<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
January 31, 1997 1-6528
- ----------------------------------- -------------------------
For the quarterly period ended Commission file number
WALLACE COMPUTER SERVICES, INC.
--------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-2515832
- ----------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2275 Cabot Drive Lisle, Illinois 60532
------------------------------------------ ------------
(Address of Principal Executive Offices) (ZIP CODE)
(630) 588-5000 43,197,255
- ----------------------------------- ------------------------------------
(Registrant's Telephone Number, (Number of Common Shares Outstanding
Including Area Code) as of February 28, 1997)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
--- ---
<PAGE>
Wallace Computer Services, Inc. Page 2
FORM 10-Q
For Quarterly Period Ended January 31, 1997
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The information furnished herein reflects all adjustments which are, in the
opinion of the management, necessary to a fair statement of the results of
operations and financial position for the six months ended January 31, 1997,
subject to year-end audit by independent public accountants. These adjustments
are of a normal, recurring nature.
Wallace Computer Services, Inc. and Subsidiary
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
January 31
--------------------------------------------------------
% %
1997 Sales 1996 Sales
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net Sales $446,232,000 100.0 $433,983,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 268,356,000 60.1 272,866,000 62.9
Selling and administrative expenses 83,163,000 18.6 74,683,000 17.2
Provision for depreciation and
amortization 24,054,000 5.4 21,499,000 5.0
Hostile takeover expenses 0 0.0 6,911,000 1.6
----------- ----- ----------- -----
Total costs and expenses $375,573,000 84.2 $375,959,000 86.6
----------- ----- ----------- -----
Operating Income 70,659,000 15.8 58,024,000 13.4
----------- ----- ----------- -----
Interest income (1,039,000) (0.2) (1,413,000) (0.3)
Interest expense 1,059,000 0.2 553,000 0.1
----------- ----- ----------- -----
Income before Income Taxes 70,639,000 15.8 58,884,000 13.6
Provision for Income Taxes (Note 4) 27,902,000 6.3 22,535,000 5.2
----------- ----- ----------- -----
Net Income $42,737,000 9.6 $36,349,000 8.4
----------- ----- ----------- -----
----------- ----- ----------- -----
Net Income per Share $0.98 $0.80
----- -----
----- -----
Average Common Shares Outstanding 43,574,000 45,462,000
----------- -----------
----------- -----------
Dividends Declared Per Share $0.280 $0.215
------ ------
------ ------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. Page 3
FORM 10-Q
For Quarterly Period Ended January 31, 1997
Wallace Computer Services, Inc. and Subsidiary
Consolidated Income Statement (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
January 31
--------------------------------------------------------
% %
1997 Sales 1996 Sales
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net Sales $225,439,000 100.0 $219,545,000 100.0
Cost and Expenses
Cost of goods sold (Note 1) 135,569,000 60.1 136,535,000 62.2
Selling and administrative expenses 41,934,000 18.6 37,706,000 17.2
Provision for depreciation and
amortization 12,136,000 5.4 10,944,000 5.0
Hostile takeover expenses 0 0.0 2,879,000 1.3
----------- ----- ----------- -----
Total costs and expenses $189,639,000 84.1 $188,064,000 85.7
----------- ----- ----------- -----
Operating Income 35,800,000 15.9 31,481,000 14.3
----------- ----- ----------- -----
Interest income (414,000) (0.2) (561,000) (0.3)
Interest expense 584,000 0.3 219,000 0.1
----------- ----- ----------- -----
Income before Income Taxes 35,630,000 15.8 31,823,000 14.5
Provision for Income Taxes (Note 4) 14,074,000 6.2 12,252,000 5.6
----------- ----- ----------- -----
Net Income $21,556,000 9.6 $19,571,000 8.9
----------- ----- ----------- -----
----------- ----- ----------- -----
Net Income per Share $0.50 $0.43
----- -----
----- -----
Average Common Shares Outstanding 42,968,000 45,513,000
----------- -----------
----------- -----------
Dividends Declared Per Share $0.1400 $0.1075
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 4
Consolidated Balance Sheet
<TABLE>
<CAPTION>
January 31, 1997 July 31, 1996
(Unaudited) (Audited)
---------------- ----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $6,901,000 $23,618,000
Short-term investments 2,873,000 39,025,000
Accounts receivable 165,104,000 152,133,000
Less-allowance for doubtful accounts 3,477,000 3,215,000
---------------- ----------------
Net receivables 161,627,000 148,918,000
Inventories (Note 1) 80,680,000 71,332,000
Prepaid taxes 16,917,000 15,138,000
Advances and prepaid expenses 6,114,000 6,077,000
---------------- ----------------
Total current assets 275,112,000 304,108,000
---------------- ----------------
Property, plant and equipment, at cost 581,922,000 557,069,000
Less-reserves for depreciation and amortization 287,952,000 268,197,000
---------------- ----------------
Net property, plant and equipment 293,970,000 288,872,000
---------------- ----------------
Intangible assets arising from acquisitions 43,478,000 43,180,000
Cash surrender value of life insurance 39,133,000 32,244,000
Systems development costs 22,986,000 21,499,000
Other assets 5,823,000 5,947,000
---------------- ----------------
Total assets $680,502,000 $695,850,000
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $30,000,000 $0
Current portion long-term debt 100,000 0
Accounts payable 44,521,000 46,044,000
Accrued salaries, wages, profit sharing and other 45,160,000 51,826,000
---------------- ----------------
Total current liabilities 119,781,000 97,870,000
---------------- ----------------
Long-term debt 30,500,000 30,600,000
Deferred income taxes 32,314,000 32,187,000
Deferred compensation and retirement benefits 27,063,000 24,750,000
Stockholders' equity
Common stock (Note 2)- issued shares of
45,764,054 at January 31, 1997 and July 31, 1996 45,764,000 45,764,000
Treasury stock (at cost)- 2,578,699 shares at
January 31, 1997 and 177,216 shares at July 31, 1996 (74,220,000) (5,176,000)
Additional capital 33,308,000 32,616,000
Retained earnings 466,200,000 437,459,000
Unrealized loss on securities (208,000) (220,000)
---------------- ----------------
Total stockholders' equity 470,844,000 510,443,000
---------------- ----------------
Total liabilities and stockholders' equity $680,502,000 $695,850,000
---------------- ----------------
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 5
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
January
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income from operations $42,737,000 $36,349,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24,054,000 21,499,000
Deferred taxes 127,000 2,231,000
(Gain)/loss on disposal of property (15,000) (47,000)
Changes in assets and liabilities
Accounts receivable (11,483,000) (22,630,000)
Inventories (9,136,000) (12,384,000)
Advances and prepaid expenses (1,786,000) (5,187,000)
Other assets (10,730,000) (10,676,000)
Accounts payable and other liabilities (10,055,000) 13,576,000
Deferred compensation and retirement benefits 2,313,000 1,158,000
---------------- ----------------
Net cash provided by operating activities 26,026,000 23,889,000
---------------- ----------------
Cash Flows from Investing Activities:
Capital expenditures (21,145,000) (32,792,000)
Short-term investments 36,152,000 27,358,000
Proceeds from disposal of property 92,000 77,000
Unrealized gain/loss on securities 12,000 (55,000)
Purchase of Post Printing (6,586,000) 0
---------------- ----------------
Net cash used in investing activities 8,525,000 (5,412,000)
---------------- ----------------
Cash Flows from Financing Activities:
Treasury stock transactions (70,416,000) 4,324,000
Cash dividends paid (10,787,000) (9,085,000)
Amounts paid on long-term debt 0 (55,000)
Proceeds from issuance of short-term debt 30,000,000 0
Proceeds from construction funds held by trustee (65,000) 3,195,000
---------------- ----------------
Net cash used in financing activities (51,268,000) (1,621,000)
---------------- ----------------
Net changes in cash and cash equivalents (16,717,000) 16,856,000
Cash and cash equivalents at beginning of year 23,618,000 10,815,000
---------------- ----------------
Cash and cash equivalents at January 31 $6,901,000 $27,671,000
---------------- ----------------
---------------- ----------------
Supplemental Disclosure:
Interest paid (net of interest capitalized) $ 377,000 $ (108,000)
Income taxes paid (net of refunds received) 29,718,000 25,547,000
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
Wallace Computer Services, Inc. and Subsidiary Page 6
Notes to Consolidated Financial Statements
January 31, 1997
(Unaudited)
Note 1 - Inventories
Inventories at January 31, 1997, and July 31, 1996, were as follows:
January 31, 1997 July 31, 1996
---------------- ----------------
Raw materials $19,082,000 $20,470,000
Work in process 3,612,000 1,771,000
Finished products 57,986,000 49,091,000
---------------- ----------------
$80,680,000 $71,332,000
---------------- ----------------
---------------- ----------------
Certain inventories are stated on the last-in, first-out (LIFO) basis
for their labor and material content, and other inventories are stated
on the first-in, first-out (FIFO) basis.
Because the inventory determination under the LIFO method can only be
made at the end of each fiscal year based on the inventory levels and
costs at that time, interim period LIFO determinations must necessarily
be based upon management's estimates of expected year-end inventory
levels and costs.
Note 2 - Stock Options
As of January 31, 1997, options to purchase 1,011,888 shares of common
stock were outstanding and 888,592 shares of common stock were
available for future grants under the Company's Stock Option and
Employee Stock Purchase Plans. The number of shares available
increased by 2,000,000 shares effective February 28, 1997 due to the
adoption of the 1997 Stock Incentive Plan (see Item 4-Submission of
Matters to a Vote of Security Holders, and Exhibit 10.3) The number of
option shares outstanding and available have been adjusted for the two-
for-one stock split in July 1996.
The Company had authorized 50,000,000 shares of common stock and had
issued 45,764,054 as of January 31, 1997. Of these shares, 2,578,699
were held in treasury as of January 31, 1997. The number of shares
held in treasury at July 31, 1996 was 177,216. The shareholders
approved a proposal to increase the number of authorized shares from 50
million to 100 million (see Item 4-Submission of Matters to a Vote of
Security Holders) at the special meeting on February 28, 1997.
Note 3 - Changes in Accounting
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 121 on accounting for the
impairment and/or disposal of long-lived assets, certain identifiable
intangibles and goodwill related to assets to be held and used. As
required, the Company will adopt SFAS No. 121 for the fiscal year ended
July 31, 1997. At this time, it is the opinion of management that the
adoption of this statement will not have any material impact on the
results of operations or the consolidated financial position of the
Company.
The FASB issued a new standard, SFAS No. 123 on accounting for stock-
based compensation that the Company will adopt for the fiscal year
ended July 31, 1997. As permitted, the Company will continue its
current method of accounting for stock-based compensation and will
comply with the new disclosure requirements of this standard.
<PAGE>
Wallace Computer Services, Inc. Page 7
FORM 10-Q
For Quarterly Period Ended January 31, 1997
Note 4 - Income Taxes
Effective August 1, 1996, the Company increased its effective tax rate
from 38.5% to 39.5%. The income tax rate in the second quarter of
fiscal 1996 was 38.5% and was 38.3% in the first half. The increase in
the tax rate for fiscal 1997 is due to the reduction of tax-exempt
investment income as a result of diminished cash due to the stock
repurchase program.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
There have been no material changes in financial condition since the
preceding fiscal year which ended July 31, 1996.
For the three month period ended January 31, 1997, net sales increased
2.7% to $225,439,000. Net income for the second quarter increased
10.1% to $21,556,000 or 50 cents per share, from $19,571,000 or 43
cents per share in fiscal 1996. Pretax income for the quarter was up
by $3,807,000 or 12.0%.
For the six month period ended January 31, 1997, net sales increased
2.8% to $446,232,000. Net income for the first half increased 17.6% to
$42,737,000 or 98 cents per share, from $36,349,000 or 80 cents per
share in fiscal 1996. Pretax income for the half was up by
$11,755,000 or 20.0%.
The sales increase was affected by changing paper prices for both the
quarter and 6 month periods. Our estimate of unit growth for the
current year is 11% over last year. Unit growth has been offset by
lower selling prices due to lower paper prices. The net increase in
sales is from the net benefit of acquisitions and the divestiture of
the Lasermax division. In the second half of fiscal 1996, paper price
deflation began affecting net sales.
Cost of goods sold represented 60.1% of sales versus 62.2% in the
second quarter of fiscal 1996. The second quarter of fiscal 1997
includes a LIFO credit of $739,000 or 1.0 cents per share. The LIFO
credit for the second quarter of fiscal 1996 was $1,249,000 or 1.7
cents per share. Cost of goods sold for the first half was 60.1% in
fiscal 1997 versus 62.9% in fiscal 1996. Total LIFO credits for the
first half were $971,000 or 1.3 cents per share. The LIFO credit for
the first half of 1996 was $1.0 million or 1.4 cents per share. The
decrease in cost of goods sold for the second quarter is attributable
to improved gross margins in our Business Forms Group and improved unit
growth in our Label Group.
Selling and administrative expenses were 18.6% of sales in 1997 versus
17.2% in both the second quarter and in the first half of last year.
Included in the first half of fiscal 1997 is $787,000 of expenses
related to the proxy contest over the Wyser-Pratte proposals to amend
our bylaws. The Wyser-Pratte proposals were not adopted by the
shareholders (see Item 4-Submission of Matters to a Vote of Security
Holders). On November 8, 1996, Mr. Wyser-Pratte voluntarily dismissed
the Wyser-Pratte litigation (previously filed on the Registrant's
Quarterly Report on Form 10-Q dated October 31, 1996, and incorporated
herein by reference to such Report). As such, we don't anticipate any
further expenses related to the Wyser-Pratte proposals for the rest of
the fiscal year. Sales costs increased in the first half of fiscal
1997 due to
<PAGE>
Wallace Computer Services, Inc. Page 8
FORM 10-Q
For Quarterly Period Ended January 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
the hiring of 150 sales representatives in the fourth quarter of fiscal
1996 which increased wage and travel expenses over the first half of
fiscal 1996.
The provision for depreciation and amortization is up 11.9% in the
first half from fiscal 1996. This increase is the result of the
Company's continued reinvestment in capital resources and system
development.
Interest income for the first half decreased by $374,000 or 26.5% from
the same period one year ago. The reduction is due to the decrease in
cash and short-term investments attributable to reinvestment in the
Company through capital expenditures, acquisitions and the $100 million
stock repurchase program approved by the Board of Directors in June of
1996. As of January 31, 1997, $93,270,000 of stock has been
repurchased under this program. Interest expense, which is shown net
of capitalized interest, increased $506,000 or 91.5% between years.
The increase of interest expense is mainly attributable to a $5,000,000
increase in debt related to the FEC acquisition in fiscal 1996 and $30
million borrowed under the $50 million revolving credit agreement (see
paragraph 4 in the Liquidity and Capital Resources section).
Operating income for the quarter was up $4,319,000 or 13.7%. For the
first half, operating income was up $12,635,000 or 21.8%. For fiscal
1997 this represents 15.8% to sales versus 13.4% for fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital decreased by $50,907,000 from July 31, 1996, primarily
due to the $100 million stock repurchase program, with a current ratio
of 2.3 at January 31, 1997. Long-term debt includes $23,500,000 of
industrial revenue bonds at rates ranging from 3.6% to 3.7%, as well as
$7,000,000 related to acquisitions made in prior fiscal years. Long-
term debt currently represents 6.1% of total capitalization.
Capital expenditures for the first half were $21,145,000. For the full
fiscal year, capital expenditures are expected to be $40.0 million,
which are expected to be financed through internally generated funds
and by borrowing against our short-term lines of bank credit.
Stockholders' equity decreased 7.8% to $470,844,000 at January 31,
1997. The decrease is attributable to our stock repurchase program.
During the first quarter, the Company opened a $50 million revolving
credit agreement with two local banking institutions. The Company has
borrowed $30.0 million at an interest rate of 5.7% under this revolving
credit facility during the second quarter due to the stock repurchase
program. It is anticipated that cash balances will be adequate to
fund operations moving forward into our fiscal year.
Current inventory levels are believed to be in-line with the inventory
levels necessary to satisfy customer demand. The company anticipates
having adequate sources of supply of raw materials to meet future
business requirements.
<PAGE>
Wallace Computer Services, Inc. Page 9
FORM 10-Q
For Quarterly Period Ended January 31, 1997
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
COMMON STOCK
On September 4, 1996, the Board of Directors increased the annualized
dividend rate to $.56 per share, a 30.2% increase from fiscal 1996.
OTHER
On October 22, 1996, the Company completed the acquisition of Post
Printing. The acquisition was a cash transaction and will be accounted
for using the purchase method. Though the acquisition is anticipated
to be additive to fiscal 1997 earnings, it is not expected to have a
material impact.
<PAGE>
Wallace Computer Services, Inc. Page 10
FORM 10-Q
For Quarterly Period Ended January 31, 1997
PART II OTHER INFORMATION
ITEMS 1 THRU 3 None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A) ANNUAL MEETING HELD NOVEMBER 6, 1996
The Company held its annual meeting of stockholders on November 6,
1996. The annual meeting was adjourned and reconvened on November 20,
1996. At the reconvened annual meeting the Inspectors of Election
submitted the final results of the meeting. The results are as
follows:
1) Election of three directors for the class of directors whose terms
are expiring at the 1996 Annual Meeting.
For Withheld
----- ---------
Robert J. Cronin 30,866,865 1,099,390
Richard F. Doyle 30,826,619 1,139,636
Neele E. Stearns, Jr. 30,867,669 1,098,586
Guy P. Wyser-Pratte 6,697,023 139,058
William M. Frazier 6,697,023 139,058
W. Michael Frazier 6,696,842 139,239
2) Ratification of the appointment of Arthur Andersen LLP as the
Company's independent public accountants for the fiscal year 1997.
For Against Abstain
---------- ------- -------
38,524,994 175,189 102,153
3) Mr. Wyser-Pratte's proposal to amend the Company's Bylaws to elect
out of Section 203 of Delaware General Corporation Law.
For Against Abstain
---------- ---------- -------
12,312,133 26,081,886 408,315
<PAGE>
Wallace Computer Services, Inc. Page 11
FORM 10-Q
For Quarterly Period Ended January 31, 1997
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED)
4) Mr. Wyser-Pratte's proposal to amend the Company's Bylaws
regarding tender offers.
For Against Abstain
---------- ---------- ---------
16,589,071 17,778,362 4,434,901
At the reconvened annual meeting, Robert J. Cronin, Richard F. Doyle,
and Neele E. Stearns, Jr. were elected directors of the Company. They
joined Theodore Dimitriou, Curtis A. Hessler, Albert W. Isenman III,
William N. Lane III, John C. Pope, and Robert P. Rittereiser on the
Board of Directors. Proposal 2 obtained the affirmative vote of
stockholders holding a majority of the shares entitled to vote and
consequently was adopted. Proposal 3 failed to obtain the affirmative
vote of stockholders holding a majority of the shares entitled to vote
and consequently was not adopted. Proposal 4 failed to obtain the
affirmative vote of stockholders holding a majority of shares voted and
consequently was not adopted.
B) SPECIAL MEETING HELD FEBRUARY 28, 1997
The Company held a special meeting of stockholders on February 28, 1997
to vote on two proposals. The results are as follows:
1) Amend the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock from 50
million to 100 million.
For Against Abstain
---------- ---------- ---------
35,919,718 1,982,977 97,229
2) Adopt the Company's 1997 Stock Incentive Plan.
For Against Abstain
---------- ---------- ---------
36,722,209 1,089,096 188,619
ITEM 6 EXHIBITS
(a) Exhibits
10.1 Amendment No. 1 to the 1994 Deferred Compensation and
Capital Accumulation Plan for Directors
10.2 Amendment No. 39 to the Profit Sharing Retirement Fund
10.3 1997 Stock Incentive Plan
10.4 1997 Deferred Compensation/Capital Accumulation Plan for
Directors
10.5 1997 Deferred Compensation/Capital Accumulation Plan
<PAGE>
Wallace Computer Services, Inc. Page 12
FORM 10-Q
For Quarterly Period Ended January 31, 1997
ITEM 6 EXHIBITS (CONTINUED)
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the
quarter ended January 31, 1997.
<PAGE>
Page 13
Wallace Computer Services, Inc.
FORM 10-Q
For Quarterly Period Ended January 31, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WALLACE COMPUTER SERVICES, INC.
March 12, 1997 /s/ Robert J. Cronin
------------------ ----------------------------------------
Date Robert J. Cronin
President and Chief Executive Officer
March 12, 1997 /s/ Michael J. Halloran
------------------ ----------------------------------------
Date Michael J. Halloran
Vice President, Chief Financial Officer,
and Assistant Secretary
(Principal Accounting Officer)
<PAGE>
Exhibit 10.1
WALLACE COMPUTER SERVICES, INC.
1994 DEFERRED COMPENSATION/CAPITAL ACCUMULATION PLAN
FOR DIRECTORS
AMENDMENT NO. 1
WHEREAS, Wallace Computer Services, Inc., a Delaware corporation (the
"Company"), has heretofore adopted and maintains a non-qualified deferred
compensation arrangement for the benefit of certain of its employees designated
the "Wallace Computer Services, Inc. 1994 Deferred Compensation/Capital
Accumulation Plan for Directors" (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
WHEREAS, Section 17 of the Plan generally permits the Company to amend the Plan;
NOW, THEREFORE, pursuant to the power of amendment contained in Section 17 of
the Plan, paragraph B of Section 4 of the Plan is hereby amended to read as
follows:
"B. INTERIM PAYMENTS. A Participant who is not yet eligible to receive
installment payments under Subsection A shall receive a payment equal to
the Participant's Deferral Amount within a reasonable time after January 1,
2001. In addition, a payment equal to the Participant's Deferral Amount
shall be paid to the Participant within a reasonable time after January 1,
2002. These payments shall be charged to the Participant's Deferral
Account as of the first day of the month in which payment(s) is made. This
Subsection does not apply to Participants terminated under Section 5."
IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
duly authorized officers this sixth day of January, 1997.
WALLACE COMPUTER SERVICES, INC.
/s/ Robert J. Cronin
--------------------
President and CEO
ATTEST:
/s/ Michael T. Laudizio
- -----------------------
Secretary
<PAGE>
Exhibit 10.2
WALLACE COMPUTER SERVICES, INC.
PROFIT SHARING AND RETIREMENT FUND
AMENDMENT NO. 39
This Amendatory Agreement adopted as of this 6th day of November, 1996, by
Wallace Computer Services, Inc., a Delaware corporation (hereinafter referred to
as the "Company"), and is delivered to the Trustees under the terms of the Trust
Agreement dated July 30, 1952, as amended, establishing the Wallace Computer
Services, Inc. Profit Sharing and Retirement Fund (hereinafter referred to as
the "Plan").
W I T N E S S E T H:
WHEREAS, the Plan permits the Company to amend the Plan subject to the
terms and conditions therein specified;
WHEREAS, the Board of Directors of the Company by action taken as of
November 6, 1996, authorized the amendment hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the Company adopts the amendments hereinafter set forth:
1. Section 2.2 of the Plan shall be amended to read as follows:
2.2. COMPENSATION. The term "Compensation" means a
Participant's total earnings from the Company paid during a Fiscal Year for
services rendered, including bonuses, overtime, and commissions, but excluding:
(a) any earnings in excess of $160,000, as adjusted for cost of living under
Section 401(a)(17) or any other applicable provision of the Code; (b) any
contributions or benefits under this Plan or under any other pension, profit
sharing, insurance, hospitalization, or other plan or policy maintained by the
Company for the benefit of such Participant; (c) any extraordinary compensation
of a non-recurring nature; and (d) all other benefits accorded to such
Participant by the Company that are not paid in cash. In any case where a
Participant commences participation in the Plan, or resumes active participation
in the Plan after incurring a One Year Break in Service, on any day other than
the first day of a Fiscal Year, Compensation for that Fiscal Year shall be that
portion of compensation as determined under this Section 2.2 paid during the
period of participation in the Plan for that Fiscal Year.
2. Section 2.5 of the Plan shall be amended to read as follows:
2.5. EARNINGS. The term "Earnings" means a Participant's
Compensation plus the amount contributed to a Participant's Tax
Deferred Account for any Limitation Year pursuant to a Tax Deferred
Election under Section 5.9. The amount of Earnings of any Participant
which may be taken into account for any purpose under the Plan for any
Limitation Year shall not exceed any limitation amount set forth in
Section 401(a)(17) or any other applicable provision of the Code, as
adjusted from time to time.
3. Section 4.1(a) of the Plan shall be amended to read as follows:
4.1. ELIGIBILITY FOR PARTICIPATION
(a) An Employee is eligible to become a Participant in the
Plan on the first day of any month subsequent to the
satisfaction of the following requirements:
(1) With respect to the ability to make Tax Deferred
Contributions pursuant to Section 5.9, the Employee has
completed the lesser of (i) thirty-one (31) days as a
regular, full-time Employee (any individual whose
customary employment is (x) more than twenty (20)
<PAGE>
hours per week and (y) more than six (6) months in a
Plan Year) or (ii) One Year of Service;
(2) With respect to the right to be credited with
Company Contributions and Forfeitures pursuant to
Section 6.4, the Employee has completed One Year of
Service;
(3) The Employee is not included in a unit of
employees covered by a collective bargaining agreement
between employee representatives and the Company, if
retirement benefits were the subject of good faith
bargaining between such employee representatives and
the Company, and if as a result of such negotiations,
the Employee is either covered by another retirement
plan to which Company makes contributions or there has
been no agreement between such parties for coverage
under this Plan;
(4) The Employee is not a "leased employee" as that
term is used in Section 414(n) of the Code; and
(5) in the event a prior Employee is rehired, all
prior service with the Company shall be used to satisfy
eligibility requirements.
4. Section 5.5 of the Plan shall be amended to read as follows:
5.5. Required Contributions by Participants. Each Participant,
upon the satisfaction of the eligibility standards set forth in Section
4.1(a)(2), shall contribute to the Trust Fund an amount which shall not be less
than 3% nor more than 5% of the Compensation paid by the Company to the
Participant each calendar year. The determination as to the percentage amount
shall be made by the Board of Directors of the Company from time to time,
provided that such adjustments shall apply to the contributions of all
Participants. Tax Deferred Contributions made on behalf of the Participant
shall first be credited against the requirements of this section.
5. Section 5.7 of the Plan shall be amended to read as follows:
5.7 PAYMENT OF PARTICIPANT CONTRIBUTIONS. Participants'
contributions will be paid to the Trust Fund no later than the fifteenth (15th)
business day next following the payroll period for which the contributions were
made and will be credited to the Participant's Contributory Accounts (as
described in Section 6.1) in accordance with Section 6.5.
6. Section 5.10.1 of the Plan shall be amended to read as follows:
5.10. LIMITATION OF PARTICIPANT'S TAX DEFERRED CONTRIBUTIONS
5.10.1. DEFINITIONS. For purposes of this Article V,
the following terms shall have the following meanings:
(a) HIGHLY COMPENSATED EMPLOYEE. (i) GENERAL. The
term "Highly Compensated Employee" shall have the
meaning set forth in Section 414(q) of the Code and the
regulations thereunder. Generally, for any Plan Year,
an Employee will be considered to be a Highly
Compensated Employee if he or she meets either of the
following conditions:
(A) the Employee was at any time during the Plan Year
or the immediately preceding Plan Year the owner
of more than five percent of the outstanding stock
of the Company or of stock possessing more than
five percent (5%) of the total combined voting
power of all stock of the Company; or
<PAGE>
(B) the Employee received Earnings from the Company
for the immediately preceding Plan Year in excess
of $80,000 (as that sum is adjusted annually
pursuant to Section 414(q)(1) of the Code).
(ii) Special Rules. The following special rules
shall be used in determining whether an Employee is a
Highly Compensated Employee:
(A) In determining an Employee's ownership of stock of
the Company for purposes of clause (A) of
subsection (a)(i) above -- (I) the rules of
Section 318 of the Code shall be applied, except
that subparagraph (C) of Section 318(a)(2) of the
Code shall be applied by substituting "5 percent"
for "50 percent"; and (II) the rules of Section
414(b), (c), and (m) of the Code shall not be
applied.
(B) At the election of the Company, an Employee will
not meet the condition of clause (B) of subsection
(a)(i) above unless the Employee was also in the
"top-paid group of Employees" during the
immediately preceding Plan Year. An Employee is
in the "top-paid group of Employees" for a Plan
Year if such Employee is in the group consisting
of the top twenty percent (20%) of all Employees
when ranked on the basis of Earnings.
(C) All references to the Company in this Section
5.10.1 shall include a reference to all members of
a Controlled Group of which the Company is a
member.
(b) Highly Compensated Participant Group. The term "Highly
Compensated Participant Group" shall mean that group of
Employees eligible to participate in the Plan who are Highly
Compensated Employees during the Plan Year.
(c) Standard Participant Group. The term "Standard Participant
Group" shall mean that group of Employees who, during the
immediately preceding Plan Year, were both eligible to
participate in the Plan and who were not Highly Compensated
Employees.
(d) Actual Deferral Percentage. The "Actual Deferral
Percentages" for the Highly Compensated Participant Group
and the Standard Participant Group shall be the average of
the ratios (calculated separately for each Employee in each
group) of the amount of the Company Elective Contributions
made on behalf of such Employee in the group for the
relevant Plan Year to such Employee's Earnings for such Plan
Year.
(e) Actual Contribution Percentage. The "Actual Contribution
Percentages" for the Highly Compensated Participant Group
and the Standard Participant Group shall be the average of
the ratios (calculated separately for each Employee in each
group) of the amount of the voluntary after-tax
contributions made by such Employee in the group for the
relevant Plan Year to such Employee's Earnings for such Plan
Year.
(f) After December 31, 1998, if the Company elects to satisfy
the minimum coverage requirements of Section 410(b) of the
Code separately with respect to Employees who have met the
minimum age and service requirements of Section 410(a)(1),
then the Company may also elect to exclude those Employees
from the Highly Compensated Participant Group and the
Standard Participant Group for purposes of this Article V.
7. The first sentence of Section 5.10.2 of the Plan shall be amended
to read as follows:
<PAGE>
5.10.2. Actual Deferral Percentage Test. For each Plan Year,
the Actual Deferral Percentage of the Highly Compensated Participant Group for
such year shall bear a relationship to the Actual Deferral Percentage of the
Standard Participant Group for the immediately preceding Plan Year which meets
either of the following tests:
8. The first sentence of Section 5.10.2A of the Plan shall be
amended to read as follows:
5.10.2A. Actual Contribution Percentage Test. For each Plan
Year, the Actual Contribution Percentage of the Highly Compensated Participant
Group for such year shall bear a relationship to the Actual Contribution
Percentage of the Standard Participant Group for the immediately preceding Plan
Year which meets any of the following tests:
9. Subsection (c) of Section 5.10.3 is replaced with the following:
Special Rules for Calculating the Actual Deferral and Actual
Contribution Percentages.
(c) The Company may elect to apply the Actual Deferral
Percentage Test and the Actual Contribution Percentage Test
using the Actual Deferral and the Actual Contribution
Percentages of the Standard Participant Group for the Plan
Year, rather than the immediately preceding Plan Year. Such
election, if made, may not be revoked except as permitted by
the Secretary of Treasury.
10. Clause (a) of Section 5.10.4 of the Plan shall be amended to read
as follows:
5.10.4. Adjustment to Actual Deferral Percentage Tests.
(a) On or before the fifteenth day of the third month
following the end of each Plan Year, but in no event later
than the close of the following Plan Year, the Committee may
distribute to each Highly Compensated Participant, beginning
with the Participant having the largest share of the Company
Elective Contribution for the Plan Year, his portion of the
excess contribution (and any income allocable to such
portion) until one of the tests set forth in Section 5.10.2
or the combined test in Section 5.10.2A is satisfied.
11. Clause (a) of Section 5.10.4A of the Plan shall be amended to
read as follows:
5.10.4A. Adjustment to Actual Contribution Percentage Tests
(a) On or before the fifteenth day of the third month
following the end of each Plan Year, but in no event later
than the close of the following Plan Year, the Committee may
distribute to each Highly Compensated Participant, beginning
with the Participant having the largest amount of voluntary
after-tax contributions for the Plan Year, a portion of the
excess contribution (and any income allocable to such
portion) until one of the tests set forth in Section 5.10.2A
is satisfied.
12. Section 6.6.(a)(2) of the Plan shall be amended to read as
follows:
Twenty-five percent (25%) of the Compensation [for Plan
Years commencing after December 31, 1997 the term "Compensation" shall be
replaced by "Earnings"] paid to the Participant by the Company in that
limitation year.
13. Clause (c) of Section 9.1 shall be replaced with the following:
9.1. Methods and Time of Distribution.
(c) Notwithstanding the foregoing, distribution must
commence no later than the Participant's required beginning
date. The term "required beginning date" means April 1st of
the calendar year immediately following the calendar year in
which the Participant terminates employment after attaining
age 70 1/2 or, in the case of a Participant who is a "five-
percent owner" of the Company (as that term is defined in
Section 416(i)(1)(B)(i) of the Code), April 1st of the
calendar
<PAGE>
year immediately following the calendar year in which he or
she attains age 70 1/2. Distributions to a Participant
shall be made in accordance with Section 401(a)(9) of the
Code and the regulations thereunder.
14. Section 9.7 of the Plan shall be amended to read as follows:
9.7. Election to Become a Limited Participant. A Participant
(1) who terminates on a Termination Date or a Retirement Date, (2) whose
combined Accounts total at least $3500, and (3) will receive deferred payment in
accordance with Section 9.1(a)(2) or (3), may elect Limited Participation. The
election must be made in writing to the Committee within 30 days of such Date.
If such election is made:
(a) The combined total of all the Participant's Accounts
will not be transferred to suspense.
(b) The Limited Participation Account will share only in
the gains and losses in the Net Value of the Funds as from
time to time determined on Calculation Dates, as provided in
Article VI.
15. Section 13.5 of the Plan shall be amended to read as follows:
13.5 Investment of Transferred Funds. Any Rollover Contribution
or account transferred from another employee benefit plan shall be allocated to
either Fund A or Fund B as the Participant may elect, subject to the same
limitations and conditions set forth in Section 6.1.(b)(2)(ii) with respect to
Voluntary Contributions. Such election shall be made within thirty-one (31)
days from the date of receipt by the Trust Fund of any transferred funds, and in
the absence of an election, all transferred funds shall be allocated to Fund B.
16. Except as otherwise provided herein, this Amendment shall become
effective as of January 1, 1997, upon the condition that said Amendment will not
adversely affect the previous rulings issued by the U.S. Treasury Department
with respect to the status of the Wallace Computer Services, Inc. Profit Sharing
and Retirement Fund.
17. All of the terms and conditions of said Plan, as heretofore
amended, except as herein specifically modified, shall remain in full force and
effect.
IN WITNESS WHEREOF, the Company has caused those presents to be executed in
its name by its proper officers pursuant to the authority granted by its Board
of Directors.
WALLACE COMPUTER SERVICES, INC.
BY: /s/ Robert J. Cronin
-------------------------
Its President
ATTEST:
/s/ Michael T. Laudizio
- -----------------------
Secretary
<PAGE>
Exhibit 10.3
WALLACE COMPUTER SERVICES
1997 STOCK INCENTIVE PLAN
1997 Stock Incentive Plan (previously filed as part of Exhibit A to the
Registrant's Proxy Statement filed on January 31, 1997 and incorporated herein
by reference to such report).
<PAGE>
Exhibit 10.4
1997 DEFERRED COMPENSATION/
CAPITAL ACCUMULATION PLAN FOR DIRECTORS-PLAN DOCUMENT
Wallace Computer Services, Inc. (the "Company") hereby establishes a non-
qualified deferred compensation program for the members of its Board of
Directors, who are eligible under, and elect to participate in the Plan. The
following shall constitute the terms and conditions of the Wallace Computer
Services, Inc. 1997 Deferred Compensation/Capital Accumulation Plan for
Directors (the "Plan"), effective January 1, 1997 (the "Effective" Date)."
1. ADMINISTRATION. Full power and authority to construe, interpret and
administer the Plan shall be vested in the Compensation Committee of
the Board of Directors of the Company (the "Committee"). The Committee
shall have the authority to make determinations provided for or
permitted to be made under the Plan, to interpret the Plan, and to
promulgate such rules and regulations, if any, as the Committee
considers necessary and appropriate for the implementation of the
Plan.
2. ELIGIBILITY AND PARTICIPATION. All members of the Company's Board of
Directors on November 6, 1996 shall be eligible for participation in
the Plan. Eligible Directors who elect to participate, in accordance
with Section 3, will become "Participants.".
3. DEFERRED COMPENSATION.
A. Each Participant may make an irrevocable election in writing
to defer up to 100% of cash Compensation, as defined in
Subsection 3B, paid during the period January 1, 1997 through
December 31, 1997 (the "Deferral Amount"). Such amount shall not
be less than $1,000. Deferred compensation at the deferral
percentage will be deducted from all cash Compensation payable to
the Participant during the deferral period.
B. "Compensation" means director's fees and meeting fees payable by
the Company to the participant.
C. The Company shall establish and maintain a bookkeeping account in
the name of each Participant, which shall be known as the
"Deferral Account." It shall be credited with the Deferral Amount
and interest at the rate established by the Committee compounded
annually from January 1, 1997. As provided in Section 5 of the
Plan, the interest rate on lump sum payments caused by certain
events will differ from the rate established by the Committee.
Amounts paid to the Participant or his/her Beneficiary pursuant
to this Plan, shall be deducted from the account balance as of
the first day of the month in which such payment is made.
D. The Participant's Deferral Account shall at all times be
reflected on the Company's books in accordance with generally
accepted accounting practices as a general unsecured and unfunded
obligation of the Company and the Plan shall not give
<PAGE>
any person any right or security interest in any asset of the
Company nor shall it imply any trust or segregation of assets by
the Company. Payments from the Participant's Deferral Account
shall be made from the general assets of the Company.
4. TIME AND MANNER OF PAYMENT. The Participant's Deferral Account shall
be distributed as follows:
A. Installment Payments.
(1) A Participant shall be entitled to fifteen (15) equal
annual installment payments commencing at age sixty-
five (65)
(2) A Participant who attained age fifty-five (55) as of
January 1, 1997 may elect, at the time of making the
deferral election pursuant to Subsection 3A, to receive
ten (10) equal annual installments commencing at age
seventy (70) in lieu of installment payments under
Subsection 4A(1) if he/she becomes eligible for such
payments.
(3) A Participant who attained age fifty-five (55) as of
January 1, 1997 and who was a director of the Company
on November 7, 1984 may elect, at the time of making
the deferral election pursuant to Subsection 3A, to
receive ten (10) equal annual installments commencing
at age seventy-two (72) in lieu of installment payments
under Subsection 4A(1) if he/she becomes eligible for
such payments.
Installment payments shall be calculated to amortize
fully the accumulated value of the Deferral Amount over
the payment period. For purposes of this Subsection A,
the interest rate to be credited in this calculation of
the accumulated value of the Deferral Amount shall be
the rate(s) established by the Committee at its sole
discretion prior to the beginning of the deferral
period.
B. Interim Payments. So long as Participant does not attain
age sixty-five (65) prior to or during the calendar year
commencing January 1, 2004, a payment equal to the
Participant's Deferral Amount shall be paid to the
Participant within a reasonable time after January 1, 2004.
Such Participant shall receive an additional payment equal
to the Participant's Deferral Amount to be paid to the
Participant within a reasonable time after January 1, 2005.
These payments shall be charged to the Participant's
Deferral Account as of the first day of the month in which
payment(s) is made. This Subsection does not apply to
Participants terminated under Section 5.
5. DISHONEST CONDUCT. Notwithstanding any other provision of this Plan,
if Participant's directorship with the Company is terminated at any
time for reason of dishonest or fraudulent conduct injurious to the
Company, the sole amount payable to or on behalf of Participant
hereunder shall be a lump sum payment of the accumulated value of the
Participant's Deferral Amount, payable as soon as practicable after
such termination. For purposes of this Section 5, the simple rate of
interest to be credited in the calculation of the accumulated value of
the Deferral Amount shall be zero percent (0%).
6. PAYMENT UPON DEATH OF PARTICIPANT.
<PAGE>
A. If a Participant dies after age sixty-five (65), the Company
shall pay any unpaid annual Installment Payments due the
Participant under Subsection 4A to the Participant's Beneficiary,
commencing with the next such payment due following the date of
Participant's death.
B. If a Participant dies prior to age sixty-five (65), the
Participant's Beneficiary shall receive fifteen (15) equal annual
installment payments commencing at the time of the Participant's
death. Interim Payments described in Subsection 4B will not be
made.
7. BENEFICIARY DESIGNATION. A Participant may, from time to time
designate any legal or natural person or persons (who may be
designated contingently or successively) as his/her Beneficiary to
whom payments are to be made if the Participant dies before receiving
payment of all amounts due hereunder, by signing a form approved by
the Committee. A beneficiary designation form shall be effective only
after the signed form is filed with the Committee while the
Participant is alive. A properly filed designation shall cancel all
beneficiary designation forms filed earlier. If a Participant fails to
designate a Beneficiary as provided above, or if all designated
Beneficiaries of a Participant die before the Participant, or before
complete payment of all amounts due hereunder, the Committee, in its
discretion, may direct the Company to pay the unpaid amounts to one or
more of such Participant's relatives by blood, adoption or marriage in
any manner permitted by law which the Committee considers to be
appropriate, including but not limited to payment to the legal
representative or representatives of the estate of the last to die of
Participant and Participant's designated Beneficiaries.
8. FACILITY OF PAYMENT. If, in the Committee's opinion, a Participant or
other person entitled to benefits under the Plan is under a legal
disability or is in any way incapacitated so as to be unable to manage
his/her financial affairs, then the Committee may, until claim is made
by a conservator or other person legally charged with the care of
his/her person or of his/ her estate, direct the Employer to make
payment to a relative or friend of such person for his/her benefit.
Thereafter, any benefits under the Plan to which such Participant or
other person is entitled shall be paid to such conservator or other
person legally charged with the care of his/her person or his/her
estate.
9. INSURANCE. The Company may, in its sole discretion, purchase a policy
or policies of insurance on the life of any Participant the cash
value, if any, and proceeds of which may, but need not, be used by the
Company to satisfy part or all of its obligations, hereunder. The
Company will be the owner of any such policies and neither the
Participant nor any other person or entity claiming through the
Participant shall have any ownership rights in such policies or any
proceeds thereof. The Participant, as a condition of receiving any
benefits hereunder, on behalf of him/herself of any person or entity
claiming through him/ her, shall cooperate with the Company in
obtaining any such insurance that the Company desires to purchase by
submitting to such physical examinations, completing such forms, and
making such records available as may be required by the Company from
time to time.
10. NON-ALIENATION. Neither a Participant nor anyone claiming through
him/her shall have any right to commute, sell, assign, transfer or
otherwise convey the right to receive any payments hereunder, which
payments and the rights thereto hereby are expressly declared to be
non-assignable and non-transferable, nor shall any such right to
receive payments hereunder be subject to the claims of creditors of a
Participant or anyone claiming through him/her to any legal,
equitable, or other proceeding or process for the enforcement of such
claims.
11. TAX WITHHOLDING. The Company may withhold from any payment made by it
under the Plan such
<PAGE>
amount or amounts as may be required for purposes of complying with
the tax withholding or other provisions of the Internal Revenue Code
or the Social Security Act or any state or local income tax act or for
purposes of paying any estate, inheritance or other tax attributable
to any amounts payable hereunder.
12. NON-SECURED PROMISE. The rights under this Plan of a Participant and
any person or entity claiming through him/her shall be solely those of
an unsecured, general creditor of the Company. Any insurance policy or
other asset acquired or held by the Company shall not be deemed to be
held by the Company for or on behalf of a Participant, or any other
person, or to be security for the performance of any obligations
hereunder of the Company, but shall, with respect to this Plan, be and
remain a general, unpledged, unrestricted asset of the Company.
13. INDEPENDENCE OF PLAN. Except as otherwise expressly provided herein,
this Plan shall be independent of, and in addition to, any other
agreement that may exist from time to time between the parties hereto.
This Plan shall not be deemed to constitute a right to be retained as
a member of the Board of Directors of the Company.
14. PARAGRAPH HEADINGS. The Paragraph headings used in this Plan are for
convenience of reference only and shall not be considered in
construing this Plan.
15. RESPONSIBILITY FOR LEGAL EFFECT. Neither the Committee nor the Company
makes any representation or warranties, express or implied, or assumes
any responsibility concerning the legal, tax, or other implications or
effects of this Plan.
16. COMMITTEE DETERMINATIONS FINAL. Each determination provided for in
this Plan shall be made in the absolute discretion of the Committee.
Any such determination shall be binding on all persons.
17. AMENDMENT. The Company may in its sole discretion amend the Plan from
time to time. No such amendment shall reduce a Participant's or
Beneficiary's benefits under the Plan to an amount less than an amount
that he/she would have been entitled to under the Plan on the later of
the date the amendment is adopted or made effective if the Plan had
been terminated on that date.
18. TERMINATION AT THE COMPANY'S OPTION. Notwithstanding any other
provision of this Plan, the Company may terminate this Plan at any
time if the Committee, in its sole and absolute discretion, determines
that any change in federal or state law, or judicial or administrative
interpretation thereof, has materially affected the Company's cost of
providing the benefits otherwise payable under this Plan, or for any
other reason whatsoever. Upon such termination, the sole amount
payable to Participant shall be a lump sum payment, as soon as
practicable after such termination, of the accumulated value of the
Deferral Amount. For purposes of this Section, the rate to be credited
in the calculation of the accumulated value of the Deferral Amount
shall be the rate specified for Installment Payments in Subsection 4A.
19. SUCCESSORS, ACQUISITIONS, MERGERS, CONSOLIDATIONS. The terms and
conditions of this Plan and each Deferral Election shall insure to the
benefit of and bind the Company, the Participants, their successors,
assigns, and personal representatives.
20. CONTROLLING LAW. The Plan shall be construed in accordance with the
laws of the state of Illinois to the extent not pre-empted by laws of
the United States of America.
<PAGE>
Exhibit 10.5
1997 DEFERRED COMPENSATION/
CAPITAL ACCUMULATION PLAN-PLAN DOCUMENT
Wallace Computer Services, Inc. (the "Company") and its subsidiaries hereby
establish a non-qualified deferred compensation program for certain of their
employees as described herein. The following shall constitute the terms and
conditions of the Wallace Computer Services, Inc. 1997 Deferred
Compensation/Capital Accumulation Plan (the "Plan"), effective January 1, 1997
(the "Effective" Date). The Company and its subsidiaries are referred to below
collectively as the "Employers" and individually as an "Employer."
1. ADMINISTRATION. Full power and authority to construe, interpret and
administer the Plan shall be vested in the Compensation Committee of the
Board of Directors of the Company (the "Committee"). The Committee shall
have the authority to make determinations provided for or permitted to be
made under the Plan, to interpret the Plan, and to promulgate such rules
and regulations, if any, as the Committee considers necessary and
appropriate for the implementation of the Plan.
2. ELIGIBILITY AND PARTICIPATION. The Committee, in its sole discretion, shall
establish eligibility qualifications for participation in the Plan.
Participation shall be limited to key executives and a select group of
highly compensated employees of the Employers.
3. DEFERRED COMPENSATION.
A. Each Participant may make an irrevocable election in writing to
defer up to 20% of Compensation, as defined in Subsection 3B,
paid during the period January 1, 1997 through December 31, 1997
(the "Deferral Amount"). Such amount shall not be less than
$1,000. Deferred compensation at the deferral percentage will be
deducted from all Compensation payable to the Participant during
the deferral period.
B. "Compensation" means salary, bonuses, and commission of the
Participant before reduction pursuant to this or any other
employee benefit plan.
C. The Employer shall establish and maintain a bookkeeping account
in the name of each Participant, which shall be known as the
"Deferral Account." It shall be credited with the Deferral Amount
and interest at the rate established by the Committee compounded
annually from January 1, 1997. As provided in Sections 4, 5, 6
and 7 of the Plan, the interest rate on lump sum payments caused
by certain events will differ from the rate established by the
Committee. Amounts paid to the Participant or his/her Beneficiary
pursuant to this Plan, shall be deducted from the account balance
as of the first day of the month in which such payment is made.
D. The Participant's Deferral Account shall at all times be
reflected on the Employer's books in accordance with generally
accepted accounting practices as a general unsecured and unfunded
obligation of the Employer and the Plan shall not give any person
any right or security interest in any asset of the Employer nor
shall it imply any trust or segregation of assets by the
Employer. Payments from the Participant's Deferral Account shall
be made from the general assets of the
<PAGE>
Employer.
4. TIME AND MANNER OF PAYMENT. The Participant's Deferral Account shall be
distributed as follows:
A. Installment Payments.
(1) A Participant shall be entitled to fifteen (15) equal annual
installment payments commencing at age sixty-five (65) if
one of the following conditions is met:
a. the Participant remains in the continuous employ of the
Employers during the period from January 1, 1997 until
the Participant reaches age sixty-five (65); or
b. after a period of continuous employment with the
Employers beginning on or before January 1, 1997 the
Participant retires as defined in Subsection 4D.
(2) A Participant who attained age fifty-five (55) as of January
1, 1997 may elect, at the time of making the deferral
election pursuant to Subsection 3A, to receive ten (10)
equal annual installments commencing at age seventy (70) in
lieu of installment payments under Subsection 4A(1) if
he/she becomes eligible for such payments.
Installment payments shall be calculated to amortize fully
the accumulated value of the Deferral Amount over the
payment period. For purposes of this Subsection A, the
interest rate to be credited in this calculation of the
accumulated value of the Deferral Amount shall be the
rate(s) established by the Committee at its sole discretion
prior to the beginning of the deferral period.
B. Interim Payments. A payment equal to the Participant's Deferral
Amount shall be paid to the Participant within a reasonable time
after January 1, 2004 if installment payments under Subsection A
have not then commenced and will not commence during the 2004
calendar year. In addition, a payment equal to the Participant's
Deferral Amount shall be paid to the Participant within a
reasonable time after January 1, 2005 if installment payments
under Subsection A have not then commenced and will not commence
during the 2005 calendar year. These payments shall be charged to
the Participant's Deferral Account as of the first day of the
month in which the payment is made. This Subsection does not
apply to Participants terminated under Subsection C or Sections
5, 6, or 7B.
C. Payment Upon Termination. A Participant whose employment with the
Employers is voluntarily or involuntarily terminated prior to the
Participant's Retirement for reasons other than those described
in Sections 5 and 6 below, shall receive, as soon as practicable
after such termination, a lump sum payment in the amount of the
accumulated value of the Deferral Amount. For purposes of this
Subsection C, the rate to be credited in the calculation of the
accumulated value of the Deferral Amount shall be six percent
(6%). However, if a Participant terminates during the deferral
period, no interest shall accrue on the deferral amount.
<PAGE>
D. Retirement. Retirement shall mean leaving the active employ of
the Employer at or after age sixty (60) or age fifty-five (55)
with at least twenty (20) years of service.
5. NON-COMPETITION. Notwithstanding any other provision of this Plan, if the
Committee at any time determines that a Participant, without having
obtained the prior written consent of the Committee or its designee, has
engaged in Competition with an Employer, as defined below, the sole amount
payable to Participant hereunder shall be a lump sum payment of the
accumulated value of the Deferral Amount, payable as soon as practicable
after such determination. For purposes of this Section 5, the simple rate
of interest applied to determine the accumulated value of the Deferral
Amount shall be two percent (2%) annually, without compounding. A
Participant shall be considered to have engaged in "Competition with an
Employer" if, while employed by an Employer or within twenty- four (24)
months of Participant's termination of employment with an Employer: (a) if
the Participant is or has been employed by an Employer in a sales capacity,
the Participant sells to, contacts, or deals with customers of an Employer
that the Participant called upon, or whose account(s) the Participant
directly or indirectly supervised on behalf of an Employer with respect to
products or services of an Employer; (b) if the Participant is or has been
employed by an Employer in a nonsales capacity, the Participant renders
services for a new or existing competitor of an Employer with respect to
products or services that are competitive with those of an Employer within
the geographical area in which an Employer does business, except that the
Participant may accept employment with a competitor of an Employer whose
business is diversified and which part of its business is not a competitor
of an Employer provided that prior to accepting such employment, the
Participant provides and obtains for the Employers from such competitor,
separate written assurances satisfactory to the Employers that the
Participant will not render services directly or indirectly in connection
with one or more products or services that are competitive with those of an
Employer; and (c) the Participant hires, solicits, induces or attempts to
induce any employee of an Employer to leave its employ, engage in any
competing business, or to otherwise aid or assist any person or company
that is or intends to be in competition with an Employer.
The foregoing provision shall be deemed in addition to and not in lieu of
any rights or remedies that an Employer might otherwise have with respect
to the conduct of a Participant during or after employment that breaches
any other contractual or common law duty to the Employer; this Section
shall not preclude Employer from seeking injunctive relief or actual or
punitive monetary damages, or both such relief and damages, with respect to
any wrongful conduct of a Participant, either during or subsequent to
his/her employment with an Employer.
6. DISHONEST CONDUCT. Notwithstanding any other provision of this Plan, if
Participant's employment with an Employer is terminated at any time for
reason of dishonest or fraudulent conduct injurious to the Employer, the
sole amount payable to or on behalf of Participant hereunder shall be a
lump sum payment of the accumulated value of the Participant's Deferral
Amount, payable as soon as practicable after such termination of
employment. For purposes of this Section 6, the simple rate of interest to
be credited in the calculation of the accumulated value of the Deferral
Amount shall be zero percent (0%).
7. PAYMENT UPON DEATH OF PARTICIPANT.
A. If a Participant dies after age sixty-five (65), the Employer
shall pay any unpaid annual Installment Payments due the
Participant under Subsection 4A to the Participant's Beneficiary,
commencing with the next such payment due following
<PAGE>
the date of Participant's death.
B. If a Participant dies prior to age sixty-five (65), Installment
Payments described in Subsection 4A(1) shall be payable to the
Participant's Beneficiary, commencing at the time of the
Participant's death. Interim Payments described in Subsection 4B
will not be made.
8. BENEFICIARY DESIGNATION. A Participant may, from time to time designate any
legal or natural person or persons (who may be designated contingently or
successively) as his/her Beneficiary to whom payments are to be made if the
Participant dies before receiving payment of all amounts due hereunder, by
signing a form approved by the Committee. A beneficiary designation form
shall be effective only after the signed form is filed with the Committee
while the Participant is alive. A properly filed designation shall cancel
all beneficiary designation forms filed earlier. If a Participant fails to
designate a Beneficiary as provided above, or if all designated
Beneficiaries of a Participant die before the Participant, or before
complete payment of all amounts due hereunder, the Committee, in its
discretion, may direct the Employers to pay the unpaid amounts to one or
more of such Participant's relatives by blood, adoption or marriage in any
manner permitted by law which the Committee considers to be appropriate,
including but not limited to payment to the legal representative or
representatives of the estate of the last to die of Participant and
Participant's designated Beneficiaries.
9. DISABILITY. If Participant's employment with the Employers is terminated
prior to Participant's Retirement by reason of Participant's Disability,
Participant's employment with the Employers, for purposes of the Plan,
shall be deemed to continue until the earliest of his/her death, the date
his/her Disability ceases, or the date the Participant would have first
been eligible for Retirement and the provisions of the Plan shall be
applicable to such Participant to the same extent as if Participant were,
in fact, employed by the Employers during that period. However, if such
termination of employment occurs prior to December 31, 1997, the
Participant's benefit will be determined taking into account only the
amount actually deferred by the Participant during the Deferral Period.
A Participant shall be deemed to incur a Disability if, in the opinion of a
physician selected by the Committee, the Participant is no longer capable
of performing a substantial portion of the duties of his/her employment
because of a physical or mental disability which is likely to be permanent
and continuous during the remainder of the Participant's lifetime.
10. PAYMENT UPON A MATERIAL CHANGE OF CONTROL.
A. For purposes of this Plan, a "Material Change" shall be deemed to
have occurred if any of the following should occur:
(1) the acquisition (in one or more transactions) of beneficial
ownership of twenty percent (20%) or more of the outstanding
shares of Common Stock of the Company by any person or
entity (or by any group of persons or entities acting in
concert for the purpose of acquiring, voting, holding or
disposing of shares of the Company's Common Stock). The
Board of Directors may reduce the ownership threshold to a
percentage not less than ten percent (10%);
(2) individuals who, as of September 6, 1995, constitute the
Board of Directors of the Company (the "Incumbent Board")
cease for any
<PAGE>
reason to constitute at least a majority of such Board;
PROVIDED, HOWEVER, that any individual who becomes a member
of the Board of Directors of the Company subsequent to such
date whose election, or nomination for election by the
stockholders of the Company, was approved by a vote of at
least the majority of the directors then comprising the
Incumbent Board shall be deemed to be a member of the
Incumbent Board; and provided further, that no individual
whose election or initial assumption of office as a director
of the Company occurs as a result of an actual or threatened
election contest (as such terms are used in Rule 14a- 11 of
Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended) with respect to the election or removal
of directors, or any other actual or threatened solicitation
of proxies or consents by or on behalf of any person other
than the Board of Directors of the Company, shall be deemed
to be a member of the Incumbent Board; or
(3) the occurrence of any other event or state of facts that the
Board of Directors of the Company may determine (by the
adoption of a resolution) has, does, or would constitute a
Material Change for the purposes of this Section 10.
B. At the time of a Material Change, the Company shall remit to an
independent Trustee, an amount equal to the lump sum payment,
payable upon the termination of a Participant, determined in
accordance with Section 10E.
At all times after the Material Change occurs, the exercise of
authority and responsibility in the administration of the Plan
with respect to each individual who was a Participant in the Plan
immediately prior to the date that the Material Change occurs (a
"Protected Participant"), or with respect to the Beneficiary of a
Protected Participant, shall be subject to a DE NOVO standard of
review by a court in any action brought under Title I of ERISA.
At all times after the Material Change occurs, a bank that is
organized under the laws of the United States of America or one
of its States, that has a combined capital and surplus in excess
of $250,000,000, and that is otherwise independent of and has no
material business relationships with the Company or Related
Company (as defined in Section 10C) shall be the Trustee of the
Trust and the authority to manage, acquire, and dispose of all
assets of the Trust shall be vested in that Trustee to the extent
not vested in one or more investment managers (as defined in
Section 3(38) of ERISA) who are selected by that Trustee and
otherwise independent of, and have no material business
relationships with, the Company or a Related Company.
C. The term "Related Company" means any corporation, trade, or
business during any period that it is, along with the Company, a
member of a controlled group of corporations, a controlled group
of trades or businesses, or an affiliated service group, as
described in Section 414(b), 414(c), or 414(m), respectively, of
the Internal Revenue Code.
D. Any Protected Participant (or a Beneficiary of a Protected
Participant) who brings any legal action after a Material Change
to enforce the provisions of this Section 10 or any other
provisions of the Plan or the Trust shall be entitled to recover
from the Company any and all attorneys' fees and other costs and
expenses
<PAGE>
incurred in enforcing such provisions for his/her benefit or for
the benefit of any or all Protected Participants (or
Beneficiaries of Protected Participants).
E. Notwithstanding any other Section except Section 6, if the
Participant's employment with the Employer terminates, for any
reason other than death, within the two-year (2) period beginning
on the date that a Material Change of the Company (as described
above) occurs, payment shall be made to the Participant as soon
as practical after termination in a single lump sum in lieu of
any other subsequent payment under the Plan. The lump sum payment
shall be equal to the sum of the amounts determined by
discounting, at an 8% rate of interest, to the lump sum payment
date, each payment that the Participant would have received under
the Plan (determined without regard to Sections 5 and 6) after
the date of such termination if employment had continued without
change through the date that the Participant would have first
been eligible for Retirement. Such amount shall be determined by
the Trustee (described in Section 10B), who in his/her own
discretion may use an independent third party to calculate such
amount. If the Participant dies after termination of employment
but before payment of any amount under this Section, then such
amount shall be paid to the Beneficiary as soon as practical
after the Participant's death.
F. Notwithstanding any other provision of the Plan, except as may
otherwise be provided in a resolution of the Board of Directors
of the Company adopted prior to the occurrence of a Material
Change, the provisions of this Section 10 may not be amended and
shall continue to apply, without amendment, in any successor
plan.
11. FACILITY OF PAYMENT. If, in the Committee's opinion, a Participant or other
person entitled to benefits under the Plan is under a legal disability or
is in any way incapacitated so as to be unable to manage his/her financial
affairs, then the Committee may, until claim is made by a conservator or
other person legally charged with the care of his/her person or of his/ her
estate, direct the Employer to make payment to a relative or friend of such
person for his/her benefit. Thereafter, any benefits under the Plan to
which such Participant or other person is entitled shall be paid to such
conservator or other person legally charged with the care of his/her person
or his/her estate.
12. INSURANCE. An Employer may, in its sole discretion, purchase a policy or
policies of insurance on the life of any Participant or disability
insurance with respect to any Participant, the cash value, if any, and
proceeds of which may, but need not, be used by the Employer to satisfy
part or all of its obligations, hereunder. The Employer will be the owner
of any such policies and neither the Participant nor any other person or
entity claiming through the Participant shall have any ownership rights in
such policies or any proceeds thereof. The Participant, as a condition of
receiving any benefits hereunder, on behalf of him/herself of any person or
entity claiming through him/her, shall cooperate with the Employer in
obtaining any such insurance that the Employer desires to purchase by
submitting to such physical examinations, completing such forms, and making
such records available as may be required by the Employer from time to
time.
13. EFFECT ON OTHER BENEFITS. The Deferral Amount of a Participant shall be
included in the Participant's 1997 compensation for purposes of calculating
the Participant's bonuses and awards under any incentive or similar
compensation plan or program of the Employer, insurance, and other employee
benefits, except that in accordance with the terms of any plan qualified
under Section 401 or Section 423(b) of the Internal Revenue Code maintained
by an Employer, the
<PAGE>
amount deferred under Section 3 shall not be included as 1997 calendar year
compensation in calculating the Participant's benefits or contributions by
or on behalf of the Participant under such plan or plans. Payment under the
Plan shall be excluded from compensation in years paid for purposes of
calculating a Participant's bonuses and awards under any incentive or
similar compensation plan or program of an Employer, insurance, and other
employee benefits, except that in accordance with the terms of any plan
qualified under Section 401 or Section 423(b) of the Internal Revenue Code
maintained by an Employer, payments made while the Participant is an
employee of an Employer shall be included as compensation in the year paid.
14. NON-ALIENATION. Neither a Participant nor anyone claiming through him/her
shall have any right to commute, sell, assign, transfer or otherwise convey
the right to receive any payments hereunder, which payments and the rights
thereto hereby are expressly declared to be non-assignable and non-
transferable, nor shall any such right to receive payments hereunder be
subject to the claims of creditors of a Participant or anyone claiming
through him/her to any legal, equitable, or other proceeding or process for
the enforcement of such claims.
15. TAX WITHHOLDING. Notwithstanding the provisions of Section 13, an Employer
may withhold from any payment made by it under the Plan such amount or
amounts as may be required for purposes of complying with the tax
withholding or other provisions of the Internal Revenue Code or the Social
Security Act or any state or local income tax act or for purposes of paying
any estate, inheritance or other tax attributable to any amounts payable
hereunder.
16. NON-SECURED PROMISE. The rights under this Plan of a Participant and any
person or entity claiming through him/her shall be solely those of an
unsecured, general creditor of the Employer. Any insurance policy or other
asset acquired or held by an Employer shall not be deemed to be held by the
Employer for or on behalf of a Participant, or any other person, or to be
security for the performance of any obligations hereunder of the Employer,
but shall, with respect to this Plan, be and remain a general, unpledged,
unrestricted asset of the Employer.
17. INDEPENDENCE OF PLAN. Except as otherwise expressly provided herein, this
Plan shall be independent of, and in addition to, any other employment
agreement or employment benefit agreement or plan or rights that may exist
from time to time between the parties hereto. This Plan shall not be deemed
to constitute a contract of employment between an Employer and a
Participant, nor shall any provision hereof restrict the right of an
Employer to discharge a Participant, or restrict the right of a Participant
to terminate his/ her employment with an Employer.
18. PARAGRAPH HEADINGS. The Paragraph headings used in this Plan are for
convenience of reference only and shall not be considered in construing
this Plan.
19. RESPONSIBILITY FOR LEGAL EFFECT. Neither the Committee nor any Employer
makes any representation or warranties, express or implied, or assumes any
responsibility concerning the legal, tax, or other implications or effects
of this Plan.
20. COMMITTEE DETERMINATIONS FINAL. Each determination provided for in this
Plan shall be made in the absolute discretion of the Committee. Any such
determination shall be binding on all persons.
21. AMENDMENT. The Company may in its sole discretion amend the Plan from time
to time. No such amendment shall reduce a Participant's or Beneficiary's
benefits under the Plan to an amount less than an amount that he/she would
have been entitled to under the Plan on the later of the date the amendment
is adopted or made effective if the Plan had been terminated on that date.
<PAGE>
22. TERMINATION AT THE EMPLOYER'S OPTION. Notwithstanding any other provision
of this Plan, the Company may terminate this Plan at any time if the
Committee, in its sole and absolute discretion, determines that any change
in federal or state law, or judicial or administrative interpretation
thereof, has materially affected the Employer's cost of providing the
benefits otherwise payable under this Plan, or for any other reason
whatsoever. Upon such termination, the sole amount payable to Participant
shall be a lump sum payment, as soon as practicable after such termination,
of the accumulated value of the Deferral Amount. For purposes of this
Section, the rate to be credited in the calculation of the accumulated
value of the Deferral Amount shall be the rate specified for Installment
Payments in Subsection 4A.
23. BINDING ON SUCCESSORS. The provisions of this Plan shall be binding upon
and shall inure to the benefit of the Company, any Related Company that
adopts the Plan, the Participants, and their respective successors in
interest and assigns, including, without limitation, the surviving
corporation in any merger or consolidation with the Company or such Related
Company and, to the extent provided in the Plan, the Beneficiaries of the
Participants. After a Material Change, except as may otherwise be
determined by a resolution of the Board of Directors of the Company adopted
prior to the occurrence of the Material Change, a successor in interest to
the Company or a Related Company that adopts the Plan shall be deemed to
have adopted the Plan and shall have all of the liabilities and obligations
of the Company or that Related Company under the Plan. Except as may
otherwise be determined by a resolution of the Board of Directors of the
Company adopted prior to the occurrence of a Material Change, the Company
shall require any person or entity that becomes a successor in interest to
the Company or a Related Company that adopts the plan to expressly assume
the Plan and agree to perform all of the obligations of the Company or that
Related Company, as the case may be, under the plan. For purposes of this
paragraph 23, following a Material Change, a successor in interest to the
Company or a Related Company that adopts the Plan shall include, without
limitation, any person or entity (or group of related or affiliated persons
or entities) that acquires (in a single transaction or a series of related
transactions) any businesses or assets of the Company or such Related
Company representing twenty-five percent (25%) or more of the Company's or
such Related Company's sales, operating profits, or operating assets.
24. CONTROLLING LAW. The Plan shall be construed in accordance with the laws of
the state of Illinois to the extent not pre-empted by laws of the United
States of America.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 6,901
<SECURITIES> 2,873
<RECEIVABLES> 165,104
<ALLOWANCES> (3,477)
<INVENTORY> 80,680
<CURRENT-ASSETS> 275,112
<PP&E> 581,922
<DEPRECIATION> (287,952)
<TOTAL-ASSETS> 680,502
<CURRENT-LIABILITIES> 119,781
<BONDS> 30,500
0
0
<COMMON> 45,764
<OTHER-SE> 425,080
<TOTAL-LIABILITY-AND-EQUITY> 680,502
<SALES> 446,232
<TOTAL-REVENUES> 446,232
<CGS> 268,356
<TOTAL-COSTS> 375,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 724
<INTEREST-EXPENSE> 1,059
<INCOME-PRETAX> 70,639
<INCOME-TAX> 27,902
<INCOME-CONTINUING> 42,737
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<NET-INCOME> 42,737
<EPS-PRIMARY> 0.98
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</TABLE>
