requisite corporate power to enter into the Credit Agreement and the Assumption Letter; and (ii) the execution and delivery of the Credit Agreement have been duly authorized by all necessary corporate action and proceedings on the part of all parties thereto; the Credit Agreement has been duly executed and delivered by all parties thereto and constitutes the valid and binding obligation of all parties thereto, other than the Borrowing Subsidiary, enforceable against such parties in accordance with its terms. Based upon the foregoing and subject to the qualifications stated herein, we are of the opinion that, as of the date hereof: 1. The Borrowing Subsidiary has been duly organized and is validly existing and in good standing under the laws of _____________. The Borrowing Subsidiary has the requisite corporate power and authority to conduct its business as currently conducted. 2. The Borrowing Subsidiary has the requisite corporate power and authority to execute, deliver and perform its obligations under the Assumption Letter, the Credit Agreement and the Notes. Such execution, delivery and performance: (a) have been duly authorized by all necessary and proper corporate action of the Borrowing Subsidiary, (b) do not violate any provision of the certificate of incorporation or by-laws of the Borrowing Subsidiary or require any approval of the Borrowing Subsidiary's stockholders, (c) will not violate any law or regulation of ____________, the State of New York (including, without limitation, any usury laws) or of the United States of America applicable to the Borrowing Subsidiary,/5/ and (d) do not contravene any agreement set forth on the Certificate, or, to our knowledge, any other material agreement or instrument binding on the Borrowing Subsidiary. 3. The Assumption Letter constitutes, and from and after the initial Committed Borrowing to the Borrowing Subsidiary, the Notes will constitute, the valid and binding obligations of the Borrowing Subsidiary, enforceable in accordance with their respective terms. 4. No approval, consent or authorization of, or filing or registration with, any governmental department, agency or instrumentality is necessary for the Borrowing Subsidiary's execution or delivery of the Assumption Letter or the Notes, or for the Borrowing Subsidiary's performance of any of the terms thereof. -------------------- /5/To be revised if the Borrowing Subsidiary is not a domestic corporation. [Date] Page 3 Our opinions above are subject to the following qualifications: (a) Our opinions relating to validity, binding effect and enforceability in Paragraph 3 above are subject to limitations imposed by any applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and similar laws affecting creditors' rights generally. In addition, our opinions relating to enforceability in paragraph 3 above are subject to (i) the effect of general principles of equity (regardless of whether considered in a proceeding in equity or at law) and (ii) limitations imposed by public policy under certain circumstances on the enforceability of provisions indemnifying a party against liability for its own wrongful or negligent acts. In applying principles of equity referred to in clause (i) above, a court, among other things, might not allow a creditor to accelerate maturity of a debt upon the occurrence of a default deemed immaterial. Such principles applied by a court might include a requirement that a creditor act reasonably and in good faith. (b) Certain remedial and waiver provisions of the Credit Agreement applicable to the Borrowing Subsidiary pursuant to the Assumption Letter may be unenforceable in whole or in part, but the inclusion of such provisions does not affect the validity of the Assumption Letter; however, the unenforceability of such provisions may result in delays in the enforcement of the Administrative Agent's and the Banks' rights and remedies under the Assumption Letter (and we express no opinion as to the economic consequences, if any, of such delays). (c) We express no opinion as to the effect of the compliance or noncompliance of the Administrative Agent or any of the Banks with any state or federal laws or regulations applicable to the Administrative Agent or any of the Banks because of the Administrative Agent's or any of the Banks' legal or regulatory status, the nature of the business of the Administrative Agent or any of the Banks or the qualification of any such party to conduct business in any jurisdiction. The foregoing opinions are limited to the laws of the United States, the State of New York and the corporate law of [jurisdiction where the Borrowing Subsidiary is incorporated] and we express no opinion with respect to the laws of any other state or jurisdiction. [Whenever in this opinion reference is made to our knowledge, such reference is to the conscious awareness of [insert appropriate names] of information regarding factual matters. With respect to such matters, such persons have not, with your express permission and consent, undertaken any investigation or inquiry either of other lawyers, files maintained by the firm, or officers or employees of the Company or any of its Subsidiaries (including without limitation the Borrowing Subsidiary). The reference to "conscious awareness" as used in this paragraph has the meaning given that phrase in the Third-Party Legal Opinion Report, Including the Legal Opinion Accord, of the Section of Business Law, American Bar Association, 47 Bus. Law. 167, 192 (1991).] The opinions expressed herein are being delivered to you as of the date hereof and are solely for your benefit in connection with the transactions contemplated in the Credit Agreement and may not be -3- [Date] Page 4 relied on in any manner or for any purpose by any other person, nor any copies published, communicated or otherwise made available in whole or in part to any other person or entity without our express prior written consent, except that you may furnish copies thereof to each party that becomes a Bank after the date hereof pursuant to the Credit Agreement, and such parties may rely on this opinion as if it had been originally addressed to them. We do not express any opinion, either implicitly or otherwise, on any issue not expressly addressed in numbered Paragraphs 1 through 4. The opinions expressed above are based solely on facts, laws and regulations existing and in effect on the date hereof, and we assume no obligation to revise or supplement this opinion should such facts change or should such laws or regulations be changed by legislative or regulatory action, judicial decision or otherwise, notwithstanding that such changes may affect the legal analysis or conclusions contained in this opinion. Very truly yours, -4- CERTIFICATE I, ___________________, am the _____________ ___________________ of [Borrowing Subsidiary], a __________ corporation (the "Borrowing Subsidiary"). The Borrowing Subsidiary is entering into an Assumption Letter dated as of _____________, 19__, pursuant to which it will become a party to the Credit Agreement dated as of December 21, 1994 among R.R. Donnelley & Sons Company (the "Company"), the banks party thereto ("Banks") and Citibank, N.A., as agent ("Administrative Agent") for such Banks (the "Credit Agreement"). The Credit Agreement requires that [name of law firm] issue a legal opinion to the Administrative Agent and the Banks. In connection with such legal opinion, the Company certifies to [name of law firm] that: 1. Not more than twenty-five percent (25%) of the value of the assets subject to any "arrangement" (as such term is used in Section 221.2(g)(1) of Regulation U of the Board of Governors of the Federal Reserve System) under the Credit Agreement is represented by "margin stock" (as such term is defined in Regulation U of the Board of Governors of the Federal Reserve System). 2. The Borrowing Subsidiary has not granted to the Administrative Agent or the Banks any direct security for the Company's or the Borrowing Subsidiary's obligations to the Administrative Agent and the Banks under the Credit Agreement. 3. There is no material agreement or instrument binding on the Borrowing Subsidiary that governs or evidences indebtedness for borrowed money or would affect the Borrowing Subsidiary's ability to perform its obligations under the Assumption Letter, the Credit Agreement or the Notes, except: a. _______________________ b. _______________________ c. _______________________ [BORROWING SUBSIDIARY] By:_______________________ Title: Dated: _____________________ EX-10.C 5 DONLY SHARE STK OPTION Exhibit 10(c) Form 10-K Year ended 12/31/94 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 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. -2- (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 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. -3- (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 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. -4- 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 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 -5- (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. [logo] RR Donnelley This certificate has been & Sons Company executed as of (DATE), on behalf of R. R. Donnelley & Sons Company by (FACSIMILE SIGNATURE) John R. Walter Chairman and Chief Executive Officer -7- DONNELLEY SHARES STOCK OPTION PLAN ---------------------------------- FOR UK EMPLOYEES ---------------- 1. Introduction. R. R. Donnelley & Sons Company ("the Company") has established its Donnelley Shares Stock Option Plan ("the US Plan") for the benefit of employees of it and its subsidiaries under which it may grant stock options to such employees. The Company intends to grant Options to employees in the United Kingdom under a UK sub-plan of the US Plan to be known as the Donnelley Shares Stock Option Plan for UK Employees ("the UK Plan"). The UK Plan shall be governed by these Rules ("the Rules"). The UK Plan is intended to qualify as an approved share option plan under Schedule 9 to the Income and Corporation Taxes Act 1988. 2. The Appendix. The US Plan attached as an Appendix to these Rules shall apply to the UK Plan subject to the additional restrictions and amendments specified below. References to Schedule 9 are to Schedule 9 to the Income and Corporation Taxes Act 1988. 3. Exclusion. Section 8(a) of the US Plan relating to Option Grants on 24 March 1994 will not apply to the UK Plan. 4. Subsidiaries. The direct and indirect wholly-owned subsidiaries of the Company referred to in Section 2 of the US Plan shall include, for purposes of the UK Plan, only those companies of which the Company has control within the meaning of Section 840 of the Income and Corporation Taxes Act 1988. 5. Shares. The shares of common stock of the Company in respect of which Options may be granted under the UK Plan must satisfy the conditions specified in paragraphs 10 to 14 inclusive of Schedule 9. 6. Eligibility. 6.1. For the avoidance of doubt, it is hereby clarified that directors of the Company and its subsidiaries are not eligible to receive Options under the UK or US Plans. The description of eligible employees in Section 2 of the US Plan shall also be subject to the additional requirement that an employee must, in order to be eligible to receive Options, be an employee of the Company or a subsidiary of the Company who is required to devote to his duties not less than 20 hours per week excluding meal breaks and who is not precluded by paragraph 8 of Schedule 9 from participating in the UK Plan. 6.2. The proviso in Section 2 of the US Plan relating to eligible employees covered by collective bargaining agreements will not apply to the UK Plan. 6.3. Persons who are not eligible employees, as described in Section 2 of the US Plan and qualified by Rules 6.1 and 6.2 above, shall not be eligible to receive Options under the UK Plan. 6.4. Any Option granted to an eligible employee shall be limited and take effect so that the aggregate Fair Market Value of Common Stock subject to that Option, when aggregated with the -8- Fair Market Value of Common Stock subject to subsisting Options, shall not exceed the greater of: 6.4.1. (Pounds)100,000; and 6.4.2. four times the amount of the individual's Relevant Emoluments for the current or preceding Year of Assessment (whichever of those years gives the greater amount) or, if there were no Relevant Emoluments for the preceding Year of Assessment, four times the amount of the Relevant Emoluments for the period of twelve months beginning with the first day during the current Year of Assessment in respect of which there are Relevant Emoluments. For the purposes of this restriction: (i) "Options" includes all Options granted under the UK Plan and all options granted under any other plan approved under Schedule 9 (not being a savings-related share option scheme) and established by the Company or any associated company thereof (within the meaning of Section 416 of the Income and Corporation Taxes Act 1988); (ii) "Relevant Emoluments" means such of the emoluments of the office or employment by virtue of which an individual is eligible to receive Options under the UK Plan as are liable to be paid in that year under deduction of tax pursuant to Section 203 of the Income and Corporation Taxes Act 1988 ("Pay As You Earn") after deducting therefrom amounts included by virtue of Chapter II of Part V of the Income and Corporation Taxes Act 1988 (benefits derived by directors and others from their employment); (iii) "Year of Assessment" means a year beginning on any 6 April and ending on the following 5 April; and (iv) The "Fair Market Value" of Common Stock shall be calculated in accordance with Section 8(c) of the US Plan as at the dates when the Options in relation to the Common Stock were granted or such earlier time as may have been agreed in writing with the Board of Inland Revenue. 7. Exercise of Options. 7.1. The provisions of Section 9(a) to (d) of the US Plan relating to the exercise of Options shall be subject to the additional restriction that no Option may be exercised by an Optionee at any time when he is precluded by paragraph 8 of Schedule 9 from participating in the UK Plan. 7.2. No cash payments may be made to Optionees pursuant to the final sentence of Section 9(d) of the US Plan. 7.3. Shares must be allotted within 30 days after the date of exercise. 8. Conditions. No conditions may be imposed by the Committee pursuant to the third sentence in Section 4 of the US Plan to the extent that they affect the UK Plan without the prior approval of the Board of Inland Revenue. If such conditions involve the satisfaction of performance criteria, those criteria must be of an objective nature. -9- 9. Adjustments Upon Changes in Capitalisation. The provisions of Section 5 of the US Plan concerning the adjustment of Options shall be subject to the requirement that all such adjustments must be certified in writing by the Auditors as being fair and reasonable and that no adjustment in respect of subsisting Options and of Options to be granted under the UK Plan shall take effect without the prior approval of the Board of Inland Revenue. Also, no adjustment may be made under the UK Plan in relation to a spin-off. For the purposes of this restriction, "Auditors" means the auditors for the time being of the Company (acting as experts and not as arbitrators). 10. Amendment of the Plan. Any amendment of the US or UK Plans which is made under the provisions of Section 7 of the US Plan and which affects the UK Plan shall only take effect in respect of the UK Plan with the prior approval of the Board of Inland Revenue. -10- EX-10.K 6 STOCK INCENTIVE PLAN Exhibit 10(k) Form 10-k for year ended 12/31/94 (AS APPROVED BY STOCKHOLDERS ON 3/23/95) R.R. DONNELLEY & SONS COMPANY 1995 STOCK INCENTIVE PLAN I. GENERAL 1. Plan. To provide incentives to management through rewards based upon the ownership or performance of the common stock of R.R. Donnelley & Sons Company (the "Company"), the Committee hereinafter designated, may grant cash or bonus awards, stock options, stock appreciation rights ("SARs"), or combinations thereof, to eligible officers and other key management employees, on the terms and subject to the conditions stated in the Plan. In addition, to provide incentives to members of the Board of Directors ("Board") who are not employees of the Company ("non-employee directors"), such non-employee directors are hereby granted options on the terms and subject to the conditions set forth in the Plan. For purposes of the Plan, references to employment by the Company also mean employment by a majority-owned subsidiary of the Company. 2. Eligibility. Officers and other key management employees of the Company and its subsidiaries shall be eligible, upon selection by the Committee, to receive cash or bonus awards, stock options or SARs, either singly or in combination, as the Committee, in its discretion, shall determine. Non-employee directors shall receive stock options on the terms and subject to the conditions stated in the Plan. 3. Limitation on Shares to be Issued. Subject to adjustment as provided in Section 5 of this Article I, 7,500,000 shares of common stock, par value $1.25 per share ("common stock"), shall be available under the Plan, reduced by the aggregate number of shares of common stock which become subject to outstanding bonus awards, stock options and SARs which are not granted in tandem with or by reference to a stock option ("free-standing SARs"). Shares subject to a grant or award which for any reason are not issued or delivered, including by reason of the expiration, termination, cancellation or forfeiture of all or a portion of the grant or award or by reason of the delivery or withholding of shares to pay all or a portion of the exercise price or to satisfy tax withholding obligations, shall again be available for future grants and awards; provided, however, that for purposes of this sentence, stock options and SARs granted in tandem with or by reference to a stock option granted prior to the grant of such SARs ("tandem SARs") shall be treated as one grant. For the purpose of complying with Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and the rules and regulations thereunder, the maximum number of shares of common stock with respect to which options or SARs or a combination thereof may be granted during any three-year period to any person shall be 1,000,000, subject to adjustment as provided in Section 5 of this Article I. The maximum number of shares of common stock with respect to which fixed awards in the form of restricted stock may be granted hereunder is 500,000 in the aggregate, subject to adjustment as provided in Section 5 of this Article I. Shares of common stock to be issued may be authorized and unissued shares of common stock, treasury stock or a combination thereof. 4. Administration of the Plan. The Plan shall be administered by a Committee designated by the Board of Directors (the "Committee"). Each member of the Committee shall be (i) an "outside director" within the meaning of Section 162(m) of the Code, subject to any transitional rules applicable to the definition of outside director, and (ii) a "disinterested person" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee shall, subject to the terms of the Plan, select eligible officers and key management employees for participation; determine the form of each grant and award, either as cash, a bonus award, stock options or SARs or a combination thereof; and determine the number of shares or units subject to the grant or award, the fair market value of the common stock or units when necessary, the time and conditions of vesting, exercise or settlement, and all other terms and conditions of each grant and award, including, without limitation, the form of instrument evidencing the grant or award. The Committee may establish rules and regulations for the administration of the Plan, interpret the Plan, and impose, incidental to a grant or award, conditions with respect to competitive employment or other activities not inconsistent with the Plan. All such rules, regulations, interpretations and conditions shall be conclusive and binding on all parties. Each grant and award shall be evidenced by a written instrument and no grant or award shall be valid until an agreement is executed by the Company and the recipient thereof and, upon execution by each party and delivery of the agreement to the Company, such grant or award shall be effective as of the effective date set forth in the agreement. The Committee may delegate some or all of its power and authority hereunder to the Chief Executive Officer or other executive officer of the Company as the Committee deems 8appropriate; provided, however, that the Committee may not delegate its power and authority with regard to (i) the selection for participation in the Plan of (A) an employee who is a "covered employee" within the meaning of Section 162(m) of the Code or who, in the Committee's judgment, is likely to be a covered employee at any time during the period a grant or award hereunder to such employee would be outstanding or (B) an officer or other person subject to Section 16 of the Exchange Act or (ii) decisions concerning the timing, pricing or amount of a grant or award to such an employee, officer or other person. A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (i) acts of a majority of the members of the Committee present at any meeting at which a quorum is present or (ii) acts approved in writing by a majority of the members of the Committee without a meeting. 5. Adjustments. In the event of any stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares, liquidation, spin-off or other similar -2- change in capitalization or event, or any distribution to holders of common stock other than a regular cash dividend, the number and class of securities available under the Plan, the number and class of securities subject to each outstanding bonus award, the number and class of securities subject to each outstanding stock option and the purchase price per security, the number of securities subject to each stock option to be granted to non-employee directors pursuant to Article III and the terms of each outstanding SAR shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding stock options and SARs without a change in the aggregate purchase price or base price. If any such adjustment would result in a fractional security being (i) available under the Plan, such fractional security shall be disregarded, or (ii) subject to an outstanding grant or award under the Plan, the Company shall pay the holder thereof, in connection with the first vesting, exercise or settlement of such grant or award, in whole or in part, occurring after such adjustment, an amount in cash determined by multiplying (i) the fraction of such security (rounded to the nearest hundredth) by (ii) the excess, if any, of (A) the fair market value on the vesting, exercise or settlement date over (B) the exercise or base price, if any, of such grant or award. 6. Effective Date and Term of Plan. The Plan shall be submitted to the stockholders of the Company for approval at the 1995 annual meeting of stockholders and, if approved, shall become effective on January 1, 1995. The Plan shall terminate on December 31, 1999 unless terminated prior thereto by action of the Board. No further grants or awards shall be made under the Plan after termination, but termination shall not affect the rights of any participant under any grants or awards made prior to termination. 7. Amendments. The Plan may be amended or terminated by the Board in any respect except that no amendment may be made without stockholder approval if stockholder approval is required by applicable law, rule or regulation, including Rule 16b-3 under the Exchange Act and Section 162(m) of the Code, or such amendment would increase (subject to Section 5 of this Article I) the maximum number of shares available under the Plan; provided, however, that subject to Section 5 of this Article I, the number of shares subject to stock options granted to non-employee directors, the purchase price therefor, the date of grant of any such option, the termination provisions relating to such options and the category of persons eligible to be granted such options shall not be amended more than once every six months, other than to comply with changes in the Code or the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder. No amendment may impair the rights of a holder of an outstanding grant or award without the consent of such holder. 8. Prior Plans. Upon approval of the Plan by the stockholders of the Company, no further grants or awards shall be made under the Company's 1981 Stock Incentive Plan, as amended (the "1981 Plan"), the 1986 Stock Incentive Plan, as amended (the "1986 Plan"), or the 1991 Stock Incentive Plan, as amended (the "1991 Plan"), except that SARs may be granted with respect to options previously granted and outstanding under such Plans. Grants and awards made under the 1981 Plan, the 1986 Plan and the 1991 Plan prior to approval of the Plan by the stockholders of the Company shall continue in effect in accordance with their terms. -3- II. BONUS AWARDS 1. Form of Award. Bonus awards, whether performance awards or fixed awards, may be made to eligible officers and other key management employees in the form of (i) cash, whether in an absolute amount or as a percentage of compensation, (ii) stock units, each of which is substantially the equivalent of a share of common stock but for the power to vote and, subject to the Committee's discretion, the entitlement to an amount equal to dividends or other distributions otherwise payable on a like number of shares of common stock, (iii) shares of common stock issued to the employee but forfeitable and with restrictions on transfer in any form as hereinafter provided or (iv) any combination of the foregoing. 2. Performance Awards. Awards may be made in terms of a stated potential maximum dollar amount, percentage of compensation or number of units or shares, with the actual such amount, percentage or number to be determined by reference to the level of achievement of corporate, sector, business unit, division, individual or other specific objectives over a performance period of not less than one nor more than ten years, as determined by the Committee. No rights or interests of any kind shall be vested in an individual receiving a performance award until the conclusion of the performance period and the determination of the level of achievement specified in the award, and the time of vesting, if any, thereafter shall be as specified in the award. 3. Fixed Awards. Awards may be made which are not contingent on the achievement of specific objectives, but are contingent on the participant's continuing in the Company's employ for a period specified in the award. 4. Rights with Respect to Restricted Shares. If shares of restricted common stock are subject to an award, the participant shall have the right, unless and until such award is forfeited or unless otherwise determined by the Committee at the time of grant, to vote the shares and to receive dividends thereon from the date of grant and the right to participate in any capital adjustment applicable to all holders of common stock; provided, however, that a distribution with respect to shares of common stock, other than a regular quarterly cash dividend, shall be deposited with the Company and shall be subject to the same restrictions as the shares of common stock with respect to which such distribution was made. During the restriction period, a certificate or certificates representing restricted shares shall be registered in the holder's name and may bear a legend, in addition to any legend which may be required under applicable laws, rules or regulations, indicating that the ownership of the shares of common stock represented by such certificate is subject to the restrictions, terms and conditions of the Plan and the agreement relating to the restricted shares. All such certificates shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate, which would permit transfer to the Company of all or a portion of the shares of common stock subject to the award in the event such award is forfeited in whole or in part. Upon termination of any applicable restriction period, including, if applicable, the satisfaction or achievement of applicable objectives, and subject to the Company's right to require payment of any taxes, a certificate or certificates evidencing ownership of the requisite number of shares of common stock shall be delivered to the holder of such award. -4- 5. Rights with Respect to Stock Units. If stock units are credited to a participant pursuant to an award, then, subject to the Committee's discretion, amounts equal to dividends and other distributions otherwise payable on a like number of shares of common stock after the crediting of the units (unless the record date for such dividends or other distributions precedes the date of grant of such award) shall be credited to an account for the participant and held until the award is forfeited or paid out. Interest shall be credited on the account annually at a rate equal to the return on five year U.S. Treasury obligations. 6. Vesting and Resultant Events. The Committee may, in its discretion, provide for early vesting of an award in the event of the participant's death, permanent and total disability or retirement. At the time of vesting, (i) the award, if in units, shall be paid to the participant either in shares of common stock equal to the number of units, in cash equal to the fair market value of such shares, or in such combination thereof as the Committee shall determine, and the participant's account to which dividend equivalents, other distributions and interest have been credited shall be paid in cash, (ii) the award, if a cash bonus award, shall be paid to the participant either in cash, or in shares of common stock with a then fair market value equal to the amount of such award, or in such combination thereof as the Committee shall determine and (iii) shares of restricted common stock issued pursuant to an award shall be released from the restrictions. III. STOCK OPTIONS 1. Grants. (a) Options for Officers and Key Management Employees. Options to purchase shares of common stock of the Company may be granted to such eligible officers and key management employees as may be selected by the Committee. These options may, but need not, constitute "incentive stock options" under Section 422 of the Code or any other form of option under the Code. To the extent that the aggregate fair market value (determined as of the date of grant) of shares of common stock with respect to which options designated as incentive stock options are exercisable for the first time by a participant during any calendar year (under the Plan or any other plan of the Company, or any parent or subsidiary) exceeds the amount (currently $100,000) established by the Code, such options shall not constitute incentive stock options. (b) Options for Non-Employee Directors. An option to purchase 4,000 shares of common stock of the Company shall be granted on the date of the 1995 annual meeting of stockholders and, thereafter, annually on the date of the Company's annual meeting of stockholders to each individual who immediately following such meeting on such date is a non-employee director. An option granted to a non-employee director pursuant to this Section 1(b) (a "Director Option") shall become exercisable in whole or in part on the earlier to occur of (i) the date which is the first anniversary of the date the Director Option is granted (the date of grant being hereafter referred to as the "Option Date") or (ii) the day immediately preceding the date of the first annual meeting of stockholders of the Company next following the Option Date; provided, however, that the date of such annual meeting is at least three hundred fifty-five (355) days after the Option Date, and Director Options shall not be exercisable more than ten years after the Option Date. 2. Number of Shares and Purchase Price. The number of shares of common stock subject to an option and the purchase price per share of common stock purchasable upon exercise of the option shall be determined by the Committee; provided, however, that the purchase price per share of common stock shall not be less than 100% of the fair market value of a share of common stock on -5- the date of grant of the option; provided further, that if an incentive stock option shall be granted to any person who, on the date of grant of such option, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or subsidiary) (a "Ten Percent Holder"), the purchase price per share of common stock shall be the price (currently 110% of fair market value) required by the Code in order to constitute an incentive stock option; and provided further, that the purchase price per share of common stock subject to a Director Option shall be 100% of the fair market value of a share of common stock on the date of grant of such option. 3. Exercise of Options. The period during which options granted hereunder (other than options granted to non-employee directors) may be exercised shall be determined by the Committee; provided, however, that no incentive stock option shall be exercised later than ten years after its date of grant; provided further, that if an incentive stock option shall be granted to a Ten Percent Holder, such option shall not be exercisable more than five years after its date of grant. The Committee may, in its discretion, establish performance measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non- cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of common stock. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares of common stock to be purchased and accompanied by payment therefor in full (or arrangement made for such payment to the Company's satisfaction) either (A) in cash, (B) in previously owned whole shares of common stock (which the optionee has held for at least six months prior to delivery of such shares or which the optionee purchased on the open market and for which the optionee has good title free and clear of all liens and encumbrances) having a fair market value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (D) a combination of (A) and (B), (ii) if applicable, by surrendering to the Company any SARs which are cancelled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request. The Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (B)-(D) and, in the case of an optionee who is subject to Section 16 of the Exchange Act, the Company may require that the method of making such payment be in compliance with Section 16 and the rules and regulations thereunder. Any fraction of a share of common stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. No certificate representing common stock shall be delivered until the full purchase price therefor has been paid. 4. Termination of Employment or Service. An option may be exercised during the optionee's continued employment with the Company or service on the Board, as the case may be, and, unless otherwise determined by the Committee as set forth in the agreement relating to the option, for a period not in excess of ninety days following termination of employment or service on the Board and only within the original term of the option; provided, however, that if employment of the optionee by the Company or service on the Board, as the case may be, shall have terminated by reason of retirement or total and permanent disability, then the option may be exercised to the extent set forth in the agreement relating to the option for a period not in excess of five years following termination of employment or service on the Board, but not after the expiration of the -6- term of the option. In the event of the death of an optionee (i) during employment or service on the Board, as the case may be, (ii) within a period not in excess of five years after termination of employment or service on the Board, as the case may be, by reason of retirement or total and permanent disability or (iii) within ninety days after termination of employment or service on the Board, as the case may be, for any other reason, outstanding options held by such optionee at the time of death may be exercised to the extent set forth in the agreement relating to the option by the executor, administrator, personal representative, beneficiary or similar persons of such deceased optionee within ninety days of the date of death. IV. UK STOCK OPTION SUB-PLAN 1. GENERAL (a) Sub-Plan. The UK Stock Option Sub-Plan ("the Sub-Plan") has been established in order to vary the terms on which options may be given to officers and other key management employees who are employed in the United Kingdom by the Company or any of its subsidiaries. Stock options granted under the Sub-Plan shall be deemed granted under the Plan and shall, unless otherwise stated or implied in this Article IV, comply in all respects with the terms and conditions applicable to options granted under Article III of the Plan. Articles II and V and Clause 2 of Article VI shall not apply to options granted under the Sub- Plan. (b) Definitions. In the Sub-Plan the following terms shall have the following meanings: "the Subsidiaries" shall mean all companies which are controlled by the Company (as defined in Section 840 of the Income and Corporation Taxes Act 1988) and which are affiliates controlled by the Company directly or indirectly through one or more intermediaries for the purposes of Rule 12b-2 of the Exchange Act; "the Group" shall mean the Company and the Subsidiaries; "Associated Company" shall have the meaning attributed to it in Section 416(1) of the Income and Corporation Taxes Act 1988; "the Committee" shall mean the committee designated to administer the Plan; "Full Time Employee" shall mean any director or employee who is employed by the Group in the United Kingdom and who is required to devote to his duties not less than 25 hours (or in the case of an employee who is not a director of any company in the Group, 20 hours) per week (excluding meal breaks) and is not precluded by paragraph 8 of Schedule 9 from participating in the Sub-Plan; "Relevant Emoluments" shall have the meaning which the term bears in sub- paragraph (2) of paragraph 28 of Schedule 9 by virtue of sub-paragraph (4) of that paragraph; -7- "Year of Assessment" shall mean a year beginning on any 6 April and ending on the following 5 April; "Market Value" shall mean on any day the average of high and low transaction prices in trading in the common stock of the Company as reported on the New York Stock Exchange --Composite Transactions compiled by Associated Press or if no trading occurred on such date then on the next preceding date on which such trading occurred; "Schedule 9" shall mean Schedule 9 of the United Kingdom Income and Corporation Taxes Act 1988; "Share" or "Shares" shall mean a share or shares of common stock of par value $1.25 which satisfy the conditions specified in Paragraphs 10 to 14 inclusive of Schedule 9. (c) Sub-Plan. The Committee may grant stock options to officers and other key management employees eligible to participate in the Sub-Plan on the terms and subject to the conditions stated in the Sub-Plan. (d) Eligibility. Full Time Employees who are officers or other key management employees employed by the Group in the United Kingdom under selection guidelines to be established by the Committee, shall be eligible, upon selection by the Committee, to receive stock options. (e) Shares to be Issued. Shares to be issued shall be authorized and unissued shares of common stock, treasury stock or a combination thereof. The issue of shares of common stock shall be subject to the maximum specified in the Plan. (f) Administration. The Sub-Plan shall be administered by the Committee in accordance with the provisions set out in the Plan and varied by the terms of the Sub-Plan. (g) Effective Date and Term of the Sub-Plan. The Sub-Plan shall be submitted to the stockholders of the Company for approval at the 1995 annual meeting of stockholders and, if approved, shall become effective on January 1, 1995. Options shall not be granted until the Sub-Plan has been approved by the Board of UK Inland Revenue under the provisions of paragraph 1 of Schedule 9. Any change required to be made to the Plan by the Board of UK Inland Revenue in order to obtain its approval may be made without stockholder approval, except as otherwise provided in Clause 7 of Article I. The Sub-Plan shall terminate on December 31, 1999 unless terminated prior thereto by action of the Board. No further grants shall be made under the Sub-Plan after termination, but termination shall not affect the rights of any participant under the grants made prior to termination. (h) Amendments. The Sub-Plan may be amended or terminated by the Board subject to the conditions specified in the Plan. No amendment may be made which will put the Sub-Plan in breach of conditions for approval set out in Schedule 9 and no amendment to the Sub-Plan or any provision in the Plan which applies to options granted under the Sub-Plan shall be made without prior approval of the Board of UK Inland Revenue. -8- 2. STOCK OPTIONS (a) Grants. Options to purchase shares of common stock may be granted to such eligible Full-Time Employees as may be selected by the Committee. No variation shall be made in relation to a spin-off nor to any class of securities available under the Sub-Plan. (b) Variations in Options. Variations may not be made to options granted under the Sub-Plan pursuant to Article I clause 5 of the Plan without prior consent of the Board of UK Inland Revenue. (c) Terms of Options. Terms attaching to options shall be contained in a stock option agreement, the form of which must be approved in advance by the Board of UK Inland Revenue. If any performance targets are attached to the exercisability of an option, these shall be objectively determined and subject to the prior approval of the Board of UK Inland Revenue. No option shall be exercisable more than ten years after its date of grant. The per share option price shall be stated at the time the option is granted and shall be not less than 100% of the Market Value of the share on the date on which the optionee is offered options under the Sub-Plan. Upon exercise, the option price shall be paid in cash. The provisions in Clause 3 of Article III for the exercise of options by payment in whole shares of common stock or in cash by a broker-dealer to whom the optionee has submitted an irrevocable notice of exercise will not apply for the purposes of the Sub-Plan unless, in the case of the latter, approved by the Board of UK Inland Revenue. Options shall not be transferable except that such options may be exercised by the personal representative of a deceased optionee or a beneficiary of such deceased optionee who has been designated pursuant to beneficiary designation procedures approved by the Company, in each case within ninety days of the death of the optionee. Options may be exercised during the individual's continued employment with the Group and for a period not in excess of ninety days following termination of employment and only within the original term of the option. No option may be exercised by an individual at any time when he is precluded by Paragraph 8 of Schedule 9 from participating in the Sub-Plan. (d) Exercise of Option. An option may be exercised by delivery of written notice to the Company specifying the number of shares to be purchased and accompanied by payment in full of the option price for the number of shares so purchased. The Company shall within thirty days post to the optionee certificates representing the number of shares specified, and shall pay all original issue or transfer taxes and all other fees and expenses incidental to such delivery. (e) Limits on Options. No person shall be granted options under the Sub-Plan which would, at the time that they are obtained, cause the aggregate Market Value of the shares which such person may acquire in pursuance of rights obtained under the Sub-Plan or under any other scheme established by the Group or by any Associated Company of the Company and approved by the Board of UK Inland Revenue under Schedule 9 (and not exercised) to exceed or further exceed the greater of: (1) 100,000 British Pounds Sterling or (2) Four times the Relevant Emoluments of the optionee for the current or preceding Year of Assessment (whichever of those years gives the greater amount) or if -9- there were no Relevant Emoluments for the preceding Year of Assessment four times the amount of the Relevant Emoluments for the period of twelve months beginning with the first day during the current Year of Assessment in respect of which there are Relevant Emoluments. For the purposes of this clause the Market Value of the shares shall be converted from US Dollars to sterling at the middle rate for the buying and selling of that amount of sterling for US Dollars as quoted by the Barclays Bank PLC at the opening of business on the day on which the optionee is offered options under the Sub-Plan. V. STOCK APPRECIATION RIGHTS 1. Grants. Free-standing SARs entitling the grantee to receive cash or shares of common stock having a fair market value equal to the appreciation in market value of a stated number of shares of common stock from the date of grant to the date of exercise of such SARs, or in the case of tandem SARs, from the date of grant of the related stock option to the date of exercise of such tandem SARs, may be granted to such eligible officers and other key management employees as may be selected by the Committee. The holder of a tandem SAR may elect to exercise either the option or the SAR, but not both. 2. Number of SARs and Base Price. The number of SARs subject to a grant shall be determined by the Committee. Any tandem SAR related to an incentive stock option shall be granted at the same time that such incentive stock option is granted. The base price of a tandem SAR shall be the purchase price per share of common stock of the related option. The base price of a free-standing SAR shall be determined by the Committee; provided, however, that such base price shall not be less than 100% of the fair market value of a share of common stock on the date of grant of such SAR. 3. Exercise of SARs. The agreement relating to a grant of SARs may specify whether such grant shall be settled in shares of common stock (including restricted shares of common stock) or cash or a combination thereof. Upon exercise of an SAR, the grantee shall be paid the excess of the then fair market value of the number of shares of common stock to which the SAR relates over the fair market value of such number of shares at the date of grant of the SAR or of the related stock option, as the case may be. Such excess shall be paid in cash or in shares of common stock having a fair market value equal to such excess or in such combination thereof as the Committee shall determine. The period during which SARs granted hereunder may be exercised shall be determined by the Committee; provided, however, that no tandem SAR shall be exercised if the related option has expired or has been cancelled or forfeited or has otherwise terminated. The Committee may, in its discretion, establish performance measures which shall be satisfied or met as a condition to the grant of an SAR or to the exercisability of all or a portion of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a tandem SAR, only with respect to whole shares of common stock and, in the case of a free-standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for restricted shares of common stock, a certificate or certificates representing such restricted shares shall be issued in accordance with Section 4 of Article II and the holder of such restricted shares shall have such rights of a stockholder of the Company as determined pursuant to such Section. Prior to the exercise of an SAR for shares of common stock, including restricted -10- shares, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of common stock subject to such SAR. A tandem SAR may be exercised (i) by giving written notice to the Company specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Company any options which are cancelled by reason of the exercise of such SAR and (iii) by executing such documents as the Company may reasonably request. A free-standing SAR may be exercised (i) by giving written notice to the Company specifying the whole number of SARs which are being exercised and (ii) by executing such documents as the Company may reasonably request. In the case of the holder of an SAR who is subject to Section 16 of the Exchange Act, the Company may require that the exercise of an SAR be in compliance with Section 16 and the rules and regulations thereunder. 4. Termination of Employment. An SAR may be exercised during the grantee's continued employment with the Company and, unless otherwise determined by the Committee as set forth in the agreement relating to the SAR, for a period not in excess of ninety days following termination of employment and only within the original term of the SAR; provided, however, that if employment of the grantee by the Company shall have terminated by reason of retirement or total and permanent disability, then the SAR may be exercised to the extent set forth in the agreement relating to the SAR for a period not in excess of five years following termination of employment but not after the expiration of the term of the SAR. In the event of the death of a holder of an SAR (i) during employment, (ii) within a period not in excess of five years after termination of employment by reason of retirement or total and permanent disability or (iii) within ninety days after termination of employment for any other reason, outstanding SARs held by such holder at the time of death may be exercised to the extent set forth in the agreement relating to the SAR by the executor, administrator, personal representative, beneficiary or similar persons of such deceased holder within ninety days of the date of death. VI. OTHER 1. Non-Transferability of Options and Stock Appreciation Rights. No option or SAR shall be transferable other than (i) by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or (ii) as otherwise permitted under Rule 16b-3 under the Exchange Act as determined by the Committee and set forth in the agreement relating to such option or SAR. Each option or SAR may be exercised during the participant's lifetime only by the participant or the participant's guardian, legal representative or similar person. Except as permitted by the second preceding sentence, no option or SAR may 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. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any option or SAR, such award and all rights thereunder shall immediately become null and void. 2. Tax Withholding. The Company shall have the right to require, prior to the issuance or delivery of any shares of common stock or the payment of any cash pursuant to a grant or award hereunder, payment by the holder thereof of any Federal, state, local or other taxes which may be required to be withheld or paid in connection therewith. An agreement may provide that (i) the Company shall withhold whole shares of common stock which would otherwise be delivered to a -11- holder, having an aggregate fair market value determined as of the date the obligation to withhold or pay taxes arises in connection therewith (the "Tax Date"), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Company, (B) delivery to the Company of previously owned whole shares of common stock (which the holder has held for at least six months prior to the delivery of such shares or which the holder purchased on the open market and for which the holder has good title, free and clear of all liens and encumbrances) having an aggregate fair market value determined as of the Tax Date, (C) authorizing the Company to withhold whole shares of common stock which would otherwise be delivered having an aggregate fair market value determined as of the Tax Date or withhold an amount of cash which would otherwise be payable to a holder, (D) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (E) any combination of (A), (B) and (C); provided, however, that the Committee shall have sole discretion to disapprove of an election pursuant to any of clauses (B)-(E) and that in the case of a holder who is subject to Section 16 of the Exchange Act, the Company may require that the method of satisfying such an obligation be in compliance with Section 16 and the rules and regulations thereunder. An agreement relating to a grant or award hereunder may provide for shares of common stock to be delivered or withheld having an aggregate fair market value in excess of the minimum amount required to be withheld, but not in excess of the amount determined by applying the holder's maximum marginal tax rates. Any fraction of a share of common stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder. 3. Acceleration Upon Change in Control. If while (i) any performance award or fixed award granted under Article II is outstanding or (ii) any stock option granted under Article III or IV of the Plan or SAR granted under Article V of the Plan is outstanding -- (a) any "person," as such term is defined in Section 3(a)(9) of 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 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, excluding an acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities) 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 (not including any period prior to the effective date of the Plan), 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 -12- 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 the 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"), (i) with respect to such performance awards, the highest level of achievement specified in the award shall be deemed met and the award shall be immediately and fully vested, (ii) with respect to such fixed awards, the period of continued employment specified in the award upon which the award is contingent shall be deemed completed and the award shall be immediately and fully vested and (iii) with respect to such options and SARs, all such options and SARs, whether or not then exercisable in whole or in part, shall be fully and immediately exercisable. 4. Restrictions on Shares. Each grant and award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of common stock subject thereto upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of 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. The Company may require that certificates evidencing shares of common stock delivered pursuant to any grant or award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder. 5. No Right of Participation or Employment. No person (other than non-employee directors to the extent provided in Article III) shall have any right to participate in the Plan. Neither the Plan -13- nor any grant or award made hereunder shall confer upon any person any right to continued employment by the Company, any subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any subsidiary or any affiliate of the Company to terminate the employment of any person at any time without liability hereunder. 6. Rights as Stockholder. No person shall have any right as a stockholder of the Company with respect to any shares of common stock or other equity security of the Company which is subject to a grant or award hereunder unless and until such person becomes a stockholder of record with respect to such shares of common stock or equity security. 7. Governing Law. The Plan, each grant and award hereunder and the related agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 8. Approval of Plan. The Plan and all grants and awards made hereunder shall be null and void if the adoption of the Plan is not approved by the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the 1995 annual meeting of stockholders. -14- EX-10.L 7 STOCK OPTION AGREEMENT Exhibit 10(l) Form 10-K Year ended 12/31/94 R. R. DONNELLEY & SONS COMPANY STOCK OPTION AGREEMENT ---------------------- Options were granted to the executive officers listed below for the number of shares and the exercise prices shown below: PREMIUM-PRICED OPTIONS GRANT DATE - 1/1/95
# of Options # of Options # of Options Exercisable @ Exercisable @ Exercisable @ Name $43.275 $50.4875 $57.70 ------ ------------- ------------- ------------- (1) John R. Walter 166,667 166,667 166,666 (2) Jonathan P. Ward 58,334 58,333 58,333 (3) William E. Tyler 58,334 58,333 58,333 (4) Frank R. Jarc 40,000 40,000 40,000 (5) Steven J. Baumgartner 40,000 40,000 40,000
R. R. DONNELLEY & SONS COMPANY STOCK OPTION AGREEMENT ---------------------- R. R. DONNELLEY & SONS COMPANY, a Delaware corporation (herein called the "Company"), acting pursuant to the provisions of its 1991 Stock Incentive Plan, which was approved by stockholders on March 28, 1991 (herein called the "Plan"), hereby grants to _______ (herein called "Optionee"), as of January 1, 1995 (herein called the "option date"), an option to purchase from the Company (i) ______ shares of common stock of the Company, par value $1.25 per share (herein called "common stock"), at a price of ______ per share (herein called the "First Premium Option"), (ii) ____ shares of common stock at a price of $_____ per share (herein called the "Second Premium Option") and (iii) _____ shares of common stock at a price of $______ per share (herein called the "Third Premium Option" and the First Premium Option, the Second Premium Option and the Third Premium Option are collectively referred to herein as the "option") to be exercisable during the term commencing on January 1, 1995 and ending on December 31, 2004 (herein called the "option term"), but only upon the following terms and conditions: 1. The option may be exercised by Optionee, in whole or in part, from time to time, during the option term only in accordance with the following conditions and limitations: (a) Except as provided in Sections 5 and 7 hereof, Optionee must, at any time the option becomes exercisable and at any time the option is exercised, have been continuously in the employment of the Company since the date hereof. Leave of absence for periods and purposes conforming to the personnel policies of the Company and approved by the Committee administering the Plan shall not be deemed terminations of employment or interruptions of continuous service. (b) Unless a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), is in effect as to the shares purchasable under the option, no shares of common stock may be purchased under the option unless, prior to the purchase thereof, the Company shall -2- have received an opinion of counsel to the effect that the sale of such shares by the Company to Optionee will not constitute a violation of the Securities Act. Optionee hereby agrees that as a condition of exercise, Optionee will, if requested by the Company, submit a written statement, in form satisfactory to counsel for the Company, to the effect that any shares of common stock purchased upon exercise of the option will be purchased for investment and not with a view to the distribution thereof within the meaning of the Securities Act, and the Company shall have the right, in its discretion, to cause the certificates representing shares of common stock purchased under the option to be appropriately legended to refer to such undertaking or to any legal restrictions imposed upon the transferability thereof by reason of such undertaking. (c) Subject to Sections 5 and 7 hereof, the option shall become exercisable as follows: (1) In the event Total Stockholder Return (as hereinafter defined) for the four-year period commencing January 1, 1995 and ending on December 31, 1998 (the "First Performance Period") exceeds the S&P Industrial Index Total Return (as hereinafter defined) for the First Performance Period, the option shall become exercisable on December 31, 1998 with respect to all of the shares of common stock subject to the option and the following subsections (2)-(8) shall not apply. In the event Total Stockholder Return for the First Performance Period equals or is less than the S&P Industrial Index Total Return for the First Performance Period, the option may become exercisable as set forth below. (2) In the event Total Stockholder Return for the four-year period commencing January 1, 1996 and ending on December 31, 1999 (the "Second Performance Period") exceeds the S&P Industrial Index Total Return for the Second Performance Period, the option shall become exercisable on December 31, 1999 with respect to all of the shares of common stock subject to the option and the following subsections (3)-(8) shall not apply. In the event Total Stockholder Return for the Second Performance Period equals or is less than the S&P Industrial Index Total Return for the Second Performance Period, the option may become exercisable as set forth below. (3) In the event Total Stockholder Return for the four-year period commencing January 1, 1997 and ending on December 31, 2000 (the "Third Performance Period") exceeds the S&P Industrial Index Total Return for the Third Performance Period, the option shall become exercisable on December 31, 2000 with respect to all of the shares of common stock subject to the option and the following subsections (4)-(8) shall not apply. In the event Total Stockholder Return for the Third Performance Period equals or is less than the S&P Industrial Index Total Return for the Third Performance Period, the option may become exercisable as set forth below. (4) In the event Total Stockholder Return for the four-year period commencing January 1, 1998 and ending on December 31, 2001 (the "Fourth Performance Period") exceeds the S&P Industrial Index Total Return for the Fourth Performance Period, the option shall become exercisable on December 31, 2001 with respect to all of the shares of common stock subject to the option and the following subsections (5)-(8) shall not apply. In the event Total -3- Stockholder Return for the Fourth Performance Period equals or is less than the S&P Industrial Index Total Return for the Fourth Performance Period, the option may become exercisable as set forth below. (5) In the event Total Stockholder Return for the four-year period commencing January 1, 1999 and ending on December 31, 2002 (the "Fifth Performance Period") exceeds the S&P Industrial Index Total Return for the Fifth Performance Period, the option shall become exercisable on December 31, 2002 with respect to all of the shares of common stock subject to the option and the following subsections (6)-(8) shall not apply. In the event Total Stockholder Return for the Fifth Performance Period equals or is less than the S&P Industrial Index Total Return for the Fifth Performance Period, the option may become exercisable as set forth below. (6) In the event Total Stockholder Return for the four-year period commencing January 1, 2000 and ending on December 31, 2003 (the "Sixth Performance Period") exceeds the S&P Industrial Index Total Return for the Sixth Performance Period, the option shall become exercisable on December 31, 2003 with respect to all of the shares of common stock subject to the option and the following subsection (7) shall not apply. In the event Total Stockholder Return for the Sixth Performance Period equals or is less than the S&P Industrial Index Total Return for the Sixth Performance Period, the option shall become exercisable as set forth below. (7) Notwithstanding the foregoing subsections (1)-(6), but subject to Sections 5 and 7 hereof, the option shall become exercisable on June 30, 2004 with respect to all of the shares of common stock subject to the option and the following subsection (8) shall not apply. (8) If while any portion of the option is outstanding and unexercisable, a Change in Control (as defined in the Plan) occurs, then from and after the Acceleration Date (as defined in the Plan), the option shall be exercisable with respect to all of the shares of common stock subject to such portion of the option. No fractional shares may be purchased at any time. "Total Stockholder Return" means, with respect to any four-year Performance Period, the fair market value (as defined in Section 2) on the last day of such Performance Period of the number of shares of common stock (rounded to the nearest thousandth) which is deemed to be purchased by investing $100 as of the day immediately preceding the first day of such Performance Period. All dividends on common stock shall be assumed to be reinvested in common stock as of each "ex dividend" trading date of the common stock occurring during such Performance Period. -4- For purposes of calculating the number of shares of common stock which are purchased on the day immediately preceding the first day of a Performance Period, the purchase price per share of common stock shall be the fair market value of the common stock on such day. "S&P Industrial Index Total Return" means, with respect to any four-year Performance Period, the cumulative total return during such Performance Period of the Standard & Poor's Industrial Index stock index, computed on the same basis as Total Stockholder Return. If the Standard & Poor's Industrial Index is not published or otherwise available for the duration of a Performance Period, "S&P Industrial Index Return" shall mean, with respect to such Performance Period, the cumulative total return during such Performance Period of any stock index determined by the Committee, computed on the same basis as Total Stockholder Return. 2. Subject to the limitations herein set forth, the option may be exercised by delivery of written notice to the Company specifying the number of shares of common stock to be purchased and accompanied by payment in full of the option price (or arrangement made for such payment to the Company's satisfaction) for the number of shares so purchased. No shares of common stock may be purchased under the option unless Optionee, or in the event of Optionee's death the executor, administrator, or personal representative of such deceased Optionee, shall pay to the Company such amount as the Company is advised it is required under applicable local, state and federal tax laws to withhold and pay over to governmental taxing authorities by reason of the purchase of shares of common stock pursuant to the option. -5- The option price and any federal, state and local income tax required to be withheld in connection with such exercise may be paid in cash or in previously owned whole shares of common stock (which Optionee has held for at least six months prior to the delivery of such shares or which Optionee purchased on the open market and for which Optionee has good title free and clear of all liens and encumbrances) having a fair market value equal to the option price and such amount of tax, or in a combination thereof. Payment of the option price and such tax, or any part of it, in shares of common stock shall not be effective unless Optionee delivers one or more stock certificates representing shares having a fair market value on the date of exercise equal to or in excess of the option price and such tax, or applicable portion thereof, accompanied by such endorsements, signature guarantees or other documents or assurances as may reasonably be required to effect the transfer to the Company of such number of shares. If Optionee delivers a certificate or certificates representing shares in excess of the number required to cover the option price and such tax, a certificate representing such excess number of shares will be issued and redelivered to Optionee. For purposes of this Agreement, the fair market value of the common stock on a specified date shall be determined by reference to the average of the high and low transaction prices in trading of the common stock on such date as reported in the New York Stock Exchange-Composite Transactions, or, if no such trading in the common stock occurred on such date, then on the next preceding date when such trading occurred; provided, that if the Committee administering the Plan shall determine that such New York Stock Exchange- Composite Transactions prices are not representative of the fair market value, such Committee shall determine such fair market value by such other appropriate means as it shall determine. -6- 3. Upon exercise of the option in whole or in part pursuant to Section 2 hereof, the Company shall deliver certificates representing the number of shares specified against payment therefor and shall pay all original issue or transfer taxes and all other fees and expenses incident to such delivery. 4. Optionee shall be entitled to the privileges of ownership with respect to shares subject to the option only as to shares purchased and delivered to Optionee upon exercise of all or part of the option. 5. (a) If Optionee ceases to be employed by the Company by reason of death prior to June 30, 2004, then the option shall be exercisable by the executor, administrator, personal representative or beneficiary of Optionee during the 90- day period commencing on the date of Optionee's death, but only during the option term, with respect to all of the shares of common stock subject to the option if, on or prior to the date of Optionee's death, the option had become exercisable with respect to all of the shares of common stock subject to the option pursuant to any of subsections 1(c)(1)-(6) or (8). If Optionee ceases to be employed by the Company by reason of death prior to June 30, 2004 and the option had not become exercisable on or prior to the date of Optionee's death pursuant to any of subsections 1(c)(1)-(6) or (8), then the option shall become exercisable as of the time of such death by the executor, administrator, personal representative or beneficiary of Optionee for the 90-day period commencing on the date of Optionee's death, but only during the option term, as to the number of shares of common stock determined by multiplying the number of shares of common stock subject to the First Premium Option, the Second Premium Option and the Third Premium Option, respectively, by a fraction, the numerator of which is the -7- number of calendar months which have elapsed since and including January, 1995 through the date of such death (rounded up to the nearest whole number) and the denominator of which is 114. The portion of the option which does not become exercisable pursuant to the preceding sentence shall be cancelled as of the date of Optionee's death. If Optionee ceases to be employed by the Company by reason of death on or after June 30, 2004, then the option shall be exercisable by the executor, administrator, personal representative or beneficiary of Optionee during the 90-day period commencing on the date of Optionee's death, but only during the option term, with respect to all of the shares of common stock subject to the option. (b) If Optionee ceases to be employed by the Company prior to December 31, 1998 for any reason other than death, the option shall be cancelled as of the effective date of such cessation of employment. If Optionee ceases to be employed by the Company on or after December 31, 1998 by reason of retirement on or after age 65, retirement on or after age 55 with the consent of the Company or total and permanent disability, then the option shall be exercisable by Optionee during the five-year period commencing on the effective date of such cessation of employment, but only during the option term, with respect to all of the shares of common stock subject to the option if, on or prior to the effective date of such cessation of employment, the option had become exercisable with respect to all of the shares of common stock subject to the option pursuant to any of subsections 1(c)(1)-(8). If Optionee ceases to be employed by the Company on or after December 31, 1998 by reason of retirement on or after age 65, retirement on or after 55 with the consent of the Company or total and permanent disability and the option had not become exercisable on or prior to the effective date of such cessation of employment pursuant to any of subsections 1(c)(1)-(8), then the option shall become exercisable by Optionee, during the five-year period commencing on the -8- effective date of such cessation of employment, but only during the option term, and only in accordance with subsections 1(c)(2)-(8); provided, however, that the option may (in the case of subsections 1(c)(2)-(6)) or shall (in the case of subsections 1(c)(7)-(8)) become exercisable during such five-year period only as to the number of shares of common stock determined by multiplying the number of shares of common stock subject to the First Premium Option, the Second Premium Option and the Third Premium Option, respectively, by a fraction, the numerator of which is the number of calendar months which have elapsed since and including January, 1995 through the effective date of such cessation of employment (rounded up to the nearest whole number) and the denominator of which is 114. The portion of the option which may not become exercisable pursuant to the preceding sentence shall be cancelled as of the effective date of such cessation of employment. (c) If Optionee ceases to be employed by the Company for any reason other than death, retirement on or after age 65, retirement on or after age 55 with the consent of the Company or total and permanent disability, then the option shall be exercisable by Optionee during the 90-day period commencing on the effective date of such cessation of employment, but only during the option term, to the extent Optionee was entitled under Section 1(c) hereof to exercise the option on the effective date of such cessation of employment. The portion of the option which may not become exercisable pursuant to the preceding sentence shall be cancelled as of the effective date of Optionee's cessation of employment. 6. Neither the option nor any rights hereunder may be transferred other than by will or the laws of descent and distribution. During Optionee's lifetime the option is exercisable only by -9- Optionee or Optionee's guardian, personal representative or similar person. Any other transfer or any attempted assignment, pledge or hypothecation, whether by operation of law or otherwise, shall be void. The option is not subject to execution, attachment or other process and no person shall be entitled to any rights hereunder by virtue of any attempted execution, attachment or other process. 7. In the event of the death of Optionee (a) during the five-year period commencing on the effective date of Optionee's cessation of employment by reason of retirement on or after age 65, retirement on or after age 55 with the consent of the Company or total and permanent disability or (b) during the 90-day period commencing on the effective date of Optionee's cessation of employment for any other reason, the option may be exercised by the executor, administrator, personal representative or beneficiary of Optionee during the 90-day period commencing on the date of Optionee's death, but only during the option term, to the extent Optionee was entitled to exercise the option on the date of Optionee's death. 8. Upon the occurrence of any of the following events subsequent to the option date, the option shall be adjusted as follows: (a) Appropriate adjustments shall be made by the Committee administering the Plan in the number of shares purchasable under the option to give effect to any stock splits, stock dividends and other relevant changes in capitalization. (b) In case the Company shall effect a merger, consolidation or other reorganization pursuant to which the outstanding shares of common stock of the Company shall be exchanged for other shares, securities or consideration of the Company or of another corporation or entity a party to such merger, consolidation or other reorganization, Optionee shall have the right to purchase, at the aggregate option price provided for in this Agreement and on the same terms and conditions, the kind and number of other shares, securities or consideration of the Company or such other corporation or entity which would have been issuable or payable to Optionee in respect of the number of -10- shares of common stock of the Company which were subject to the option immediately prior to the effective date of such merger, consolidation or other reorganization had such shares then been owned by Optionee. The Company agrees that it will make appropriate provisions for the preservation of Optionee's option rights in any agreement or plan which it enters into or adopts to effect any such merger, consolidation or other reorganization. Any adjustment required as a result of the foregoing provisions of this Section 8 shall be effected in such manner that the difference between the aggregate fair market value of the other shares, securities or consideration subject to the option immediately after giving effect to such adjustment and the aggregate option price of such other shares, securities or consideration shall be substantially equal to (but shall not be more than) the difference between the aggregate fair market value of the shares subject to the option immediately prior to such adjustment and the aggregate option price of such shares. Any adjustments made under this Section shall be determined by the Committee administering the Plan. 9. For purposes of this Agreement, employment by the Company shall be deemed to include employment by a corporation which is a "parent corporation" or a "subsidiary corporation" of the Company (as defined in Section 425 of the Internal Revenue Code of 1986 (hereinafter called the "Code")), employment by any corporation which succeeds to the obligations of the Company hereunder pursuant to Section 8(b) hereof, and employment by a corporation which is a "parent corporation" or a "subsidiary corporation" of any such corporation (as defined in the above-mentioned section of the Code). 10. The option is subject to the condition that if the listing, registration or qualification of the shares subject to the option on any securities exchange or under any state or -11- federal law, or if the assent or approval of any regulatory body shall be necessary as a condition of, or in connection with, the granting of the option or the delivery or purchase of shares thereunder, the option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. The Company agrees to use its best efforts to obtain any such requisite listing, registration, qualification, consent or approval. 11. The Committee administering the Plan, as from time to time constituted, shall have the right to determine any questions which arise in connection with this Agreement or the option. This Agreement and the option are subject to the provisions of the Plan and shall be interpreted in accordance therewith. 12. This Agreement shall not be construed as an employment contract and does not give the Optionee any right to continued employment by the Company, and the fact that the termination of Optionee's employment occurs during the option term shall in no way be construed as giving the Optionee the right to continue in the Company's employ. 13. The option shall not be treated as an incentive stock option within the meaning of Section 422 of the Code. 14. This Agreement shall be binding upon and shall inure to the benefit of any successor or successors of the Company and any person or persons who shall, upon the death of the Optionee, acquire any rights in the option. -12- 15. Any notice, including a notice of exercise of the option, required to be given hereunder to the Company shall be addressed to the Company at its office at 77 West Wacker Drive, Chicago, Illinois 60601-1696, attention of the Vice President, Compensation and Benefits, and any notice required to be given hereunder to Optionee shall be addressed to Optionee at Optionee's residence address as shown in the Company's records, subject to the right of either party hereafter to designate in writing to the other some other address. Any such notice shall be deemed to have been duly given on the day that such notice is received by the Vice President, Compensation and Benefits. Any such notice shall be (i) delivered to the Vice President, Compensation and Benefits by personal delivery, facsimile, United States mail or by express courier service and (ii) deemed to be received upon personal delivery, upon confirmation of receipt of facsimile transmission or upon receipt by the Vice President, Compensation and Benefits if by United States mail or express courier service; provided, however, that if any notice is not received during regular business hours, it shall be deemed to be received on the next succeeding business day of the Company. -13- IN WITNESS WHEREOF, R. R. DONNELLEY & SONS COMPANY has caused this instrument to be executed as of the day and year first above written. R. R. DONNELLEY & SONS COMPANY By____________________________ Name: Title: The terms and conditions of the foregoing Stock Option Agreement are hereby accepted by the undersigned this _____ day of __________________, 199_ _________________________________ Optionee -14- EX-12 8 STATEMENT COMPUTATION EXHIBIT 12 R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS)
TWELVE MONTHS ENDED DECEMBER 31, 1994 ------------------- Earnings Earnings before income taxes............................. $395,004 Interest expense......................................... 53,493 One-third of the company's operating leases (see note below).................................................. 20,267 Amortization of capitalized interest..................... 6,129 -------- Earnings available for fixed charges..................... $474,893 ======== Fixed Charges Interest expense......................................... $ 53,493 Capitalized interest..................................... 10,233 -------- Interest incurred........................................ 63,726 One-third of the company's operating leases (see note below).................................................. 20,267 -------- Fixed charges............................................ $ 83,993 ======== Ratio of Earnings to Fixed Charges......................... 5.7 ========
-------- Note: Management estimates one-third of current year's operating lease payments to be the interest factor of such rentals. EX-21 9 SUBSIDIARIES OF RRD Form 10-K Year-Ended 12/31/94 Exhibit 21
SUBSIDIARIES OF R. R. DONNELLEY & SONS COMPANY (As of March 24, 1995) Subsidiaries of Place of R. R. Donnelley & Sons Company Incorporation ------------------------------ ------------- 77 Capital Corporation Delaware 77 Capital Partners L.P. Delaware Air Operations Company Delaware Allentown S.H. Leasing Company Delaware Aviation Transportation, Inc. Delaware C & E Transport, Inc. Delaware CWH Supply Company Delaware Caslon Incorporated Delaware Chemical Equipment S.H. Leasing Company Delaware Customer Insight Company Delaware DPA Printing Company, SP. Zo.o. Poland Donnelley Caribbean Graphics, Inc. Delaware Donnelley Comco, Inc. Delaware Donnelley Documentation Services (Ireland), Limited Delaware Donnelley Holdings, Limited Delaware Donnelley International, Inc. Delaware Donnelley Korea Co., Ltd. Korea Donnelley Language Solutions Republic of Ireland Donnelley Satellite Services, Limited Delaware Donnelley Satellite Graphics, Limited Delaware Editorial Lord Cochrane, S.A. Chile European-American Ink Sales Corp. Iowa FFH Corporation Delaware Fulfill: Plus Pte Ltd. Singapore GeoSystems Global Corporation Delaware HCI Holdings Delaware Haddon Craftsmen, Inc. Delaware Impresora Donneco Internacional, S.A. de C.V. Mexico Information Investment Partners L.P. Delaware Ink International, B.V. Dutch
Page 2 Form 10-K Year-Ended 12/31/94 Exhibit 21
SUBSIDIARIES OF R. R. DONNELLEY & SONS COMPANY (As of March 24, 1995) Subsidiaries of Place of R. R. Donnelley & Sons Company Incorporation ------------------------------ ------------- Intervisual Communications, Inc. Delaware Kittyhawk S.H. Leasing Company Delaware Laboratorio Lito Color S.A. de C.V. Mexico M/B Companies, Inc. Iowa Metromail Corporation Delaware Mailing List Research of Canada, Limited Canada Mobium Corporation for Design & Communication Delaware Pan Associates L.P. Delaware R. R. Donnelley Far East, Limited Delaware R. R. Donnelley Australia PTY Ltd Australia R. R. Donnelley France, S.A. France R. R. Donnelley Global Software Services Corp. Delaware R. R. Donnelley International, Inc. Delaware R R Donnelley Ireland (Holdings) Republic of Ireland R R Donnelley Ireland Documentation Services Republic of Ireland R R Donnelley Ireland Turnkey Services Kildare Republic of Ireland R. R. Donnelley Japan K. K. Japan R. R. Donnelley/Leefung-Asco Holdings, Inc. British Virgin Islands R. R. Donnelley Limited United Kingdom R. R. Donnelley Mendota, Inc. Delaware R. R. Donnelley Nederland B.V. The Netherlands R. R. Donnelley Norwest Inc. Oregon R. R. Donnelley Printing Company Delaware R. R. Donnelley Printing Company L.P. Delaware R. R. Donnelley Receivables, Inc. Nevada R. R. Donnelley Seymour, Inc. New Jersey R. R. Donnelley U.K. Marketing Services Limited Republic of Ireland R. R. Donnelley (Canada) Limited Ontario R. R. Donnelley (Chile) Holdings, Inc. Delaware R. R. Donnelley (Europe) Limited Delaware
Page 3 Form 10-K Year-Ended 12/31/94 Exhibit 21 SUBSIDIARIES OF R. R. DONNELLEY & SONS COMPANY (As of March 24, 1995) Subsidiaries of Place of R. R. Donnelley & Sons Company Incorporation ------------------------------ ------------- R. R. Donnelley (Ireland) Limited Delaware R. R. Donnelley (Santiago), Inc. Delaware R. R. Donnelley (Singapore) Pte Ltd Singapore R. R. Donnelley (U.K.) Limited United Kingdom Reynosa Holding Company Delaware Shenzhen Donnelley Bright Sun Printing Co. Republic of China Siegwerk Sales & Services L.P. Delaware Turnkey Service Japan Co., Ltd. Japan Wyoming Avenue Holdings, Inc. Delaware Winfield Avenue Holdings, Inc. Delaware
EX-23 10 CONSENT IND PUB ACCT EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated January 26, 1995 (except with respect to the matter discussed in paragraph 5 in the Commitments and Contingencies Footnote, as to which the date is March 8, 1995) included in this Annual Report of R. R. Donnelley & Sons Company on Form 10-K for the year ended December 31, 1994, into mpany's previously filed Registration Statements on Form S-8 (File Nos. 33-19803, 33-43632, 33-49431, 33-49809 and 33-52805), Forms S-3 (33-49539 and 33-57807) and previously filed post-effective amendments thereto. Arthur Andersen LLP Chicago, Illinois, March 27, 1995 EX-27 11 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 20,569 0 1,006,688 19,168 311,237 1,353,330 3,708,844 1,852,084 4,452,143 801,850 1,212,332 330,612 0 0 1,647,757 4,452,143 4,888,786 4,888,786 3,938,494 4,429,355 10,934 0 53,493 395,004 126,401 268,603 0 0 0 268,603 1.75 0