Exhibit 10(a)
R. R. DONNELLEY & SONS COMPANY
1986
STOCK INCENTIVE PLAN
(As amended on April 24, 1986, July 27, 1989, September 28, 1989,
October 26, 1995, January 25, 1996 and September 1, 1996)
I. GENERAL
1. Plan. To provide incentives to management through rewards based upon
the ownership and performance of the common stock of R. R. Donnelley & Sons
Company (the "Company"), the Committee hereinafter designated, with the approval
of the Board of Directors, may grant stock bonus awards, stock options, stock
appreciation rights, or combinations thereof, to eligible officers and other key
management personnel, on the terms and subject to the conditions stated in this
Plan.
2. Eligibility. Officers and other key management employees of the
Company, its subsidiaries, and any other entity designated by the Board of
Directors or the Committee in which the Company has a direct or indirect equity
interest, shall be eligible, upon selection by the Committee, to receive stock
bonus awards, stock options or stock appreciation rights, either singly or in
combination, as the Committee, in its discretion, shall determine. For purposes
of the Plan, references to employment by the Company also mean employment by a
majority-owned subsidiary of the Company and employment by any other entity
designated by the Board or the Committee in which the Company has a direct or
indirect equity interest.
3. Limitation on Shares to be Issued. The maximum number of shares of
common stock, par value $1.25 per share, to be issued pursuant to all grants
made under the Plan shall be 3,200,000 of which no more than 1,200,000 shares
shall be issued pursuant to stock bonus awards granted under the Plan. Shares
awarded pursuant to grants which, by reason of the expiration, cancellation or
other termination of the grants prior to issuance are not issued, shall again be
available for future grants.
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 Internal Revenue Code of 1986, as amended (the "Code"),
and (ii) a "Non-Employee Director" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Committee
shall, within the limits of the Plan and subject to the approval of the Board of
Directors, establish selection guidelines; select eligible persons
1
for participation; and determine the form of grant, either as stock bonus, stock
option or stock appreciation rights or combination thereof, determine the form
of stock option, the number of shares subject to the grant, the fair market
value of the common stock when necessary, the time and conditions of vesting or
exercise, and all other terms and conditions of the grant. The Committee may
establish rules and regulations for the administration of the Plan, interpret
the Plan, and impose, incidental to a grant, conditions with respect to
competitive employment or other activities not inconsistent with or conflicting
with the Plan. All such rules, regulations, and interpretations relating to the
Plan adopted by the Committee shall be conclusive and binding on all parties.
5. Adjustments for Changes in Capitalization. Appropriate adjustments
shall be made by the Committee in the maximum number of shares to be issued
under the Plan, the maximum number of shares to be issued pursuant to stock
bonus awards, and in the number of shares the subject of any grant, to give
effect to any stock splits, stock dividends and other relevant changes in
capitalization occurring after the effective date of the Plan.
6. Effective Date and Term of Plan. The Plan shall be submitted to the
stockholders of the Company for approval at the 1986 annual meeting scheduled to
be held on March 27, 1986, and if approved shall become effective on that date.
The Plan shall terminate five years after it becomes effective unless terminated
prior thereto by action of the Board of Directors. No further grants shall be
made under the Plan after termination, but termination shall not affect the
rights of any participant under any grants made prior to termination.
7. Amendments. The Plan may be amended or terminated by the Board of
Directors in any respect except that no amendment may be made without
stockholder approval if such amendment would
(a) increase the maximum number of shares available for issuance under the
Plan or stock bonus awards;
(b) modify the class of eligible employees; or
(c) extend the period during which any option or other right may be
exercised under the Plan.
8. Prior Plans. Upon the effectiveness of this Plan, no further grants
shall be made under the Company's 1976 Stock Option Plan, as amended, and the
1981 Stock Incentive Plan, as amended, except that stock appreciation rights may
be granted with respect to options previously granted and outstanding under
these Plans. Bonuses awarded under the 1981 Stock Incentive Plan, as amended,
and options granted under the 1976 Stock Option Plan, as amended, and the 1981
Stock Incentive Plan, as amended, prior to the effectiveness of this Plan shall
continue in accordance with their terms.
2
9. 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. 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 date the obligation to withhold or pay taxes arises
(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). Shares of common
stock to be delivered or withheld may have 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.
II. STOCK BONUS AWARDS
1. Form of Award. Stock bonus awards, whether Performance Awards or Fixed
Awards, may be made to eligible officers and other key management personnel in
the form of stock units, each of which is the equivalent of a share of common
stock but for the power to vote and the entitlement to current dividends, or in
the form of shares of common stock issued to the employee but forfeitable and
with restrictions on transfer in any form as hereinafter provided.
2. Performance Awards. Awards may be made in terms of a stated potential
maximum number of units or shares, with the actual number to be determined by
reference to the level of achievement of corporate, group, division, individual
or other specific objectives over a period of not less than three nor more than
ten years. No rights or interests of any kind shall be vested in an individual
receiving a performance award until the conclusion of the period and the
determination of the level of achievement specified in the award, and the time
of vesting thereafter shall be as specified in the award.
3
3. Fixed Awards. Awards may be made which are not contingent on the
performance of objectives, but are contingent on the participant's continuing in
the Company's employ for a period to be specified in the award, which period
shall be not less than five nor more than ten years from the date of award.
4. Rights with Respect to Restricted Shares. If shares of restricted
common stock are issued pursuant to an award, the participant shall have the
right to vote the shares and to receive dividends thereon from the date of
issuance, unless and until forfeited.
5. Rights with Respect to Stock Units. If stock units are credited to a
participant pursuant to an award, amounts equal to dividends otherwise payable
on a like number of shares of common stock after the crediting of the units
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, 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 dividends and interest have been credited
shall be paid in cash. Shares of restricted common stock issued pursuant to an
award shall, at the time of vesting, be released from the restrictions.
7. Acceleration Upon Change in Control. If while any Performance
Award or Fixed Award remains outstanding under this Plan--
(a) any "person," as such term is defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (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
4
(b) during any period of two (2) consecutive years (not including
any period prior to the execution of this Amendment), 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 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, all levels of
achievement specified in the award shall be deemed met and the award shall be
immediately and fully vested, and (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.
5
III. STOCK OPTIONS
1. Grants. Options to purchase shares of common stock of the Company may be
granted to such eligible officers and other key management personnel as may be
selected by the Committee and approved by the Board of Directors. These options
may, but need not, constitute "incentive stock options" under Part II of
subchapter D of the Internal Revenue Code of 1986, as amended, or any other form
of option under the Code as hereafter amended.
2. Terms of Options. No option shall be exercisable less than one nor more
than ten years after the date of grant. The per share option price shall be not
less than 100% of the fair market value at the time the option is granted. Upon
exercise, the option price may be paid in cash, in shares of common stock of the
Company having a fair market value equal to the option price, or in a
combination thereof. In the event of the death of an optionee (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 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. Options may be
exercised during the individual's continued employment with the Company and for
a period not in excess of ninety days following termination of employment and
only within the original term of that option; provided, however, that if
employment of the optionee by the Company and its subsidiaries shall have
terminated by reason of retirement or total and permanent disability, then the
option may be exercised for a period not in excess of five years following
termination of employment but not after the expiration of the term of the
option.
3. Acceleration of Stock Options Upon a Change in Control. If while any stock
option granted pursuant to this Article III of the Plan remains unexercised and
outstanding, a Change in Control (as defined in Article II, Section 7, above)
occurs, then from and after the Acceleration Date (as defined in Article II,
Section 7, above) all such outstanding and unexercised options, whether or not
then vested, shall be fully and immediately exercisable.
6
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 key management personnel 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 this Stock Incentive Plan and shall comply in all
respects with the terms and conditions applicable to options granted under
Article III of this Stock Incentive 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 534 of the Income and
Corporation Taxes Act 1970) and which are an affiliate
controlled by the Company directly or indirectly through
one or more intermediaries for the purposes of rule 12b -2
of the U.S. Securities Exchange Act of 1934;
"the Group" shall mean the Company and the Subsidiaries;
"Associated Company" shall have the meaning attributed to it in section 302 of
the Income and Corporation Taxes Act 1970;
"the Committee" shall mean the committee designated to administer this
Stock Incentive Plan;
"Full Time Employee" shall mean any director or employee of the Group 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 4(1)(b) of
Schedule 10 from participating in the Sub-Plan;
"Relevant Emoluments" shall have the meaning which the term bears in sub-
paragraph (2) of paragraph 5 of Schedule 10 by virtue of
sub-paragraph 5 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 Transaction compiled by Associated Press or if
no trading occurred on such date then on the next
preceding date on which such trading occurred;
"Schedule 10" shall mean Schedule 10 of the United Kingdom Finance
Act of 1984.
"Share" or "Shares" shall mean a share or shares of common stock of par value
$1.25 which satisfy the conditions specified in Paragraphs
7 to 11 inclusive of Schedule 10.
(c) Sub-Plan. The Committee, with the approval of the Board of Directors of
the Company, may grant stock options to officers and other key management
personnel eligible to participate in the Sub-Plan on the terms and subject to
the conditions stated in this Sub-Plan.
(d) Eligibility. Full time employees who are officers or key management
personnel 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, par value $1.25 per share shall be subject to the
maximum specified in this Stock Incentive Plan.
(f) Administration. The Sub-Plan shall be administered by the Committee in
accordance with the provisions set out in this Stock Incentive 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 1986 annual meeting
scheduled to be held on March 27, 1986, and if approved shall become effective
on that date. The Sub-Plan shall terminate five years after it becomes
effective unless terminated prior thereto by action of the Board of Directors.
No further grants shall be made under the Sub-Plan after
8
termination but termination shall not affect the right of any participation
under the grants made prior to termination.
(h) Amendments. The Sub-Plan may be amended or terminated by the Board of
Directors subject to the conditions specified in this Stock Incentive Plan. No
amendment may be made which will put the Sub-Plan in breach of conditions for
approval set out in Schedule 10 and no amendment to the Sub-Plan or any
provision in this Stock Incentive Plan which applies to options granted under
the Sub-Plan shall be made without prior approval of the Board of UK Inland
Revenue.
2. STOCK OPTIONS
(a) Grants. Options to purchase shares of common stock of the Company may be
granted to such eligible officers and eligible key management personnel as may
be selected by the Committee and approved by the Board of Directors.
(b) Variations in Options. Variations may not be made to options granted
under the Sub-Plan pursuant to Article I clause 5 of this Stock Incentive Plan
without prior consent of the Board of UK Inland Revenue.
(c) Terms of Options. No options shall be exercisable less than one nor more
than ten years after the date of the 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.
Options shall not be transferable except that such options may be exercised by
the personal representative of a deceased optionee 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. No option may be exercised by an
individual at any time when he is precluded by Paragraph 4(1)(b) of Schedule 10
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 30 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 this Sub-Plan
which would, at the time that they are obtained, cause the aggregate Market
Value of the shares which he may acquire in pursuant 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
9
approved by the Revenue under Schedule 10 (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 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. Rights 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 of the Company from the date of grant,
or in the case of rights granted in tandem with or by reference to a stock
option granted prior to the grant of such rights, from the date of grant of the
related stock option to the date of exercise may be granted to such eligible
officers and other key management personnel as may be selected by the Committee
and approved by the Board of Directors.
2. Terms of Grant. Such rights may be granted in tandem with or with
reference to a related stock option, in which event the grantee may elect to
exercise either the option or the right, but not both, as to the same share of
common stock subject to the option and the right, or the right may be granted
independently of a related stock option. In either event, the right shall be
exercisable not more than ten years after the date of grant. Stock appreciation
rights shall not be transferable, except that in the event of the death of a
grantee during employment or within a period not in excess of five years after
termination of employment by reason of retirement or total and permanent
disability or within ninety days after termination of employment for any other
reason, outstanding rights may be exercised by the executor, administrator or
personal representative of such deceased grantee within ninety days of the death
of such grantee. Stock appreciation rights may be exercised during the
individual's continued employment with the Company and for a period not in
excess of ninety days following termination of employment and only within the
original term of that grant; provided, however, that if employment of the
grantee by
10
the Company and its subsidiaries shall have terminated by reason of retirement
or total and permanent disability, then the grant may be exercised for a period
not in excess of five years following termination of employment but not after
the expiration of the term of the grant.
3. Payment on Exercise. Upon exercise of a right, the grantee shall be paid
the excess of the then fair market value of the number of shares to which the
right relates over the fair market value of such number of shares at the date of
grant of the right 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.
11