<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended July 31, 1998 Commission File Number 1-6528
Wallace Computer Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-2515832
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2275 Cabot Drive Lisle, Illinois 60532
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (630) 588-5000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Series A Preferred Stock Purchase New York Stock Exchange
Rights
Securities registered pursuant to Section 12(g) of the Act: None
----
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
--- ---
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant.
$765,429,858 (based on the October 15, 1998, closing price of these shares on
the New York Stock Exchange)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of October 15, 1998, 42,523,881 shares of Common Stock were outstanding.
Documents incorporated by reference:
1. Definitive Proxy Statement - Part III of this Form 10-K
Indicate by check mark if the disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
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TABLE OF CONTENTS
Form 10-K
Item No. Name of Item Page
- -------- ------------ ----
Part I
Item 1 Business 3
Item 2 Properties 8
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of
Security Holders 12
Part II
Item 5 Market for the Registrant's Common Equity and
Related Stockholder Matters 12
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 7(A) Quantitative and Qualitative Disclosures About
Market Risk 20
Item 8 Financial Statements and Supplementary Data 20
Item 9 Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure 20
Part III
Item 10 Directors and Executive Officers of the
Registrant 21
Item 11 Executive Compensation 24
Item 12 Security Ownership of Certain Beneficial
Owners and Management 24
Item 13 Certain Relationships and Related
Transactions 24
Part IV
Item 14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 25
Signatures 26
Exhibit Index 46
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Wallace Computer Services, Inc. Fiscal 1998 10-K
Part I
Item 1 Business
(a) General Development of Business
Wallace Computer Services, Inc. (the "Company") was founded in 1908 as an
Illinois commercial printer under the name "Wallace Press, Inc." It was
reorganized in June, 1963 as "Wallace Business Forms, Inc.", a Delaware
corporation. The name was changed in November, 1981 to "Wallace Computer
Services, Inc." to reflect the broad array of products sold by the Company to
computer users.
In the current fiscal year, the Company expanded its commercial printing
capabilities with the acquisition of the 20 Graphic Industries, Inc. companies
in December 1997. Graphic is the largest network of sheet-fed commercial
printing plants in the United States. They focus on high-quality,
short-to-medium run collateral marketing materials and annual reports for the
Company's target Fortune 1000 customers. The combination with Graphic
Industries makes the Company the fifth largest printer in the United States. The
Graphic acquisition was made through an all cash purchase of Graphic's shares of
common stock. The acquisition price was $308.3 million, based on outstanding
shares, options and converted indenture notes valued at $21.75 per share, plus
$6.1 million of transaction costs, and net debt totalling $123.4 million. In
June, 1998, the Company also expanded its product line in the fast growing label
market with the acquisition of Good Decal Co., in Englewood Colorado. Good
Decal makes pressure sensitive labels, decals and screen printed graphic
overlays. This acquisition was made for $12.3 million of cash and a note
payable for $1.0 million.
(b) Industry Segments
The Company is engaged primarily in the commercial printing and business
services industries. The Company has recently begun reporting its results in
two business segments to better reflect the company's operations and strategies:
Forms and Labels, and Print Management.
(c) Narrative Description of Business
The Company is recognized as a leading provider of supplies and print management
services to Fortune 1000 customers. The Company is evolving to manage all the
printing needs of large organizations. Its products include commercial
printing, business forms, labels, direct response printing and office products.
The Company's strategy is to utilize its information management and distribution
systems to offer customers a solutions-based approach to increasing efficiencies
and reducing costs.
The corporate trend toward the outsourcing of printing needs and of supplies
management matches well with the Company's strengths.
- Business supplies-related purchases are typically high volume, small
dollar transactions which uses a disproportionate amount of the
Purchasing group's workday.
3
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Item 1 Continued
- The additional costs to order, store, distribute, manage and use
these items exceeds their purchase price.
- Planning material quantities and managing inventories is a
time-consuming activity for buyers of high-quality printing.
- A significant portion of promotional materials are wasted -- thrown
away as out-of-date without ever being used.
A service we call Integrated Supply Management (ISM), which is managing two or
more product categories for a customer, allows Purchasing managers to outsource
the bulk of the day-to-day work of managing supplies and at the same time,
reduce their costs.
In 1998 we created an entirely new service to help buyers of high-quality,
high-color commercial printing that ensures consistent print quality, outsources
materials management workload and maximizes promotional budget efficiency. We
call this service total print management.
These services would not be possible without a complete information system.
Proprietary mainframe and midrange enterprise applications and an extensive
communications architecture give the Company the ability to effectively manage
half a million stock keeping units (SKUs) and millions of customer transactions.
The Company's systems also allow us to tailor relationships to each customer's
unique business needs and processes. We continue to expand and enhance these
systems to offer new services and stay ahead of growing demand. Electronic
orders are up 75%, comprising 37% of 1998 total orders.
Central to our services is Wallace Information Network(TM) (W.I.N.TM), which was
introduced six years ago and is continually evolving. Our suite of W.I.N.
management tools improve, simplify and streamline many customer processes
including inventory management, end-user ordering, version control, tracking,
follow-up and payment. Its functionality is based on the Company's capability
to provide complete and timely data through the W.I.N system. The recognition
of the W.I.N. system's value is proven by the nearly 400 customers who use the
system today.
Storage and distribution is one of the largest cost-saving opportunities we can
deliver to our customers, and outstanding distribution capabilities are
essential to delivering true ISM and total print management services. Like our
information technology, the Company's distribution system is also proprietary,
developed from the ground-up specifically for the highly transactional, custom
nature of our business. Managing 500,000 customer items and processing 30,000
order lines per day, the Company ships 95% of orders the same day.
The W.I.N. system was originally created to attack the process costs associated
with forms. Seeing first-year cost savings averaging 15% to 20%, customers want
to leverage our services into additional areas. The Company's broad range of
products gives our customers many opportunities to reduce their vendor base and
total costs. We provide the primary products required by our customers for an
ISM relationship, and with the acquisition of Graphic Industries in 1997, for a
total print management relationship as well. We can even integrate other
suppliers' products under the W.I.N management system.
4
<PAGE> 5
Item 1 Continued
Forms and Labels Segment
Product / Service offering and Markets Served
The principal products and services supplied by the Forms and Labels Segment
include the design, manufacture and sale of both paper based and electronic
business forms, the manufacture of both electronic data processing (EDP) labels
and prime labels, and the manufacture and distribution of a standard line of
office products. Typical products include air freight package forms, monthly
billing statements, healthcare forms, mortgage applications, bar-coded shipping
labels, consumer product labels, airline bag tags, blank stock labels,
electronic article surveillance tags, labeling software, printers and
applicators, legal pads, computer paper, ink jet printer cartridges, ribbons,
and cash register paper rolls.
The Company is one of the few firms that is positioned to accommodate the needs
of large, forms-intensive customers with multiple locations. The products and
services are supplied primarily for businesses, government agencies, healthcare,
not-for-profit and educational institutions.
These customers typically require a forms vendor with the following
characteristics:
a. sufficient forms manufacturing capacity across several regions of the U.S.
to satisfy their needs;
b. distribution capability across several regions of the U.S. to deliver
multiple types of forms to hundreds of locations on short notice and;
c. the information services capability to provide centralized billing
reporting, forms management, and control for such shipments.
The Company also sells business forms to customers that are not large,
forms-intensive firms with multiple locations. These customers typically have a
choice from among different acceptable vendors, and the company accordingly
faces more competition than it does in sales to large, forms-intensive customers
with multiple locations.
EDP labels usually include some package specific information, such as bar
coding, and are designed to meet the needs of key market segments, including
retail, health care, small package delivery, manufacturing and required
regulatory compliance. Prime labels are high quality promotional and product
identification labels used on items such as shampoo bottles and food packages.
The Company offers an extensive selection of brand-name and discount brand
office supplies and standardized business forms. The Company acts as a contract
stationer to customers, enabling the company to serve as a full source office
products supplier of approximately 23,000 office and computer supplies to its
customers and can provide nationwide delivery services. The Company entered into
a joint marketing arrangement with Boise Cascade Office Products, a subsidiary
of Boise Cascade Corporation, whereby each company will introduce the other
company to its top 200 customers and allow such company to market its products
and services to those customers.
The predominant distribution channel for the Forms and Labels Segment is the
direct sales force. Sales representatives are placed in one of the company's
136 sales offices located throughout the United States and are assigned a
specific geographic territory. Within this assigned territory, a sales
representative is free to sell all of the Company's products to any customer.
Sales support for the direct sales force is provided by the Corporate Marketing
department.
The Forms and Labels market served by the Company totals approximately $46
billion and is highly competitive.
5
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Item 1 Continued
Print Management Segment
Product / Service offering and Markets Served
The principal products and services supplied by the Print Management Segment
include the design and manufacture of high-color, high-quality commercial
printing, and the manufacture of direct response printing materials. Typical
products include corporate image materials, industrial and consumer catalogs,
directories and price lists, promotional literature, product brochures, product
documentation literature, retail point-of-sale materials, sweepstakes mailings,
credit card offers, and high quality brochures. By acquiring Post Printing
Company in October 1996, Moran Printing Company in July 1997 and Graphic
Industries, Inc. in December 1997, the company has significantly expanded its
commercial printing capabilities. The company expects to continue to service
Graphic's established customer base and has begun to offer Graphic's
capabilities to the Company's large, national customers.
The Company provides a full-service, quick response, value-added resource to its
customers, and supplies national coverage and state-of-the-art imaging
capabilities and service options, which are designed to increase promotion
response rates and reduce customer costs.
The Print Management market served by the Company totals approximately $39
billion. The Company primarily competes with commercial and direct mail
promotional printers and the market is highly competitive.
Business in General
Raw Materials
The principal raw material used by the Company is paper which is purchased on
the open market from numerous suppliers in a variety of weights, widths, color
and sizes. The Company believes that it has adequate sources of supply of raw
materials to meet the requirements of its business. The Company's current
inventory levels are in line with the inventory levels necessary to satisfy
customer demand that the Company anticipates for fiscal year 1999.
Working Capital
The Company continues to maintain a strong working capital position, with a
current ratio of 2.2 at July 31, 1998, slightly higher than last fiscal year.
Business conditions require the Company to produce and store inventories to meet
its customers' requirements. Custom and stock finished goods inventories are
stored throughout the United States in both public and company-owned warehouses.
Finished products represent 61.9% of total inventory at July 31, 1998.
Substantially all of the Company's sales are made on terms of Net 30 days. The
accounts receivable balance at July 31, 1998, increased by 55.3%, mainly
attributable to the acquisition of Graphic Industries. Further information on
liquidity and capital resources is contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations on page 14 of this
report.
Patents and Trademarks
Although certain features of the Company's products and manufacturing processes
are covered by owned or licensed patents, the Company does not consider patents
to be critical to its business.
Seasonal
There is no material portion of the business that is considered seasonal.
6
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Item 1 Continued
Customer
The Company is not dependent upon any one customer or a group of customers under
common control. No single customer or group of customers accounts for more than
10% of consolidated sales.
Research and Development
The Company is continuously involved in research activities relating to
development of new products and technologies and improvement of existing
products and technologies. The amount that the Company spends on research
activities are not significant in relation to the annual sales volume.
Environmental Protection
Compliance with federal, state and local provisions governing the discharge of
materials into the environment has not had and is not anticipated to have a
material effect on the Company's capital expenditures, earnings or competitive
position.
Employees
The total number of persons employed by the Company was 8,228 as of July 31,
1998.
(d) Foreign Operations and Export Sales
Net sales and income derived from export sales are not material.
7
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Item 2 Properties
The Company's corporate offices are located in Lisle, Illinois, a
suburb of Chicago.
The Company believes that all of its properties are well maintained
and in good operating condition and adequate for the purposes for
which they are used. All locations are owned by the Company except as
otherwise noted.
The following principal properties are used by the Forms and Labels
segment:
<TABLE>
<CAPTION>
Approximate
Square
Location Footage Description
- -------- ----------- -----------
<S> <C> <C>
Lodi, California 138,100 Manufacturing Plant and
Distribution Center
San Luis Obispo, California 110,000 Manufacturing Plant
Englewood, Colorado 48,500 Manufacturing Plants
(Includes four facilities)
(Leased)
Metter, Georgia 216,300 Manufacturing Plant and
Distribution Center
St. Charles, Illinois 385,400 Manufacturing Plant and
Distribution Center
(Includes two facilities)
Osage, Iowa 256,900 Manufacturing Plants
(Includes two facilities)
Gastonia, North Carolina 120,000 Manufacturing Plant
Wilson, North Carolina 127,200 Manufacturing Plant
Cincinnati, Ohio 22,900 Manufacturing Plant
Streetsboro, Ohio 80,000 Manufacturing Plant
Covington, Tennessee 241,700 Manufacturing Plant and
Distribution Center
</TABLE>
8
<PAGE> 9
Item 2 Continued
<TABLE>
<CAPTION>
Approximate
Square
Location Footage Description
- -------- ------------ -----------
<S> <C> <C>
Brenham, Texas 128,200 Manufacturing Plant and
Distribution Center
Marlin, Texas 115,700 Manufacturing Plant
Manchester, Vermont 162,300 Manufacturing Plant
Luray, Virginia 162,300 Manufacturing Plant
The following principal properties are used by the Print Management Segment:
LaPalma, California 65,300 Manufacturing Plant
(Leased)
Hartford, Connecticut 48,500 Manufacturing Plant
(Leased)
Orlando, Florida 60,000 Manufacturing Plant
(Leased)
Pompano Beach, Florida 40,000 Manufacturing Plant
Tampa, Florida 33,000 Manufacturing Plant
Atlanta, Georgia 192,800 Two Manufacturing Plants,
One Warehouse (45,300 square feet)
Chamblee, Georgia 193,600 Manufacturing Plant
Doraville, Georgia 42,500 Prepress Operations
(Leased)
Clinton, Illinois 219,000 Manufacturing Plant
</TABLE>
9
<PAGE> 10
Item 2 Continued
<TABLE>
<CAPTION>
Approximate
Square
Location Footage Description
- -------- ----------- -----------
<S> <C> <C>
Elk Grove Village, Illinois 142,000 Manufacturing Plant
and Label Group Office
Elk Grove Village, Illinois 137,800 One Leased Manufacturing Plant
(78,800 square feet), One Leased
Printing Fulfillment Center
(59,000 square feet)
Hillside, Illinois 206,600 Manufacturing Plant
and Engineering and Research Offices
(35,000 square feet)
(Leased)
Lebanon, Kentucky 89,200 Manufacturing Plant
New Orleans, Louisiana 44,000 Manufacturing Plant
Silver Springs, Maryland 83,700 Manufacturing Plant
Bedford, Massachusetts 73,100 Manufacturing Plant
Rochester, New York 85,300 Two Leased Manufacturing Plants (45,900
square feet) and Two Owned Warehouses
(39,400 square feet)
Tonawanda, New York 113,000 Manufacturing Plant
Charlotte, North Carolina 95,000 Manufacturing Plant
Cleveland, Ohio 44,000 Manufacturing Plant
(Leased)
Philadelphia, Pennsylvania 55,600 Manufacturing Plant
Pittsburgh, Pennsylvania 135,600 Manufacturing Plant
Columbia, South Carolina 58,900 Manufacturing Plant
</TABLE>
10
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Item 2 Continued
<TABLE>
<CAPTION>
Approximate
Square
Location Footage Description
- -------- ----------- -----------
<S> <C> <C>
Memphis, Tennessee 126,100 One Manufacturing Plant (54,100 square
feet) and One Printing Fulfillment Center
(72,000 square feet)
(Leased)
Austin, Texas 37,000 Manufacturing Plant
Dallas, Texas 107,600 Manufacturing Plant
Houston, Texas 273,500 One Owned Manufacturing Plant (180,000
square feet) and One Leased Printing
Fulfillment Center (93,500 square feet)
West Bend, Wisconsin 31,300 Manufacturing Plant
Additional Distribution Centers and Corporate Offices:
Ontario, California 114,500 Distribution Center (Leased)
Orlando, Florida 40,000 Distribution Center (Leased)
Bellwood, Illinois 30,000 Engineering and Research Facility
(Leased)
Lisle, Illinois 105,000 Corporate Headquarters
Lisle, Illinois 72,100 Technology Center (Leased)
Columbus, Ohio 154,000 Distribution Center (Leased)
Allentown, Pennsylvania 101,400 Distribution Center
</TABLE>
Remaining distribution centers and sales offices throughout the United States
are leased.
11
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Item 3 Legal Proceedings
The Company and its subsidiaries may from time to time be involved in
claims or lawsuits that arise in the ordinary course of business.
Accruals for claims or lawsuits have been provided for to the extent
that losses are deemed probable and estimable. Although the ultimate
outcome of these claims or lawsuits cannot be ascertained on the basis
of present information and advice received from counsel, it is the
opinion of management that the disposition or ultimate determination
of such claims or lawsuits will not have a material adverse effect on
the Company.
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Security Holders during the
quarter ended July 31, 1998.
Part II
Item 5 Market for the Registrant's Common Equity and Related Stockholder
Matters
The Company's common shares are traded on the New York Stock Exchange. The total
number of holders of record of the Company's common stock was 3,311 as of
October 15, 1998. Information about quarterly prices of common stock and
dividends paid for the two years ended July 31, 1998 is contained in the table
below:
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE DIVIDENDS PAID PER SHARE
================================================================================
FISCAL 1998 FISCAL 1997 FISCAL 1998 FISCAL 1997
================================================================================
QUARTER HIGH LOW HIGH LOW
================================================================================
<S> <C> <C> <C> <C> <C> <C>
First $38.63 $30.88 $ 30.38 $ 26.63 $.1400 $ .1075
Second 40.13 34.50 35.50 29.63 .1550 .1400
Third 39.44 34.06 34.38 26.13 .1550 .1400
Fourth 36.00 19.50 33.50 26.88 .1550 .1400
================================================================================
</TABLE>
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Item 6 Selected Financial Data
Selected financial data for each of the five years ended July 31, 1998 is
contained in the table below:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997 1996 1995 1994
=====================================================================================================
Operations
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Net sales $1,356,052 $906,290 $862,287 $712,838 $588,173
Net income 74,208 81,282 72,999 55,297 47,931
Net income per share (basic) 1.72 1.88 1.60 1.23 1.08
Net income per share (diluted) 1.71 1.86 1.59 1.23 N/A
Dividends per share .62 .56 .43 .37 .32
Financial Condition
=====================================================================================================
Total assets $1,257,463 $720,442 $695,850 $592,702 $538,592
Long-term debt 428,224 24,500 30,600 25,600 23,500
Capital expenditures 59,632 39,225 59,506 51,487 34,228
Working capital 236,857 149,234 206,238 193,150 183,432
Significant Ratios
=====================================================================================================
Net income:
Return on net sales 5.5% 9.0% 8.5% 7.8% 8.1%
Return on average assets 7.5% 11.5% 11.3% 9.8% 9.4%
Return on average equity 14.3% 16.2% 15.1% 12.8% 12.3%
Current ratio 2.2 2.1 3.1 3.9 3.8
Long-term debt/debt plus equity 43.9% 4.7% 5.7% 5.3% 5.4%
Book value per share $ 12.65 $ 11.45 $ 11.20 $ 10.05 $ 9.16
Sales per employee* $ 188.8 $ 207.4 $ 218.4 $ 195.4 $ 171.0
Other
=====================================================================================================
Number of employees 8,228 4,610 4,131 3,765 3,530
Number of stockholders of record 3,559 3,680 3,863 4,383 4,531
=====================================================================================================
</TABLE>
*Based on average number of employees during the fiscal year
NOTES TO FIVE YEAR SUMMARY
A. ACQUISITIONS: On June 17, 1998, the company acquired the assets of Good Decal
Co. The acquisition price was $12.3 million of cash and a note payable of $1.0
million. Effective November 3, 1997, the company acquired Graphic Industries,
Inc. The acquisition was made through an all cash purchase of Graphic's shares
of common stock. The acquisition price was $308.3 million, based on outstanding
shares, options and converted indenture notes valued at $21.75 per share, plus
$6.1 million of transaction costs, and net debt totalling $123.4 million. See
note 2, page 34 of this report, for further disclosure on the Graphic
acquisition. On July 24, 1997, the company acquired the assets of Moran Printing
Company. The acquisition price included notes payable of $29.5 million, and the
assumption of net debt totalling $4.9 million. On October 22, 1996, the company
acquired the assets of Post Printing, Inc. The acquisition price was $6.6
million of cash. On February 1, 1996, the company sold the LaserMax division to
a subsidiary of Stralfors A.B. of Ljungby, Sweden in a cash transaction that
approximated book value. On February 8, 1996, the company acquired Forms
Engineering Company. The acquisition price included $27.8 million of cash, a
13
<PAGE> 14
Item 6 Continued
note payable of $5.0 million, and the assumption of net debt totalling $2.0
million. On April 19, 1995, the company acquired the assets of Retterbush and
Sauer Label Corporation. The acquisition price included $10.1 million of cash
and a note payable of $2.0 million. On November 29, 1994, the company acquired
Lampro Graphics, Inc. The acquisition price included $4.6 million of cash, a
note payable of $.3 million, and the assumption of debt totalling $1.9 million.
All acquisitions were accounted for as purchases, and, accordingly, their
results of operations are included in the consolidated financial statements from
their respective dates of acquisition.
B. STOCK SPLIT: All share and per share amounts have been adjusted for the 2
for 1 stock split effective July, 1996.
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
FISCAL 1998 VERSUS FISCAL 1997
Fiscal 1998 was a year of significant change for Wallace. Sales surpassed $1
billion for the first time, ending the year at $1.4 billion. Of this total,
28.4% came from acquisitions made over the last thirteen months. The
acquisitions also changed the Company's capital structure. Total debt to debt
plus equity increased to 46.0% at fiscal year-end from 10.9% the previous year.
Our product mix also changed during the year, with the addition of twenty
commercial printing facilities. The breakdown of net sales for fiscal 1998
within our two product segments was as follows:
<TABLE>
<CAPTION>
PRODUCT SEGMENT % of Total Revenue % Revenue Increase
===========================================================================
<S> <C> <C>
Forms and Labels 56 9
Print Management 44 183
===========================================================================
</TABLE>
For fiscal 1999, when the Graphic Industries results are included for a full
twelve months, the percent of revenue for each product segment will be
approximately 50%.
Over the last five years, sales have grown at an annual compound rate of 12.2%
without this year's acquisitions, and 20.0% with the acquisitions. For fiscal
1998, sales were up 49.6% over the prior year. Excluding acquisitions, sales
would have been up 7.2%. Approximately 92% of sales are made to end users; the
balance is made to resellers. We estimate that actual unit growth for the year
for the Forms and Labels segment was in line with its sales dollar increase. The
majority of the revenue increase for the Print Management segment came from
acquisitions.
Paper price changes have a material effect on the company's reported sales
dollars and operating results. Paper is the basic raw material for 90% of our
products. In the Forms and Labels segment, paper represents 40 to 45% of sales.
In the Print Management segment, paper represents about 30% of sales.
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<PAGE> 15
Item 7 Continued
The majority of paper used by the company comes from three paper grades -
uncoated free sheet, tablet and offset. Using 20 pound white uncoated free
sheet as a proxy for the paper market, published prices during the last fiscal
year have shown increased variability. Prices rose over 20% from the spring of
1997 to November, 1997, but then fell over 15% by the end of fiscal 1998.
For the 52% of the Forms and Labels segment that is sold under contract, there
is usually a 60 to 90 day lag between the time of a paper price change and its
effect on net sales. This year, paper prices had started to fall before all of
the increases from the first half of the fiscal year had been passed on to the
contract customers. Unlike prior periods, the company was not able to pass on
the full effect of the paper price increase from the first half of the year. In
addition, competitive pressures kept selling prices for non-contract business
and for certain contract renewals at or below fiscal 1997 levels.
Forms and Labels have also been affected by changes in technology. Sales of the
higher margin mailer products have decreased between years by more than 20%,
replaced by growing, but lower margin, cut sheet products.
Label and related products continued to show good growth with a sales increase
for the year of 18%. Additional label products and manufacturing capacity will
be a primary focus for future acquisitions.
The contract stationery business showed steady sales improvement throughout the
year, reaching an annualized run rate of $30 million by year-end. However, the
operating income on this business was flat between years. We expect sales to be
down in fiscal 1999; we will not renew contracts which do not meet our profit
objectives.
The stock tab product line (stock computer paper) reported a small sales
increase for the year. Stock tab represents approximately 5% of Forms and
Labels sales. Profit margins on stock tab were down 30% between years. Margins
for fiscal 1998 were at a more normalized level than the unusually high margins
experienced in fiscal 1997 due to tighter paper supplies.
Most sales in the Print Management segment are currently made on an order by
order basis. Selling prices will, therefore, reflect market conditions for
paper sooner than in the Forms and Labels segment. Before acquisitions, sales
for Print Management were up 2% for the year: the Direct Response product line
was up 6%, while the commercial printing product line was down 5% due to one
major customer not printing a job that historically had been produced in the
company's fourth quarter.
The number of new W.I.N. and Select Services customers was 76 for fiscal 1998,
representing a 24% increase from the end of fiscal 1997. These 390 customers
collectively represented 37.8% of fiscal 1998 consolidated net sales.
Approximately 85% of these sales were in Forms and Labels, with the balance in
Print Management.
Sales to the W.I.N. and Select Service customers increased by 19.7% between
years. Forms and Labels sales for these customers were up 14.6% for the year,
while Print Management sales increased 59.2%.
Net income for the year decreased $7.1 million, or 8.7%. As expected, the
Graphic Industries acquisition was break-even for the nine months through July
31, 1998 after deducting goodwill amortization and acquisition-related interest
expense. The after-tax ratio for fiscal 1998 was 5.5%. Without acquisitions,
the after-tax ratio would have been 7.7%.
15
<PAGE> 16
Item 7 Continued
For the last five years, net income has grown at an average compound rate of
12.5%.
Cost of goods sold as a percent to sales for fiscal 1998 was 67.5% versus 61.4%
in fiscal 1997. Without acquisitions, cost of goods sold would have been 65.0%
for fiscal 1998. Print Management has a higher cost of sales than the Forms and
Labels products by approximately 7% to sales, or 700 basis points. Cost of
Goods Sold as a percent to sales for the Forms and Labels segment was higher
between years due to lower margins on the mailer and the stock product lines. In
addition, the growing percentage of sales from large contract customers, with
whom the company historically has lower margins than small quantity spot orders,
contributed to the increased cost of goods sold percentage. During fiscal 1998,
the company recorded a LIFO credit of $0.9 million versus a credit of $2.1
million in 1997.
Selling and administrative expenses as a percent to sales were 16.8% in fiscal
1998 and 18.3% in 1997. We expect selling and administrative expenses as a
percent to sales to decrease further in fiscal 1999 with a full year of Graphic
Industries included.
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change of the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000.
The company does not believe that it will incur material product liability as a
result of the year 2000 issue. However, many of the company's internal systems
were not designed to allow for four digit dates. The company has completed an
inventory of all affected software, firmware and hardware (including imbedded
chips) material to its operations. The company is remediating the problem by
modifying its software and in certain cases, purchasing new software packages.
The project is currently on schedule for completion prior to April 30, 1999. The
company has established a second data center where material systems are
currently being tested. Based on the results of this testing, the company will
develop contingency plans for areas of concern prior to January 1, 2000. This
will be possible due to the early completion date of the project. The
contingency plans, which will ensure that we will be able to operate in all
areas of our business, will continue to be monitored for completeness as we
approach the year 2000. The company does not expect the year 2000 issue as it
relates to internal systems to have a material effect on its operations.
The company has been working with key suppliers and customers to ensure that the
flow of products and services will not be disrupted as a result of failure of
the supplier or customer to become year 2000 compliant. While the company is
receiving assurances that no such interruption will occur, the company cannot
ensure that third parties will become compliant when promised and that the flow
of goods and services will not be interrupted. Inability to acquire raw
materials or to distribute finished goods could have a material impact on the
company's operations. In addition, a customer's inability to place EDI orders
could have a short-term impact on operations.
Year 2000 related software expenses were $2.7 million in fiscal 1998 and
$264,000 in fiscal 1997. We anticipate expensing another $2.5 million during
the first three quarters of fiscal 1999. The company does not anticipate that
the costs of remediation will have a material effect on its financial condition.
16
<PAGE> 17
Item 7 Continued
The provision for depreciation and amortization was 5.0% to sales in fiscal 1998
and 5.4% in fiscal 1997. The current year's total includes $5.9 million of
goodwill amortization, and $5.5 million for the amortization of capitalized
software. We are budgeting a range of $70 to $75 million in depreciation and
amortization for fiscal 1999.
Operating income for the year was up 7.1%. Without the acquisitions, operating
income would have been down 9.6% from fiscal 1997.
Interest expense for fiscal 1998 increased by $20.8 million due primarily to the
acquisitions. Interest income of $2.1 million was earned in the first part of
the year. Interest expense will be higher in fiscal 1999 due to a full four
quarters of interest expense related to the Graphic acquisition, plus additional
share repurchases.
The effective income tax rate for fiscal 1998 was 39.9% versus 39.5% in fiscal
1997. We are budgeting an effective rate for fiscal 1999 of 40.0%.
One of the drivers for the company's future growth will be cross-selling Print
Management products to our existing W.I.N. and Select Services customer base.
The opportunity to cross-sell was made available to the Wallace salesforce in
February, 1998. We are very pleased with the early results. During the fourth
quarter of this year, cross-selling amounted to just under $4 million. We
estimate that the cross-selling capacity in the Graphic Industries plants alone
is $75 million. We feel that we have ample capacity and opportunity to grow
both the Forms and Labels and the Print Management segments.
FISCAL 1997 VERSUS FISCAL 1996
Net sales for fiscal 1997 increased by 5.1% to $906.3 million. Over the last
five years, sales have grown at an annual compounded growth rate of 12.1%.
The company estimates that actual unit growth for the year was 12%, the same
growth rate as fiscal 1996 when sales dollars were up 21.0%. This dramatic
change in sales dollars between years with comparative unit growth is attributed
to paper price changes. Paper is the basic raw material for 75% of the company's
products. Paper price changes, therefore, have a material effect on reported
sales dollars.
Using 20 pound white uncoated free sheet as a proxy for the paper market,
published prices during the last two fiscal years decreased by 42%. Overall, our
best estimate for fiscal 1997 is that the impact of lower paper prices reduced
reported sales by 7%.
The number of new W.I.N. and Select Services customers continued to grow
throughout fiscal 1997. The number of customers for these programs increased by
29%. The 314 W.I.N. and Select Services customers at year-end represented 44% of
consolidated sales for the year.
Net income for the year increased $8.3 million or 11.3%. Before takeover
expenses of $10.1 million in fiscal 1996, net income would have been up $2.0
million or 2.6%. The after-tax ratio for fiscal 1997 was 9.0%, the highest net
income ratio since the company went public in 1961. For the last five years, net
income has grown at an average annual compound rate of 15.6%.
17
<PAGE> 18
Item 7 Continued
Cost of goods sold as a percent to sales for fiscal 1997 was 61.4% versus 62.4%
in 1996. Fiscal 1996 had included a LIFO credit of $6.6 million due to the drop
in paper costs in the second half of that year. We recorded another LIFO credit
of $2.1 million in fiscal 1997 because paper prices declined again. On a per
share basis, the LIFO credits added 3 cents to fiscal 1997 and 9 cents to fiscal
1996. Before the effects of LIFO accounting, cost of goods sold was 61.6% in
1997 and 63.2% in 1996. The margin improvement in fiscal 1997 came from the
replacement of lower margin stock tab product sales with increased sales to and
improved margins from the W.I.N. and Select Services customers.
Selling and administrative expenses increased 9.3% for the year. As a percent to
sales, they were 18.3% in fiscal 1997 and 17.6% in fiscal 1996. One unusual
expense in fiscal 1997 was $800,000 of legal and other fees in connection with
an unsuccessful attempt to place three dissident directors on the Board at the
November, 1996 annual meeting. The biggest expense increase in the
administrative area was an incremental $3.5 million for Information Systems. We
expect increasing IS expenditures in future years to keep the selling and
administrative percentage in the 18-19% range.
Depreciation and amortization expense was 5.4% of sales in fiscal 1997 and 5.2%
in fiscal 1996. The increase in 1997 came from higher amortization of
capitalized software development costs.
Operating income for fiscal 1997 was up 15.5% after takeover expenses and 6.3%
before takeover expenses.
Due to the share repurchase program, interest expense for fiscal 1997 exceeded
interest income. The company recorded net interest expense of $743,000 in 1997
and net interest income of $1,556,000 in 1996. Interest income from tax exempt
investments was $.5 million in fiscal 1997 and $1.5 million in 1996. Capitalized
interest for the year was $1.3 million in 1997 and $1.4 million in 1996.
The effective income tax rate for fiscal 1997 was 39.5% versus 38.4% in fiscal
1996. The rate was higher in 1997 due to lower tax-exempt investment income and
lower tax credits.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1998, the company's capital structure underwent a major change. A
total of $424 million was borrowed during the year to finance the Graphic
Industries and Good Decal acquisitions, and to repurchase shares of the
company's stock. The ratio of total debt to debt plus equity at July 31, 1998
was 46.0% versus 10.9% at the end of fiscal 1997.
Total debt reached a peak of $500.4 million at January 31, 1998. In the second
half of the year, we paid down $58.0 million of this debt before the Good Decal
acquisition ($13.3 million) and stock repurchases ($10.2 million) in the fourth
quarter.
Working capital at July 31, 1998 was $236.9 million, up from $149.2 million the
year before. Graphic Industries had a significant impact on working capital,
contributing $68.0 million of the increase. The current ratio at July 31, 1998
was 2.2.
18
<PAGE> 19
Item 7 Continued
Capital expenditures for the year were $59.6 million. Of this total, $24.7
million was spent for new building and equipment for the acquisitions.
Expenditures for new buildings were $4.1 million. There were no major
construction projects in-process at fiscal year-end.
Over the last five years, capital expenditures have totalled $244.1 million.
$7.2 million of these expenditures were financed by industrial revenue bonds,
with the balance being financed through internally generated funds. Over the
last five years, we have also spent $48.4 million for proprietary software
development. For fiscal 1999, we are estimating capital expenditures of $49
million, and capitalized software expenditures of $25 million.
During fiscal 1998, the company purchased $14.6 million of its common stock in
open market transactions at an average price of $25.52.
The company entered into a $500 million dollar revolving credit facility with
seventeen banks during the first quarter of fiscal 1998. In the second quarter,
$396 million was borrowed to fund the Graphic Industries acquisition. In
addition to the credit facility, the company had unsecured money market lines of
$150 million, under which $34.8 million was borrowed at July 31, 1998. The
maximum amount as authorized by the Board of Directors for borrowings under the
credit facility and the money market lines is $600 million.
During the third quarter, the company filed a shelf registration to issue up to
$300 million of unsecured debt and equity securities. Initial ratings had been
previously secured from Standard & Poor's and from Moody's in connection with
this offering. We were pleased to receive a BBB+ rating from Standard & Poor's
and a Baa2 rating from Moody's for both the $300 million universal shelf
registration and the $500 million revolving credit facility. We intend in
fiscal 1999 to issue $200 million of bonds under the shelf registration to
refinance about one half of the borrowings under the revolver.
The company is exposed to market risk from changes in interest rates. We
entered into a treasury rate lock agreement to manage the exposure from interest
rate movements related to the issuance of debt. The company's exposure to
interest rate risk is benchmarked against the most current 10-year treasury
issue.
The fair value of the hedging instrument is subject to change as a result of
potential changes in period end interest rates. The company performed
sensitivity analysis to evaluate the effect that changes in interest rates will
have on the treasury rate lock agreement. At year end, the potential change in
fair value of the hedging instrument assuming a hypothetical immediate 10%
adverse change in interest rates would increase the deferred unrealized loss by
$8.9 million.
A discussion of the company's accounting policies for financial instruments is
included in the Summary of Significant Accounting Policies in the notes to the
Consolidated Financial Statements, and further disclosures related to financial
instruments is included in Note 4, page 36 of this report, to the Consolidated
Financial Statements.
The company believes that it has adequate financing and cash flows to make
acquisitions, repurchase stock and pay down debt during fiscal 1999. We plan to
maintain or improve our investment grade ratings. Over the next few years, our
strong cash flows should reduce our leverage from the current 46% level to our
targeted range of 30 to 35%.
19
<PAGE> 20
Item 7 Continued
COMMON STOCK
Dividends were raised for the 26th consecutive year in September, 1997 to $.62
per share, an increase of 10.7%.
During fiscal 1998, 769,311 shares of common stock were issued in connection
with the company's Employee Stock Purchase Plan, the Profit Sharing and
Retirement Plan, the 1989 Stock Option Plan and the 1997 Stock Incentive Plan.
We also repurchased 571,700 shares during the year under the $100 million share
repurchase program approved by the Board of Directors in May, 1997. These
treasury shares will be used for future acquisitions or for employee related
benefit programs.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Certain statements in this filing and elsewhere (such as in other filings
by the Registrant with the Securities and Exchange Commission, press releases,
presentations by the Registrant or its management, and oral statements) may
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements, other than statements
of historical facts, that address activities, events, or developments that the
Registrant expects or anticipates may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
business strategy and measures to implement strategy, competitive strengths,
goals, expansion and growth of the Registrant's and its subsidiaries' business
and operations, plans, references to future success and other such matters are
forward-looking statements. These forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance or achievements of the Registrant to materially differ from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, general
economic, market or business conditions, changes in laws or regulations; the
opportunities (or lack thereof) that may be presented to and pursued by the
Registrant and its subsidiaries; successful integration of acquisitions; labor
market conditions; changes in postal rates and paper prices; the ability of the
Registrant to retain its customers who generally do not operate under long-term
contracts with the Registrant; the potential unpredictability of the
Registrant's net sales due to seasonal and other factors which can lead to
fluctuations in quarterly and annual operating results; the ability of the
Registrant to keep pace with technological advancements in the industry; the
effect of technical advancements on the demand for the Registrant's goods and
services; and the risk of damage to the Registrant's data centers and
manufacturing facilities or interruptions in the Registrant's telecommunications
links.
Item 7(A) Quantitative and Qualitative Disclosures About Market Risk
Information required by Item 7(A) is contained in Item 7 of Part II
(page 19), and contained in Item 14 of Part IV (page 33 and page 36).
Item 8 Financial Statements and Supplementary Data
The financial information required by Item 8 is contained in Item 14
of Part IV (page 25) of this report.
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
20
<PAGE> 21
Part III
Item 10 Directors and Executive Officers of the Registrant
The biographies of Theodore Dimitriou, Albert W. Isenman III and Robert P.
Rittereiser, are listed below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR PAST
NAME AND AGE FIVE YEARS DIRECTOR SINCE COMMITTEE MEMBERSHIP
------------ -------------------- -------------- --------------------
<S> <C> <C> <C>
Theodore Dimitriou (72) Chairman of the November 1, 1972 Executive
Company until (Chairman) and
August, 1998. Profit Sharing
Retired Chief
Executive Officer
of the Company. (1)
Albert W. Isenman III (50) Professor of January 5, 1996 Compensation
Management at the
Kellogg Graduate
School of
Management at
Northwestern
University since
1988.
Robert P. Rittereiser (60) Chairman and Chief January 5, 1996 Profit Sharing
Executive Officer (Resignation was
of Gruntal accepted on
Financial L.L.C. September 9, 1998)
and Gruntal & Co.
L.L.C., a national
full-service
securities
brokerage firm,
since 1995.
Chairman of
Yorkville
Associates Corp., a
private investment
and financial
advisory concern
formed in April
1989. Trustee of
The DBL Liquidating
Trust from April
1992 until April
1996. Chairman
since November
1992, a Director
since 1990 and
President and Chief
Executive Officer
from March 1993
until February 1995
of Nationar, Inc.,
a banking services
corporation. (2)
</TABLE>
(1) Mr. Dimitriou is also a director of General Binding Corporation.
(2) Mr. Rittereiser is also a director of Ferrofluidics Corporation,
Interchange Financial Services, Corp., and Cendent Corporation.
21
<PAGE> 22
Item 10 Continued
Information concerning continuing directors and director nominees of
the Company and their respective terms is contained in the Company's
definitive Proxy Statement dated October 9, 1998, on pages 2-6, and is
incorporated herein by reference.
Information concerning Section 16 (a) Beneficial Ownership Reporting
Compliance is contained on page 20 of the Company's definitive Proxy
Statement dated October 9, 1998, and is incorporated herein by
reference.
Executive Officers of the Company
(a) Names, ages and positions of the executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Sandra K. Brandt 40 Treasurer
Thomas G. Brooker 40 Vice President - Corporate Sales
Steven L. Carson 35 Assistant Secretary
Robert J. Cronin 53 Chairman of the Board and Chief Executive
Officer
Bruce D'Angelo 47 Senior Vice President - Print Management Segment
Michael O. Duffield 46 President and Chief Operating Officer
Douglas W. Fitzgerald 44 Vice President - Marketing
Michael J. Halloran 50 Vice President, Chief Financial
Officer and Assistant Secretary
Michael T. Laudizio 41 Secretary
Michael T. Leatherman 45 Executive Vice President and Chief
Administrative Officer
Marc A. Loomer 48 Vice President - Business Forms Division
Michael M. Mulcahy 56 Vice President - Technical Operations
Wayne E. Richter 42 Senior Vice President - Forms and Labels Segment
</TABLE>
22
<PAGE> 23
Item 10 Continued
All officers are elected at the Annual Meeting of the Board of
Directors, which is held immediately after the Annual Meeting of
Stockholders.
(b) Business Experience of the Executive Officers:
Ms. Brandt joined Wallace in 1997 as Division Vice President -
Treasurer. Ms. Brandt was previously Assistant Treasurer, Cash
Management for GATX Corporation from 1991 to 1997.
Mr. Brooker has been with the Company since 1981. He was elected
Vice President - Corporate Sales in 1998. Mr. Brooker was
previously Vice President - General Manager - Office Products from
1995 to 1998, Vice President - General Manager - Tops Division
from 1993 to 1995, and Vice President - Sales - Tops Division from
1992 to 1993.
Mr. Carson has been with the Company since 1995 as General
Counsel. Mr. Carson was elected Assistant Secretary in 1997. He
was previously an attorney with Chapman and Cutler, and Katten,
Muchin & Zavis.
Mr. Cronin has been with the Company since 1967. He was elected
Chairman of the Board in 1998 and elected Chief Executive Officer
in 1993. Mr. Cronin was previously President from 1993 to 1998,
and Chief Operating Officer in 1992. Mr. Cronin has been a
director of the Company since 1992.
Mr. D'Angelo has been with the Company since 1980. He was elected
Senior Vice President - Print Management Segment in 1998. He was
previously Vice President - Corporate Sales from 1992 to 1998.
Mr. Duffield has been with the Company since 1974. He was elected
President and Chief Operating Officer in 1998. He was previously
Senior Vice President - Operations from 1992 to 1998.
Mr. Fitzgerald has been with the Company since 1976. He was
elected Vice President of Marketing in 1996. He was previously
Director of Marketing from 1989 to 1996.
Mr. Halloran has been with the Company since 1975. He was elected
Vice President and Chief Financial Officer in 1987.
Mr. Laudizio has been with the Company since 1989. In 1995, he
was named Division Vice President - Taxes and was elected
Secretary. Previously, Mr. Laudizio had been Director of Taxation
since 1989, and Assistant Secretary since 1994.
Mr. Leatherman has been with the Company since 1990. He was
elected Executive Vice President and Chief Administrative Officer
in 1998. Mr. Leatherman was previously Senior Vice President
-Integrated Graphics and President of Graphic Industries from 1997
to 1998, Senior Vice President/ Chief Information Officer from
1995 to 1997 and Senior Vice President - Management Information
Services from 1990 to 1995.
23
<PAGE> 24
Item 10 Continued
Mr. Loomer has been with the Company since 1996 as Vice President.
Mr Loomer was elected Vice President - Business Forms Division in
1997. He was previously employed with Duplex Products, Inc. as
Vice President of Operations from 1994 to 1996 and Vice President
of Quality, Director of Marketing, and Strategic Planning.
Mr. Mulcahy has been with the Company since 1961. He was elected
Vice President - Technical Operations in 1998. He was previously
Vice President - General Manager - Promotional Printing Division
from 1992 to 1998.
Mr. Richter has been with the Company since 1979. He was elected
Senior Vice President of Forms and Labels Segment in 1998. He was
previously Vice President - General Manager - Label Division from
1992 to 1998.
There are no family relationships between these executives.
Item 11 Executive Compensation
Information concerning management remuneration and transactions, and
compensation of directors for the year ended July 31, 1998 is
contained in the Company's definitive Proxy Statement dated October 9,
1998, on pages 5-16, and is incorporated herein by reference.
Item 12 Security Ownership of Certain Beneficial Owners and Management
Information concerning the beneficial ownership of the Company's
common stock is contained in the Company's definitive Proxy Statement
dated October 9, 1998, on pages 19-20, and is incorporated herein by
reference.
Item 13 Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is contained in the Company's definitive Proxy Statement dated October
9, 1998, and is incorporated herein by reference.
24
<PAGE> 25
Wallace Computer Services, Inc. Fiscal 1998 10-K
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following consolidated financial statements and schedules of
the Company are set forth on the following pages of this report.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Consolidated Statements of Income for the years ended
July 31, 1998, 1997, and 1996 27
Consolidated Statements of Stockholders' Equity for the years ended
July 31, 1998, 1997, and 1996 28-29
Consolidated Balance Sheets as of July 31, 1998 and 1997 30
Consolidated Statements of Cash Flows for the years ended
July 31, 1998, 1997, and 1996 31
Notes to Consolidated Financial Statements 32-42
Report of Independent Public Accountants 43
Quarterly Financial Data for the years ended July 31, 1998 and 1997 44
Schedule - II, Valuation and Qualifying Accounts 45
</TABLE>
Schedules Omitted
All other schedules have been omitted because they are not applicable
or not required or because the required information is included in the
financial statements or notes thereto.
(b) Wallace Computer Services, Inc. filed a report on Form 8-K on
June 12, 1998, under Item 5., Other Events. The report related to
the Graphic Industries, Inc. acquisition, effective November 3,
1997. The report contained unaudited pro forma financial
statements including, (i) Condensed Consolidated Statements of
Operations for the nine months ended April 30, 1998 and the fiscal
year ended July 31, 1997 presenting pro forma operating results
for the Company as if the acquisition of Graphic had occurred as
of the beginning of the periods presented, and (ii) Condensed
Consolidated Balance Sheet as of October 31, 1997 as if the
acquisition of Graphic had occurred as of October 31, 1997.
(c) Exhibit Index
The exhibits as shown in "Index of Exhibits" (pages 46 - 51) are
filed as part of this report.
25
<PAGE> 26
Wallace Computer Services, Inc. Fiscal 1998 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on October 28, 1998.
Wallace Computer Services, Inc.
By /s/ Michael J. Halloran
------------------------------------
Michael J. Halloran
Vice President, Chief Financial
Officer and Assistant Secretary
(principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in capacities indicated, on October 28, 1998.
/s/ Robert J. Cronin /s/ William N. Lane III
- --------------------------------- -------------------------------
Robert J. Cronin William N. Lane III
Chairman of the Board, and Director
Chief Executive Officer
/s/ Theodore Dimitriou /s/ John C. Pope
- --------------------------------- -------------------------------
Theodore Dimitriou John C. Pope
Director Director
/s/ Richard F. Doyle /s/ Neele E. Stearns, Jr.
- --------------------------------- -------------------------------
Richard F. Doyle Neele E. Stearns, Jr.
Director Director
26
<PAGE> 27
Item 14(a) Consolidated Financial Statements and Schedules
CONSOLIDATED STATEMENTS OF INCOME
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands, except per share amounts) For the years ended July 31, 1998, 1997 and 1996 1998 1997 1996
===================================================================================================================================
<S> <C> <C> <C>
Net sales $1,356,052 $906,290 $862,287
___________________________________________________________________________________________________________________________________
Cost and expenses:
Cost of goods sold 915,927 556,073 538,373
Selling and administrative expenses 227,898 165,918 151,846
Provision for depreciation and amortization 67,479 49,205 45,029
Hostile takeover expenses -- -- 10,117
___________________________________________________________________________________________________________________________________
Total costs and expenses 1,211,304 771,196 745,365
___________________________________________________________________________________________________________________________________
Operating income 144,748 135,094 116,922
Interest income (2,108) (1,876) (2,867)
Interest expense, net of capitalized interest 23,466 2,619 1,311
___________________________________________________________________________________________________________________________________
Income before income taxes 123,390 134,351 118,478
___________________________________________________________________________________________________________________________________
Provision for income taxes: (Note 8)
Current:
Federal 38,267 42,825 35,385
State 7,826 8,210 7,390
Deferred 3,089 2,034 2,704
___________________________________________________________________________________________________________________________________
Total income taxes 49,182 53,069 45,479
___________________________________________________________________________________________________________________________________
Net income $ 74,208 $ 81,282 $ 72,999
___________________________________________________________________________________________________________________________________
Net income per share: (Note 11)
Basic $ 1.72 $ 1.88 $ 1.60
Diluted $ 1.71 $ 1.86 $ 1.59
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
27
<PAGE> 28
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK COMMON
(in thousands, except per share amounts) ------------------------------- PREFERRED STOCK
For the years ended July 31, 1998, 1997 and 1996 ISSUED IN TREASURY STOCK PAR VALUE
====================================================================================================================================
<S> <C> <C> <C> <C>
Balance, July 31, 1995 22,796 (107) $ -- $22,796
====================================================================================================================================
Net income -- -- -- --
Cash dividends ($.43 per share) -- -- -- --
Sale of stock under employee
stock purchase plan (Note 6) 35 153 -- 35
Stock options exercised net of shares
exchanged in lieu of cash (Note 6) 51 32 -- 51
Tax benefit from early disposition by employees
of stock issued under stock option plans
and exercise of non-qualified stock options -- -- -- --
Treasury stock purchased -- (167) -- --
Two-for-one stock split effective July, 1996 22,882 (88) -- 22,882
Unrealized security gain (loss) (Note 10) -- -- -- --
====================================================================================================================================
Balance, July 31, 1996 45,764 (177) -- 45,764
====================================================================================================================================
Net income -- -- -- --
Cash dividends ($.56 per share) -- -- -- --
Sale of stock under employee
stock purchase plan (Note 6) -- 324 -- --
Stock options exercised net of shares
exchanged in lieu of cash (Note 6) -- 230 -- --
Stock transferred to profit sharing and
retirement fund -- 217 -- --
Tax benefit from early disposition by employees
of stock issued under stock option plans
and exercise of non-qualified stock options -- -- -- --
Amortization of difference between market price
and option price for 1997 option plan (Note 6) -- -- -- --
Treasury stock purchased -- (3,288) -- --
Unrealized security gain (loss) (Note 10) -- -- -- --
====================================================================================================================================
Balance, July 31, 1997 45,764 (2,694) -- 45,764
====================================================================================================================================
Net income -- -- -- --
Cash dividends ($.62 per share) -- -- -- --
Sale of stock under employee
stock purchase plan (Note 6) -- 457 -- --
Stock options exercised net of shares
exchanged in lieu of cash (Note 6) -- 107 -- --
Stock transferred to profit sharing and
retirement fund -- 206 -- --
Tax benefit from early disposition by employees
of stock issued under stock option plans
and exercise of non-qualified stock options -- -- -- --
Amortization of difference between market price
and option price for 1997 option plan (Note 6) -- -- -- --
Treasury stock purchased -- (572) -- --
Unrealized security gain (loss) (Note 10) -- -- -- --
====================================================================================================================================
Balance, July 31, 1998 45,764 (2,496) $ -- $45,764
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE> 29
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, Continued
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNREALIZED COST OF
(in thousands, except per share amounts ADDITIONAL RETAINED SECURITY TREASURY
(For the years ended July 31, 1998, 1997and 1996 CAPITAL EARNINGS GAIN/LOSS STOCK
====================================================================================================================================
<S> <C> <C> <C> <C>
Balance, July 31, 1995 $ 51,397 $ 384,794 $ (181) $ (2,688)
====================================================================================================================================
Net income -- 72,999 -- --
Cash dividends ($.43 per share) -- (19,622) -- --
Sale of stock under employee
stock purchase plan (Note 6) 1,100 (414) -- 6,465
Stock options exercised net of shares
exchanged in lieu of cash (Note 6) 1,230 (298) -- 925
Tax benefit from early disposition by employees
of stock issued under stock option plans
and exercise of non-qualified stock options 1,771 -- -- --
Treasury stock purchased -- -- -- (9,878)
Two-for-one stock split effective July, 1996 (22,882) -- -- --
Unrealized security gain (loss) (Note 10) -- -- (39) --
====================================================================================================================================
Balance, July 31, 1996 32,616 437,459 (220) (5,176)
====================================================================================================================================
Net income -- 81,282 -- --
Cash dividends ($.56 per share) -- (23,993) -- --
Sale of stock under employee
stock purchase plan (Note 6) (337) (291) -- 8,939
Stock options exercised net of shares
exchanged in lieu of cash (Note 6) (1,165) (2,738) -- 6,572
Stock transferred to profit sharing and
retirement fund 1,502 -- -- 5,998
Tax benefit from early disposition by employees
of stock issued under stock option plans
and exercise of non-qualified stock options 1,869 -- -- --
Amortization of difference between market price
and option price for 1997 option plan (Note 6) 254 -- -- --
Treasury stock purchased -- -- -- (95,272)
Unrealized security gain (loss) (Note 10) -- -- 125 --
====================================================================================================================================
Balance, July 31, 1997 34,739 491,719 (95) (78,939)
====================================================================================================================================
Net income -- 74,208 -- --
Cash dividends ($.62 per share) -- (26,823) -- --
Sale of stock under employee
stock purchase plan (Note 6) (2,185) (326) -- 12,641
Stock options exercised net of shares
exchanged in lieu of cash (Note 6) (247) (1,027) -- 2,891
Stock transferred to profit sharing and
retirement fund 2,432 -- -- 5,567
Tax benefit from early disposition by employees
of stock issued under stock option plans
and exercise of non-qualified stock options 1,219 -- -- --
Amortization of difference between market price
and option price for 1997 option plan (Note 6) 432 -- -- --
Treasury stock purchased -- -- -- (14,592)
Unrealized security gain (loss) (Note 10) -- -- 95 --
====================================================================================================================================
Balance, July 31, 1998 $ 36,390 $ 537,751 $ -- $ (72,432)
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
29
<PAGE> 30
CONSOLIDATED BALANCE SHEETS
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(dollars in thousands) July 31, 1998 and 1997 1998 1997
===============================================================================================================
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 3,501 $ 14,168
Short-term investments (Note 10) -- 1,706
Accounts receivable, less allowance for doubtful accounts
of $5,195 in 1998 and $3,481 in 1997 260,324 167,578
Inventories (Note 3) 120,196 85,150
Prepaid taxes 34,818 16,748
Advances and prepaid expenses 7,920 5,140
- --------------------------------------------------------------------------------------------------------------
Total current assets 426,759 290,490
- --------------------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost:
Land and buildings 182,399 140,930
Machinery, equipment, furniture and fixtures 623,343 465,878
Leasehold improvements 1,846 1,678
- --------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 807,588 608,486
Less-reserves for depreciation and amortization (353,181) (306,994)
- --------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 454,407 301,492
Intangible assets arising from acquisitions 290,568 59,913
Cash surrender value of life insurance 48,064 39,845
System development costs 31,887 24,404
Other assets 5,778 4,298
- --------------------------------------------------------------------------------------------------------------
Total Assets $ 1,257,463 $ 720,442
==============================================================================================================
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 1,934 $ 7,100
Short-term notes payable 35,718 28,500
Accounts payable 77,057 49,348
Dividends payable 6,707 6,030
Accrued compensation and related expenses 37,891 24,458
Other accrued expenses 14,822 8,200
Contribution to profit sharing and retirement fund (Note 5) 15,773 17,620
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 189,902 141,256
- --------------------------------------------------------------------------------------------------------------
Deferred compensation and retirement benefits (Note 9) 30,552 28,829
Deferred income taxes (Note 8) 51,971 32,669
Long-term debt (Note 4) 428,224 24,500
Other long-term liabilities 9,341 --
Stockholders' equity:
Preferred stock, $50 par value, authorized 500,000 shares -- --
Common stock, $1.00 par value, authorized 100,000,000 shares 45,764 45,764
Additional capital 36,390 34,739
Retained earnings 537,751 491,719
Unrealized security loss (Note 10) -- (95)
Treasury stock (72,432) (78,939)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 547,473 493,188
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,257,463 $ 720,442
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE> 31
CONSOLIDATED STATEMENTS OF CASH FLOW
WALLACE COMPUTER SERVICES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(dollars in thousands) For the years ended July 31, 1998, 1997 and 1996 1998 1997 1996
===================================================================================================================================
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 74,208 $ 81,282 $ 72,999
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 67,479 49,205 45,029
Deferred taxes 1,053 409 5,398
(Gain) loss on disposal of property 676 (21) 3
Changes in assets and liabilities, net of effects from the purchase of
Forms Engineering Company, Post Printing, Moran Printing,
Graphic Industries and Good Decal and the sale of the LaserMax Division:
Accounts receivable 1,808 (11,433) (13,863)
Inventories (3,996) (9,276) 4,820
Prepaid taxes (18,084) (1,218) (6,344)
Advances and prepaid expenses 11,841 1,459 (145)
Other assets (22,220) (15,588) (16,032)
Accounts payable and other liabilities (10,085) 1,009 26,523
Federal and state income taxes -- -- (2,055)
Deferred compensation and retirement benefits 1,723 4,079 3,583
Realized security loss -- 106 107
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 104,403 100,013 120,023
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (59,632) (39,225) (59,506)
Purchases of short-term investments -- (14,000) (116,378)
Proceeds from sales of short-term investments 1,866 51,420 107,423
Proceeds from disposal of property 7,400 313 407
Net construction funds held by trustee -- 1,044 3,137
Other capital investments, including acquisitions/divestitures (451,139) (40,981) (29,165)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (501,505) (41,429) (94,082)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends paid (26,146) (22,864) (18,919)
Amounts paid on long-term debt (18,326) -- (205)
Proceeds from issuance of short-term debt 7,218 58,500 4,216
Proceeds from issuance of long-term debt 416,884 1,000 5,000
Proceeds from issuance of common stock 21,397 20,602 10,864
Retirement of short-term and acquired debt -- (30,000) (4,216)
Purchase of treasury stock (14,592) (95,272) (9,878)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 386,435 (68,034) (13,138)
- -----------------------------------------------------------------------------------------------------------------------------------
Net changes in cash and cash equivalents (10,667) (9,450) 12,803
Cash and cash equivalents at beginning of year 14,168 23,618 10,815
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,501 $ 14,168 $ 23,618
===================================================================================================================================
Supplemental disclosure:
Interest paid (net of interest capitalized) $ 21,887 $ 917 $ (297)
Income taxes paid 60,782 51,712 46,910
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1998
1. SUMMARY OF MAJOR ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION: The accompanying financial statements include the
accounts of the company and its subsidiaries, which are wholly-owned. All
significant intercompany transactions have been eliminated.
INDUSTRY SEGMENT: The company is engaged primarily in the commercial printing
and business services industries.
REVENUE RECOGNITION: Revenues from product sales and software licenses are
recorded when the product is shipped to the customer. In some instances, revenue
is not recognized until installation is complete or customer acceptance is
acknowledged.
CASH AND CASH EQUIVALENTS: The company invests excess cash balances in
short-term securities, including commercial paper, money market funds, and
municipal bonds whose original maturities are less than three months.
CAPITALIZED INTEREST COSTS: Interest costs are capitalized based upon the cost
of capital projects in progress during the year. Interest costs capitalized for
the last three years were:
<TABLE>
<CAPTION>
(IN THOUSANDS) INTEREST EXPENSE INTEREST CAPITALIZED
================================================================================
<S> <C> <C>
1998 $24,821 $1,355
1997 3,940 1,321
1996 2,717 1,406
================================================================================
</TABLE>
Amortization expense for interest capitalized was $903,000 in 1998; $912,000 in
1997; and $794,000 in 1996.
DEPRECIATION: Depreciation for financial statement purposes is computed using
the straight-line method over the estimated useful lives of the various classes
of property, plant and equipment.
<TABLE>
<CAPTION>
================================================================================
<S> <C>
Buildings 40 years
Building equipment 10-15 years
Machinery and equipment 3-10 years
Leasehold improvements Lease period
================================================================================
</TABLE>
INTANGIBLE ASSETS: The excess of cost over the assigned value of the net
tangible assets in connection with all acquisitions is being amortized on a
straight-line basis primarily over 40 years. Amortization expense amounted to
$5,857,000 in 1998, $1,205,000 in 1997 and $965,000 in 1996. The unamortized
balance relating to Graphic Industries was $221,375,000 at July 31, 1998. The
balance relating to all other acquisitions was $69,193,000 at July 31, 1998, and
$59,913,000 at July 31, 1997.
32
<PAGE> 33
SYSTEM DEVELOPMENT COSTS: Computer software that is either purchased or
developed internally for use by the company is amortized over a useful life of
one to seven years. Amortization of internal use software was $4,238,000 in
fiscal 1998; $3,029,000 in fiscal 1997; and $2,127,000 in fiscal 1996. Certain
computer software costs are capitalized in accordance with Statement of
Financial Accounting Standards (SFAS) No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," and are reported
at the lower of unamortized cost or net realizable value. This software,
marketed under the name PlatformsTM, has been developed to provide customers
with electronic forms and was amortized over two to five years. All costs
incurred to customize the specific application for a customer are included in
cost of goods sold in the period in which revenue is recognized. Revenues and
expenses for the Platforms' product are included in the statements of
operations. Amortization of Platforms' software was $1,210,000 in fiscal 1998;
$2,229,000 in fiscal 1997; and $2,042,000 in fiscal 1996. The unamortized
balance of all capitalized computer software was $31,887,000 in 1998 and
$24,404,000 in 1997.
In fiscal 2000, the company will adopt Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". The
statement requires that certain costs, such as preliminary project costs and
training, related to internally developed software must be expensed as incurred.
Based on current circumstances, the company does not believe that application of
Statement of Position 98-1 will have a material effect on the company's
financial condition or results of operations.
LONG-LIVED ASSETS: In fiscal 1997, the company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The statement requires that long-lived assets, including related goodwill,
be reviewed for impairment and written down to fair value whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. The effect of the accounting change had no impact on the company's
financial statements.
INCOME TAXES: The company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes." Under that standard, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
statutory tax rates applicable to future years to differences between the
financial statement carrying amount and the tax bases of existing assets and
liabilities. Investment tax credits are amortized to income over the lives of
the applicable assets. The unamortized investment tax credit amounted to
$195,000 in 1998 and $243,000 in 1997.
FINANCIAL INSTRUMENTS: The company uses treasury rate lock agreements to modify
interest rate exposure with the intent to reduce risk. The company has only
limited involvement with derivative financial instruments and does not use them
for trading purposes.
The company accounts for financial instruments under SFAS No. 80, "Accounting
for Futures Contracts". Under this standard, for instruments that properly
qualify for hedge accounting, the gain or loss realized on an interest rate
hedge is deferred and amortized as a yield adjustment over the life of the
related debt issuance. Amortization begins at the time of the debt issuance.
NET INCOME PER SHARE: In fiscal 1998, the company adopted SFAS No. 128,
"Earnings per Share", effective December 15, 1997. Accordingly, basic earnings
per share amounts are computed based on the weighted-average number of common
shares outstanding. Diluted earnings per share amounts are based on the
increased number of common shares that would be outstanding assuming the
exercise of certain outstanding stock options, when such conversion would have
the effect of reducing earnings per share. See Note 11, page 42 of this report,
for the computation of earnings per share.
33
<PAGE> 34
USE OF ESTIMATES: In preparing financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions that
affect reported and disclosed assets and liabilities at the date of the
financial statements and reported revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2. ACQUISITION OF GRAPHIC INDUSTRIES:
On November 3, 1997, a wholly-owned subsidiary of the company completed a tender
offer for all of the shares of common stock of Graphic Industries, Inc.
("Graphic"), a commercial printing company. On December 22, 1997, the
wholly-owned subsidiary was merged with and into Graphic, with Graphic becoming
a wholly-owned subsidiary of the company as a result of the merger. The
transaction has been accounted for as a purchase. The company acquired
13,405,828 shares of common stock at a purchase price of $21.75 per share. The
purchase price of $437.8 million is comprised of the following:
<TABLE>
<CAPTION>
(IN THOUSANDS)
===============================================================================
<S> <C>
Market value of shares, including options exercised
and convertible debt $308,306
Assumed debt, net of acquired cash 123,449
Transaction costs 6,075
______________________________________________________________________________
Total purchase price $437,830
===============================================================================
</TABLE>
The results of operations for Graphic are included in the income statement of
the company for the last 3 quarters of the fiscal year. Goodwill in the amount
of $225.6 million, based on the preliminary allocation of the purchase price,
will be amortized on a straight-line basis over 40 years.
The pro forma financial results of operations below assume the transaction was
completed at the beginning of the periods presented and include adjustments for
increased interest costs associated with the transaction, as well as increased
depreciation, amortization, and effective income tax rates to reflect the
effects of the purchase price allocation:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1998 1997
================================================================================
<S> <C> <C>
Net sales $1,473,494 $1,363,337
Net income 72,718 81,540
Net income (basic) 1.68 1.88
Net income (diluted) 1.68 1.87
================================================================================
</TABLE>
3. INVENTORIES:
Inventories are stated at cost which does not exceed market and include
material, labor and overhead. Cost is determined on the last-in, first-out
(LIFO) basis for certain inventories, and on the first-in, first-out (FIFO)
basis for other inventories.
34
<PAGE> 35
Inventories at July 31, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
================================================================================
<S> <C> <C>
Raw materials $ 26,200 $ 21,440
Work in process 19,539 1,426
Finished products 74,457 62,284
________________________________________________________________________________
$ 120,196 $ 85,150
================================================================================
</TABLE>
At July 31, 1998 and 1997, the cost of inventories aggregating $59,542,000 and
$55,484,000, respectively, was determined on the LIFO method.
Inventories would have been $16,766,000 higher in Fiscal 1998 and $17,649,000
higher in Fiscal 1997, if the FIFO method had been used for all inventories.
4. FINANCING ARRANGEMENTS:
SHORT-TERM DEBT: Short-term notes payable of $.9 million represent payments due
to the former principals of an acquired business. The notes carry an interest
rate of 8.635%, with the balance due in August, 1998. Unsecured money market
lines of $150 million were available as of July 31, 1998. Total borrowings
outstanding as of that date were $34.8 million.
LONG-TERM DEBT: Long-term debt consisted of the following at July 31:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
================================================================================
<S> <C> <C>
Average 3.00% floating rate industrial
revenue bonds due 2005 $ 282 $ -
Average 3.73% floating rate industrial
revenue bonds due 2007 7,000 7,000
Average 3.64% floating rate industrial
revenue bonds due 2009 8,000 8,000
Average 3.73% floating rate industrial
revenue bonds due 2019 8,500 8,500
Average 5.43% floating rate promissory
note due 1998 - 2,000
Average 4.95% floating rate promissory
note maturing not earlier than 1998 - 100
Average 5.27% floating rate promissory
note due 1998 - 5,000
5.80% promissory note due 1999 1,000 1,000
6.00% promissory note due 2001 1,000 -
8.00% promissory note due 2004 251 -
Average 5.95% revolving credit agreement
due 2003 396,000 -
Average 9.05% property mortgages
due 2007 - 2013 7,755 -
Other 370 -
____________________________________________________________________________
$430,158 $31,600
35
<PAGE> 36
Less-current portion 1,934 7,100
_______________________________________________________________________________
$ 428,224 $ 24,500
================================================================================
</TABLE>
Based upon the interest rates currently available to the company for borrowings
with similar terms and maturities, the fair value of the company's debt and
other financial instruments are either carried at fair value or do not
materially differ from fair value.
The industrial revenue bonds due 2005, 2007, 2009 and 2019 may be tendered at
the option of the holders on dates specified in the agreements. The company
maintains arrangements with agents to remarket any bonds tendered before the
final maturity dates. The bonds are also supported by letters of credit.
Principal payments due on long-term debt are as follows: $1,934,000 in 1999,
$933,000 in 2000, $889,000 in 2001, $595,000 in 2002, and $425,807,000 in 2003
and beyond.
The company has a $500 million revolving credit facility. The company's
financing arrangement contains certain restrictive financial covenants. Under
the most restrictive of the covenants, the company must maintain minimum
interest coverage of at least 2.5 to 1, and a funded debt to EBITDA ratio not
greater than 3 to 1. The company was in compliance with all debt covenants at
July 31, 1998 and 1997.
The maximum amount as authorized by the Board of Directors for borrowings under
the revolver and the money market lines is limited to $600 million. There are
no compensating balance requirements under these agreements. The borrowings
under these agreements at July 31, 1998 and 1997 were $396 million and $0,
respectively.
FINANCIAL INSTRUMENTS: The company entered into a treasury rate lock agreement
to reduce the potential impact of changes in interest rates on an anticipated
bond issuance. The $200 million bond issuance is anticipated to occur by January
31, 1999. At July 31, 1998 the agreement, which had a notional amount of $200
million, had a deferred unrealized loss of $3.4 million. The deferred
unrealized loss will be amortized as a yield adjustment over the life of the
related debt issuance.
5. PROFIT SHARING AND RETIREMENT PLAN:
The company has a contributory profit sharing and retirement plan covering most
employees, excluding Graphic Industries. The plan provides for company
contributions based on 19% of earnings before profit sharing contributions.
Company contributions to the plan charged to operations were $15,773,000 in
Fiscal 1998, $17,620,000 in Fiscal 1997, and $15,824,000 in Fiscal 1996.
Graphic Industries is covered under a separate profit sharing and retirement
plan agreement which provides for company contributions based on 50% of the
first 4% of the covered employee's contribution. Company contributions to the
Plan charged to operations were $1,245,000 for the nine months ended July 31,
1998.
6. STOCK OPTIONS:
The company has two stock option plans, the 1997 Stock Incentive Plan (the "1997
Plan") and the 1989 Stock Option Plan (the "1989 Plan"), and an employee stock
purchase plan adopted in 1974 (the "1974 Plan"). The company does not intend to
issue additional grants under the 1989 plan.
Under the terms of the 1997 Plan, which expires September 4, 2006, options may
be granted to employees, as well as to non-employee Directors. Two types of
options to purchase common stock may be granted to officers and others,
36
<PAGE> 37
except for non-employee Directors: Incentive Options and Non-Qualified Options.
In the case of Incentive Options, the option price may not be less than 100% of
the market value of the stock at the date of grant. For Non-Qualified Options,
the grant price may not be less than 85% of the market value; however, to date
no options have been granted at less than 100% of market value. The option price
may be paid in cash or by exchanging previously acquired company common stock
with a market value equal to the purchase price. Options generally become
exercisable as to 40% of the shares granted one year after grant and the
remaining 60% of the shares granted become exercisable two years after grant.
Options expire 10 years after grant. The exercisability of options may be
subject to one or more of the following performance measures: Common Stock
value, earnings per share, return to shareholders (including dividends), return
on assets, return on equity, earnings of the company, revenues, market share,
cash flow, cost reduction goals, or any combination of the above.
The 1997 plan additionally provides for options for non-employee Directors.
Immediately following the company's annual meeting, each non-employee Director
will be granted an option to purchase 2,000 shares at a purchase price per share
equal to the fair market value of a share of common stock on the date of grant
of such option. The options will vest at 25% every three months, such that they
will be fully vested within one year, or by the next annual meeting, whichever
occurs first.
The company accounts for employee stock options under Accounting Principles
Board Opinion No. 25. The company has adopted the disclosure-only provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the plans been determined consistent with SFAS No. 123,
the company's net income and earnings per share would have been reduced to the
following pro forma amounts:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT EPS) 1998 1997 1996
=================================================================
<S> <C> <C> <C>
Net income:
As reported $74,208 $81,282 $72,999
Pro forma 69,426 78,333 71,743
- -----------------------------------------------------------------
Earnings per share (Basic):
As reported 1.72 1.88 1.60
Pro forma 1.60 1.81 1.57
Earnings per share (Diluted):
As reported 1.71 1.86 1.59
Pro forma 1.60 1.79 1.56
=================================================================
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to August 1, 1995, the resulting pro forma compensation cost may
not be representative of expected compensation cost in future years.
37
<PAGE> 38
The following table summarizes the activity under the stock option plans for the
last two years:
<TABLE>
<CAPTION>
Number of Weighted average
shares exercise price
===================================================================
<S> <C> <C>
Outstanding at July 31, 1996 907,172 $ 17.94
- -------------------------------------------------------------------
Granted 845,715 27.18
Forfeited (6,300) 28.15
Exercised (249,744) 13.04
===================================================================
Outstanding at July 31, 1997 1,496,843 $ 23.94
- -------------------------------------------------------------------
Granted 380,541 34.19
Forfeited (21,800) 31.61
Exercised (124,539) 18.42
- -------------------------------------------------------------------
Outstanding at July 31, 1998 1,731,045 $ 26.49
===================================================================
July 31 July 31
1998 1997
- -------------------------------------------------------------------
Shares available for
future grants 1,130,596 1,489,337
Shares exercisable 658,825 757,468
===================================================================
</TABLE>
Of the 845,715 options granted in fiscal 1997, 567,000 were granted with
performance measure vesting provisions as outlined in the 1997 Plan. The
performance measures for the options are based on revenues, pretax income,
return on equity, and return on assets. Vesting will occur in 3 years to the
extent that the company meets specified performance measures. To the extent that
the measures are not met, the options will vest in 9.5 years. These options were
issued with shareholder approval on February 28, 1997, with a grant date of
September 4, 1996. The difference between market price on February 28, 1997 and
the grant date will be reflected as expense in the company's operations
statement over the vesting period. Additional expense of $432,000 is included
in Fiscal 1998 and $254,000 is included in Fiscal 1997. The remaining options
granted in 1997 did not have performance vesting provisions.
The Employee Stock Purchase Plan, adopted in 1974, expires on December 31, 2004.
A total of 6,600,000 shares of common stock have been reserved for purchase by
employees through semi-annual offerings. The option price is the lower of 85% of
the market price of the shares on the commencement date or the termination date
of each offering period. Employees participate in the plan through payroll
deductions and the plan qualifies for certain tax advantages under section 423
of the Internal Revenue Code of 1986, as amended. Options were exercised to
purchase 456,880 shares at $22.17 in Fiscal 1998, 324,002 shares at $25.65 in
Fiscal 1997, and 375,754 shares at $19.12 in Fiscal 1996. There were 2,096,616
shares available at July 31, 1998 and 2,553,496 shares available at July 31,
1997 for future issuance under this plan.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants: risk-free interest rates of 5.3% to 6.2% depending
on the expected life of the option; expected dividend yield of 1.0% to 1.9%;
expected lives of 5.2 years for options granted through the stock option plan
and 0.5 years for options granted through the Employee Stock Purchase Plan;
38
<PAGE> 39
and expected volatility of 25.9% to 26.6% for options granted through the stock
option plan, and 30.8% to 34.5% for options granted through the employee stock
purchase plan.
7. LEASE COMMITMENTS:
Total rent expense for manufacturing facilities, sales offices and equipment
amounted to $11,797,000 in 1998, $6,225,000 in 1997 and $5,906,000 in 1996. The
minimum future rental commitments under non-cancellable lease arrangements are
$9,479,000 in 1999; $6,835,000 in 2000; $5,661,000 in 2001; $4,303,000 in 2002;
and $17,930,000 for 2003 and beyond.
8. INCOME TAXES:
The significant deferred tax assets and liabilities at July 31 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997
======================================================================
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation $48,201 $30,576
Software development 11,934 8,661
Capitalized interest 1,903 1,542
Other 8,187 6,329
- ----------------------------------------------------------------------
Total Deferred Liabilities 70,225 47,108
- ----------------------------------------------------------------------
Deferred tax assets:
Deferred compensation 9,370 8,471
Postretirement benefits 1,252 1,376
Inventory capitalization 4,206 3,207
Accrued vacation 4,423 1,548
Supplemental profit sharing 1,917 1,525
Bad debt reserve 2,301 1,376
Other 9,160 4,297
- ----------------------------------------------------------------------
Total Deferred Assets 32,629 21,800
- ----------------------------------------------------------------------
Net Deferred Tax Liabilities $37,596 $25,308
======================================================================
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
1998 1997 1996
======================================================================
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes 4.6 4.4 4.4
Tax exempt interest income - (0.1) (0.4)
Tax credits and other 0.3 0.2 (0.6)
- ----------------------------------------------------------------------
Effective tax rate 39.9% 39.5% 38.4%
======================================================================
</TABLE>
39
<PAGE> 40
9. POSTRETIREMENT BENEFITS:
All current retirees; employees at least 55 with 20 or more years of service as
of December 31, 1993; and employees between the ages of 50 and 54 who have at
least 20 years of service as of December 31, 1993, and retire before December
31, 1998; are entitled to postretirement health care coverage. These benefits
are subject to the same deductibles and co-payment provisions which apply to
active employees. All other employees who retire after December 31, 1993 will
pay 100% of their retirement medical coverage. The company may amend or change
the plan periodically.
The net accrual basis expense for postretirement benefits as of July 31 was as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1997 1996
========================================================================
Components of net periodic postretirement benefit costs:
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 11 $ 10 $ 22
Interest cost 253 278 298
Amortization of loss 229 - 134
- ------------------------------------------------------------------------
Net periodic postretirement benefit cost $493 $288 $454
========================================================================
</TABLE>
The liability at July 31 (included in Deferred Compensation and Retirement
Benefits on the accompanying Consolidated Balance Sheet) for postretirement
benefits is as follows:
<TABLE>
(IN THOUSANDS) 1998 1997
========================================================================
<S> <C> <C>
Actuarial present value of benefit obligations:
Retirees $1,942 $2,175
Fully eligible active plan participants 799 863
Other active plan participants 221 245
Life insurance 182 200
- ------------------------------------------------------------------------
Actuarial present value of benefit obligations $3,144 $3,483
========================================================================
</TABLE>
For financial reporting purposes, the actuarial computations assumed a discount
rate of 7.0% to determine the accumulated postretirement benefit obligation, and
an assumed health care cost trend rate of 7.0% and 6.5% for pre-65 and post-65
medical coverage, respectively, for 1998, declining gradually to 5.0% in 2002,
to measure the accumulated postretirement benefit obligation. However, a one
percentage point increase in the assumed health care cost trend would increase
the aggregate of the service cost and interest cost components of the annual
postretirement expense by $19,000 and the postretirement benefit obligation as
of July 31, 1998 by $212,000.
40
<PAGE> 41
10. INVESTMENTS IN DEBT AND EQUITY SECURITIES:
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires securities that are available-for-sale to be carried at
fair value, with changes in net unrealized gains and losses recorded as a
separate component of shareholders' equity. This statement increased
shareholders' equity by $95,000 at July 31, 1998 and decreased shareholders'
equity by $95,000 at July 31, 1997 (net of tax).
The amortized cost and market value of investments as of July 31, 1997, and July
31, 1998 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS
=============================================================================
July 31, 1997 Amortized Unrealized Holding Market
Cost Gains Losses Value
=============================================================================
<S> <C> <C> <C> <C>
Available-for-sale
State, municipal & other gov't debt $ - $ - $ - $ -
Equity 1,866 - 160 1,706
Held-to-maturity
State, municipal & other gov't debt - - - -
- -----------------------------------------------------------------------------
Total short-term investments $1,866 $ - $ 160 $1,706
- -----------------------------------------------------------------------------
Long-term available-for-sale
- -----------------------------------------------------------------------------
Equity $1,730 $ - $ - $1,730
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
July 31, 1998 Amortized Unrealized Holding Market
Cost Gains Losses Value
=============================================================================
<S> <C> <C> <C> <C>
Available-for-sale
State, municipal & other gov't debt $ - $ - $ - $ -
Equity - - - -
Held-to-maturity
State, municipal & other gov't debt - - - -
- -----------------------------------------------------------------------------
Total short-term investments $ - $ - $ - $ -
- -----------------------------------------------------------------------------
Long-term available-for-sale
- -----------------------------------------------------------------------------
Equity $1,580 $ - $ - $ 1,580
=============================================================================
</TABLE>
Maturities for all debt securities classified as short-term are less than one
year. The long-term investment is included in the "Other Assets" section of the
balance sheet.
Proceeds on the sale of securities were $1,866,000 for Fiscal 1998, and
$51,420,000 for Fiscal 1997, with gross realized losses of $0 in Fiscal 1998 and
$106,000 in Fiscal 1997.
41
<PAGE> 42
The amortized cost of these securities was based on specific identification. No
securities during the period were classified as trading securities. There have
been no sales of held-to-maturity securities other than at their maturity date.
The reduction in net unrealized loss on available-for-sale securities from July
31, 1997 to July 31, 1998 was $95,000 (net of tax).
11. EARNINGS PER SHARE:
Below is the computation of basic and diluted earnings per share for the fiscal
years ended July 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1998 1997 1996
=============================================================================
<S> <C> <C> <C>
COMPUTATION OF BASIC EARNINGS PER SHARE
Net income $74,208 $81,282 $72,999
Weighted-average number of shares outstanding 43,213 43,322 45,582
Basic earnings per share 1.72 1.88 1.60
- -----------------------------------------------------------------------------
COMPUTATION OF DILUTED EARNINGS PER SHARE
Net income $74,208 $81,282 $72,999
Weighted-average number of shares outstanding 43,213 43,322 45,582
Add net shares from assumed exercise of options 184 343 339
- -----------------------------------------------------------------------------
Shares applicable to diluted earnings 43,397 43,665 45,921
Diluted earnings per share 1.71 1.86 1.59
=============================================================================
</TABLE>
42
<PAGE> 43
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Wallace Computer Services, Inc.
We have audited the accompanying consolidated balance sheets of Wallace Computer
Services, Inc., (a Delaware corporation) and Subsidiaries as of July 31, 1998
and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three Fiscal years in the period ended
July 31, 1998. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wallace Computer Services,
Inc. and Subsidiaries as of July 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three Fiscal years in the
period ended July 31, 1998 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Chicago, Illinois
September 8, 1998
43
<PAGE> 44
<TABLE>
<CAPTION>
QUARTERLY RESULTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
=============================================================================
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
=============================================================================
1998
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $246,112 $366,356 $375,649 $367,935
Cost of goods sold
(excluding depreciation) 155,206 246,951 257,624 256,146
Operating income 34,425 41,495 37,540 31,288
Income before income taxes 34,724 34,705 30,260 23,701
Net income 21,008 20,823 18,156 14,221
Net income per share:
Basic $ .49 $ .48 $ .42 $ .33
Diluted $ .48 $ .48 $ .41 $ .33
- -----------------------------------------------------------------------------
1997
Net sales $220,793 $225,439 $225,807 $234,251
Cost of goods sold
(excluding depreciation) 132,787 135,569 141,613 146,104
Operating income 34,858 35,800 32,100 32,336
Income before income taxes 35,009 35,630 31,843 31,869
Net income 21,180 21,556 19,265 19,281
Net income per share:
Basic $ .48 $ .50 $ .45 $ .45
Diluted $ .48 $ .50 $ .44 $ .45
=============================================================================
</TABLE>
44
<PAGE> 45
Wallace Computer Services, Inc. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the years ended July 31
<TABLE>
<CAPTION>
Total Reserve for Bad Debts 1998 1997 1996
- --------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance at Beginning of Year $3,481,000 $3,215,000 $2,671,000
Provision for Doubtful Accounts 700,000 1,189,000 560,000
Accounts Written Off Against Allowance (863,000) (1,180,000) (860,000)
Recoveries Credited to Allowance 182,000 257,000 346,000
Other Credits (1) 1,695,000 - 498,000
---------- ---------- ----------
Balance at End of Year $5,195,000 $3,481,000 $3,215,000
========== ========== ==========
</TABLE>
(1) Fiscal 1998 credit from acquisition of Graphic Industries, Inc. as of
November 3, 1997. Fiscal 1996 credit from acquisition of Forms Engineering
Company as of February 8, 1996.
45
<PAGE> 46
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2.1 Amended and Restated Agreement and Plan of Merger, dated as of October
12, 1997, among Wallace Computer Services, Inc., Greenwich Acquisition
Corp., and Graphic Industries, Inc. (previously filed as Exhibit (c)(3)
to the Schedule 14D-1 (Amendment No. 1) filed October 17, 1997, and
incorporated herein by reference to such Report).
2.2 Amended and Restated Stockholder Agreement, dated as of October 12,
1997, among Mark C. Pope III, Wallace Computer Services, Inc., and
Greenwich Acquisition Corp. (previously filed as Exhibit (c)(4) to the
Schedule 14D-1 (Amendment No. 1) filed October 17, 1997, and
incorporated herein by reference to such Report).
3.1A Restated Certificate of Incorporation of the Registrant as filed with
the Secretary of State of the State of Delaware on January 7, 1987
(previously filed as part of Exhibit 3 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended July 31, 1987, and incorporated
herein by reference to such Report).
3.1B Certificate of Amendment amending Section 1 of Article FOURTH of the
Certificate of Incorporation of the Registrant as filed with the
Secretary of State of the State of Delaware on November 28, 1989
(previously filed as part of Exhibit 3 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended July 31, 1987, and incorporated
herein by reference to such Report).
3.1C Certificate of Amendment amending Section 1 of Article FOURTH of the
Certificate of Incorporation of the Registrant as filed with the
Secretary of State of the State of Delaware on March 14, 1997
(previously filed as part of Exhibit 3 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1997, and
incorporated herein by reference to such Report).
3.1D Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of the Registrant as filed with the Secretary of State
of the State of Delaware on March 15, 1990 (previously filed as
part of Exhibit 3 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1990, and incorporated herein by
reference to such Report).
3.2 Amended and Restated By-Laws of the Registrant as adopted on July 1,
1998, and filed herewith.
4.1 Indenture between Wallace Computer Services, Inc. and Bank of New York
as Indenture Trustee (previously filed as Exhibit 4.7 to Amendment No. 1
to Form S-3 Registration Statement, Registration No. 333-46807, dated
April 10, 1998 and incorporated herein by reference to such Form).
10.1 Form of Rights Agreement, dated as of March 14, 1990, between
Registrant and Harris Trust and Savings Bank, as Rights Agent, which
includes as Exhibit A the Certificate of Designation, Preferences and
Rights of Series A Preferred Stock, as Exhibit B the form of Rights
Certificate, and as Exhibit C the form of Summary of Rights (previously
filed as Exhibit 28.2 to the Registrant's Current Report on Form 8-K
dated March 14, 1990, and incorporated herein by reference to such
Report).
</TABLE>
46
<PAGE> 47
Exhibit Index (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.2A Fourth Amended and Restated Agreement made and entered into as of
January l, 1993 between the Registrant and Theodore Dimitriou
(previously filed as part of Exhibit 10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1993, and
incorporated herein by reference to such Report).
10.2B First Amendment to Fourth Amended and Restated Agreement made and
entered into as of January l, 1993 between the Registrant and Theodore
Dimitriou (previously filed as part of Exhibit 10 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1993, and
incorporated herein by reference to such Report).
10.2C Second Amendment to Fourth Amended and Restated Agreement made and
entered into as of January 1, 1993 between the Registrant and Theodore
Dimitriou (previously filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q dated October 31, 1995, and incorporated
herein by reference to such Report).
10.2D Third Amendment to Fourth Amended and Restated Agreement effective as of
July 1, 1997 between the Registrant and Theodore Dimitriou (previously
filed as part of Exhibit 10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31 1997, and incorporated herein by
reference to such Report).
10.3A 1989 Stock Option Plan of the Registrant, which amends and restates as a
single, integrated plan the 1974 Non-Qualified Stock Option Plan of the
Registrant and the 1981 Incentive Stock Option Plan of the Registrant
(previously filed as part of Exhibit 10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1990, and
incorporated herein by reference to such Report).
10.3B The Wallace Computer Services, Inc. 1997 Stock Incentive Plan
(previously filed as Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended January 31, 1997, and incorporated
herein by reference to such Report).
10.4A Executive Incentive Plan of the Registrant, as restated to reflect
Amendment No. 3 thereto, adopted as of November 9, 1994 (previously
filed as part of Exhibit 10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31, 1995, and incorporated herein by
reference to such Report).
10.4B Fourth Amendment, adopted as of September 6, 1995, to the Executive
Incentive Plan of the Registrant (previously filed as part of Exhibit 10
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1995, and incorporated herein by reference to such Report).
10.4C The Wallace Computer Services, Inc. Amended and Restated Executive
Incentive Plan, dated as of August 1, 1997 (previously filed as Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q dated January 31,
1998, and incorporated herein by reference to such Report).
</TABLE>
47
<PAGE> 48
Exhibit Index (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.5 Form of Deferred Compensation/Capital Accumulation Plan of the
Registrant for each of the years 1988, 1989, 1990, 1991, 1993, 1994,
1995, 1996, 1997, and 1998 (previously filed as part of Exhibit 10.2
to the Registrant's Quarterly Report on Form 10-Q dated October 31,
1995, and incorporated herein by reference to such Report).
10.6 Supplemental Profit-Sharing Plan of the Registrant (previously filed
as part of Exhibit 10 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1988, and incorporated herein by
reference to such Report).
10.7A Executive Severance Pay Plan of the Registrant (previously filed as
part of Exhibit 10 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1990, and incorporated herein by
reference to such Report).
10.7B First Amendment to the Executive Severance Pay Plan of the Registrant
(previously filed as part of Exhibit 10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1995, and
incorporated herein by reference to such Report).
10.8 The Wallace Computer Services, Inc. Annual Bonus Plan (previously
filed as Appendix A to the Proxy Statement of the Registrant for
Annual Meeting of Stockholders filed on October 6, 1997, and
incorporated herein by reference to such Report).
10.9A Employee Long-Term Performance Plan of the Registrant (previously
filed as part of Exhibit 10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31, 1994, and incorporated herein
by reference to such Report).
10.9B First Amendment of the Employee Long-Term Performance Plan of the
Registrant (previously filed as part of Exhibit 10 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1995, and incorporated herein by reference to such Report).
10.10 Employee Stock Option Guideline of the Registrant (previously filed as
part of Exhibit 10 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1994, and incorporated herein by
reference to such Report).
10.11 Form of Deferred Compensation/Capital Accumulation Plan for Directors
of the Registrant for each of the years 1988, 1989, 1993, 1994, 1995,
1996, 1997, and 1998 (previously filed as Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1995, and incorporated herein by reference to such
Report).
10.12 Retirement Plan for Outside Directors of the Registrant (previously
filed as part of Exhibit 10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31, 1990, and incorporated herein
by reference to such Report).
</TABLE>
48
<PAGE> 49
Exhibit Index (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.13A Employee Severance Pay Plan of the Registrant (previously filed as
part of Exhibit 10 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended July 31, 1992, and incorporated herein by
reference to such Report).
10.13B First Amendment of the Employee Severance Pay Plan of the Registrant
(previously filed as part of Exhibit 10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1995, and
incorporated herein by reference to such Report).
10.14A Form of Indemnification Agreement with Director between the Registrant
and each of the following: Robert J. Cronin, Theodore Dimitriou,
Richard F. Doyle, Albert W. Isenman III, William N. Lane III, Neele
E. Stearns, John C. Pope, and Robert P. Rittereiser, (previously
filed as part of Exhibit 10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31, 1990, and incorporated herein
by reference to such Report).
10.14B Form of Addendum to Indemnification Agreement with Director (Member of
Profit Sharing Committee) between the Registrant and each of the
following: Robert J. Cronin and Theodore Dimitriou (previously filed
as part of Exhibit 10 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended July 31, 1990, and incorporated herein by
reference to such Report).
10.14C Form of Indemnification Agreement with Director (Member of Profit
Sharing Committee) between the Registrant and Robert P. Rittereiser.
(previously filed as part of Exhibit 10 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended July 31, 1996, and
incorporated herein by reference to such Report).
10.15A Form of Indemnification Agreement with Officer between the Registrant
and each of the following: Sandra K. Brandt, Thomas G. Brooker,
Steven L. Carson, Robert J. Cronin, Bruce D'Angelo, Michael O.
Duffield, Douglas W. Fitzgerald, Michael J. Halloran, Michael T.
Laudizio, Michael T. Leatherman, Marc A. Loomer, Michael M. Mulcahy,
and Wayne E. Richter (previously filed as part of Exhibit 10 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
July 31, 1990, and incorporated herein by reference to such Report).
10.15B Form of Addendum to Indemnification Agreement with Officer (Trustee of
Profit Sharing and Retirement Trust and Member of Profit Sharing
Committee) between the Registrant and each of the following: Robert
J. Cronin, Theodore Dimitriou and Michael J. Halloran (previously
filed as part of Exhibit 10 to the Registrant's Annual Report on Form
10-K for the fiscal year ended July 31, 1990, and incorporated herein
by reference to such Report).
10.15C Form of Addendum to Indemnification Agreement with Officer (Member of
Profit Sharing Committee) between the Registrant and Michael O.
Duffield (previously filed as part of Exhibit 10 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1995,
and incorporated herein by reference to such Report).
</TABLE>
49
<PAGE> 50
Exhibit Index (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.16 Form of Addendum to Indemnification Agreement with Officer for FEC
Employee Stock Ownership Trust between the Registrant and each of the
following: Robert J. Cronin, Theodore Dimitriou and Michael O.
Duffield (previously filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q dated April 30, 1996, and incorporated
herein by reference to such Report).
10.17A Agreement effective as of July 1, 1997 between Registrant and Robert
J. Cronin (Employment Agreement), (previously filed as part of
Exhibit 10 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31 1997, and incorporated herein by reference
to such Report).
10.17B Agreement effective as of July 1, 1997 between Registrant and Robert
J. Cronin (Change of Control Agreement), (previously filed as part of
Exhibit 10 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31 1997, and incorporated herein by reference
to such Report).
10.18A Agreement effective as of September 9, 1998 between Registrant and
Michael O. Duffield (Employment Agreement), filed herewith.
10.18B Agreement effective as of September 9, 1998 between Registrant and
Michael O. Duffield (Change of Control Agreement), filed herewith.
10.19A $500,000,000 Credit Agreement dated as of October 31, 1997, among
Wallace Computer Services, Inc., Bank of America National Trust and
Savings Association, as Administrative Agent and the other financial
institutions party thereto, (previously filed as Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q dated October 31, 1997,
and incorporated herein by reference to such Report).
10.19B First Amendment Credit Agreement dated June 5, 1998 among Wallace
Computer Services, Inc., Bank of America National Trust and Savings
Association, as Administrative Agent and the other financial
institutions party thereto amending the $500,000,000 Credit Agreement
dated as of October 31, 1997, (previously filed as Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q dated April 30, 1998,
and incorporated herein by reference to such Repot).
10.20 Benefit Trust Agreement between Wallace Computer Services, Inc. and
the Northern Trust Company dated December 8, 1995, filed herewith,
and the First Amendment to The Wallace Computer Services, Inc.
Benefit Trust, effective as of October 31, 1997, (First Amendment was
previously filed as Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-Q dated January 31, 1998, and incorporated herein by
reference to such Report).
10.21 The Wallace Computer Services, Inc. Performance Share Plan (previously
filed as Appendix B of the Proxy Statement for Annual Meeting of
Stockholders filed on October 6, 1997, and incorporated herein by
reference to such Report).
</TABLE>
50
<PAGE> 51
Exhibit Index (continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
51
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
WALLACE COMPUTER SERVICES, INC.
(Effective as of July 1, 1998)
ARTICLE I
OFFICES AND BOOKS AND RECORDS
Section 1.1. Offices.
The corporation may have such offices as the Board of Directors may from
time to time designate and the business of the corporation may from time to time
require.
Section 1.2. Books and Records.
The corporation may keep its books and records at such places as the Board
of Directors may from time to time designate and the business of the corporation
may from time to time require.
ARTICLE II
STOCKHOLDERS
Section 2.1. Annual Meeting.
An annual meeting of stockholders for the purpose of electing directors and
the transaction of any other proper business shall be held each year on such
date and at such time as may be fixed by the Board of Directors. If, by the
tenth day preceding the first Wednesday in November of any year, the Board of
Directors shall not have fixed a date and time for an annual meeting of
stockholders for such year, the annual meeting shall be held on the first
Wednesday in November in such year at the hour of 10:00 a.m. in the place where
such meeting is to be held. If the date so fixed for the annual meeting shall
be a legal holiday in the place where such meeting is to be held, such meeting
shall be held on the next succeeding business day.
<PAGE> 2
Section 2.2. Special Meetings.
Special meetings of stockholders may be called at any time by the Board of
Directors pursuant to a resolution approved by a majority of the entire Board of
Directors. *
Section 2.3. Place of Meeting.
The Board of Directors may designate the place of meeting for any meeting
of stockholders. If no designation is made by the Board of Directors, the place
of meeting shall be the principal business office of the corporation.
Section 2.4. Notice of Meeting.
Written or printed notice stating the place, day and hour of meeting and
the purpose or purposes for which the meeting is called shall be given not less
than 10 days nor more than 60 days before the date of each meeting of
stockholders, either personally or by mail, to each stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, postage prepaid, addressed to
the stockholder at his address as it appears on the stock transfer books of the
corporation.
Section 2.5. Fixing of Record Date.
Except as may be provided otherwise by law:
(a) For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend or other distribution, or in order
to make a determination of stockholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of stockholders, which record date shall be not less than 10 days
nor more than 60 days prior to the date of the meeting or of the payment of a
dividend or other event for which such record date is being fixed.
(b) If no record date is fixed for the determination of stockholders
entitled to notice of or to vote at a meeting of stockholders, or of
stockholders entitled to receive payment of a dividend or other distribution, or
in order to make a determination of stockholders for any other purpose, the
record date for such determination of stockholders shall be (i) in the case of a
meeting of stockholders, the close of business on the day next preceding the
date on which notice of the meeting is given, or (ii) in the case of a dividend
or other distribution, the close of business on the date on which the Board of
Directors adopts the resolution declaring such dividend or other distribution,
or (iii) for any other purpose, the date on which the Board of Directors adopts
the resolution relating thereto.
-2-
<PAGE> 3
(c) A determination of stockholders entitled to notice of or to vote at any
meeting of stockholders shall apply to any adjournment of such meeting, unless
the Board of Directors fixes a new record date for the adjourned meeting.
Section 2.6. Voting Lists.
The officer who has charge of the stock transfer books of the corporation
shall prepare and make, at least 10 days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at such meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be available
at either the place where the meeting is to be held or at another place,
specified in the notice of meeting, in the city where the meeting is to be held,
for a period of 10 days prior to the meeting and shall be open to examination by
any stockholder at any time during ordinary business hours during such 10-day
period, for any purpose germane to the meeting. Such list shall also be
produced and kept open at the time and place of the meeting during the whole
time thereof and shall be subject to inspection by any stockholder who is
present at the meeting. The original or duplicate stock transfer books shall be
the only evidence as to the identity of the stockholders entitled to examine any
such list or the stock transfer books of the corporation and to vote in person
or by proxy at any meeting of stockholders.
Section 2.7. Quorum and Voting.
Except as may be provided otherwise in the Certificate of Incorporation:
(a) Stockholders that are present in person or represented by proxy at a
meeting of stockholders and holding a majority of the outstanding shares of
stock of the corporation entitled to vote on the subject matter shall constitute
a quorum at the meeting, except that, when any matter is to be voted on by a
class or by a series voting as a class, the shareholders that are present in
person or represented by proxy at the meeting holding a majority of the
outstanding shares of such class or series, shall constitute a quorum of such
class or series for a vote on such matter.
(b) In all matters other than the election of directors, the affirmative
vote of stockholders holding a majority of the shares of stock of the
corporation that are present in person or represented by proxy at a meeting of
stockholders and entitled to vote on the subject matter, shall be the act of the
stockholders, except that, when any matter is to be voted on by a class or by a
series voting as a class, the affirmative vote of the holders of a majority of
the shares of such class or series, that are present in person or represented by
proxy at the meeting shall be the act of such class or series.
(c) Directors shall be elected by a plurality of the votes cast by
stockholders holding shares of stock of the corporation entitled to vote in the
election of directors, that are present in person or represented by proxy at a
meeting of stockholders, except that, when any directors are to be elected by a
class or by a series voting as a class, the directors to be elected by such
class or
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series shall be elected by a plurality of the votes cast by holders of the
shares of such class or series, that are present in person or represented by
proxy at the meeting.
(d) If less than a majority of the outstanding shares of stock is
represented at a meeting of stockholders, or if less than a majority of the
outstanding shares of any class or series is represented at a meeting of
stockholders where a matter is to be voted on by a class or by a series voting
as a class, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be represented, any business may be transacted that might have been
transacted at the meeting as originally notified.
(e) The stockholders represented at a duly organized meeting may continue
to transact business at such meeting, notwithstanding the withdrawal from the
meeting of a number of stockholders leaving less than a quorum at such meeting.
Section 2.8. Proxies.
(a) Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for him by proxy, but no such proxy
shall be voted or acted upon after 3 years from its date, unless the proxy
provides for a longer period.
(b) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (a) of
this Section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing
such writing or causing his signature to be affixed to such writing by any
reasonable means including, but not limited to, facsimile signature.
(2) A stockholder may execute a writing authorizing another person or
persons to act for him as proxy by transmitting or authorizing the
transmission of a telegram, cablegram, or other means of electronic
transmission to the person or persons who will be the holder of the proxy
or to a proxy solicitation firm, proxy support service organization or
like agent duly authorized by the person or persons who will be the holder
of the proxy to receive such transmission, provided that any such
telegram, cablegram or other means of electronic transmission must either
set forth or be submitted with information from which it can be determined
that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. If it is determined that such a telegram,
cablegram or other electronic transmission is valid, the inspectors of
election or, if there are no inspectors of election, such other persons
making such determination shall specify the information upon which they
relied.
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(c) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to subsection (b) of this Section
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
(d) A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally.
Section 2.9. Inspectors of Election.
(a) The corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors of election to act at the meeting and make a
written report thereof. The corporation may designate one or more persons as
alternate inspectors of election to replace any inspector of election who fails
to act. If no inspector of election or alternate inspector of election is able
to act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors of election to act at the meeting. Each
inspector of election, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector of election
with strict impartiality and according to the best of his ability. The decision
of a majority of the inspectors of election as to the results of any vote of
stockholders shall be binding upon the corporation and its stockholders. Any
competent person over the age of 21 may be appointed as an inspector of
election.
(b) Inspectors of election shall have the following responsibilities:
(i) to ascertain the number of shares outstanding and the voting
power of each;
(ii) to determine the shares represented at a meeting and the
validity of proxies and ballots;
(iii) to count all votes and ballots;
(iv) to determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors;
(v) to certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots;
(vi) to determine whether the meeting itself is legally constituted
for the purpose of the actions to be taken by the stockholders; and
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(vii) to do all other acts and make all other determinations
necessary or appropriate in connection with conducting the vote of
stockholders and deciding the results thereof.
(c) In carrying out their responsibilities, inspectors of election shall
not have any obligation to do any of the following:
(i) to determine the names or addresses of the stockholders
entitled to vote (inspectors of election may rely on a list of
stockholders as of the record date for the meeting certified by either the
transfer agent or the Secretary of the corporation), or
(ii) to determine the date of mailing of the notice of meeting or
the persons to whom the notice of meeting was sent (inspectors of election
may rely on a certificate of either the transfer agent or the Secretary of
the corporation for such information).
(d) In carrying out their responsibilities, inspectors of election shall
have the authority, but not the obligation, to appoint or retain agents,
including, but not limited to, accountants, attorneys and custodians, to assist
the inspectors of election in the performance of their duties as the inspectors
of election. Any such agent so appointed by any inspector of election shall be
responsible only to the inspectors of election.
(e) Inspectors of election shall be entitled to possession of all proxies
and all ballots cast by stockholders or their proxies until they have determined
the results of the vote of stockholders, at which time they shall deliver such
proxies and ballots to the secretary of the meeting.
(f) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors of election after the
closing of the polls unless the Court of Chancery of the State of Delaware upon
application by a stockholder shall determine otherwise.
(g) In determining the validity and counting of proxies and ballots, the
inspectors of election shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 212(c)(2) of the General Corporation Law of the State of Delaware,
ballots and the regular books and records of the corporation, except that the
inspectors of election may consider other reliable information for the limited
purpose of reconciling proxies and ballots submitted by or on behalf of banks,
brokers, their nominees or similar persons which represent more votes than the
holder of a proxy is authorized by the record owner to cast or more votes than
the stockholder holds of record. If the inspectors of election consider other
reliable information for the limited purpose permitted in this subsection (g),
the inspectors of election shall, at the time they make their certification
pursuant to subsection (b)(v) of this Section, specify the precise information
considered by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for their belief that such information is
accurate and reliable.
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(h) Inspectors of election shall be entitled to reimbursement from the
corporation for all expenses reasonably incurred by them in connection with the
discharge of their responsibilities, including the fees and expenses of any
agents appointed by them. In addition, the corporation shall pay inspectors of
election a fee commensurate with the services rendered and the responsibilities
undertaken by them.
Section 2.10. Stockholder Action.
Any action required or permitted to be taken by any stockholders of the
corporation must be effected at a duly called annual or special meeting of such
stockholders and may not be effected by any consent in writing by such
stockholders. Except as otherwise required by law and subject to any special
rights of holders of preferred stock with respect to calling meetings of
preferred stockholders, special meetings of stockholders of the corporation may
be called only by the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors.*
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers.
The business and affairs of the corporation shall be managed by or under
the direction of the Board of Directors, except as may be otherwise required by
law, by the Certificate of Incorporation or by these by-laws.
Section 3.2. Number, Election, Tenure and Qualifications; Stockholder
Nominations; Vacancies; Removal; Resignation.
(a) Number, Election, Tenure and Qualifications. Subject to any special
rights of the holders of preferred stock to elect additional directors, the
number of directors of the corporation shall be fixed from time to time by a
majority of the entire Board of Directors. The directors (other than directors
elected by the holders of preferred stock voting as a class or series) shall be
classified, with respect to the time for which they severally hold office, into
three classes, as nearly equal in number as possible, as determined by the Board
of Directors, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1986, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1987, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1988, with each director in
each class to hold office until his successor is elected and qualified. At each
annual meeting of stockholders, the successors of the class of directors whose
term expires at the meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their
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election. Directors need not be residents of the State of Delaware or
stockholders of the corporation.*
(b) Stockholder Nomination of Director Candidates. Advance notice of
stockholder nominations for directors shall be given in the manner provided in
Section 3.3 of these by-laws.*
(c) Newly Created Directorships and Vacancies. Subject to any special
rights of the holders of preferred stock with respect to filling vacancies in
directorships elected by preferred stockholders voting as a class, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other reason shall be filled by the affirmative
vote of a majority of the remaining directors then in office, or the sole
remaining director, even though less than a quorum of the Board of Directors.
Any director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the class of directors in which the
new directorship was created or the vacancy occurred and until his successor is
elected and qualified. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.*
(d) Removal. Subject to any special rights of the holders of preferred
stock with respect to the removal of directors elected by preferred stockholders
voting as a class, any director may be removed from office, at any time, with or
without cause, but only by the affirmative vote of the holders of at least 80%
of the combined voting power of the then outstanding shares of stock of the
corporation entitled to vote generally in the election of directors, voting
together as a single class.*
(e) Resignation. Any director may resign at any time upon written notice
to the corporation directed to the Board of Directors and the Secretary. Such
resignation shall take effect at the time specified therein, and, unless
otherwise specified therein, no acceptance of such resignation shall be
necessary to make it effective.*
Section 3.3. Notification of Nominations.
Subject to any special rights of the holders of preferred stock with
respect to the nomination of directors to be elected by preferred stockholders
voting as a class, nominations for the election of directors may be made by the
Board of Directors, or by a nominating committee appointed by the Board of
Directors, or by any stockholder entitled to vote generally in the election of
directors. However, a stockholder may nominate persons for directors at a
meeting of stockholders only if written notice of such stockholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary not later than (i)
with respect to an election to be held at an annual meeting of stockholders, 90
days in advance of such meeting, and (ii) with respect to an election to be held
at a special meeting of stockholders for the election of directors, the close of
business on the seventh day following the date on which notice of such meeting
is first given to stockholders. Each such notice must set forth: (a) the name
and address of the stockholder who intends to make the nomination and of the
person or persons to be nominated for director; (b) a
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representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (d) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing procedure.*
Section 3.4. Annual and Regular Meetings.
An annual meeting of the Board of Directors shall be held, without any
notice other than this by-law, immediately after each annual meeting of
stockholders at the same place as such annual meeting of stockholders. The
Board of Directors may, by resolution, fix the time and place for the holding of
regular meetings without notice other than the resolution fixing the time and
place for the meeting.
Section 3.5. Special Meetings.
Special meetings of the Board of Directors may be called by or at the
request of the Chairman of the Board or any two directors. The person or
persons calling a special meeting of the Board of Directors may fix the date and
place of such meeting and may fix any time within regular business hours as the
time for such meeting.
Section 3.6. Notice of Special Meetings.
Notice of any special meeting of directors shall be given to each director
by mail at his business or residence address at least 5 days prior to the
meeting, or by courier, telegram or telex at his business address at least one
business day prior to the meeting, or by telephone at least 12 hours prior to
the meeting. If given by mail, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, addressed to the director
at his business or residence address. If given by telegram, such notice shall
be deemed to be given when the telegram is delivered to the telegraph company.
Neither the business to be transacted at, nor the purpose of, any special
meeting of the Board of Directors need be specified in the notice of such
meeting.
Section 3.7. Quorum; Vote Required for Action.
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Unless otherwise provided by law or in the Certificate of Incorporation,
the presence of a majority of the directors shall constitute a quorum for the
transaction of business. Except as otherwise provided by law, in the
Certificate of Incorporation or in these by-laws, the vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors. In the event a quorum shall not be present at any
meeting of the Board of Directors, the directors who are present may by majority
vote adjourn the meeting from time to time until a quorum is present.
Section 3.8. Committees.
(a) The Board of Directors shall appoint the committees provided for in
Sections 3.9, 3.10, and 3.11 of these by-laws and may, by resolution passed by a
majority of the whole of the Board of Directors, establish and appoint other
standing or temporary committees and invest such committees with such duties and
powers as the Board of Directors may from time to time determine, subject to
such conditions and restrictions as may be imposed by law, in the Certificate of
Incorporation, or in these by-laws.
(b) The Board of Directors may designate one or more alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the event that an alternate member designated by the Board
of Directors is not available to replace an absent or disqualified member, the
member or members of a committee who are present at any meeting of such
committee and not disqualified from voting, whether or not representing a
quorum, may unanimously appoint another member of the Board of Directors to act
as a member of such committee at such meeting in the place of such absent or
disqualified member.
(c) Each committee shall keep minutes of its meetings and records of its
actions, shall cause the minutes of its meetings and records of its actions to
be filed in the minutes books of the corporation and shall distribute copies of
the minutes of its meetings and records of its actions to the Board of
Directors.
(d) Unless specified otherwise at the time of his appointment, the term of
each member of each committee shall be from the date of his appointment until
the next succeeding annual meeting of the Board of Directors or until his
successor shall have been duly appointed, provided, however, that the Board of
Directors may at any time in its sole discretion and for any reason remove any
member of a committee.
(e) Unless otherwise provided by law, in the Certificate of Incorporation,
in these bylaws, or in the resolution establishing or appointing the committee,
the presence of a majority of the members of a committee shall constitute a
quorum for the transaction of business. Except as otherwise provided by law, in
the Certificate of Incorporation, in these by-laws, or in the resolution
establishing or appointing the committee, the vote of a majority of the members
of a committee present at a meeting at which a quorum is present shall be the
act of the committee. In the event a quorum shall not be present at any meeting
of a committee, the members of the
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committee who are present may by majority vote adjourn the meeting from time to
time until a quorum is present.
Section 3.9. Executive Committee.
(a) At each annual meeting of the Board of Directors, the Board of
Directors shall, by a resolution adopted by a majority vote of the entire Board
of Directors, designate and appoint from its members an Executive Committee
consisting of three or more directors.
(b) The Executive Committee shall have and may exercise, to the fullest
extent permitted by law, all of the powers and authority of the Board of
Directors in the management and direction of the business and affairs of the
corporation and may authorize the corporate seal to be affixed to any document
or instrument; provided, however, that, except as otherwise expressly authorized
from time to time by the Board of Directors and as permitted by the Delaware
General Corporation Law, the Executive Committee shall not have any power or
authority to:
(1) make, adopt, amend, alter or repeal any by-law;
(2) elect or appoint any director or elect, appoint or remove any
officer;
(3) recommend or submit to the stockholders any action that requires
approval of stockholders, including an amendment of the Certificate of
Incorporation, the sale, lease, or exchange of all or substantially all of
the corporation's property and assets, or the dissolution or the
revocation of a dissolution of the corporation;
(4) adopt an agreement of merger or consolidation under Section 251
or Section 252 of the Delaware General Corporation Law with; approve any
merger or consolidation with; or approve any acquisition of the stock or
the business and assets of; any party other than a subsidiary of the
corporation, except that, in the case of an acquisition previously
approved by the Board of Directors, the Executive Committee shall have the
power and authority to modify the amount of consideration for such
acquisition by an amount not in excess of 25% of the previously approved
consideration or $500,000, whichever is less;
(5) declare a dividend or authorize the issuance of any stock;
(6) create any new committee or dissolve, alter the responsibilities
of, or fill any vacancy on any existing committee appointed by the Board
of Directors;
(7) make any substantive changes in or awards under the corporation's
employee benefit and compensation benefit plans;
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(8) incur or guarantee any long-term debt (over 12 months) or incur
any short-term debt in excess of $500,000 at any time outstanding; or
(9) make any capital commitment or expenditure in excess of $500,000
that could not otherwise be made without the prior approval of the Board
of Directors.
(c) Notwithstanding the provisions of Section 3.9(b)(2) of these by-laws,
in the event of the death, inability or refusal to act of the Chairman of the
Board and the President, the Executive Committee may determine who shall perform
the duties of the Chief Executive Officer pending the election of successors to
the offices of Chairman of the Board and President.
Section 3.10. Audit Committee.
(a) At each annual meeting of the Board of Directors, the Board of
Directors shall, by a resolution adopted by a majority vote of the entire Board
of Directors, designate and appoint from its members an Audit Committee
consisting of three or more directors, none of whom is an officer or employee of
the corporation.
(b) The Audit Committee shall have the powers and responsibilities set
forth in the Audit Committee charter adopted by the Board of Directors on
January 12, 1989, as the same may be amended, modified and supplemented from
time to time by the Board of Directors.
Section 3.11. Compensation Committee.
(a) At each annual meeting of the Board of Directors, the Board of
Directors shall, by a resolution adopted by a majority vote of the entire Board
of Directors, designate and appoint from its members a Compensation Committee
consisting of not less than two directors, each of whom shall be a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 and an "outside director" within the meaning of section 162(m) of the
Internal Revenue Code.
(b) The Compensation Committee shall have the following powers and
responsibilities:
(1) To review and recommend to the Board of Directors compensation
levels, bonus amounts and stock option grants of officers and key
managers;
(2) To request and review reports from the corporation's management
on the scope, competence, performance, and motivation of management
employees;
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(3) To develop, review and recommend to the Board of Directors
incentive, bonus, stock option and similar incentive plans or programs and
retirement and welfare plans or programs for officers and key managers;
(4) To review and recommend to the Board of Directors compensation
levels of persons hired from "outside" the corporation to the positions of
Corporate Officer, Divisional Officer or General Manager and all persons
hired who are covered by an employment contract;
(5) To interpret incentive, bonus, stock option and similar incentive
plans; and
(6) To develop, review and recommend to the Board of Directors
changes of major benefit and perquisite programs.
(c) Action taken by the Compensation Committee or at meetings duly called
shall require the affirmative vote of at least a majority of its members.
(d) Any action taken with regard to officer and key manager compensation
levels and Plans or programs, which involve the grant or award of an equity
security, including any derivative security, for which an exemption is claimed
under Rule 16b-3 or section 162(m), shall be made by the Compensation Committee.
Section 3.12. Corporate Governance and Nominating Committee.
(a) At each annual meeting of the Board of Directors, the Board of
Directors shall, by a resolution adopted by a majority vote of the entire Board
of Directors, designate and appoint from its members a Corporate Governance and
Nominating Committee consisting of three or more directors, none of whom is an
officer or employee of the corporation.
(b) The Corporate Governance and Nominating Committee shall have the powers
and responsibilities set forth in the Corporate Governance and Nominating
Committee charter adopted by the Board of Directors, as the same may be amended,
modified and supplemented from time to time by the Board of Directors.
ARTICLE IV
OFFICERS
Section 4.1. Number.
The officers of the corporation shall include a Chairman of the Board, a
Chief Executive Officer, a President, one or more Vice-Presidents (one or more
of whom may be designated as an Executive Vice President or a Senior Vice
President), a Secretary, a Treasurer, one or more Assistant Secretaries, and one
or more Assistant Treasurers. Any two or more offices may be
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held by the same person, except the offices of President and Secretary. Except
for the Chairman of the Board, no officer needs to be a director of the
corporation.
Section 4.2. Election and Term of Office.
The officers of the corporation shall be elected annually by the Board of
Directors at each annual meeting of the Board of Directors. Each officer shall
hold office until his successor shall have been duly elected and shall have
qualified or until his earlier death, resignation or removal.
Section 4.3. Resignation.
Any officer may resign at any time upon written notice to the Board of
Directors and the Secretary. Such resignation shall take effect at the time
specified therein, and, unless otherwise specified therein, no acceptance of
such resignation shall be necessary to make it effective.
Section 4.4. Removal.
Any officer may be removed by the Board of Directors whenever in its
judgment the best interests of the corporation would be served thereby.
Section 4.5. Vacancies.
A vacancy in any office caused by death, resignation, removal,
disqualification or otherwise may be filled by the Board of Directors whenever
in its judgment the best interests of the corporation would be served thereby.
Section 4.6. Chairman of the Board.
The Chairman of the Board shall be elected from the members of the Board of
Directors. The Chairman of the Board shall preside at all meetings of the Board
of Directors and at all meetings of stockholders. The Chairman of the Board may
sign or countersign certificates, contracts, agreements and other documents and
instruments in the name and on behalf of the corporation, unless and except to
the extent that any document or instrument is required by law or by the Board of
Directors to be signed or countersigned by another officer of the corporation.
The Chairman of the Board shall make such reports to the Board of Directors and
the stockholders as the Board of Directors may from time to time request and
shall perform all such other duties as are incident to his office or are
properly requested by the Board of Directors.
Section 4.7. Chief Executive Officer.
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The Board of Directors shall designate whether the Chairman of the Board,
if one shall have been chosen, or the President shall be the Chief Executive
Officer of the corporation. If a Chairman of the Board has not been chosen, or
if one has been chosen but not designated as the Chief Executive Officer, then
the President shall be the Chief Executive Officer of the corporation. The Chief
Executive Officer shall be the principal executive officer of the corporation
and shall in general supervise and control all of the business and affairs of
the corporation, subject to the direction of the Board of Directors. In the
absence of the Chairman of the Board, the Chief Executive Officer shall preside
at all meetings of the stockholders and of the Board of Directors and shall see
that orders and resolutions of the Board of Directors are carried into effect.
The Chief Executive Officer may sign or countersign certificates, contracts,
agreements and other documents and instruments in the name and on behalf of the
corporation, unless and except to the extent that any document or instrument is
required by law or by the Board of Directors to be signed or countersigned by
another officer of the corporation. The Chief Executive Officer shall make such
reports to the Chairman of the Board, the Board of Directors and the
stockholders as the Chairman of the Board or the Board of Directors may from
time to time request and shall perform all such other duties as are incident to
his office or are properly requested by the Chairman of the Board or the Board
of Directors. The Chief Executive Officer shall have general powers of
supervision and shall be the final arbiter of all differences between officers
of the corporation and his decision as to any matter affecting the corporation
shall be final and binding as between the officers of the corporation subject
only to the Board of Directors. During the absence or disability of the Chairman
of the Board, the Chief Executive Officer shall have and may exercise all of the
powers and shall discharge all of the duties of the Chairman of the Board.
Section 4.8. President.
In the absence of the Chief Executive Officer or in the event of his
inability or refusal to act, if the Chairman of the Board has been designated
Chief Executive Officer, the President shall perform the duties of the Chief
Executive Officer, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Chief Executive Officer. At all other
times the President shall have the active management of the business of the
corporation under the general supervision of the Chief Executive Officer. The
President shall have concurrent power with the Chief Executive Officer to sign
or countersign certificates, contracts, agreements and other documents and
instruments in the name and on behalf of the corporation, unless and except to
the extent that any document or instrument is required by law or by the Board of
Directors to be signed or countersigned by another officer of the corporation.
In general, the President shall perform all duties incident to the office of
president and such other duties as the Chief Executive Officer or the Board of
Directors may from time to time prescribe.
Section 4.9. Executive Vice-President, Senior Vice-President.
Should one Vice-President be designated by the Board of Directors as
Executive Vice-President (or in the event there be more than one Executive
Vice-President, the Executive Vice-Presidents in the order of their election),
he shall, in the absence or disability of the Chairman of the Board, the Chief
Executive Officer and the President and subject to the control of the Board
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of Directors and the provisions of Section 3.9(c) hereof, perform the duties and
exercise the powers of the President, and shall perform such other duties as
shall, from time to time, be assigned to him by the Board of Directors.
Should one Senior Vice-President be designated by the Board of Directors as
Senior Vice-President (or in the event there be more than one Senior
Vice-President, the Senior Vice-Presidents in the order of their election), he
shall, in the absence or disability of the Chairman of the Board, the Chief
Executive Officer , the President, and the Executive Vice Presidents and subject
to the control of the Board of Directors and the provisions of Section 3.9(c)
hereof, perform the duties and exercise the powers of the President, and shall
perform such other duties as shall, from time to time, be assigned to him by the
Board of Directors.
Section 4.10. Vice-Presidents.
Each Vice-President shall make such reports to the Chief Executive Officer,
the Board of Directors and the stockholders as the Chief Executive Officer or
the Board of Directors may from time to time request and shall perform all such
other duties as are incident to his office or are properly requested by the
Chief Executive Officer or the Board of Directors.
Section 4.11. Secretary.
The Secretary shall be custodian of the corporate records and of the
corporate seal and shall be responsible for: (a) keeping minutes of all meetings
of the Board of Directors and its committees and minutes of all meetings of
stockholders in one or more books provided for that purpose; (b) ensuring that
all notices are duly given to directors and stockholders in accordance with the
provisions of these by-laws and as required by law; (c) ensuring that the
corporate seal is properly affixed to all documents and instruments to which the
corporate seal is required to be affixed; (d) ensuring that the corporation's
transfer agent keeps a register of all stockholders and a record of all stock
transfers; and (e) performing all such other duties as are incident to his
office or are properly requested by the Chief Executive Officer or the Board of
Directors.
Section 4.12. Treasurer.
The Treasurer shall be responsible for: (a) making appropriate arrangements
for the safe keeping of all funds and securities of the corporation, (b)
ensuring that proper records are maintained of all cash receipts and
disbursements by the corporation, and (c) performing all such other duties as
are incident to his office or are properly requested by the Chief Executive
Officer or the Board of Directors. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine.
Section 4.13. Assistant Secretaries.
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During the absence or disability of the Secretary, the Assistant Secretary
(or, if there is more than one Assistant Secretary, the Assistant Secretary
designated by the Chief Executive Officer to assume the powers and duties of the
Secretary) shall have and may exercise all of the powers and shall discharge all
of the duties of the Secretary. Each Assistant Secretary shall also perform all
such other duties as are incident to his office or are properly requested by the
Chief Executive Officer, the Secretary or the Board of Directors.
Section 4.14. Assistant Treasurers.
During the absence or disability of the Treasurer, the Assistant Treasurer
(or, if there is more than one Assistant Treasurer, the Assistant Treasurer
designated by the Chief Executive Officer to assume the powers and duties of the
Treasurer) shall have and may exercise all of the powers and shall discharge all
of the duties of the Treasurer. Each Assistant Treasurer shall also perform all
such other duties as are incident to his office or are properly requested by the
Chief Executive Officer, the Treasurer or the Board of Directors.
Section 4.15. Divisional Officers.
The Chief Executive Officer and the Board of Directors may appoint
divisional officers with such powers and duties as the Chief Executive Officer
or the Board of Directors may from time to time assign to such divisional
officers.
Section 4.16. Compensation of Officers.
The salaries, bonuses and other compensation of officers and divisional
officers shall be determined by the Board of Directors or, if and to the extent
these by-laws or the Board of Directors so authorizes or directs, by a committee
of the Board of Directors or, in the case of divisional officers, the Chief
Executive Officer. No officer or divisional officer shall be prevented from
receiving any salary, bonus or other compensation that is determined by the
Board of Directors or, if the Board of Directors so authorizes or directs, by a
committee of the Board of Directors or, in the case of a divisional officer, the
Chief Executive Officers, by reason of the fact that such officer or divisional
officer is also a director of the corporation.
Section 4.17. No Contractual Rights.
No officer or divisional officer shall be deemed to have any rights or
claims against the corporation or be entitled to receive any compensation or
benefits by virtue of his election as an officer or appointment as a divisional
officer, except to the extent provided by law, in a contract authorized or
approved by the Board of Directors or, if the Board of Directors so authorizes
or directs, by a committee of the Board of Directors or, in the case of a
divisional officer, the Chief Executive Officer, or in a plan, program or
arrangement authorized or approved by the Board of
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Directors or, if the Board of Directors so authorizes or directs, by a committee
of the Board of Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1. Stock Certificates.
Certificates representing shares of stock of the corporation shall be in
such form as shall be determined by the Board of Directors. Each certificate
shall be signed by the Chairman of the Board, the President or a Vice-President
and by the Secretary or an Assistant Secretary and sealed with the corporate
seal. In the event that an officer who has signed a certificate should cease to
hold the office in which he signed such certificate, such certificate may
nevertheless be issued by the corporation with the same effect as if he had
continued to serve in such office. All certificates shall be consecutively
numbered or otherwise identified. The name and address of the person to whom
shares of stock are issued, together with the certificate number, the number of
shares and the date of issuance, shall be entered in the stock transfer records
of the corporation. All certificates surrendered to the corporation for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
canceled, except that, in case of a mutilated certificate or a certificate that
is alleged to have been lost, stolen or destroyed, a new certificate may be
issued therefor upon such indemnity to the corporation and other terms and
conditions as the Chief Executive Officer, the chief financial officer or the
Board of Directors may prescribe. The Board of Directors may appoint an
independent transfer agent or registrar, or both, for any class or series of
stock of the corporation, and, in the event that the Board of Directors should
appoint an independent transfer agent or registrar, or both, for any class or
series of stock of the corporation, the Board of Directors may authorize the use
of facsimile signatures and a facsimile corporate seal on any certificates
representing shares of such class or series.
Section 5.2. Transfer of Shares.
The transfer of shares of stock of the corporation shall be made on the
stock transfer books of the corporation by the holder of record thereof (or by
his legal representative or attorney-in-fact, who shall furnish proper evidence
of authority to transfer), upon surrender for cancellation of the certificate
for such shares. The person in whose name shares stand in the stock transfer
records of the corporation may be deemed by the corporation to be the absolute
owner thereof for all purposes.
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ARTICLE VI
BANK ACCOUNTS
Section 6.1. Deposits.
Funds of the corporation shall be deposited to the credit of the
corporation with such banks, trust companies and other depositories as either
(i) the Chief Executive Officer together with either the chief financial officer
or the Treasurer, jointly, or (ii) the Board of Directors shall from time to
time determine.
Section 6.2. Checks and Drafts.
Checks, drafts and other orders for the payment of money issued in the name
of the corporation shall be signed by such officers, employees and agents and in
such manner as shall from time to time be determined by either (i) the Board of
Directors, or (ii) the Chief Executive Officer together with either the chief
financial officer or the Treasurer, jointly, provided that such action shall be
reported by the Secretary to the Board of Directors at the next succeeding
meeting of the Board of Directors, except that such report of the Secretary
shall not be required if an authorized signatory is a plant manager, plant
superintendent or plant accountant and the checks, drafts and other orders for
the payment of money are drawn on a local disbursement bank account that is
maintained on an imprest basis.
Section 6.3. Banking Resolutions.
The Board of Directors shall be deemed to have approved and adopted, and
the Secretary and any Assistant Secretary shall be authorized to certify the
approval and adoption by the Board of Directors of, any standard form of
resolutions necessary to enable the corporation to open and maintain accounts
with such banks, trust companies and other depositories, and to have checks,
drafts and other orders for the payment of money signed by such officers,
employees and agents and in such manner as either (i) the Chief Executive
Officer together with either the chief financial officer or the Treasurer,
jointly, or (ii) the Board of Directors shall from time to time determine,
provided that a certified copy of such resolutions shall be placed in the minute
books in which proceedings of meetings of the Board of Directors are recorded,
and provided further that the Board of Directors is notified of the opening of
each such account, except if an authorized signatory is a plant manager, plant
superintendent or plant accountant and the checks, drafts and other orders for
the payment of money are drawn on a local disbursement bank account that is
maintained on an imprest basis.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1. Amendment of By-laws.
Except as otherwise provided in the Certificate of Incorporation, these
by-laws may be amended or repealed at any annual meeting of stockholders (or at
any special meeting of stockholders duly called and noticed for that purpose) by
a majority vote of the shares of stock represented and entitled to vote at any
such meeting at which a quorum is present. Except as otherwise provided by law,
in the Certificate of Incorporation or in these by-laws, the Board of Directors
may by a vote of a majority of the entire Board of Directors alter, amend or
repeal these by-laws and adopt such other by-laws as in their judgment may be
advisable for the regulation of the conduct of the affairs of the corporation.*
Section 7.2. Seal.
The corporate seal shall have inscribed thereon the words "Corporate Seal"
and around the margin thereof the words "Wallace Computer Services, Inc.
Delaware".
Section 7.3. Fiscal Year.
The fiscal year of the corporation shall begin on the first day of August
of each year and end on the thirty-first day of July of the following year.
Section 7.4. Audits.
The accounts, books and records of the corporation shall be audited
promptly following the conclusion of each fiscal year by one or more
disinterested certified public accountants selected by the Board of Directors
and ratified by the stockholders and it shall be the duty of the Board of
Directors to cause such audit to be made promptly following the conclusion of
each fiscal year.
Section 7.5. Waiver of Notice.
Whenever any notice is required to be given to any stockholder or any
director pursuant to the provisions of these by-laws, the Certificate of
Incorporation, or the General Corporation Law of the State of Delaware, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether signed before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose
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of, any annual or special meeting of the stockholders or the Board of Directors
need be specified in any waiver of notice of such meeting.
Section 7.6. Issuance of Stock, Etc.
The issuance of any stock or other voting securities of the corporation,
the creation of any class or series of stock of the corporation, and the fixing
and determination of the number of shares, dividends, redemption rights,
conversion rights, voting rights, liquidation preferences, and other preferences
and relative, participating, optional and other special rights of any class or
series of stock of the corporation, and the qualifications, limitations and
restrictions thereof, shall require the approval and authorization of a majority
of the entire Board of Directors.
____________________________________
* Pursuant to Section 1 of Article TENTH of the Certificate of
Incorporation, Sections 2.2, 2.10, 3.2, 3.3 and 7.1 of the by-laws may not be
altered, amended or repealed, and no provision inconsistent with any such by-law
may be adopted, without the affirmative vote of the holders of at least 80% of
the combined voting power of the then outstanding shares of stock of the
corporation entitled to vote generally in the election of directors, voting
together as a single class.
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EXHIBIT - 10.18A
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of September 9, 1998, by and
between WALLACE COMPUTER SERVICES, INC., a Delaware corporation, (hereinafter
called the "Corporation") and MICHAEL O. DUFFIELD, (hereinafter called the
"Executive").
WITNESSETH THAT:
WHEREAS, the Corporation desires to continue to employ the Executive as its
President, and the Executive desires to continue in such employment;
NOW, THEREFORE, the Corporation and the Executive, each intending to be
legally bound, hereby mutually covenant and agree as follows:
1. Employment and Term.
(a) Employment. The Corporation shall employ the Executive as the
President of the Corporation, and the Executive shall so serve, for the term set
forth in Paragraph 1(b).
(b) Term. The term of the Executive's employment under this Agreement
shall commence on September 9, 1998 and end on September 8, 2000, subject to the
extension of such term as hereinafter provided and subject to earlier
termination as provided in Paragraph 9. The term of this Agreement shall be
extended automatically for one (1) additional year as of September 9, 1999 and
each annual anniversary date thereof unless, no later than ninety (90) days
prior to any such renewal date, either the Board of Directors of the Corporation
(the "Board"), on behalf of the Corporation, or the Executive gives written
notice to the other, in accordance with Paragraph 16, that the term of this
Agreement shall not be so extended.
2. Duties. During the period of employment as provided in Paragraph 1(b)
hereof, the Executive shall serve as President of the Corporation and have all
powers and duties consistent with such positions, subject to the reasonable
direction of the Chief Executive Officer. The Executive shall devote
substantially his entire time during reasonable business hours (reasonable sick
leave and vacations excepted) and such additional time as is necessary to
fulfill faithfully, responsibly and to the best of his ability his duties
hereunder.
3. Salary.
(a) Base Salary. For services performed by the Executive for the
Corporation
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pursuant to this Agreement during the period of employment as provided in
Paragraph 1(b) hereof, the Corporation shall pay the Executive a base salary at
the rate of three hundred forty five thousand dollars ($345,000) per year,
payable in substantially equal installments in accordance with the Corporation's
regular payroll practices. The Executive's base salary (with any increases under
paragraph (b), below) shall not be subject to reduction. Any compensation which
may be paid to the Executive under any additional compensation or incentive plan
of the Corporation or which may be otherwise authorized from time to time by the
Board (or an appropriate committee thereof) shall be in addition to the base
salary to which the Executive shall be entitled under this Agreement.
(b) Salary Increases. During the period of employment as provided in
Paragraph 1(b) hereof, the base salary of the Executive shall be reviewed no
less frequently than annually by the Board to determine whether or not the same
should be increased in light of the duties and responsibilities of the Executive
and the performance thereof, and if it is determined that an increase is
merited, such increase shall be promptly put into effect and the base salary of
the Executive as so increased shall constitute the base salary of the Executive
for purposes of Paragraph 3(a).
4. Annual Bonuses. For each fiscal year during the term of employment, the
Executive shall be eligible to receive a cash bonus based on the Corporation's
achievement of certain operating and/or financial goals, with an annual target
bonus amount equal to 60% of the Executive's then current annual base salary, in
accordance with the terms of a bonus plan adopted and administered by the Board
for senior executives of the Corporation, which plan may be amended from time to
time by the Board in its discretion.
5. Payment of Bonuses. Whenever any annual bonus or any other cash bonus is
awarded to Executive, payment of such bonus shall be made in accordance with the
following provisions:
(a) Prior to the commencement of any fiscal year, Executive may advise
the Compensation Committee of the Board of his election to be paid any annual
bonus or any other cash bonus to be awarded to him for such fiscal year on a
current or deferred basis. If no such election is made, Executive shall be
deemed to have elected to be paid such bonus on a current basis.
(b) Any bonus payable on a current basis shall be paid to Executive
within sixty (60) days of the date of the award, subject to normal withholdings
and deductions.
(c) Any bonus payable on a deferred basis shall be accrued and paid to
Executive as follows:
(i) Effective as of the date of the award, the Corporation shall
credit the amount of any deferred bonus to the book reserve account known as the
"Deferred
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Compensation Account of Michael O. Duffield" (hereinafter referred to as the
"Deferred Compensation Account"). There shall also be credited to the Deferred
Compensation Account, effective as of the date hereof, all deferred bonuses and
interest accrued thereon credited to Executive prior to the date hereof.
(ii) Interest shall accrue on all amounts credited to the Deferred
Compensation Account from the date credited to such account until the date paid
to Executive as provided in paragraph (iii), below. Such interest shall be
computed quarterly on the last day of each calendar quarter based upon the
interest rate payable on ninety (90) day certificates of deposit of The First
National Bank of Chicago prevailing as of the first day of such calendar
quarter. Interest shall be credited to the Deferred Compensation Account, and
thereafter accrue interest as provided in this paragraph (ii), effective as of
the first day of each calendar year. Any other provision of this subparagraph
(ii) to the contrary notwithstanding, in the event the Corporation shall
implement deferred compensation provisions in connection with its incentive
compensation programs which provide for deferred payments thereunder in the form
of, or based on the rate of return of the Corporation's common stock, the
Executive shall be provided with a similar deferred payment opportunity with
regard to the Deferred Compensation Account.
(iii) The amounts of deferred bonus and other amounts credited to
the Deferred Compensation Account shall be paid to Executive, subject to normal
withholdings and deductions, in one hundred twenty (120) equal monthly
installments, with interest on the unpaid balance at the rate specified in
paragraph (ii), above, commencing in the month immediately following the
termination of Executive's employment with the Corporation; provided, however,
that if Executive should die before all amounts credited to the Deferred
Compensation Account have been paid to him, the full unpaid amount then credited
to the Deferred Compensation Account and all interest accrued thereon shall be
immediately paid in a lump sum to his designated beneficiary or, if no
beneficiary is designated, to his estate.
(d) Any other provision of this Agreement to the contrary
notwithstanding, Executive may at any time or from time to time request the
payment to him of all or any portion of the amounts then credited to the
Deferred Compensation Account, but the Corporation shall make a payment to
Executive pursuant to such a request only if and to the extent that such request
is approved by the Board.
(e) The Corporation shall designate the provisions of this Agreement
and the Change of Control Agreement (described in Paragraph 23 below) relating
to the Deferred Compensation Account as a "Plan" subject to the provisions of
the Wallace Computer Services, Inc. Benefit Trust (the "Benefit Trust").
6. Equity Incentive Compensation. During the term of employment hereunder
the Executive shall be eligible to participate, in an appropriate manner
relative to other senior executives of the Corporation, in any equity-based
incentive compensation plan or program approved by the Board from time to time,
including (but not by way of limitation) any plan
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providing for the granting of (a) options to purchase stock of the Corporation,
(b) restricted stock of the Corporation or (c) similar equity-based units or
interests.
7. Other Benefits. In addition to the compensation described in Paragraphs
3, 4 and 6, above, the Executive shall also be entitled to the following:
(a) Participation in Benefit Plans. The Executive shall be entitled to
participate in all of the various retirement, welfare, fringe benefit, executive
perquisite, and expense reimbursement plans, programs and arrangements of the
Corporation to the extent the Executive is eligible for participation under the
terms of such plans, programs and arrangements, except that the Executive shall
not participate in the Supplemental Retirement Plan of the Corporation.
(b) Uninsured Medical Expenses. Continuing until Executive's death, or
if later, the death of Executive's spouse, the Corporation shall reimburse
Executive upon request for expenses incurred by Executive for or in respect of
medical care (as defined in Section 213 of the Internal Revenue Code of 1986, as
amended (the "Code")) of Executive and his spouse; provided, however, that
Executive shall be entitled to reimbursement of medical expenses as set forth in
this paragraph (b) if and so long as (and only if and so long as) (i) Executive
does not, at any time while he is an employee of the Corporation or at any time
thereafter, violate the confidentiality, noncompetition or nonsolicitation
covenants set forth in Paragraph 8, below, and (ii) Executive does not commit
any action that would permit the Corporation to terminate his employment for
"Cause" (as defined in Paragraph 9(d)(ii), below). The Corporation may, in its
discretion, pay any such medical expenses directly in lieu of making
reimbursement therefor. The reimbursement or payment of such medical expenses on
behalf of Executive and/or his spouse shall be limited to an aggregate of
$500,000, and reimbursement or payment of such medical expenses shall be made by
the Corporation only in the event and to the extent that such reimbursement or
payment is not then provided under any insurance policy or policies, whether
owned by the Corporation or Executive, or under any other private or public
health and accident plan or program under which Executive or his spouse, as the
case may be, is then eligible for benefits; provided, however, that, if
Executive's employment terminates:
(i) Before his 55th birthday, there shall be no reimbursement or
payment of medical expenses on behalf of Executive and/or his spouse after his
employment terminates,
(ii) On or after his 55th but before his 60th birthday, the
reimbursement or payment of medical expenses on behalf of Executive and/or his
spouse shall be limited to an aggregate of $150,000, or
(iii) On or after his 60th but before his 65th birthday, the
reimbursement or payment of medical expenses on behalf of Executive and/or his
spouse shall be limited to an aggregate of $300,000.
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Upon the request of the Corporation, Executive shall submit to the Corporation
hospitalization, doctor, dental or other medical bills, including premium
notices for accident or health insurance, for verification by the Corporation.
(c) Supplemental Retirement Benefit. Except as described in paragraph
(ii), below, the Corporation shall pay to the Executive after the termination
of his employment a Supplemental Retirement Benefit ("SRB") determined and
paid as follows:
(i) The monthly amount of the SRB shall be the excess of (A) the
amount determined by multiplying (1) the Executive's Recent Average Monthly
Compensation (as described in paragraph (iii), below) by (2) the Executive's
Supplemental Retirement Percentage (as described in paragraph (ii), below) over
(B) the sum (but not to exceed 70% of the amount determined under the
immediately preceding clause (A)) of (1) the Executive's monthly Social Security
retirement benefits, if any, and (2) the monthly amount payable under a
single-life annuity for the Executive's life which is the actuarial equivalent
of the benefits payable to the Executive under any retirement or profit-sharing
plan or program provided by the Corporation, to the extent such benefits are
attributable to contributions by the Corporation other than contributions by the
Corporation on behalf of the Executive under a salary reduction agreement.
(ii) The Executive's Supplemental Retirement Percentage shall be
5% for each year of age attained by the Executive between the ages of 50 and 55
plus an additional 2.5% for each additional year of age attained by the
Executive after age 55, up to a maximum Supplemental Retirement Percentage of
50% upon attaining age 65; but the Supplemental Retirement Percentage shall be
0% if the Executive's employment with the Corporation and its subsidiaries
terminates prior to age 55 and such termination is for Cause (as defined in
Paragraph 9(d)(ii), below) or because of the Executive's resignation without
Good Reason (as defined in Paragraph 9(d)(v), below).
(iii) The Executive's Recent Average Monthly Compensation shall be
the monthly average of his cash compensation for the last 48 months of his
full-time employment by the Corporation. Cash compensation shall consist of
salary, current and deferred bonuses, and contributions paid on the Executive's
behalf by the Corporation pursuant to a salary reduction agreement but shall not
include amounts attributable to equity-participation awards or payments made
during that 48-month period pursuant to deferral from a previous period.
(iv) The SRB shall be payable in monthly installments for the life
of the Executive but in any event for a minimum period of 10 years after the
termination of employment. If the Executive dies before the completion of 120
monthly payments, the remaining payments shall be made to his designated
beneficiary or, if none is designated, to his estate. If the Executive dies
prior to termination of employment, the SRB shall be calculated as of the date
of the Executive's death and shall be paid for a period of 10 years to the
Executive's designated beneficiary or, if none is designated, to his estate.
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(v) The Corporation's shall designate the provisions of this
Agreement and the Change in Control Agreement relating to the SRB as a "Plan"
subject to the provisions of the Benefit Trust.
8. Covenants of the Executive. In order to induce the Corporation to enter
into this Agreement, the Executive hereby agrees as follows:
(a) Confidentiality. Except for and on behalf of the Corporation with
the consent of or as directed by the Board, the Executive shall keep
confidential and shall not divulge to any other person or entity, during the
term of employment or thereafter, any of the business secrets or other
confidential information regarding the Corporation and its subsidiaries which
has not otherwise become public knowledge; provided, however, that nothing in
this Agreement shall preclude the Executive from disclosing information (i) to
an appropriate extent to parties retained to perform services for the
Corporation or its subsidiaries or (ii) under any other circumstances to the
extent such disclosure is, in the reasonable judgment of the Executive,
appropriate or necessary to further the best interests of the Corporation or its
subsidiaries or (iii) as may be required by law.
(b) Records. All papers, books and records of every kind and
description relating to the business and affairs of the Corporation and its
subsidiaries, whether or not prepared by the Executive, other than personal
notes prepared by or at the direction of the Executive, shall be the sole and
exclusive property of the Corporation, and the Executive shall surrender them to
the Corporation at any time upon request by the Board.
(c) Noncompetition and Nonsolicitation. The Executive hereby agrees with
the Corporation that during the term of his employment hereunder, and in certain
instances, as provided below, for a period of two (2) years following
termination of his employment hereunder, (i) he shall not, directly or
indirectly, engage in, or be employed by, or act as a consultant to, or be a
director, officer, owner or partner of, or acquire a substantial interest in,
any business activity or entity which competes significantly with the
Corporation or any of its subsidiaries; provided that, after the termination of
his employment with the Corporation, "significant" competition shall not include
involvement in any line of business that contributes less than five percent (5%)
of the gross revenues of the Corporation and its subsidiaries or contributes
less than five percent (5%) of the gross revenues of another business entity or
activity with which Executive becomes associated, (ii) he shall not solicit any
employee of the Corporation or any of its subsidiaries to leave the employment
thereof or in any way interfere with the relationship of such employee with the
Corporation or its subsidiaries, unless he believes in good faith that such
action during the term of his employment by the Corporation is in the best
interests of the Corporation, and (iii) he shall not induce or attempt to induce
any customer, supplier, licensee or other individual, corporation or other
business organization having a business relation with the Corporation or its
subsidiaries to cease doing business with the Corporation or its subsidiaries or
in any way interfere with the relationship between any such
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customer, supplier, licensee or other person and the Corporation or its
subsidiaries; provided, however, that as to the period after termination of the
Executive's employment with the Corporation, the restrictive covenants set forth
in part (i) of this paragraph (c) shall apply only if such termination results
from the Executive's resignation without Good Reason (as defined in Paragraph
9(d)(v), below) or from discharge for Cause (as defined in Paragraph 9(d)(ii),
below).
(d) Enforcement. The Executive recognizes that the provisions of this
Paragraph 8 are vitally important to the continuing welfare of the Corporation
and its subsidiaries and that money damages would constitute an inadequate
remedy for any violation thereof. Accordingly, in the event of any such
violation by the Executive, the Corporation and its subsidiaries, in addition to
any other remedies they may have, shall have the right to compel specific
performance thereof or to seek an injunction restraining any action by the
Executive in violation of this Paragraph 8.
9. Termination. Unless earlier terminated in accordance with the following
provisions of this Paragraph 9, the Corporation shall continue to employ the
Executive and the Executive shall remain employed by the Corporation during the
entire term of this Agreement as set forth in Paragraph 1(b). Paragraph 10
hereof sets forth certain obligations of the Corporation in the event that the
Executive's employment hereunder is terminated. Certain capitalized terms used
in this Paragraph 9 and in Paragraph 10 hereof are defined in Paragraph 9(d),
below.
(a) Death or Disability. Except to the extent otherwise provided in
Paragraph 10 with respect to certain post-Date of Termination payment
obligations of the Corporation, this Agreement shall terminate immediately as of
the Date of Termination in the event of the Executive's death or in the event
that the Executive becomes disabled. The Executive will be deemed to be disabled
upon the earlier of (i) the end of a six (6)-consecutive month period, or of an
aggregate period of nine (9) months out of any consecutive twelve (12) months,
during which, by reason of physical or mental injury or disease, the Executive
has been unable to perform substantially all of his usual and customary duties
under this Agreement or (ii) the date that a reputable physician selected by the
Board, and as to whom the Executive has no reasonable objection, determines in
writing that the Executive will, by reason of physical or mental injury or
disease, be unable to perform substantially all of the Executive's usual and
customary duties under this Agreement for a period of at least six (6)
consecutive months. If any question arises as to whether the Executive is
disabled, upon reasonable request therefor by the Board, the Executive shall
submit to reasonable medical examination for the purpose of determining the
existence, nature and extent of any such disability. The Board shall promptly
give the Executive written notice of any such determination of the Executive's
disability and of any decision of the Board to terminate the Executive's
employment by reason thereof. In the event of disability, until the Date of
Termination, the base salary payable to the Executive under Paragraph 3 hereof
shall be reduced dollar-for-dollar by the amount of disability benefits, if any,
paid to the Executive in accordance with any disability policy or program of the
Corporation.
(b) Discharge for Cause. In accordance with the procedures hereinafter
set
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<PAGE> 8
forth, the Board may discharge the Executive from his employment hereunder for
Cause. Except to the extent otherwise provided in Paragraph 10 with respect to
certain post-Date of Termination obligations of the Corporation, this Agreement
shall terminate immediately as of the Date of Termination in the event the
Executive is discharged for Cause. Any discharge of the Executive for Cause
shall be communicated by a Notice of Termination to the Executive given in
accordance with Paragraph 16 of this Agreement.
(c) Termination for Other Reasons. The Corporation may discharge the
Executive without Cause by giving written notice to the Executive in accordance
with Paragraph 16 at least thirty (30) days prior to the Date of Termination.
The Executive may resign from his employment, without liability to the
Corporation, by giving written notice to the Corporation in accordance with
Paragraph 16 at least thirty (30) days prior to the Date of Termination. Except
to the extent otherwise provided in Paragraph 10 with respect to certain
post-Date of Termination obligations of the Corporation, this Agreement shall
terminate immediately as of the Date of Termination in the event the Executive
is discharged without Cause or resigns.
(d) Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:
(i) "Accrued Obligations" shall mean, as of the Date of
Termination, the sum of (A) the Executive's base salary under Paragraph 3
through the Date of Termination to the extent not theretofore paid, (B) the
amount of any bonus, incentive compensation, deferred compensation and other
cash compensation accrued by the Executive as of the Date of Termination to the
extent not theretofore paid, (C) any vacation pay, expense reimbursements and
other cash entitlements accrued by the Executive as of the Date of Termination
to the extent not theretofore paid, and (D) all other benefits which have
accrued as of the Date of Termination, including any applicable retiree benefits
(including, but not by way of limitation, medical expense reimbursement benefits
under Paragraph 7(b), above, and supplemental retirement benefits under
Paragraph 7(c), above) and including any applicable life insurance or disability
insurance benefits. For the purpose of this Paragraph 9(d)(i), amounts shall be
deemed to accrue ratably over the period during which they are earned, but no
discretionary compensation shall be deemed earned or accrued until it is
specifically approved by the Board in accordance with the applicable plan,
program or policy.
(ii) "Cause" shall mean (A) the Executive's willful and continued
failure to perform substantially the duties of his employment; or (B) the
Executive's willful engaging in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Corporation; or (C) the Executive's
conviction of a felony involving moral turpitude, but specifically excluding any
conviction based entirely on vicarious liability (with "vicarious liability"
meaning liability based on acts of the Corporation for which the Executive is
charged solely as a result of his offices with the Corporation and in which he
was not directly involved and did not have prior knowledge of such actions or
intended actions); provided, however, that
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<PAGE> 9
no act or failure to act, on the part of the Executive, shall be considered
"willful" unless it is done, or omitted to be done, by the Executive in bad
faith or without reasonable belief that the Executive's action or omission was
in the best interests of the Corporation; and provided further that no act or
omission by the Executive shall constitute Cause hereunder unless the
Corporation has given detailed written notice thereof to the Executive, and the
Executive has failed to remedy such act or omission within 30 days after
receiving such notice. Termination for Cause must be evidenced by a specific
resolution adopted by at least a three-fourths vote of the Board after the
Executive is given an opportunity prior to the expiration of such 30-day period,
together with his legal counsel, to be heard before the Board.
(iii) "Change of Control" shall mean:
(A) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 35% or more of either (i) the then outstanding shares of capital stock of the
Corporation (the "Outstanding Corporation Capital Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Corporation Voting
Securities"); provided, however, that (X) any acquisition by or from the
Corporation or any of its subsidiaries, (Y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Corporation or
any of its subsidiaries or (Z) any acquisition by any corporation with respect
to which, following such acquisition, more than 65% of the then outstanding
shares of capital stock of such corporation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Corporation Capital
Stock and Corporation Voting Securities immediately prior to such acquisition,
in substantially the same proportion as their ownership, immediately prior to
such acquisition, of the Outstanding Corporation Capital Stock and Corporation
Voting Securities, as the case may be, shall not constitute a Change of Control;
or
(B) Individuals who, as of September 6, 1995, constituted the
Board of Directors of the Corporation (the "Incumbent Board") cease for any
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 Corporation
subsequent to such date whose election, or nomination for election by the
stockholders of the Corporation, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be deemed to be a
member of the Incumbent Board; but provided further, that no individual whose
election or initial assumption of office as a director of the Corporation 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 Exchange Act) 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
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<PAGE> 10
than the Board of Directors of the Corporation, shall be deemed to be a member
of the Incumbent Board; or
(C) Approval by the stockholders of the Corporation of a
reorganization, merger or consolidation (a "Business Combination") with respect
to which all or substantially all of the individuals and entities who were the
respective beneficial owners of the Outstanding Corporation Capital Stock and
Corporation Voting Securities immediately prior to such Business Combination do
not, following such Business Combination, beneficially own, directly or
indirectly, more than 65% of, respectively, the then outstanding shares of
capital stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from the Business Combination, in
substantially the same proportion as their ownership immediately prior to such
Business Combination of the Outstanding Corporation Capital Stock and
Corporation Voting Securities, as the case may be; or
(D) Approval by the stockholders of the Corporation of a sale
or other disposition of all or substantially all of the assets of the
Corporation other than to a corporation with respect to which, following such
sale or disposition, more than 65% of, respectively, the then outstanding shares
of capital stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Corporation Capital Stock and Corporation Voting Securities
immediately prior to such sale or disposition, in substantially the same
proportion as their ownership of the Outstanding Corporation Capital Stock and
Corporation Voting Securities, as the case may be, immediately prior to such
sale or disposition; or
(E) A complete liquidation or dissolution of the Corporation.
Any other provision of this Agreement to the contrary notwithstanding, "Change
of Control" shall not include any transaction described in subparagraphs (A),
(C) or (D) of this paragraph (iii) where, in connection with such transaction,
the Executive or any party acting in concert with the Executive substantially
increases his or its, as the case may be, ownership interest in the Corporation
or a successor to the Corporation.
(iv) "Date of Termination" shall mean (A) in the event of a
discharge of the Executive by the Board for Cause, the date the Executive
receives a Notice of Termination, or any later date specified in such Notice of
Termination, as the case may be, (B) in the event of a discharge of the
Executive without Cause or a resignation by the Executive, the date specified in
the written notice to the Executive (in the case of discharge) or the
Corporation (in the case of resignation), which date shall be no less than
thirty (30) days from the date of such written notice, (C) in the event of the
Executive's death, the date of the Executive's death, and (D) in the event of
termination of the Executive's employment by reason of disability pursuant to
Paragraph 9(a), the date the Executive receives written notice of such
termination.
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<PAGE> 11
(v) "Good Reason" shall mean the occurrence of any of the
following without the Executive's consent: (A) the failure to maintain the
Executive in the positions set forth in Paragraph 1(a) above; (B) the assignment
to the Executive of any duties inconsistent in any respect with the Executive's
positions with the Corporation as set forth in this Agreement (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Paragraph 2, or any action by the
Corporation which results in substantial diminution in such positions,
authority, duties or responsibilities, excluding for this purpose any isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Corporation promptly after receipt of written notice thereof
given by the Executive in accordance with Paragraph 16; or (C) any failure by
the Corporation to comply with any of the provisions of this Agreement, other
than any isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Corporation promptly after receipt of written
notice thereof given by the Executive in accordance with Paragraph 16; or (D)
the Corporation giving notice to the Executive pursuant to Paragraph 1(b) that
the term of this Agreement shall not be extended upon the expiration of the
then-current term; or (E) the Corporation requiring the Executive to be based at
an office or location which is more than 50 miles from the Executive's office as
of September 9, 1998; or (F) the Corporation giving notice to the Executive that
the term of the Change of Control Agreement which is described in Paragraph 23,
below, shall not be extended upon the expiration of its then current term.
(vi) "Notice of Termination" shall mean a written notice which (A)
indicates the specific termination provision in this Agreement relied upon, (B)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (C) if the Date of Termination is to be other than the date of
receipt of such notice, specifies the termination date.
10. Obligations of the Corporation Upon Termination. The following
provisions describe the obligations of the Corporation to the Executive under
this Agreement upon termination of his employment. However, except as explicitly
provided in this Agreement, nothing in this Agreement shall limit or otherwise
adversely affect any rights which the Executive may have under applicable law,
under any other agreement with the Corporation or any of its subsidiaries, or
under any compensation or benefit plan, program, policy or practice of the
Corporation or any of its subsidiaries.
(a) Death, Disability, Discharge for Cause, or Resignation Without Good
Reason. In the event this Agreement terminates pursuant to Paragraph 9(a) by
reason of the death or disability of the Executive, or pursuant to Paragraph
9(b) by reason of the discharge of the Executive by the Corporation for Cause,
or pursuant to Paragraph 9(c) by reason of the resignation of the Executive
other than for Good Reason, the Corporation shall pay to the Executive, or his
heirs or estate, in the event of the Executive's death, all Accrued Obligations
in a lump sum in cash within thirty (30) days after the Date of Termination;
provided, however, that any portion of the Accrued Obligations which consists of
bonus, deferred compensation,
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incentive compensation, insurance benefits or other employee benefits shall be
determined and paid in accordance with the terms of the relevant plan or policy
as applicable to the Executive; and, provided further, that all long-term
incentive compensation awards (such as (i) options to purchase stock of the
Corporation, (ii) restricted stock of the Corporation, or (iii) similar
equity-based units or interests, shall, if not otherwise vested, vest in full
upon such termination of this Agreement due to death or disability.
(b) Discharge Without Cause or Resignation with Good Reason. In the
event that this Agreement terminates pursuant to Paragraph 9(c) by reason of the
discharge of the Executive by the Corporation other than for Cause or disability
or by reason of the resignation of the Executive for Good Reason:
(i) The Corporation shall pay all Accrued Obligations to the
Executive in a lump sum in cash within thirty (30) days after the Date of
Termination; provided, however, that any portion of the Accrued Obligations
which consists of bonus, deferred compensation, incentive compensation,
insurance benefits or other employee benefits shall be determined and paid in
accordance with the terms of the relevant plan or policy as applicable to the
Executive;
(ii) Within thirty (30) days after the Date of Termination, the
Corporation shall pay to the Executive a cash bonus for the year during which
termination occurs, calculated as a prorata portion of his then current target
annual bonus amount;
(iii) Continuation for a period of two (2) years of his then
current annual base salary and his then current target annual bonus amount, both
payable in substantially equal installments in accordance with the Corporation's
regular payroll practices;
(iv) For a period of two (2) years after the Date of Termination,
the Corporation shall continue to provide benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs and arrangements referred to in
Paragraph 7(a) of this Agreement if the Executive's employment with the
Corporation had continued for those two (2) years;
(v) All long-term incentive compensation awards to the Executive,
including (but not by way of limitation) all equity-based incentive compensation
awards (such as (A) options to purchase stock of the Corporation, (B) restricted
stock of the Corporation, or (C) similar equity-based units or interests) shall,
if not otherwise vested, vest in full upon such termination of this Agreement,
and Executive shall be considered to have terminated his employment by reason of
retirement for purposes of determining the exercise period applicable to any
options following such termination of this Agreement; and
(vi) The Corporation shall, at its sole expense, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive.
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<PAGE> 13
11. Certain Additional Payments by the Corporation.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Corporation
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Paragraph 11) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended, (the "Code") or
if any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
being hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(b) Subject to the provisions of paragraph (c), below, all
determinations required to be made under this Paragraph 11, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by the accounting firm then serving as the Corporation's independent
auditing firm (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Corporation and the Executive within fifteen (15)
business days of the receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Corporation. In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by the Corporation. Any Gross-Up Payment, as determined pursuant
to this Paragraph 11, shall be paid by the Corporation to the Executive within
five (5) days of the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure to report the
Excise Tax on the Executive's applicable federal income tax return would not
result in the imposition of a negligence or similar penalty. Any good faith
determination by the Accounting Firm shall be binding upon the Corporation and
the Executive. As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Corporation should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Corporation
exhausts its remedies pursuant to paragraph (c), below, and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Corporation to or for the benefit of
the
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<PAGE> 14
Executive.
(c) The Executive shall notify the Corporation in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Corporation of a Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than fifteen (15) business days after the
Executive is informed in writing of such claim and shall apprise the Corporation
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
thirty (30)-day period following the date on which Executive gives such notice
to the Corporation (or such shorter period ending on the date that any payment
of taxes with respect to such claim is due). If the Corporation notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) Give the Corporation any information reasonably requested
by the Corporation relating to such claim,
(ii) Take such action in connection with contesting such claim
as the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Corporation,
(iii) Cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(iv) Permit the Corporation to participate in any proceedings
relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limiting the foregoing
provisions of this paragraph (c), the Corporation shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner; and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the Corporation directs
the Executive to pay such claim and sue for a refund, the Corporation shall
advance the amount of such payment to the Executive on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such
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<PAGE> 15
advance or with respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Corporation's control of the contest shall be limited
to issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Corporation pursuant to paragraph (c), above, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Corporation's complying with the requirements of said paragraph (c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon, after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Corporation pursuant
to said paragraph (c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Corporation does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid; and the amount
of such advance shall offset, to the extent thereof, the amount of the Gross-Up
Payment required to be paid.
12. No Mitigation. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
13. Payment of Certain Expenses. The Corporation agrees to pay promptly
as incurred, to the fullest extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur in connection with the preparation of
this Agreement or as a result of any contest by the Corporation, the Executive
or others of the validity or enforceability of, or liability under, any
provision of this Agreement (including as a result of any contest initiated by
the Executive about the amount of any payment due pursuant to this Agreement)
(together with an additional amount such that after payment by the Executive of
Executive's applicable Federal, state and local taxes on such additional amount,
Executive shall retain an amount equal to the total of Executive's applicable
Federal, state and local taxes arising due to the payment of legal fees and
expenses under this Paragraph 13), plus in each case interest on any delayed
payment at the interest rate applicable from time to time under the
Corporation's primary revolving credit agreement, or in the absence of such a
rate, at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code; provided, however, that the Corporation shall not be obligated to make
such payment of fees and expenses with respect to any contest in which the
Corporation prevails over the Executive.
14. Indemnification. To the fullest extent permitted by law, the
Corporation shall,
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during and after the Executive's term of employment, indemnify the Executive
(including the advancement of expenses) for any judgments, fines, amounts paid
in settlement and reasonable expenses, including attorneys' fees, incurred by
the Executive in connection with the defense of any lawsuit or other claim to
which he is made a party by reason of being or having been an officer, director
or employee of the Corporation or any of its subsidiaries.
15. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the heirs and representatives of the Executive and the successors
and assigns of the Corporation. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation, or otherwise) to all or a
substantial portion of its assets, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform this Agreement if no such succession had taken place.
Regardless of whether such an agreement is executed, this Agreement shall be
binding upon any successor of the Corporation in accordance with the operation
of law, and such successor shall be deemed the "Corporation" for purposes of
this Agreement.
16. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or by reputable commercial delivery service or mailed within
the continental United States by first class certified mail, return receipt
requested, postage prepaid, addressed as follows:
(a) If to the Board or the Corporation, to:
Wallace Computer Services, Inc.
2275 Cabot Drive
Lisle, Illinois 60532
Attention: Corporate Secretary
(b) If to the Executive, to:
Mr. Michael O. Duffield
3106 Turnberry Road
St. Charles, IL 60174
Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.
17. Tax Withholding. The Corporation shall provide for the withholding of
any taxes
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required to be withheld by federal, state, or local law with respect to any
payment in cash, shares of stock and/or other property made by or on behalf of
the Corporation to or for the benefit of the Executive under this Agreement or
otherwise. The Corporation may, at its option: (a) withhold such taxes from any
cash payments owing from the Corporation to the Executive, (b) require the
Executive to pay to the Corporation in cash such amount as may be required to
satisfy such withholding obligations and/or (c) make other satisfactory
arrangements with the Executive to satisfy such withholding obligations.
18. Arbitration. Except as to actions described in Paragraph 8(d), any
controversy or claim arising out of or relating to this Agreement or the breach
hereof shall be settled by arbitration in Chicago, Illinois in accordance with
the laws of the State of Illinois, without regard to the choice of law
provisions of such laws. The arbitration shall be conducted in accordance with
the rules of the American Arbitration Association before an arbitrator appointed
by the then President of The Chicago Bar Association. The costs and expenses of
the arbitrator shall be borne by the Corporation. The award of the arbitrator
shall be binding upon the parties. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
19. No Assignment. Except as otherwise expressly provided herein, this
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.
20. Execution in Counterparts. This Agreement may be executed by the
parties hereto in two (2) or more counterparts, each of which shall be deemed to
be an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
21. Jurisdiction and Governing Law. Except as provided in Paragraph 18,
jurisdiction over disputes with regard to this Agreement shall be exclusively in
the courts of the State of Illinois, and this Agreement shall be construed and
interpreted in accordance with and governed by the laws of the State of
Illinois, without regard to the choice of laws provisions of such laws.
22. Severability. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement. Furthermore, if the scope of any restriction or requirement
contained in this Agreement is too broad to permit enforcement of such
restriction or requirement to its full extent, then such restriction or
requirement shall be enforced to the maximum extent permitted by law, and the
Executive consents and agrees that any court of competent jurisdiction may so
modify such scope in any proceeding brought to enforce such restriction or
requirement.
23. Effect of Change of Control. Upon the occurrence of a Change of Control
(as defined in Paragraph 9(d)(iii), above), this Agreement shall automatically
terminate and be
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superseded by a separate Change of Control Agreement made and entered into as of
September 9, 1998 by the Executive and the Corporation, in substantially the
form attached hereto as Exhibit A.
24. Prior Understandings. This Agreement embodies the entire understanding
of the parties hereto, and supersedes all prior oral or written agreements or
understandings between them, regarding the subject matter hereof. No change,
alteration or modification hereof may be made except in a writing, signed by
each of the parties hereto. The headings in this Agreement are for convenience
and reference only and shall not be construed as part of this Agreement or to
limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Attest: WALLACE COMPUTER SERVICES, INC.
By:
- ------------------------ ------------------------------------
Title: Chairman of the Compensation Committee
MICHAEL O. DUFFIELD
--------------------------------------
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EXHIBIT - 10.18B
CHANGE OF CONTROL AGREEMENT
AGREEMENT made and entered into as of September 9, 1998 by and between
WALLACE COMPUTER SERVICES, INC., a Delaware corporation, (the "Corporation") and
MICHAEL O. DUFFIELD (the "Executive").
The Board of Directors of the Corporation (the "Board") has determined that
it is in the best interests of the Corporation and its stockholders to assure
that the Corporation will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Corporation. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Corporation
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Corporation to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section l(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Corporation is terminated prior to the date on
which the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who had taken steps reasonably calculated to effect a Change of Control,
(ii) otherwise arose in connection with or anticipation of a Change of Control,
or (iii) would not have occurred or would be substantially less likely to have
occurred in the absence of a Change of Control, then for all purposes of this
Agreement the "Effective Date" shall mean the date immediately prior to the date
of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the second anniversary of the date hereof;
provided, however, that commencing on the date one (1) year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof being hereinafter referred to as a "Renewal Date"), the
Change of Control Period shall be automatically extended so as to terminate two
(2) years from such Renewal Date, unless at least sixty (60) days prior to such
Renewal Date the Corporation shall give notice to the Executive that the Change
of Control
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Period shall not be so extended.
2. Change of Control. For purposes of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty-five
percent (35%) or more of either (i) the then outstanding shares of capital stock
of the Corporation (the "Outstanding Corporation Capital Stock") or (ii) the
combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Corporation Voting Securities"); provided, however, that (X) any acquisition by
or from the Corporation or any of its subsidiaries, (Y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Corporation or any of its subsidiaries or (Z) any acquisition by any corporation
with respect to which, following such acquisition, more than sixty-five percent
(65%) of the then outstanding shares of capital stock of such corporation and
the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Corporation Capital Stock and Corporation Voting Securities
immediately prior to such acquisition, in substantially the same proportion as
their ownership, immediately prior to such acquisition, of the Outstanding
Corporation Capital Stock and Corporation Voting Securities, as the case may be,
shall not constitute a Change of Control; or
(b) Individuals who, as of September 6, 1995, constituted the Board of
Directors of the Corporation (the "Incumbent Board") cease for any 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 Corporation
subsequent to such date whose election, or nomination for election by the
stockholders of the Corporation, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be deemed to be a
member of the Incumbent Board; but provided further, that no individual whose
election or initial assumption of office as a director of the Corporation 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 Exchange Act) 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 Corporation, shall be deemed to be a
member of the Incumbent Board; or
(c) Approval by the stockholders of the Corporation of a reorganization,
merger or consolidation (a "Business Combination") with respect to which all or
substantially all of the individuals and entities who were the respective
beneficial owners of the Outstanding Corporation Capital Stock and Corporation
Voting Securities immediately prior to such Business Combination do not,
following such Business Combination, beneficially own, directly or
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<PAGE> 3
indirectly, more than sixty-five percent (65%) of, respectively, the then
outstanding shares of capital stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from the Business
Combination, in substantially the same proportion as their ownership immediately
prior to such Business Combination of the Outstanding Corporation Capital Stock
and Corporation Voting Securities, as the case may be; or
(d) Approval by the stockholders of the Corporation of a sale or other
disposition of all or substantially all of the assets of the Corporation other
than to a corporation with respect to which, following such sale or disposition,
more than sixty-five percent (65%) of, respectively, the then outstanding shares
of capital stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors is then owned
beneficially, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Corporation Capital Stock and Corporation Voting Securities
immediately prior to such sale or disposition, in substantially the same
proportion as their ownership of the Outstanding Corporation Capital Stock and
Corporation Voting Securities, as the case may be, immediately prior to such
sale or disposition; or
(e) A complete liquidation or dissolution of the Corporation.
Any other provision of this Agreement to the contrary notwithstanding, "Change
of Control" shall not include any transaction described in subparagraphs (a),
(c) or (d) of this Section 2 where, in connection with such transaction, the
Executive or any party acting in concert with the Executive substantially
increases his or its, as the case may be, ownership interest in the Corporation
or a successor to the Corporation.
3. Employment Period. The Corporation hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Corporation subject to the terms and conditions of this Agreement, for
the period commencing on the Effective Date and ending on the second anniversary
of such date (the "Employment Period").
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the twelve (12)-month period immediately preceding the Effective
Date and (B) the Executive's services shall be performed at the location where
the Executive was employed immediately preceding the Effective Date or at any
office or location less than fifty (50) miles from such location.
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<PAGE> 4
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Corporation and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Corporation in accordance
with this Agreement. It is expressly understood and agreed that to the extent
that any such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective Date
shall not thereafter be deemed to interfere significantly with the performance
of the Executive's responsibilities to the Corporation.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be paid
at a monthly rate at least equal to the highest monthly base salary paid or
payable, including any base salary which has been earned but deferred, to the
Executive by the Corporation and its affiliated companies with respect to the
twenty-four (24)-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than twelve (12) months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual Base Salary as
utilized in this Agreement shall refer to Annual Base Salary as so increased.
As used in this Agreement, the term "affiliated companies" shall include any
corporation controlled by, controlling or under common control with the
Corporation.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal to the
Executive's average annual bonus paid or payable under the Corporation's annual
incentive plans for the last two (2) full fiscal years prior to the Effective
Date (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later
than the end of the first month of the fiscal year next following the fiscal
year for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Payment of Bonuses. Whenever any annual bonus or any other
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<PAGE> 5
cash bonus is awarded to Executive, payment of such bonus shall be made in
accordance with the following provisions:
(A) Prior to the commencement of any fiscal year, Executive
may advise the Compensation Committee of the Board of his election to be paid
any annual bonus or any other cash bonus to be awarded to him for such fiscal
year on a current or deferred basis. If no such election is made, Executive
shall be deemed to have elected to be paid such bonus on a current basis.
(B) Any bonus payable on a current basis shall be paid to
Executive within sixty (60) days of the date of the award, subject to normal
withholdings and deductions.
(C) Any bonus payable on a deferred basis shall be accrued and
paid to Executive as follows:
(1) Effective as of the date of the award, the Corporation
shall credit the amount of any deferred bonus to the book reserve account known
as the "Deferred Compensation Account of Michael O. Duffield" (hereinafter
referred to as the "Deferred Compensation Account"). There shall also be
credited to the Deferred Compensation Account, effective as of the Effective
Date, all deferred bonuses and interest accrued thereon credited to Executive
prior to such date.
(2) Interest shall accrue on all amounts credited to the
Deferred Compensation Account from the date credited to such account until the
date paid to Executive as provided in paragraph (3), below. Such interest shall
be computed quarterly on the last day of each calendar quarter based upon the
interest rate payable on ninety (90) day certificates of deposit of The First
National Bank of Chicago prevailing as of the first day of such calendar
quarter. Interest shall be credited to the Deferred Compensation Account, and
thereafter accrue interest as provided in this paragraph (2), effective as of
the first day of each calendar year. Any other provision of this subparagraph
(ii) to the contrary notwithstanding, in the event the Corporation shall
implement deferred compensation provisions in connection with its incentive
compensation programs which provide for deferred payments thereunder in the form
of , or based on the rate of return of the Corporation's common stock, the
Executive shall be provided with a similar opportunity with regard to the
Deferred Compensation Account.
(3) The amounts of deferred bonus and other amounts
credited to the Deferred Compensation Account shall be paid to Executive,
subject to normal withholdings and deductions, in one hundred twenty (120) equal
monthly installments, with interest on the unpaid balance at the rate specified
in paragraph (2), above, commencing in the month immediately following the
termination of Executive's employment with the Corporation; provided, however,
that if Executive should die before all amounts credited to the Deferred
Compensation Account have been paid to him, the full unpaid amount then credited
to the
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<PAGE> 6
Deferred Compensation Account and all interest accrued thereon shall be
immediately paid in a lump sum to his designated beneficiary or, if no
beneficiary is designated, to his estate.
(D) Any other provision of this Agreement to the contrary
notwithstanding, Executive may at any time or from time to time request the
payment to him of all or any portion of the amounts then credited to the
Deferred Compensation Account, but the Corporation shall make a payment to
Executive pursuant to such a request only if and to the extent that such request
is approved by the Board.
(E) Immediately after the Effective Date, the Corporation
shall, if it has not already done so, deliver to the trustee of the Wallace
Computer Services, Inc. Benefit Trust (the "Benefit Trust"), cash or marketable
securities or other property having a fair market value (or any combination
thereof) equal to the amount then credited to the Deferred Compensation Account.
(iv) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other senior executives of the Corporation and its
affiliated companies, but in no event shall such plans, practices, policies and
programs provide the Executive with incentive opportunities (measured with
respect to both regular and special incentive opportunities, to the extent, if
any, that such distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the aggregate, than the
most favorable for the Executive of those provided by the Corporation and its
affiliated companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the twelve (12)-month period
immediately preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other senior
executives of the Corporation and its affiliated companies; provided, however,
that the Executive shall not participate during the Employment Period or
thereafter in the Supplemental Retirement Plan of the Corporation. For purposes
of this paragraph (iv), the reference to incentive plans, practices, policies
and programs covers all forms of short-term or long-term incentive compensation
arrangements, including but not by way of limitation arrangements providing for
stock options, warrants, stock appreciation rights and/or other cash payments.
(v) Other Employee Benefits. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under all welfare benefit,
fringe benefit, expense reimbursement, and executive perquisite plans,
practices, policies and programs provided by the Corporation and its affiliated
companies (including, without limitation, medical, supplemental medical
reimbursement, prescription, dental, disability, employee life, group life,
accidental death and travel accident insurance plans and programs) to the extent
applicable generally to other senior executives of the Corporation and its
affiliated companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable for
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<PAGE> 7
the Executive, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the twelve (12)-month period immediately preceding the Effective Date or, if
more favorable to the Executive, those provided generally at any time after the
Effective Date to other senior executives of the Corporation and its affiliated
companies.
(vi) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Corporation and its affiliated companies at any time
during the twelve (12)-month period immediately preceding the Effective Date or,
if more favorable to the Executive, as provided generally at any time thereafter
with respect to other senior executives of the Corporation and its affiliated
companies.
(vii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Corporation and its affiliated companies
as in effect for the Executive at any time during the twelve (12)-month period
immediately preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other senior
executives of the Corporation and its affiliated companies.
5. Uninsured Medical Expenses. Continuing until Executive's death (or, if
later, the death of the Executive's spouse), in addition to participating in any
medical insurance or other medical benefit program of the Corporation, the
Executive shall be entitled to reimbursement from the Corporation for expenses
incurred by Executive for or in respect of medical care (as defined in Section
213 of the Internal Revenue Code of 1986, as amended (the "Code")) of Executive
and his spouse; provided, however, that Executive shall be entitled to
reimbursement of medical expenses as set forth in this Section 5 if and so long
as (and only if and so long as) (a) Executive does not, at any time while he is
an employee of the Corporation or at any time thereafter, violate the
confidentiality or nonsolicitation covenants set forth in Section 7, below, and
(b) Executive does not commit any action that would permit the Corporation to
terminate his employment for "Cause" (as defined in Section 8(d)(ii), below).
The Corporation may, in its discretion, pay any such medical expenses directly
in lieu of making reimbursement therefor. The reimbursement or payment of such
medical expenses on behalf of Executive and/or his spouse shall be limited to an
aggregate of $500,000, and reimbursement or payment of such medical expenses
shall be made by the Corporation only in the event and to the extent that such
reimbursement or payment is not then provided under any insurance policy or
policies, whether owned by the Corporation or Executive, or under any other
private or public health and accident plan or program under which Executive or
his spouse, as the case may be, is then eligible for benefits. Upon the request
of the Corporation, Executive shall submit to the Corporation hospitalization,
doctor, dental or other medical bills, including premium notices for accident or
health insurance, for verification by the Corporation.
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6. Supplemental Retirement Benefit. Except as described in Section
9(b)(ii)(D), below, the Corporation shall pay to the Executive after the
termination of his employment a Supplemental Retirement Benefit ("SRB")
determined and paid as follows:
(a) The monthly amount of the SRB shall be the excess of (i) fifty
percent (50%) of the Executive's Recent Average Monthly Compensation (as
described in paragraph (b), below) over (ii) the sum (not to exceed 70% of the
amount determined under the immediately preceding clause (i)) of (A) the
Executive's monthly Social Security retirement benefits, if any, and (B) the
monthly amount payable under a single-life annuity for the Executive's life
which is the actuarial equivalent of the benefits payable to the Executive under
any retirement or profit-sharing plan or program provided by the Corporation, to
the extent such benefits are attributable to contributions by the Corporation
other than contributions by the Corporation on behalf of the Executive under a
salary reduction agreement.
(b) The Executive's Recent Average Monthly Compensation shall be the
monthly average of his cash compensation for the last sixty (60) months of his
full-time employment by the Corporation. Cash compensation shall consist of
salary, current and deferred bonuses, and contributions paid on the Executive's
behalf by the Corporation pursuant to a salary reduction agreement but shall not
include amounts attributable to equity-participation awards or to payments made
during that sixty (60)-month period pursuant to deferral from a previous period.
(c) The SRB shall be payable in monthly installments for the life of the
Executive but in any event for a minimum period of ten (10) years after the
termination of employment. If the Executive dies before the completion of one
hundred twenty (120) monthly payments, the remaining payments shall be made to
his designated beneficiary or, if none is designated, to his estate. If the
Executive dies prior to termination of employment, the SRB shall be calculated
as of the date of the Executive's death and shall be paid for a period of ten
(10) years to the Executive's designated beneficiary or, if none is designated,
to his estate.
Immediately after the Effective Date, the Corporation shall, if it has not
already done so, deliver to the trustee of the Benefit Trust cash or marketable
securities or other property having a fair market value (or any combination
thereof) equal to the amount described in Section 9(b)(ii)(D) below.
7. Covenants of the Executive. In order to induce the Corporation to enter
into this Agreement, the Executive hereby agrees as follows:
(a) Confidentiality. Except for and on behalf of the Corporation with
the consent of or as directed by the Board, the Executive shall keep
confidential and shall not divulge to any other person or entity, during the
term of employment or thereafter, any of the business secrets or other
confidential information regarding the Corporation and its subsidiaries which
has not otherwise become public knowledge; provided, however, that nothing in
this
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Agreement shall preclude the Executive from disclosing information (i) to an
appropriate extent to parties retained to perform services for the Corporation
or its subsidiaries or (ii) under any other circumstances to the extent such
disclosure is, in the reasonable judgment of the Executive, appropriate or
necessary to further the best interests of the Corporation or its subsidiaries
or (iii) as may be required by law.
(b) Records. All papers, books and records of every kind and
description relating to the business and affairs of the Corporation and its
subsidiaries, whether or not prepared by the Executive, other than personal
notes prepared by or at the direction of the Executive, shall be the sole and
exclusive property of the Corporation, and the Executive shall surrender them to
the Corporation at any time upon request by the Board.
(c) Noncompetition and Nonsolicitation. The Executive hereby agrees
with the Corporation that during the term of his employment hereunder, and in
certain instances, as provided below, for a period of two (2) years following
termination of his employment with the Corporation, (i) he shall not, directly
or indirectly, engage in, or be employed by, or act as a consultant to, or be a
director, officer, owner or partner of, or acquire a substantial interest in,
any business activity or entity which competes significantly with the
Corporation or any of its subsidiaries; provided that, after the termination of
his employment with the Corporation, "significant" competition shall not include
involvement in any line of business that contributes less than five percent (5%)
of the gross revenues of the Corporation and its subsidiaries or contributes
less than five percent (5%) of the gross revenues of another business entity or
activity with which Executive becomes associated, (ii) he shall not solicit any
employee of the Corporation or any of its subsidiaries to leave the employment
thereof or in any way interfere with the relationship of such employee with the
Corporation or its subsidiaries, unless he believes in good faith that such
action during the term of his employment by the Corporation is in the best
interests of the Corporation, and (iii) he shall not induce or attempt to induce
any customer, supplier, licensee or other individual, corporation or other
business organization having a business relation with the Corporation or its
subsidiaries to cease doing business with the Corporation or its subsidiaries or
in any way interfere with the relationship between any such customer, supplier,
licensee or other person and the Corporation or its subsidiaries; provided,
however, that as to the period after termination of the Executive's employment
with the Corporation, the restrictive covenants set forth in part (i) of this
paragraph (c) shall apply only if such termination results from the Executive's
discharge for Cause (as defined in Section 8(d)(ii), below).
(d) Enforcement. The Executive recognizes that the provisions of this
Section 7 are vitally important to the continuing welfare of the Corporation and
its subsidiaries and that money damages would constitute an inadequate remedy
for any violation thereof. Accordingly, in the event of any such violation by
the Executive, the Corporation and its subsidiaries, in addition to any other
remedies they may have, shall have the right to compel specific performance
thereof or to seek an injunction restraining any action by the Executive in
violation of this Section 7.
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8. Termination. Unless earlier terminated in accordance with the following
provisions of this Section 8, the Corporation shall continue to employ the
Executive and the Executive shall remain employed by the Corporation during the
Employment Period as set forth in Section 3. Section 9 hereof sets forth
certain obligations of the Corporation in the event that the Executive's
employment hereunder is terminated. Certain capitalized terms used in this
Section 8 and in Section 9 hereof are defined in Section 8(d), below.
(a) Death or Disability. Except to the extent otherwise provided in
Section 9 with respect to certain post-Date of Termination payment obligations
of the Corporation, this Agreement shall terminate immediately as of the Date of
Termination in the event of the Executive's death or in the event that the
Executive becomes disabled. The Executive will be deemed to be disabled upon
the earlier of (i) the end of a six (6)-consecutive month period, or of an
aggregate period of nine (9) months out of any consecutive twelve (12) months,
during which, by reason of physical or mental injury or disease, the Executive
has been unable to perform substantially all of his usual and customary duties
under this Agreement or (ii) the date that a reputable physician selected by the
Board, and as to whom the Executive has no reasonable objection, determines in
writing that the Executive will, by reason of physical or mental injury or
disease, be unable to perform substantially all of the Executive's usual and
customary duties under this Agreement for a period of at least six (6)
consecutive months. If any question arises as to whether the Executive is
disabled, upon reasonable request therefor by the Board, the Executive shall
submit to reasonable medical examination for the purpose of determining the
existence, nature and extent of any such disability. The Board shall promptly
give the Executive written notice of any such determination of the Executive's
disability and of any decision of the Board to terminate the Executive's
employment by reason thereof. In the event of disability, until the Date of
Termination, the base salary payable to the Executive under Section 4(b)(i)
hereof shall be reduced dollar-for-dollar by the amount of disability benefits,
if any, paid to the Executive in accordance with any disability policy or
program of the Corporation.
(b) Discharge for Cause. In accordance with the procedures hereinafter
set forth, the Board may discharge the Executive from his employment hereunder
for Cause. Except to the extent otherwise provided in Section 9 with respect to
certain post-Date of Termination obligations of the Corporation, this Agreement
shall terminate immediately as of the Date of Termination in the event the
Executive is discharged for Cause. Any discharge of the Executive for Cause
shall be communicated by a Notice of Termination to the Executive given in
accordance with Section 15 of this Agreement.
(c) Termination for Other Reasons. The Corporation may discharge the
Executive without Cause by giving written notice to the Executive in accordance
with Section 15 at least thirty (30) days prior to the Date of Termination. The
Executive may resign from his employment, without liability to the Corporation,
by giving written notice to the Corporation in accordance with Section 15 at
least thirty (30) days prior to the Date of Termination. Except to the extent
otherwise provided in Section 9 with respect to certain post-Date of Termination
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obligations of the Corporation, this Agreement shall terminate immediately as of
the Date of Termination in the event the Executive is discharged without Cause
or resigns.
(d) Definitions. For purposes of this Agreement, the following
capitalized terms shall have the meanings set forth below:
(i) "Accrued Obligations" shall mean, as of the Date of
Termination, the sum of (A) the Executive's base salary under Section 4(b)(i)
through the Date of Termination to the extent not theretofore paid, (B) the
amount of any bonus, incentive compensation, deferred compensation and other
cash compensation accrued by the Executive as of the Date of Termination to the
extent not theretofore paid, (C) any vacation pay, expense reimbursements and
other cash entitlements accrued by the Executive as of the Date of Termination
to the extent not theretofore paid, and (D) all other benefits which have
accrued as of the Date of Termination, including any applicable retiree benefits
(including, but not by way of limitation, medical expense reimbursement benefits
under Section 5, above, and supplemental retirement benefits under Section 6,
above) and including any applicable life insurance or disability insurance
benefits. For the purpose of this Section 8(d)(i), amounts shall be deemed to
accrue ratably over the period during which they are earned, but no
discretionary compensation shall be deemed earned or accrued until it is
specifically approved by the Board in accordance with the applicable plan,
program or policy.
(ii) "Cause" shall mean (A) the Executive's willful and continued
failure to perform substantially the duties of his employment; or (B) the
Executive's willful engaging in illegal conduct or gross misconduct which is
materially and demonstrably injurious to the Corporation; or (C) the Executive's
conviction of a felony involving moral turpitude, but specifically excluding any
conviction based entirely on vicarious liability (with "vicarious liability"
meaning liability based on acts of the Corporation for which the Executive is
charged solely as a result of his offices with the Corporation and in which he
was not directly involved and did not have prior knowledge of such actions or
intended actions); provided, however, that no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Corporation; and
provided further that no act or omission by the Executive shall constitute Cause
hereunder unless the Corporation has given detailed written notice thereof to
the Executive, and the Executive has failed to remedy such act or omission
within 30 days after receiving such notice. Termination for Cause must be
evidenced by a specific resolution adopted by at least a three-fourths vote of
the Board after the Executive is given an opportunity prior to the expiration of
such 30-day period, together with his legal counsel, to be heard before the
Board.
(iii) "Date of Termination" shall mean (A) in the event of a
discharge of the Executive by the Board for Cause, the date the Executive
receives a Notice of Termination, or any later date specified in such Notice of
Termination, as the case may be, (B) in the event of a discharge of the
Executive without Cause or a resignation by the Executive, the
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date specified in the written notice to the Executive (in the case of discharge)
or the Corporation (in the case of resignation), which date shall be no less
than thirty (30) days from the date of such written notice, (C) in the event of
the Executive's death, the date of the Executive's death, and (D) in the event
of termination of the Executive's employment by reason of disability pursuant to
Section 8(a), the date the Executive receives written notice of such
termination.
(iv) "Good Reason" shall mean the occurrence of any of the
following without the Executive's consent: (A) the failure to maintain the
Executive in the positions set forth in Paragraph 4(a) above; (B) the assignment
to the Executive of any duties inconsistent in any respect with the Executive's
positions with the Corporation as set forth in this Agreement (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a), or any action by the
Corporation which results in substantial diminution in such positions,
authority, duties or responsibilities, excluding for this purpose any isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Corporation promptly after receipt of written notice thereof
given by the Executive in accordance with Section 15; or (C) any failure by the
Corporation to comply with any of the provisions of this Agreement, other than
any isolated, insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Corporation promptly after receipt of written
notice thereof given by the Executive in accordance with Section 15; or (D) the
Corporation requiring the Executive to be based at an office or location which
is more than fifty (50) miles from the Executive's office as of September 9,
1998. Any good faith determination by the Executive that Good Reason exists
shall be conclusive. In addition, any termination by the Executive during the
thirty (30)-day "window period" beginning six (6) months after a Change of
Control shall be deemed to be for "Good Reason."
(v) "Notice of Termination" shall mean a written notice which (A)
indicates the specific termination provision in this Agreement relied upon, (B)
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated and (C) if the Date of Termination is to be other than the date of
receipt of such notice, specifies the termination date.
9 Obligations of the Corporation Upon Termination. The following
provisions describe the obligations of the Corporation to the Executive under
this Agreement upon termination of his employment during the Employment Period.
However, except as explicitly provided in this Agreement, nothing in this
Agreement shall limit or otherwise adversely affect any rights which the
Executive may have under applicable law, under any other agreement with the
Corporation or any of its subsidiaries, or under any compensation or benefit
plan, program, policy or practice of the Corporation or any of its subsidiaries.
(a) Death, Disability, Discharge for Cause, or Resignation Without Good
Reason. In the event this Agreement terminates pursuant to Section 8(a) by
reason of the death or disability of the Executive, or pursuant to Section 8(b)
by reason of the discharge of the Executive by the Corporation for Cause, or
pursuant to Section 8(c) by reason of the resignation
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of the Executive other than for Good Reason, the Corporation shall pay to the
Executive, or his heirs or estate, in the event of the Executive's death, all
Accrued Obligations in a lump sum in cash within thirty (30) days after the Date
of Termination; provided, however, that any portion of the Accrued Obligations
which consists of bonus, deferred compensation, incentive compensation,
insurance benefits or other employee benefits shall be determined and paid in
accordance with the terms of the relevant plan or policy as applicable to the
Executive; and, provided further, that all long-term incentive compensation
awards (such as (i) options to purchase stock of the Corporation, (ii)
restricted stock of the Corporation, or (iii) similar equity-based units or
interests) shall, if not otherwise vested, vest in full upon such termination of
this Agreement due to death or disability.
(b) Discharge Without Cause or Resignation with Good Reason. In the
event that this Agreement terminates pursuant to Section 8(c) by reason of the
discharge of the Executive by the Corporation other than for Cause or disability
or by reason of the resignation of the Executive for Good Reason:
(i) The Corporation shall pay all Accrued Obligations to the
Executive in a lump sum in cash within ten (10) days after the Date of
Termination; provided, however, that any portion of the Accrued Obligations
which consists of bonus, deferred compensation, incentive compensation,
insurance benefits or other employee benefits shall be determined and paid in
accordance with the terms of the relevant plan or policy as applicable to the
Executive;
(ii) Within ten (10) days after the Date of Termination, the
Corporation shall pay to the Executive a lump sum including the following
amounts:
(A) A cash bonus for the year of termination, calculated as a
pro rata portion of his then current target annual bonus amount;
(B) The full amount then credited to the Deferred Compensation
Account described in Section 4(b)(iii), above;
(C) A "Severance Amount" equal to two (2) times the sum of the
Executive's (1) then current annual base salary and (2) then current target
annual bonus amount; reduced by any amounts payable to the Executive under the
Corporation's Executive Severance Pay Plan or any similar plan or program; and
(D) In lieu of the Supplemental Retirement Benefit ("SRB")
described in Section 6, above, a "Supplemental Retirement Amount" equal to the
present value of a monthly SRB payable after the termination of employment for
the life of the Executive but in any event for a minimum period of ten (10)
years, with such value being calculated as follows:
(1) The monthly amount of the SRB shall be the excess
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of (a) 50% of the Executive's Recent Average Monthly Compensation (as described
in paragraph (2), below) over (b) the sum of (i) the Executive's projected
monthly Social Security retirement benefits, if any, and (ii) the monthly amount
payable under a single-life annuity for the Executive's life which is the
actuarial equivalent of the benefits payable to the Executive under any
retirement or profit sharing plan or program provided by the Corporation, to the
extent such benefits are attributable to contributions by the Corporation other
than contributions by the Corporation on behalf of the Executive under a salary
reduction agreement.
(2) The Executive's Recent Average Monthly Compensation
shall be the amount determined by dividing forty-eight (48) into the sum of (a)
the Severance Amount described in paragraph (C), above, and (b) the Executive's
cash compensation for the last twenty-four (24) months of his full-time
employment by the Corporation. Cash compensation shall consist of salary,
current and deferred bonuses, and contributions paid on the Executive's behalf
by the Corporation pursuant to a salary reduction agreement but shall not
include amounts attributable to equity-participation awards or to payments made
during that twenty-four (24)-month period pursuant to deferral from a previous
period.
(3) The Executive's Social Security retirement benefits
shall be projected as if the Executive began receiving such benefits at the
earliest date available to him under then current law.
(4) The computation of present value shall use the then
current Pension Benefit Guaranty Corporation interest rate for valuing immediate
annuities under single-employer pension plans.
(iii) For a period of two (2) years after the Date of Termination,
the Corporation shall continue to provide benefits to the Executive and/or the
Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs and arrangements referred to in
Section 4(b)(v) of this Agreement if the Executive's employment with the
Corporation had continued for those two (2) years; provided, however, that such
benefits shall be at least equal to the most favorable for the Executive which
were provided for the Executive at any time during the twelve (12)-month period
immediately preceding the termination of employment.
(iv) All long-term incentive compensation awards to the Executive,
including (but not by way of limitation) all equity-based incentive compensation
awards (such as (A) options to purchase stock of the Corporation, (B) restricted
stock of the Corporation, or (C) similar equity-based units or interests) shall,
if not otherwise vested, vest in full upon such termination of this Agreement
and Executive shall be considered to have terminated his employment by reason of
retirement for purposes of determining the exercise period applicable to any
options following such termination of this Agreement; and
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<PAGE> 15
(v) The Corporation shall, at its sole expense, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive.
10. Certain Additional Payments by the Corporation.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Corporation
to or for the benefit of the Executive (whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
10) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code of 1986, as amended, (the "Code") or if any interest
or penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, being hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that, after payment by the Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of paragraph (c), below, all
determinations required to be made under this Section 10, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the accounting firm serving as the Corporation's independent auditing firm
immediately prior to the Effective Date (the "Accounting Firm"), which shall
provide detailed supporting calculations both to the Corporation and the
Executive within fifteen (15) business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Corporation. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of Control,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Corporation. Any Gross-Up Payment,
as determined pursuant to this Section 10, shall be paid by the Corporation to
the Executive within five (5) days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any good faith determination by the Accounting Firm shall be binding
upon the Corporation and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Corporation should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Corporation exhausts its
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<PAGE> 16
remedies pursuant to paragraph (c), below, and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Corporation to or for the benefit of
the Executive.
(c) The Executive shall notify the Corporation in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Corporation of a Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than fifteen (15) business days after the
Executive is informed in writing of such claim and shall apprise the Corporation
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
thirty (30)-day period following the date on which Executive gives such notice
to the Corporation (or such shorter period ending on the date that any payment
of taxes with respect to such claim is due). If the Corporation notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) Give the Corporation any information reasonably requested by
the Corporation relating to such claim,
(ii) Take such action in connection with contesting such claim as
the Corporation shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Corporation,
(iii) Cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(iv) Permit the Corporation to participate in any proceedings
relating to such claim;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limiting the
foregoing provisions of this paragraph (c), the Corporation shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner; and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the Corporation directs
the Executive to pay such claim and sue for a refund, the Corporation shall
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advance the amount of such payment to the Executive on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of
the Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Corporation's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Corporation pursuant to paragraph (c), above, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Corporation's complying with the requirements of said paragraph (c))
promptly pay to the Corporation the amount of such refund (together with any
interest paid or credited thereon, after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Corporation pursuant
to said paragraph (c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Corporation does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid; and the amount
of such advance shall offset, to the extent thereof, the amount of the Gross-Up
Payment required to be paid.
11. No Mitigation. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced whether or not the Executive obtains other
employment.
12. Payment of Certain Expenses. The Corporation agrees to pay promptly as
incurred, to the fullest extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur in connection with the preparation of
this Agreement or as a result of any contest by the Corporation, the Executive
or others of the validity or enforceability of, or liability under, any
provision of this Agreement (including as a result of any contest initiated by
the Executive about the amount of any payment due pursuant to this Agreement)
(together with an additional amount such that after payment by the Executive of
Executive's applicable Federal, state and local taxes on such additional amount,
Executive shall retain an amount equal to the total of Executive's applicable
Federal, state and local taxes arising due to the payment of legal fees and
expenses under this Section 12), plus in each case interest on any delayed
payment at the interest rate applicable from time to time under the
Corporation's primary revolving credit agreement, or in the absence of such a
rate, at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code; provided, however, that the Corporation shall not be obligated to make
such payment of fees and expenses with respect to any contest in which it is
determined
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that such contest was initiated or maintained by Executive in bad faith.
13. Indemnification. To the fullest extent permitted by law, the
Corporation shall, during and after the Executive's term of employment,
indemnify the Executive (including the advancement of expenses) for any
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, incurred by the Executive in connection with the defense of any
lawsuit or other claim to which he is made a party by reason of being or having
been an officer, director or employee of the Corporation or any of its
subsidiaries.
14. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the heirs and representatives of the Executive and the successors and
assigns of the Corporation. The Corporation shall require any successor
(whether direct or indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation, or otherwise) to all or a
substantial portion of its assets, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Corporation would
be required to perform this Agreement if no such succession had taken place.
Regardless of whether such an agreement is executed, this Agreement shall be
binding upon any successor of the Corporation in accordance with the operation
of law, and such successor shall be deemed the "Corporation" for purposes of
this Agreement.
15. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or by reputable commercial delivery service or mailed within
the continental United States by first class certified mail, return receipt
requested, postage prepaid, addressed as follows:
(a) If to the Board or the Corporation, to:
Wallace Computer Services, Inc.
2275 Cabot Drive
Lisle, Illinois 60532
Attention: Corporate Secretary
(b) If to the Executive, to:
Mr. Michael O. Duffield
3106 Turnberry Road
St. Charles, IL 60174
Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.
<PAGE> 19
16. Tax Withholding. The Corporation shall provide for the withholding of
any taxes required to be withheld by federal, state, or local law with respect
to any payment in cash, shares of stock and/or other property made by or on
behalf of the Corporation to or for the benefit of the Executive under this
Agreement or otherwise. The Corporation may, at its option: (a) withhold such
taxes from any cash payments owing from the Corporation to the Executive, (b)
require the Executive to pay to the Corporation in cash such amount as may be
required to satisfy such withholding obligations and/or (c) make other
satisfactory arrangements with the Executive to satisfy such withholding
obligations.
17. Arbitration. Except as to actions described in Section 7(d), any
controversy or claim arising out of or relating to this Agreement or the breach
hereof shall be settled by arbitration in Chicago, Illinois in accordance with
the laws of the State of Illinois, without regard to the choice of law
provisions of such laws. The arbitration shall be conducted in accordance with
the rules of the American Arbitration Association before an arbitrator appointed
by the then President of The Chicago Bar Association. The costs and expenses of
the arbitrator shall be borne by the Corporation. The award of the arbitrator
shall be binding upon the parties. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction.
18. No Assignment. Except as otherwise expressly provided herein, this
Agreement is not assignable by any party and no payment to be made hereunder
shall be subject to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or other charge.
19. Execution in Counterparts. This Agreement may be executed by the
parties hereto in two (2) or more counterparts, each of which shall be deemed to
be an original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
20. Jurisdiction and Governing Law. Except as provided in Section 17,
jurisdiction over disputes with regard to this Agreement shall be exclusively in
the courts of the State of Illinois, and this Agreement shall be construed and
interpreted in accordance with and governed by the laws of the State of
Illinois, without regard to the choice of laws provisions of such laws.
21. Severability. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be invalid or unenforceable for any
reason, such judgment shall not affect, impair or invalidate the remainder of
this Agreement. Furthermore, if the scope of any restriction or requirement
contained in this Agreement is too broad to permit enforcement of such
restriction or requirement to its full extent, then such restriction or
requirement shall be enforced to the maximum extent permitted by law, and the
Executive consents and agrees that any court of competent jurisdiction may so
modify such scope in any proceeding brought to enforce such restriction or
requirement.
22. Relationship to Employment Agreement. The Executive and the
Corporation
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<PAGE> 20
acknowledge that, prior to the Effective Date, the Executive's employment shall
be governed by the Employment Agreement between the Executive and the
Corporation dated as of September 9, 1998, as it may be amended and/or restated
from time to time (the "Prior Agreement"). From and after the Effective Date,
this Agreement shall supersede the Prior Agreement and any other agreement
between the parties with respect to the subject matter hereof.
23. Prior Understandings. This Agreement embodies the entire understanding
of the parties hereto, and supersedes all prior oral or written agreements or
understandings between them, regarding the subject matter hereof. No change,
alteration or modification hereof may be made except in a writing, signed by
each of the parties hereto. The headings in this Agreement are for convenience
and reference only and shall not be construed as part of this Agreement or to
limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
Attest: WALLACE COMPUTER SERVICES, INC.
By:
- ------------------------ -------------------------------
Title: Chairman of the Compensation Committee
--------------------------------------
MICHAEL O. DUFFIELD
---------------------------------------------
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<PAGE> 1
EXHIBIT - 10.20
WALLACE COMPUTER SERVICES, INC.
BENEFIT TRUST
WALLACE COMPUTER SERVICES, INC.
BENEFIT TRUST
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - TRUST, TRUSTEE AND TRUST FUND 2
Section 1.1. Trust 2
Section 1.2. Trustee 2
Section 1.3. Trust Fund 2
Section 1.4. Irrevocability of Trust 2
Section 1.5. Delivery of Funds 2
Section 1.6. The Plans 3
Section 1.7. Subtrusts 3
ARTICLE II - AUTHORIZED COMPANY REPRESENTATIVES 4
ARTICLE III - MATERIAL CHANGE 5
Section 3.1. Definition of Material Change 5
Section 3.2. Notification by Company 5
ARTICLE IV - RETURNS AND DISTRIBUTIONS FROM THE FUND 6
Section 4.1. Return of Trust Assets to the Company 6
Section 4.2. Distributions to Beneficiaries 8
Section 4.3. Non-Duplication of Benefits 9
Section 4.4. Withholding of Taxes 9
Section 4.5. Interests Nonassignable 10
ARTICLE V - INVESTMENT OF FUND 10
ARTICLE VI - POWERS AND RIGHTS OF TRUSTEE 10
Section 6.1. Trustee's Powers 10
Section 6.2. Advice of Counsel 11
Section 6.3. Indemnification of Trustee 11
Section 6.4. Compensation and Expenses 11
ARTICLE VII - ACCOUNTS AND REPORTS OF THE TRUSTEE 11
Section 7.1. Records and Accounts of the Trustee 11
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
Section 7.2. Cash Basis of Accounts 12
Section 7.3. Fiscal Year 12
Section 7.4. Annual Report 12
Section 7.5. Approval of Reports 12
ARTICLE VIII - REMOVAL, RESIGNATION AND SUCCESSION OF THE TRUSTEE 13
Section 8.1. Removal 13
Section 8.2. Resignation 13
Section 8.3. Appointment, Qualifications and Powers of
Successor Trustee 13
Section 8.4. Changes in Organization of Corporate Trustee 13
ARTICLE IX - AMENDMENT OR TERMINATION 14
Section 9.1. Authority to Amend or Terminate 14
Section 9.2 Method of Making Amendment 14
Section 9.3. Termination of Trust 14
ARTICLE X - MISCELLANEOUS 14
Section 10.1. Protection of Persons Dealing with Trustee 14
Section 10.2. Tax Status of Trust 15
Section 10.3. No Interest in Company Given by Trust 15
Section 10.4. Gender and Plurals 15
Section 10.5. Governing Law 15
ARTICLE XI - EXECUTION 16
</TABLE>
WALLACE COMPUTER SERVICES, INC.
BENEFIT TRUST
This TRUST AGREEMENT (the "Agreement") is made between Wallace
Computer Services, Inc., a Delaware corporation (the "Company"), and The
Northern Trust Company as Trustee (the "Trustee").
WHEREAS, the Company is or may hereafter become obligated
under the Plans (as hereinafter defined), to make payments to certain of its
officers and key employees ("Participants"), or the beneficiaries thereof (such
Participants and beneficiaries being hereinafter collectively referred to as
"Beneficiaries");
WHEREAS, such Company obligations are not funded or otherwise
secured; and
WHEREAS, for purposes of assuring that payment of such Company
obligations will not improperly be withheld in the event of a Material Change
(as hereinafter defined), the Company desires to deposit with the Trustee,
subject only to the claims of the Company's existing or future creditors, assets
sufficient to enable the Trustee to make such payments as they may become due
and payable;
<PAGE> 3
NOW THEREFORE, in consideration of the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
TRUST, TRUSTEE AND TRUST FUND
Section 1.1. Trust. This Agreement and the trust evidenced
hereby, as amended and supplemented from time to time, shall be known
collectively as the Wallace Computer Services, Inc. Benefit Trust (the "Trust").
Section 1.2. Trustee. The Northern Trust Company, an Illinois
corporation, of Chicago, Illinois, is hereby designated as the Trustee of the
Trust, to receive, hold, invest, administer and distribute the Fund (as
hereinafter defined) in accordance with the provisions of this Agreement for the
exclusive purpose of providing benefits to the Beneficiaries under the Plans (as
hereinafter defined).
Section 1.3. Trust Fund. All cash, marketable securities and
other property delivered by the Company to the Trustee hereunder, together with
all other assets held in the Trust by the Trustee, are hereinafter called the
"Fund." Except as herein otherwise provided, title to the Fund shall at all
times be vested in the Trustee, subject to the right of the Trustee to hold
title to particular assets in bearer form or in the name of a nominee or
nominees; and the interest of the Beneficiaries in the assets of the Fund shall
be limited to the right to have such assets received, held, invested,
administered and distributed by the Trustee in accordance with the provisions of
the Trust.
Section 1.4. Irrevocability of Trust. The Trust shall not be
subject to revocation, amendment or modification, except as provided in Section
9.1.
Section 1.5. Delivery of Funds. (a) Concurrently with the
execution and delivery of this Agreement, the Company has delivered to the
Trustee such amount of cash, marketable securities or other property as they may
agree, to be held in the Fund.
(b) The Company shall deliver to the Trustee such amount of
cash or marketable securities as the Company deems necessary, in its sole
discretion, to fund amounts of required contributions under the Plans.
(c) Immediately after the occurrence of a Material Change, the
Company shall deliver to the Trustee, to be held in the Fund, cash or marketable
securities or other property having a fair market value (or any combination
thereof) equal to the amounts which are required to be contributed by the Plans.
Section 1.6. The Plans. For purposes of this Agreement, the
terms "Plans" shall refer to the Wallace Computer Services, Inc. 1990 Deferred
Compensation/Capital Appreciation Plan, the Wallace Computer Services, Inc. 1991
Deferred Compensation/Capital Appreciation Plan, the Wallace Computer Services,
Inc. 1993 Deferred Compensation/Capital Accumulation Plan, the Wallace Computer
Services, Inc. 1994 Deferred Compensation/Capital Accumulation Plan, the Wallace
Computer Services, Inc. 1995 Deferred Compensation/Capital Accumulation Plan. At
any time prior to a Material Change (as hereinafter defined), the Company may,
by written notice to the Trustee, cause additional plans or agreements to become
Plans subject to this Agreement. Upon and after a Material Change, the Company
may not add any additional plans or agreements to this Agreement, unless the
Trustee consents in writing to any such addition.
The Plans are intended to be unfunded and maintained primarily
for the purpose of providing deferred compensation for a select group of
management or highly compensated employees
<PAGE> 4
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The existence of this Trust is not intended to alter this
characterization of the Plans.
The Company or the Committee (as defined in the Plans) shall
provide to the Trustee any and all amendments, supplements or other
documentation with regard to the Plans, including the adoption of any additional
or successor plan. The Company further agrees to provide, or cause the Committee
to provide, to the Trustee any and all pertinent information regarding the
obligations of the Trustee to the Beneficiaries hereunder. The Trustee's duties
and responsibilities shall be defined by this Trust Agreement without any
reference to any Plan or other agreement.
Section 1.7. Subtrusts. The Trustee shall establish (i) a
separate subtrust (a "Subtrust") for each Plan to which the Trustee shall credit
contributions it receives which are earmarked for that Plan and Subtrust and
(ii) if directed by the Company, a separate Subtrust to which the Trustee shall
credit contributions it receives which are earmarked to a special reserve for
payment of future fees and expenses of the Trustee and future Trust fees and
expenses for legal and administrative proceedings. Each Subtrust shall reflect
an undivided interest in assets of the Fund and shall not require any
segregation of particular assets. When Subtrusts are established, all
contributions shall be designated by the Company for a particular Subtrust;
provided that any contribution received by the Trustee which is not designated
by the Company for a particular Subtrust shall be allocated among the Subtrusts
as the Trustee may determine in its sole discretion.
Upon delivery of any contributions to the Trust, the Company
or the Committee may designate the amount thereof allocable to any participant
in any Plan. If such designation is made, the Trustee shall establish an Account
on behalf of such participant. When such Accounts are established, they shall
thereafter be treated as Subtrusts for purposes of this Agreement.
Unless otherwise directed by the Company or the Committee, (i)
the Trustee shall allocate investment earnings and losses and expenses of the
Fund among the Subtrusts and Accounts in such manner as the Trustee determines
in its discretion to be necessary to provide an equitable allocation of any
change in the value of the adjusted net worth of the Fund and (ii) the assets
allocated to a particular Subtrust for a Plan or Account for a participant may
not be utilized to provide benefits or pay expenses under any other Plans until
all benefits under such Plan have been paid in full.
ARTICLE II
AUTHORIZED COMPANY REPRESENTATIVES
The Company shall furnish the Trustee the name and specimen
signature of each person upon whose certification of any calculation, decision
or direction of the Company or the Committee the Trustee is authorized to rely.
Until notified of a change in the identity of such person or persons, the
Trustee shall act upon the assumption that there has been no such change.
ARTICLE III
MATERIAL CHANGE
Section 3.1. Definition of Material Change. For the purpose of
this Agreement, a "Material Change" of the Company shall mean:
(a) the acquisition (in one or more transactions) of
beneficial ownership of thirty-five percent (35%) 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 disposition of the
Company's common stock);
<PAGE> 5
(b) individuals who, as of September 6, 1995,
constitute the Board of Directors of the Company (the
"Incumbent Board") cease for any 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 a 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
(c) 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 3.1.
Section 3.2. Notification by Company. The Company shall notify
the Trustee in writing of the occurrence of a Material Change; and the Trustee
may rely on such notice or on any other notice or knowledge, satisfactory to the
Trustee, as to whether a Material Change shall have occurred. The Trustee also
may from time to time request that the Company confirm or deny in writing to the
Trustee that a Material Change shall have occurred, to which the Company shall
respond in writing within three business days after its receipt. The Company's
failure to respond within one business day after such request is delivered to
the Company shall be deemed to constitute confirmation of the occurrence of a
Material Change. The Trustee shall not be under any duty to make any
investigation as to whether a Material Change has occurred.
ARTICLE IV
RETURNS AND DISTRIBUTIONS FROM THE FUND
Section 4.1. Return of Trust Assets to the Company. (a) If any
excess assets remain in the Trust, or a Subtrust, as the case may be, after the
Company's obligations to pay benefits and applicable expenses under a Plan have
been satisfied, then such excess assets shall be transferred pro rata, based on
relative balances, to the remaining Subtrust(s).
(b) Any expense (including any expense of the Trustee)
incurred by the Trustee in investing the Fund shall be for the account of the
Company, and the Company shall promptly upon written notice from the Trustee,
reimburse the Fund for any such expense, except to the extent, if any, that any
such expense constitutes a payment to a Beneficiary pursuant to a benefit
designation or has been applied to reduce an amount payable to the Company
pursuant to Section 1.5.
<PAGE> 6
(c) If the Company shall become Insolvent (as hereinafter
defined), the Trustee shall immediately cease distributions from the Fund
pursuant to Section 4.2 and shall hold the Fund for the benefit of the Company's
general creditors. For purposes of the Trust, the Company shall be deemed to be
"Insolvent" and an "Insolvency" shall be deemed to have occurred if:
(i) the Company shall (A) be generally not paying its debts as
they become due, (B) file, or consent by answer or otherwise to the
filing against it of, or fail to controvert in a timely manner, a
petition for relief, reorganization or arrangement under, or any other
petition in bankruptcy or for liquidation under, or to take advantage
of, any bankruptcy or insolvency law of any jurisdiction, (C) make an
assignment for the benefit of its creditors, (D) consent to the
appointment of a custodian, receiver, trustee or other officer with
similar powers of itself or of any substantial part of its property,
(E) be adjudicated insolvent or be liquidated in any insolvency
proceeding or (F) take corporate action for the purpose of any of the
foregoing; or
(ii) a court or governmental authority of competent
jurisdiction shall enter an order appointing, without consent by the
Company, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of
its property; or an order for relief shall be entered in any case or
proceeding for liquidation or reorganization or otherwise to take
advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company; or
if any petition for any such relief shall be filed against the Company
and such petition shall not be dismissed within 30 days.
The Trustee shall, if ordered by a court of competent jurisdiction, distribute
the assets of the Trust as such court may direct to pay the claims of creditors
without regard to the amount of other assets of the Company available to pay
such claims.
The Company shall notify the Trustee immediately after the
occurrence of any event of Insolvency, as specified in the preceding paragraph.
If the Trustee shall receive any written allegation (other than from the
Company) that the Company is Insolvent, it shall immediately suspend
distributions from the Fund pursuant to Section 4.2 and shall, within five days
of the receipt of such allegation, request a written confirmation or denial by
the Company, under oath, of such allegation. The Trustee shall not resume such
distributions if the Company is Insolvent, but the Trustee shall resume such
distributions if the Company confirms that it is not Insolvent. In the absence
of such notification or allegation, the Trustee shall be entitled, but shall not
be required, to make its own determination as to whether the Company has become
Insolvent based on information available to it, but the Trustee shall not be
under any duty to make any investigation as to the Insolvency or financial
status of the Company.
Section 4.2. Distributions to Beneficiaries. The Trustee shall
make distributions to the Beneficiaries in the amounts and at the times
specified in writing by the Company or the Committee to the Trustee. In
addition, any individual (a "Claimant") may claim the right to receive payment
of benefits under the Plan from the Trust by so notifying the Trustee in
writing. Such notice shall set forth (i) the specific provisions of the Plan or
Plans under which such Claimant believes he is entitled to benefits and (ii) the
facts which support such claim. The Trustee shall, within three business days
after receipt of such claim, notify the Committee in writing requesting
directions from the Committee regarding what payments, if any, are to be made to
such Claimant. If, within ten business days after the giving of such notice to
the Committee, the Trustee shall not have received from the Committee a written
statement setting forth the particular provision of the Plan which provides the
basis for the denial of the claim and the other facts relied upon as basis for
such denial, the claimant shall be conclusively deemed to be entitled to the
benefits claimed, and the Trustee shall commence making payments to the claimant
in the amount set forth in such notice. The Committee shall not direct the
Trustee to withhold all or any part of a requested payment to such Claimant
unless such direction shall contain a statement, under oath, of the Chief
Executive Officer of the Company, (x) acknowledging such Claimant's entitlement
to benefits under the Plans and payment from the Trust, but setting forth facts
relating to the computation of such benefits and payments to such Claimant
different from those set forth in the claim, in which event
<PAGE> 7
the Trustee shall pay the amounts so computed by the Committee; (y) denying such
Claimant's entitlement to benefits under both of the Plans and payment from the
Trust, and setting forth the specific provisions of the Plans and facts
supporting such denial; or (z) stating that the Company has made all such
required payments directly to the Beneficiary, accompanied by evidence of such
payments. The Trustee shall not follow any direction by the Committee pursuant
to the preceding sentence to the extent such direction is based upon the absence
of a deduction for tax purposes of all or a portion of the benefits claimed by
such Claimant under the Plans. The Trustee shall not follow any direction by the
Committee pursuant to clause (y) of such sentence unless it shall be accompanied
by a written opinion of independent legal counsel not regularly retained by the
Company that, as a matter of law, such Claimant is not entitled to any benefits
under either Plan or payment from the Trust; provided, however, such opinion
cannot be based upon the basis that either Plan or this Agreement is not a
legal, valid and binding contract enforceable against the Company (or any
successor thereto) or upon the basis of any amendment to any Plan made after
such Claimant has become vested under the applicable Plans. The Committee shall
not direct the Trustee to withhold any payment or to reduce the amount of any
payment to any Claimant on account of any amount alleged to be owed by such
Claimant, whether to the Company or any other person.
Section 4.3. Non-Duplication of Benefits. Neither the creation
of the Trust nor the transfer of cash or marketable securities by the Company to
the Trustee shall to any extent release the Company from its obligation to pay
or cause to be paid all benefits to which any person is entitled under the
Plans, except any payment of benefits by the Trustee to any person shall be
deemed to constitute payment by the Company and shall satisfy the obligation of
the Company to pay the benefits so paid by the Trustee. The Trustee and the
Company (or the Committee) shall each advise the other in writing of the payment
of any benefits paid pursuant to any Plan to the end that there shall be no
duplicate payment.
Section 4.4. Withholding of Taxes. The Trustee shall, upon
written direction from the Committee, withhold from any distribution which it is
required to make hereunder such sum as the Committee may reasonably estimate to
be necessary to cover any taxes for which the Company may be liable with respect
to such distribution. The Trustee shall forward any withheld amounts to the
Company, and the Company shall be responsible for (i) paying to the appropriate
taxing authority all income and employment taxes so withheld; (ii) furnishing to
each person receiving a distribution from the Trust appropriate tax information
respecting such distribution and withholding (if any); and (iii) preparing and
filing all information reports or returns required to be filed. Upon discharge
or settlement of such tax liability the Trustee shall distribute the balance of
such sum, if any, to the distributee from whose distribution it was withheld, or
if such distributee is then deceased, to such other person as the Committee
shall direct. Prior to making any distribution hereunder the Trustee may require
such releases or other documents from any taxing authority, or may require such
indemnity and surety bond, as the Trustee shall reasonably deem necessary for
its protection.
Section 4.5. Interests Nonassignable. No right or interest of
any Beneficiary or distributee to receive distributions from the Trust shall be
assignable or transferable in whole or in part, either directly, by operation of
law or otherwise, including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge or bankruptcy, but excluding devolution by death
or mental incompetency; and no right or interest of any Beneficiary or
distributee to receive distributions from the Trust shall be liable for, or
subject to, any obligation or liability of such Beneficiary or distributee,
including claims for alimony or the support of any spouse.
ARTICLE V
INVESTMENT OF FUND
Contributions by the Company to the Trust may be in the form
of cash, marketable securities, life insurance policies or other property
acceptable to the Trustee. Assets transferred to the Trust by the Company in the
form of property other than cash may be held by the Trustee in kind, or, if
<PAGE> 8
the Trustee reasonably determines that funds are needed to make payments
hereunder, may be sold by the Trustee. The Trustee is expressly empowered to
borrow (as directed by the Company) against the cash surrender value of any life
insurance policy for the purpose of paying premiums on life insurance policies
or for the payment of benefits, whether or not such premiums or benefit payments
are for the benefit of the individual insured by such policy.
Cash paid to the Trustee shall be invested as the Trustee
shall determine. The Trustee may not invest directly in securities (including
stock or rights to acquire stock) or obligations issued by the Company or its
affiliates or in other real or personal property of the Company or its
affiliates. The Company shall have the power to reacquire part or all of the
assets held in the Fund at any time by simultaneously substituting for it other
readily marketable property of equivalent value, net of any estimated costs of
disposition. The Trustee shall not be liable as a result of its retaining any
investment, nor for any loss to or diminution of the Trust assets resulting from
any such action.
ARTICLE VI
POWERS AND RIGHTS OF TRUSTEE
Section 6.1. Trustee's Powers. The Trustee shall have the
following powers and rights, in addition to those vested in it elsewhere in this
Agreement or by law:
(i) to retain any marketable securities transferred to the
Trustee, irrespective of the extent of diversification or any law or
rule of court concerning trust investments, or to sell any such
securities;
(ii) to cause any assets to be held or registered in the
Trustee's name individually, in the name of a nominee or in such other
form as the Trustee deems best, in each case without disclosing the
Trust relationship and without retaining possession and control of the
assets so held or registered;
(iii) to vote in person or by general or limited proxy, or
refrain from voting, any securities for any purpose in the event that
such securities shall be entitled to vote with respect to any matter;
to exercise or sell any conversion rights; to consent to and join in or
oppose any reorganization, consolidation, merger, recapitalization,
spin-off, combination or any other change in the corporate structure of
the issuer of any securities held by the Trustee or any exchange of
such securities for other securities or cash, and in connection
therewith to deposit and accept and hold other securities or cash
received therefor;
(iv) to employ agents, attorneys, accountants, actuaries,
brokers, custodians and proxies and to delegate to them such powers as
the Trustee deems advisable;
(v) to contest, prosecute, compromise or abandon claims or
other charges in favor of or against the Trust, and the Company shall
indemnify the Trustee against all expenses and liabilities sustained or
anticipated by it by reason thereof;
(vi) to perform other acts necessary or appropriate for the
proper administration of the Trust, execute and deliver necessary
instruments and give full receipts and discharges; and
(vii) to interpret the terms and provisions of the Trust, to
establish and revise rules and regulations relating to the Trust and to
make any other determinations that it believes are necessary or
advisable for the administration of the Trust.
<PAGE> 9
Section 6.2. Advice of Counsel. The Trustee may consult with
legal counsel, who may be counsel for the Company, independent actuaries, who
may be regularly retained by the Company, independent public accountants who may
be regularly retained by the Company, or other experts in respect of any of its
rights, powers, duties or obligations hereunder, and shall be fully protected in
relying on the advice of such counsel, actuaries, accountants or other experts.
Section 6.3. Indemnification of Trustee. The Trustee shall be
indemnified and held harmless by the Company from and against any and all
liability to which the Trustee shall be subjected by reason of carrying out its
duties and obligations under the Trust, including all expenses reasonably
incurred in its defense if the Company shall fail to provide such defense, other
than any liability arising out of the Trustee's negligence or willful
misconduct. The Trustee shall be fully protected in relying upon any notice
given hereunder which it in good faith believes to be genuine and executed and
delivered in accordance with this Agreement.
Section 6.4. Compensation and Expenses. The Trustee shall be
entitled to such reasonable compensation as may be agreed upon from time to time
by the Company and the Trustee. The Trustee is authorized and directed to pay
from the Fund all costs and expenses incurred in administering the Fund,
including the compensation, fees and expenses of the Trustee, the fees of
counsel for the Trustee and other administrative expenses to the extent such
expenses are not paid by the Company.
ARTICLE VII
ACCOUNTS AND REPORTS OF THE TRUSTEE
Section 7.1. Records and Accounts of the Trustee. The Trustee
shall maintain accurate and detailed records and accounts of all transactions of
the Trust and make them available at all reasonable times for inspection or
audit by any person designated by the Company or the Committee. At the direction
of the Company or the Committee, the Trustee shall submit to the independent
accountants for the Company and to others designated by the Company or the
Committee such valuations, reports or other information as any of them may
reasonably require.
Section 7.2. Cash Basis of Accounts. All accounts of the
Trustee shall be kept on a cash basis.
Section 7.3. Fiscal Year. The fiscal year of the Trust shall
be the same as the fiscal year of the Company; and if the Company shall notify
the Trustee that the Company has changed its fiscal year, the Trustee shall take
the necessary steps to change the fiscal year of the Trust to correspond
therewith.
Section 7.4. Annual Report. As soon as practicable after the
end of each fiscal year of the Trust and after the effective date of the removal
or resignation of the Trustee, the Trustee shall file with the Company a written
report setting forth all transactions with respect to the Fund during such
fiscal year or during the period from the end of the last fiscal year to the
date of such removal or resignation and listing the assets of the Fund and the
market values thereof as of the last business day of the period covered by such
report.
Section 7.5. Approval of Reports. Upon the receipt by the
Trustee of the Company's written approval of any report delivered pursuant to
Section 7.4, or upon the expiration of three months after delivery of any such
report to the Company, such report (as originally filed if no objection shall
have been timely made by the Company, or as adjusted pursuant to agreement
between the Company and the Trustee) shall be deemed to be final, except as to
such matters, if any, specified by written objections theretofore delivered to
the Trustee by the Company regarding which the Trustee has not yet given an
explanation or made adjustments satisfactory to the Company, and the Trustee
shall be released and
<PAGE> 10
discharged as to all matters set forth in such report (other than any unresolved
matters set forth in such written objections) to the same extent as though such
report has been settled and allowed by a decree of a court having competent
jurisdiction regarding such report, the Trustee and the Company. The Trustee,
nevertheless, shall have the right to have its accounts and reports settled by
judicial proceedings if it so elects, in which event the Company and the Trustee
shall be the only necessary parties (although the Trustee may also join such
other parties as it may deem appropriate).
ARTICLE VIII
REMOVAL, RESIGNATION AND SUCCESSION OF THE TRUSTEE
Section 8.1. Removal. The Company, by resolution of its board
of directors, may remove the Trustee at any time, such removal to take effect
upon the effective date of the appointment of a successor Trustee as hereinafter
provided by giving 30-days' prior written notice to the Trustee.
Section 8.2. Resignation. The Trustee may resign by delivering
to the Company a written resignation to take effect upon the effective date of
the appointment of a successor Trustee as hereinafter provided.
Section 8.3. Appointment, Qualifications and Powers of
Successor Trustee. The Company shall appoint as a successor Trustee, by
resolution of the board of directors of the Company, a bank or trust company
having the requisite corporate trust powers to act as the Trustee, provided such
bank or trust company shall have capital stock and surplus at the time of such
appointment of not less than $250,000,000. Each successor Trustee shall have all
the rights, powers, title, discretion, obligations, duties and immunities given
to, or acquired by, the original Trustee. The legal title to the assets of the
Fund shall be and remain vested in the Trustee from time to time acting
hereunder without any transfer or conveyance to, by or from any succeeding or
retiring Trustee. No successor Trustee shall be liable for the acts or omissions
of any prior Trustee or be obligated to examine the accounts, acts or omissions
of any prior Trustee. Upon the appointment of a successor Trustee, the removed
or resigning Trustee shall transfer and deliver the assets of the Trust Fund to
such successor after reserving such reasonable amounts as it shall deem
necessary to provide for any expenses, fees, taxes then or thereafter chargeable
against the Trust Fund.
Section 8.4. Changes in Organization of Corporate Trustee. In
the event that any Trustee hereunder shall be converted into, shall merge or
consolidate with, or shall sell or transfer substantially all of its corporate
trust business to, another bank or trust company qualified to act hereunder, the
bank or trust company resulting from such conversion, merger or consolidation,
or to which such sale or transfer shall be made, shall thereupon become and be
the Trustee hereunder with the same effect as though originally named herein.
ARTICLE IX
AMENDMENT OR TERMINATION
Section 9.1. Authority to Amend or Terminate. The board of
directors of the Company shall have the right at any time and from time to time
to amend the Trust in any manner, in whole or in part, or to terminate the
Trust; provided, however, that no such amendment shall change the duties or
liabilities of the Trustee without its written consent; and provided further,
that no amendment or termination shall be made which would in any manner
diminish or otherwise adversely affect the rights of Beneficiaries or Claimants
under Article IV or provide for the distribution of the Fund to the Company
under circumstances other than those described in Article IV.
Section 9.2 Method of Making Amendment. Each amendment of the
Trust shall be made by delivery to the Trustee of a written instrument setting
forth such amendment duly executed by the Company, together with a certified
copy of a resolution of the board of directors of the Company
<PAGE> 11
authorizing the execution of such written instrument. Such written instrument
(with the consent to the Trustee endorsed thereon, if its duties or liabilities
are changed thereby) shall constitute the instrument of amendment.
Section 9.3. Termination of Trust. Termination of the Trust
shall occur when the Trustee shall cease to hold any assets hereunder.
ARTICLE X
MISCELLANEOUS
Section 10.1. Protection of Persons Dealing with Trustee. No
person, other than the Company, dealing with the Trustee shall be required or
entitled to examine the application of any money paid or property delivered to
the Trustee, or to determine whether or not the Trustee is acting pursuant to
authority granted to it hereunder or to authorizations or directions herein
required.
Section 10.2. Tax Status of Trust. The Trust is intended to be
a trust the assets of which are deemed to be owned for federal income tax
purposes by the Company as grantor pursuant to subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended. Until
advised otherwise, the Trustee may conclusively assume that the Trust is not
subject to federal income tax.
Section 10.3 No Interest in Company Given by Trust. Neither
the creation of the Trust nor anything contained in this Agreement shall be
construed as giving any person or employee of the Company any equity or interest
in any assets (other than the Fund), business or affairs of the Company or any
right to continue in the employ of the Company.
Section 10.4. Gender and Plurals. Words in the masculine
gender shall include the feminine gender, and, unless the context otherwise
requires, words in the singular shall include the plural and words in the plural
shall include the singular.
Section 10.5. Governing Law. This Agreement and the Trust
shall be governed by, and construed in accordance with, the internal laws (as
opposed to conflict of law provisions) of the State of Illinois.
ARTICLE XI
EXECUTION
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Trustee, to evidence
the establishment of the Trust, have each caused the Trust to be signed by their
duly authorized officers.
WALLACE COMPUTER SERVICES, INC.
By
-----------------------------------
Title
--------------------------------
Date , 199
------------------------ ---
ATTEST:
- --------------------------------
Title
---------------------------
THE NORTHERN TRUST COMPANY
By
-----------------------------------
Title
--------------------------------
Date , 199
------------------------ ---
ATTEST:
- --------------------------------
Title
---------------------------
<PAGE> 1
EXHIBIT 21
Active subsidiaries of the Company:
<TABLE>
<CAPTION>
State of
Subsidiary Additional d/b/a Names Organization Wholly-Owned by
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Graphic Industries, Inc. Wallace Integrated Georgia Company
Graphics; Integrated
Graphic Services; IPD
Printing & Distributing;
Southern Signatures;
Williams Printing Company;
Graphic Print Services
Baum Printing House, Inc. Pennsylvania Graphic Industries, Inc.
Carpenter Reserve Printing
Company Ohio Graphic Industries, Inc.
Craftsman Printing Company North Carolina Graphic Industries, Inc.
Graphic Direct, Inc., Illinois Illinois Graphic Industries, Inc.
Pearson 1, Inc. Bruce Offset Illinois Graphic Direct, Inc.
Graphic Print &
Fulfillment, Inc. GPF Illinois Pearson 1, Inc.
Harvey Press, Inc. Louisiana Graphic Industries, Inc.
Heritage Press, Inc. Texas Graphic Industries, Inc.
Hoechestetter Printing
Company, Inc. Pennsylvania Graphic Industries, Inc.
Lithoprint Company, Inc. Texas Graphic Industries, Inc.
Mercury Printing Company, Inc. The Wimmer Companies Tennessee Graphic Industries, Inc.
Monroe Litho, Inc. New York Graphic Industries, Inc.
Presstar Printing Corporation Wallace Integrated Graphics Maryland Graphic Industries, Inc.
Quadras, Inc. Georgia Graphic Industries, Inc.
State Printing Company, Inc. South Carolina Graphic Industries, Inc.
W.E. Andrews Co. Inc. Georgia Graphic Industries, Inc.
A.C. Scanning Inc. Massachusetts W.E. Andrews Co. Inc.
The Central Press of Miami,
Inc. Wallace Integrated Graphics Florida W.E. Andrews Co. Inc.
W.E. Andrews Co. Inc. of
Connecticut Connecticut W.E. Andrews Co. Inc.
Wetmore & Company Texas Graphic Industries, Inc.
Lampro Graphics, Inc. Good Decal Company Illinois Company
Visible Computer Supply, Inc. Consolidated Business Illinois Company
Services
Wallace Commercial Printing, Moran Printing; Klay
Inc. Printing Delaware Company
Wallace FSC, Inc. Bermuda Company
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our reports, dated September 8, 1998, included in this Form 10-K, into the
Company's previously filed Registration Statements on Form S-8 (File No.
2-52229, No. 2-52357, No. 2-60252, No. 2-63000, No. 2-70022, No. 2-87821, No.
33-10353, No. 33-32706, File No. 33-86496, and No. 333-56199) and Registration
Statement on Form S-3 (File No. 333-46807).
Arthur Andersen LLP
Chicago, Illinois
October 28, 1998
Report of Independent Public Accountants with Respect to Financial Statement
Schedule
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Wallace Computer Services, Inc.'s
annual report to stockholders included in this Form 10-K, and have issued our
report thereon dated September 8, 1998. Our audit was made for the purpose of
forming an opinion on the consolidated financial statements taken as a whole.
This financial statement schedule is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the consolidated financial
statements. The financial statement schedule has been subjected to the
auditing procedures applied in the audit of the consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the consolidated
financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
September 8, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-1-1997
<PERIOD-END> JUL-31-1998
<CASH> 3,501
<SECURITIES> 0
<RECEIVABLES> 265,519
<ALLOWANCES> (5,195)
<INVENTORY> 120,196
<CURRENT-ASSETS> 426,759
<PP&E> 807,588
<DEPRECIATION> (353,181)
<TOTAL-ASSETS> 1,257,463
<CURRENT-LIABILITIES> 189,902
<BONDS> 428,224
0
0
<COMMON> 45,764
<OTHER-SE> 501,709
<TOTAL-LIABILITY-AND-EQUITY> 1,257,463
<SALES> 1,356,052
<TOTAL-REVENUES> 1,356,052
<CGS> 915,927
<TOTAL-COSTS> 1,211,304
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 700
<INTEREST-EXPENSE> 23,466
<INCOME-PRETAX> 123,390
<INCOME-TAX> 49,182
<INCOME-CONTINUING> 74,208
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,208
<EPS-PRIMARY> 1.72
<EPS-DILUTED> 1.71
</TABLE>
