Exhibit 10.18

 

R.R. DONNELLEY & SONS COMPANY

PERFORMANCE UNIT AWARD

 

This Performance Unit Award (“Award”) is granted as of February 27, 2004, by R.
R. Donnelley & Sons Company (the “Company”) to Mark A. Angelson (“Grantee”) and
is hereby clarified in certain respects. This Award is made pursuant to the
terms of the letter agreement, dated as of November 8, 2003 and as modified and
clarified on March 24, 2005, between the Company and Grantee (the “Employment
Agreement”).

 

1. Grant of Award. The Company hereby credits to Grantee 300,000 stock units
(the “Initial Performance Units”), subject to the restrictions and on the terms
and conditions set forth herein. This Award is made pursuant to the provisions
of the R. R. Donnelley & Sons Company 2004 Performance Incentive Plan (“2004
PIP”). Capitalized terms not defined herein shall have the meanings specified in
the 2004 PIP. Grantee shall indicate acceptance of this Award by signing and
returning a copy hereof.

 

2. Determination of Achievement; Distribution of Award.

 

(a) The number of shares of common stock, par value $1.25 per share, of the
Company (the “Common Stock”) payable in respect of one-half of the Initial
Performance Units will be determined based on the performance of the Company
against the “Cost Savings Matrix,” and one-half will be determined based on the
performance of the Company against the “Normalized Earnings Per Share Matrix”,
each as shown on Attachment A hereto. Promptly following February 27, 2007 and
March 31, 2007, respectively (or promptly following such earlier date as of
which, pursuant to Section 4 hereof, a determination of the attainment by the
Company of the targets set forth on the Cost Savings Matrix and/or the
Normalized Earnings Per Share Matrix is to be made), the Committee (as defined
in the 2004 PIP) shall determine whether and to what extent the Cost Savings and
Normalized Earnings Per Share targets have been met.

 

(b) Distribution with respect to this Award shall be made to Grantee as soon as
practicable following the determination described in (a) above, provided, that,
under certain circumstances described in the Employment Agreement, delivery
shall be made to the rabbi trust created under the Employment Agreement.
Distribution of this Award may be made in Common Stock, cash (based upon the
fair market value of the Common Stock on the date of distribution) or any
combination thereof as determined by the Committee.

 

3. Dividends; Voting.

 

(a) No dividends or dividend equivalents will accrue with respect to the Initial
Performance Units.

 

(b) Grantee shall have no rights to vote shares of common stock represented by
the Initial Performance Units unless and until distribution with respect to this
Award is made in Common Stock pursuant to paragraph 2(b) above.

 

1

--------------------------------------------------------------------------------

4. Treatment upon Separation or Termination.

 

(a) If Grantee terminates his employment for Good Reason (as defined in the
Employment Agreement) or the Company terminates the Grantee’s employment without
Cause (as defined in the Employment Agreement) (i) the measurement date for
purposes of calculating the number of shares of Common Stock payable in respect
of those Initial Performance Units that are linked to Cost Savings shall be the
date of termination and (ii) the Initial Performance Units that are linked to
Normalized Earnings Per Share shall vest and be payable, if at all, on the same
terms and conditions that would have applied had Grantee’s employment not
terminated (i.e., performance measured on March 31, 2007).

 

(b) If Grantee’s employment terminates by reason of death or Disability (as
defined in the Employment Agreement), fifty percent of any unvested Initial
Performance Units shall vest and become payable, assuming the attainment of
target performance (100% achievement) or, if greater, based on actual
performance through the date of death or determination of Disability.

 

(c) If Grantee’s employment terminates by reason of Retirement (as defined in
the Employment Agreement), a pro-rated portion of the Initial Performance Units
shall vest and be payable, if at all, on the same terms and conditions that
would have applied had Grantee’s employment not terminated (i.e., performance
measured on February 27, 2007 and March 31, 2007, respectively). The pro-rated
portion of the Initial Performance Units shall be determined by multiplying the
total number of Initial Performance Units by a fraction, the numerator of which
is the total number of days between February 27, 2004 and the date of Grantee’s
termination by reason of Retirement and the denominator of which is 1096.

 

(d) If Grantee’s employment is terminated by the Company for Cause or is
terminated by Grantee other than for Good Reason or Retirement, any unvested
Initial Performance Units shall be forfeited.

 

5. Treatment upon Change in Control. Upon the Acceleration Date associated with
a Change in Control, all of the Initial Performance Units shall vest and become
payable with respect to that number of shares of Common Stock that would be
payable at target performance (100% achievement) or, if greater, based on actual
performance through the Acceleration Date (which, in the case of the Initial
Performance Units that are based on the Normalized Earnings Per Share Matrix,
will be reasonably determined based upon the Company’s internal forecasts on the
Acceleration Date through the end of March 31, 2007).

 

6. Withholding Taxes.

 

(a) As a condition precedent to the issuance to Grantee of any shares of Common
Stock pursuant to this Award, the Grantee shall, upon request by the Company,
pay to the Company such amount of cash as the Company may be required, under all
applicable federal, state, local or other laws or regulations, to withhold and
pay over as income or other withholding taxes (the “Required Tax Payments”) with
respect to the Award. If Grantee shall fail to advance the Required Tax Payments
after request by the Company, the Company may, in its discretion, deduct any
Required Tax Payments from any amount then or thereafter payable by the Company
to Grantee.

 

2

--------------------------------------------------------------------------------

(b) Grantee may elect to satisfy his obligation to advance the Required Tax
Payments by any of the following means: (1) a cash payment to the Company, (2)
delivery to the Company of previously owned whole shares of Stock for which
Grantee has good title, free and clear of all liens and encumbrances, having a
fair market value, determined as of the date the obligation to withhold or pay
taxes first arises in connection with the Award (the “Tax Date”), equal to the
Required Tax Payments, or (3) directing the Company to withhold a number of
shares of Common Stock otherwise issuable to Grantee pursuant to this Award
having a fair market value, determined as of the Tax Date, equal to the Required
Tax Payments or any combination of (1)-(3). 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 Grantee. No certificate
representing a share of Common Stock shall be delivered until the Required Tax
Payments have been satisfied in full. For purposes of this Award, the fair
market value of a share of 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.

 

7. Miscellaneous

 

(a) The Company shall pay all original issue or transfer taxes with respect to
the issuance or delivery of shares of Common Stock pursuant hereto and all other
fees and expenses necessarily incurred by the Company in connection therewith,
and will use reasonable efforts to comply with all laws and regulations which,
in the opinion of counsel for the Company, shall be applicable thereto.

 

(b) Nothing in this Award shall confer upon Grantee any right to continue in the
employ of the Company or any other company that is controlled, directly or
indirectly, by the Company or to interfere in any way with the right of the
Company to terminate Grantee’s employment at any time.

 

(c) No interest shall accrue at any time on this Award or the Initial
Performance Units.

 

(d) This Award shall be governed in accordance with the laws of the state of
Illinois.

 

(e) This Award shall be binding upon and inure to the benefit of any successor
or successors to the Company.

 

(f) Neither this Award nor the Initial Performance Units nor any rights
hereunder or thereunder may be transferred or assigned by Grantee other than by
will or the laws of descent and distribution or pursuant to beneficiary
designation procedures approved by the Company or other procedures approved by
the Company. Any other transfer or attempted assignment, pledge or
hypothecation, whether or not by operation of law, shall be void.

 

3

--------------------------------------------------------------------------------

(g) The Committee, as from time to time constituted, shall have the right to
determine any questions which arise in connection with this Agreement or the
Initial Performance Units. This Agreement and the Initial Performance Units are
subject to the provisions of the Plan and shall be interpreted in accordance
therewith.

 

(h) If there is any inconsistency between the terms and conditions of this Award
and the terms and conditions of the Employment Agreement, the terms and
conditions of the Employment Agreement shall control.

 

IN WITNESS WHEREOF, the Company has caused this Award to be duly executed by its
duly authorized officer.

 

R. R. DONNELLEY & SONS COMPANY By:  

/s/ Suzanne S. Bettman

--------------------------------------------------------------------------------

Name:   Suzanne S. Bettman Title:   Senior Vice President and General Counsel

Accepted:  

/s/ Mark A. Angelson

--------------------------------------------------------------------------------

    Mark A. Angelson

 

4

--------------------------------------------------------------------------------

Attachment A

 

COST SAVINGS MATRIX

 

Performance against this matrix shall be measured on the third anniversary of
the Effective Date. Initial Performance Units related to this performance
objective will be vested and payable based on achievement of the Cost Savings
targets set forth below, interpolating the multiple for Cost Savings between
$100 million and $300 million.

 

Annualized Run Rate of Cost

Savings

--------------------------------------------------------------------------------

  

Multiple of Initial Performance Units

Payable

--------------------------------------------------------------------------------

Not less than $100 million

   100%

$200 million

   200%

$300 million or more

   300%

 

“Cost Savings” shall be calculated by measuring the actual incremental savings
effected through actions implemented by the Company between January 1, 2004 and
the third anniversary of the Effective Date, with respect to categories such as,
but not limited to, net headcount reductions, purchasing synergies,
rationalization of facilities and rationalization of information technology
systems, as are reasonably expected to recur, on an annual basis, for the
foreseeable future. In determining Cost Savings, the Committee may, after
consultation with the Executive, make equitable adjustments to reflect
extraordinary events as it shall reasonably deem necessary and appropriate to
avoid any increase or diminution in the opportunity conveyed by the portion of
the Initial Performance Units subject to the Cost Savings Matrix.

 

NORMALIZED EARNINGS PER SHARE MATRIX:

 

Performance against this matrix shall be measured over the fifth through twelfth
full calendar quarters after the Effective Date. Initial Performance Units
related to this performance objective will be vested and payable at the end of
such performance period, to the extent the applicable average annual normalized
EPS objectives are achieved, interpolating the multiple for EPS between $1.89
and $2.09. Normalized earnings shall be determined by excluding from the
calculation of earnings (i) contingent liabilities for which prior management
did not reserve, including, without limitation, pending litigations, (ii)
decreased earnings resulting from changes in accounting principles, including,
without limitation, the requirement that stock options and other equity awards
should be expensed (or, where applicable, should be expensed differently than
under prior practices at the Company), and (iii) unusual items not expected to
occur in the ordinary course of business or unrelated to the ongoing operation
of the business, including, without limitation, acquisition related charges,
restructuring and restructuring related charges that are not currently
determinable, or gains or losses from asset sales.

 

5

--------------------------------------------------------------------------------

Average Annual Normalized EPS

--------------------------------------------------------------------------------

   Percentage of Initial Performance
Units Payable

--------------------------------------------------------------------------------

At least $1.89

   100%

$1.99

   200%

$2.09 or more

   300%

 

Normalized Earnings Per Share shall be adjusted by the Committee, as it shall
deem reasonably necessary and appropriate, to avoid any increase or diminution
in the opportunity conveyed by the portion of the Initial Performance Units
subject to the Normalized Earnings Per Share Matrix that could result from any
acquisition or disposition of any business or division (whether by merger, stock
purchase or sale, sale or purchase of assets, or otherwise) made by the Company.