<PAGE> 1
WALLACE LOGO
October 9, 1998
------------------------------
ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 4, 1998
------------------------------
Dear Fellow Stockholders:
You are cordially invited to attend the annual meeting of stockholders of
Wallace Computer Services, Inc. scheduled to be held on Wednesday, November 4,
1998. The meeting will be held at the Company's corporate headquarters, 2275
Cabot Drive, Lisle, Illinois 60532 at 10:00 a.m., local time. Your Board of
Directors and management look forward to greeting those stockholders able to be
present.
Enclosed with this letter is Wallace's notice of meeting and proxy
statement and a proxy card. You should read these materials for a more complete
description of the matters to be considered at the annual meeting. Then, take a
moment to sign, date and mail your proxy card in the postage prepaid envelope
provided.
At the annual meeting, the stockholders of the Company will be asked to
consider and vote on (i) the election of two directors to hold office for a
three year term, and (ii) the ratification of the appointment of Arthur Andersen
LLP as the Company's independent public accountants for fiscal year 1999. Your
Board of Directors unanimously recommends a vote "FOR" each of these proposals.
We remain committed to acting in the best interests of you, our
stockholders, and your Company. Please feel free to call us or our proxy
solicitor, Morrow & Co., Inc., if you have any questions. Our phone number is
(630) 588-5395, and the phone number of Morrow & Co., Inc. is (800) 662-5200.
Sincerely,
BOB CRONIN
BOB CRONIN
Chairman and CEO
MIKE DUFFIELD
MIKE DUFFIELD
President
IMPORTANT
Your vote is important. Please take a moment to sign, date and promptly
mail your proxy card in the postage prepaid envelope provided. If your shares
are registered in the name of a broker, only your broker can execute a proxy and
vote your shares and only after receiving your specific instructions. Please
contact the person responsible for your account and direct him or her to execute
a proxy on your behalf today. If you have any questions or need further
assistance in voting, please contact the firm assisting us in the solicitation
of proxies:
MORROW & CO., INC.
Call toll free at (800) 662-5200
<PAGE> 2
WALLACE LOGO
------------------------------
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
------------------------------
TO THE STOCKHOLDERS OF
WALLACE COMPUTER SERVICES, INC.:
Notice is hereby given that the 1998 Annual Meeting of Stockholders of
Wallace Computer Services, Inc., a Delaware corporation, will be held at the
Company's corporate headquarters, 2275 Cabot Drive, Lisle, Illinois 60532 on
Wednesday, November 4, 1998, at 10:00 a.m., for the following purposes:
1. To elect two directors to hold office for a three year term;
2. To consider and vote upon a proposal to ratify the appointment of Arthur
Andersen LLP as the Company's independent public accountants for fiscal
year 1999; and
3. To transact such other business as may properly come before such Annual
Meeting.
The Board of Directors has fixed the close of business on September 21,
1998 as the record date for the determination of stockholders entitled to notice
of, and to vote at, the 1998 Annual Meeting and at any adjournment or
postponement thereof.
It is important that your shares be voted at the 1998 Annual Meeting.
Whether or not you expect to attend, you are urged to sign and date the
accompanying proxy card and promptly return it to the Company in the
accompanying postage prepaid envelope.
By Order of the Board of Directors
MICHAEL T. LAUDIZIO
MICHAEL T. LAUDIZIO
Secretary
Lisle, Illinois
October 9, 1998
<PAGE> 3
WALLACE COMPUTER SERVICES, INC.
2275 CABOT DRIVE
LISLE, ILLINOIS 60532
------------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 4, 1998
------------------------------
This Proxy Statement is being furnished in connection with the solicitation
of proxies by the Board of Directors of Wallace Computer Services, Inc. (the
"Company") to be voted at the Annual Meeting of Stockholders of the Company to
be held on November 4, 1998, and at any and all adjournments or postponements
thereof (the "Annual Meeting"). The Board of Directors has fixed the close of
business on September 21, 1998 as the record date (the "Record Date") for
determining the stockholders entitled to notice of, and to vote at, the Annual
Meeting. This Proxy Statement and the accompanying proxy card are first being
mailed to stockholders on or about October 12, 1998.
At the Annual Meeting, stockholders will consider and vote upon (i) the
election of two directors to hold office for a three year term, (ii) the
ratification of the appointment of Arthur Andersen LLP as the Company's
independent public accountants for fiscal year 1999, and (iii) any other
business that may properly come before the Annual Meeting.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH OF
THE PROPOSALS.
Your vote is important, regardless of how many shares you own. Please sign
and date the accompanying proxy card and mail it in the enclosed postage prepaid
envelope as promptly as possible, whether or not you expect to attend the
meeting.
VOTING PROCEDURES AND SOLICITATION
On the Record Date, there were 42,973,881 shares of Common Stock
outstanding. The holders of Common Stock are entitled to one vote per share on
each matter submitted to a vote at the Annual Meeting. Stockholders do not have
the right to cumulate votes in the election of directors. A majority of the
outstanding shares of Common Stock entitled to vote, present in person or
represented by proxy, shall constitute a quorum. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum at the Annual Meeting for the transaction of business.
Whether or not you plan to attend the meeting, you are urged to vote by
proxy. Duly executed and unrevoked proxies received by the Company prior to the
Annual Meeting will be voted in accordance with the stockholder's specifications
marked thereon. If no specifications are marked thereon, the proxies distributed
by your Board will be voted "FOR" each of the proposals. Any stockholder giving
a proxy may revoke it at any time prior to voting at the Annual Meeting by
filing with the Secretary of the Company a duly executed revocation, by
submitting a later dated proxy with respect to the same shares or by attending
the Annual Meeting and voting in person (although attendance at the Annual
Meeting will not in and of itself constitute a revocation of your proxy).
With respect to the election of directors, a stockholder may vote for one
or both of the nominees or withhold authority with respect to any or all of the
nominees. The Company's By-laws provide that directors shall be elected by a
plurality of the votes cast by stockholders holding shares of stock of the
Company entitled to vote for the election of directors. Consequently, votes that
are withheld in the election of directors and broker non-votes will have no
effect on the election.
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<PAGE> 4
With respect to the proposal to ratify the appointment of Arthur Andersen,
LLP, a stockholder may vote for or against the proposal or abstain from voting.
Pursuant to the Company's By-laws and Delaware law, approval of this proposal
requires the affirmative vote of stockholders holding a majority of the shares
of Common Stock that are present in person or represented by proxy and entitled
to vote on the subject matter. Consequently, an abstention or a broker non-vote
on the proposal will have the effect of a negative vote.
Proxies may be solicited by mail, advertisement, telephone or other methods
and in person. Solicitations may be made by directors, officers, investor
relations personnel and other employees of the Company, none of whom will
receive additional compensation for such solicitations. The Company will request
banks, brokerage houses and other custodians, nominees and fiduciaries to
forward all of its solicitation materials to the beneficial owners of the shares
of Common Stock they hold of record. The Company will reimburse these record
holders for customary clerical and mailing expenses incurred by them in
forwarding these materials to their customers. The Company has retained Morrow &
Co., Inc. for solicitation and advisory services in connection with the
solicitation, for which Morrow is to receive a fee estimated at $7,500, together
with reimbursement for its reasonable out-of-pocket expenses. The Company has
also agreed to indemnify Morrow against certain liabilities and expenses. The
cost of soliciting proxies on behalf of the Board of Directors for the Annual
Meeting is being borne by the Company.
The Board of Directors is not aware of any matters to be presented at the
Annual Meeting other than those listed in the notice of the meeting. However, if
any other matters properly come before the Annual Meeting, it is intended that
the holders of proxies solicited by the Board of Directors will vote on such
other matters in their discretion in accordance with their best judgment.
ITEM 1
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes and effective November
4, 1998 will consist of seven directors, six of whom are not, and have not been,
officers or employees of the Company. The terms of two directors currently
expire at this year's Annual Meeting, the terms of three directors currently
expire at the 1999 Annual Meeting and the terms of two directors currently
expire at the 2000 Annual Meeting. At this year's Annual Meeting, two directors
will be elected for a term expiring at the 2001 Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies
received by them "FOR" the election of your Board's two nominees named below.
If, for any reason, any of the Board's nominees listed below should cease to be
a candidate for election, it is intended that all properly signed proxies in the
form enclosed will be voted for a substitute nominee designated by the Board of
Directors. Each of your Board's nominees below has consented to serve as a
director, and the Board of Directors has no reason to believe that any nominee
will be unwilling or unable to serve if elected.
THE BOARD OF DIRECTORS UNANIMOUSLY URGES YOU TO VOTE "FOR" THE BOARD'S NOMINEES
AS DIRECTORS OF THE COMPANY
The Board has unanimously nominated Bettye Martin Musham and Andrew J.
McKenna, Jr. for election as directors at the Annual Meeting. Both of the
Board's nominees for director have substantial experience serving as directors
or executive officers. Both of the Board's nominees have demonstrated leadership
abilities and outstanding achievements in the companies in which they have
served as executives and directors. The Board's nominees have experience in a
broad range of industries and bring to the Wallace Board substantial business
experience and knowledge.
Pursuant to the Company's director age policy, Mr. Dimitriou, who reached
age 72 on August 31, 1998, will serve as a director only until the 1998 Annual
Meeting. The vacancy created by Mr. Dimitriou's retirement will not be filled,
reducing the size of the Board to seven members.
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<PAGE> 5
Mssrs. Isenman and Rittereiser have decided not to seek re-election to the Board
in order to devote more time to other professional and personal obligations.
THE BOARD'S NOMINEES
The following sets forth information on your Board's nominees for election
as directors at the Annual Meeting:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR PAST COMMITTEE
NAME AND AGE FIVE YEARS DIRECTOR SINCE MEMBERSHIP
- -------------------------- ----------------------------- ------------------ -----------------------
<S> <C> <C> <C>
DIRECTOR NOMINEES AT THIS YEAR'S ANNUAL MEETING
Bettye Martin Musham (65) President and Chief Executive
Officer of Gear Holdings,
Inc. since 1977.(1)
Andrew J. McKenna, Jr. President and Chief Operating
(41) Officer of Schwarz Paper
Company, Inc. since May 1996.
Vice President of Marketing
with Schwarz since 1988.
DIRECTORS WITH TERMS EXPIRING AT THE 1999 ANNUAL MEETING
Robert J. Cronin (53) Chairman and CEO of the November 11, 1992 Executive
Company since August 1, 1998.
President and Chief Executive
Officer of the Company from
November 11, 1992 until
August 1, 1998. Previously
held various sales management
positions within the
Company.(2)
Richard F. Doyle (70) Retired Senior Vice October 26, 1971 Audit (Chairman) and
President-Finance & Executive
Administration of Texas Oil &
Gas Corp., a developer of oil
and gas interests.
Neele E. Stearns, Jr. (62) Former President and Chief November 6, 1996 Governance & Nominating
Executive Officer of CC (Chairman) and Audit
Industries, Inc., a holding
company with operations in
envelope manufacturing, home
furnishings and casual
furniture, and real estate
development and management.
Director of Wallace from 1990
to 1995.(3)
DIRECTORS WITH TERMS EXPIRING AT THE 2000 ANNUAL MEETING
William N. Lane III (55) Chairman, President and Chief January 17, 1990 Compensation
Executive Officer of Lane (Chairman), Executive,
Industries, Inc., a holding and Governance &
company with operations in Nominating
office machines, hotels,
ranching and radio
broadcasting.(4)
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR PAST COMMITTEE
NAME AND AGE FIVE YEARS DIRECTOR SINCE MEMBERSHIP
- -------------------------- ----------------------------- ------------------ -----------------------
<S> <C> <C> <C>
John C. Pope (49) Chairman of MotivePower July 8, 1996 Audit, Compensation,
Industries, Inc., a and Governance &
manufacturer of locomotives Nominating
and locomotive components.
From January 1988 to July
1994, Mr. Pope held various
positions with UAL Inc. and
its subsidiary, United
Airlines, most recently as
President, Chief Operating
Officer and Director.(5)
</TABLE>
- ------------------------------
(1) Ms. Martin Musham is also a director of Brunswick Corporation, and Footstar,
Inc.
(2) Mr. Cronin is also a director of Landauer Corporation.
(3) Mr. Stearns is also a director of Maytag Corporation.
(4) Mr. Lane is also a director of General Binding Corporation.
(5) Mr. Pope is also a director of Federal-Mogul Corp., Medaphis Corporation,
Lamalie Associates, Inc., Waste Management, Inc., and Dollar Thrifty
Automotive Group, Inc.
It is the policy of the Company that no person may serve as a director past
the month in which he reaches age 70, except that any person who was a director
on November 7, 1984 (which includes Messrs. Dimitriou and Doyle), may serve as a
director through the month in which he reaches age 72. The Board of Directors
may, in its discretion, allow a director to continue to serve after the month in
which he reaches age 70 or 72, as the case may be, until the next Annual
Meeting.
The Company's By-laws permit nominations for election of directors to be
made by the Board of Directors, by a nominating committee of the Board of
Directors or by any stockholder having the right to vote generally in the
election of directors. However, the Company's By-laws provide that, in the case
of any nomination by a stockholder at an annual meeting, written notice
(satisfying certain requirements specified in the Company's By-laws) of the
stockholder's intention to make the nomination must be given to the Secretary of
the Company not later than 90 days prior to the annual meeting. The chairman of
an annual meeting may refuse to acknowledge the nomination of any person that is
not made in compliance with the procedures set forth in the Company's By-laws.
MEETINGS OF THE BOARD AND ITS COMMITTEES
During fiscal year 1998, the Board of Directors met ten times, the Audit
Committee met two times, the Compensation Committee met two times and the
Governance and Nominating Committee met six times. The Executive Committee did
not meet during fiscal year 1998. Each of the incumbent directors attended at
least 75% of the meetings of the Board of Directors and its Committees on which
he served during fiscal year 1998.
The Audit Committee, consisting of three non-employee directors, is
responsible for recommending to the Board of Directors the appointment of
independent public accountants (subject to ratification by the stockholders);
reviewing the fees charged by the Company's independent public accountants;
reviewing the Company's annual financial statements prior to submission to the
Board of Directors; reviewing the scope and results of the Company's annual
audits; and certain other matters concerning the Company's accounting and
financial affairs as specified in the Company's By-laws.
The Compensation Committee, consisting of three non-employee directors, is
responsible for reviewing and recommending to the Board of Directors the
salaries of officers and key managers of the Company; reviewing and recommending
incentive bonus, stock option, stock incentive, retirement, and welfare plans
and programs for officers and key managers of the Company; and certain other
matters concerning the performance and compensation of the Company's management
employees as specified in the Company's By-laws. Members of the Compensation
Committee also serve as the Salary,
4
<PAGE> 7
Bonus and Option Committee under the Company's Executive Incentive Plan and as
the committee of the Company's Board of Directors that administers the Company's
1997 Stock Incentive Plan.
The Governance and Nominating Committee, consisting of three non-employee
directors, is responsible for recommending to the Board of Directors nominees
for election at the annual meetings or to fill vacancies on the Board;
succession planning with respect to executive management; and certain other
matters concerning the governance of the Company.
The Executive Committee is authorized, subject to certain limitations
imposed by law and in the Company's By-laws, to exercise the powers and
authority of, and act in lieu of, the Board of Directors in the management and
direction of the Company's business affairs.
COMPENSATION OF DIRECTORS
Each director receives an annual director's retainer fee of $20,000. Each
director also receives a fee of $1,000 plus expenses for each meeting of the
Board of Directors and its Committees that he attends. The Chairman of a Board
Committee will receive an additional $1,500 per year.
The Company maintains the Wallace Computer Services, Inc. Retirement Plan
for Outside Directors (the "Retirement Plan") pursuant to which outside
directors (which include all directors other than Mr. Cronin and Mr. Dimitriou)
will be eligible to receive benefits when they complete five years of service as
outside directors. Messrs. Doyle, Lane and Stearns have completed five years of
service as outside directors and are participants in the Retirement Plan. The
annual retirement benefit payable to each participating director is equal to the
annual director's fee in effect on his retirement date. Retirement benefits
commence upon the retirement of a participating director, continue for the
lesser of ten years or the number of years of service as an outside director,
and cease upon the death of the participating director. Because the actual
retirement benefits to be received by each participating director will be based
upon the annual director's fee in effect on his retirement date and the period
of time during which he serves as an outside director, the amount of the
retirement benefits to be paid to participating outside directors cannot be
calculated prior to retirement. As of the end of fiscal year 1998, the Company
has accrued the estimated amount of retirement benefits under the Retirement
Plan.
The Company established a Deferred Compensation/Capital Accumulation Plan
for Directors for each of calendar years 1993 through 1998 in which all
incumbent directors were eligible to participate. For the 1998 Plan, Messrs.
Dimitriou, Doyle, Isenman, and Stearns elected to participate. For the 1997
Plan, Messrs. Dimitriou, Doyle, Isenman, Pope and Stearns elected to
participate. For the 1996 Plan, Messrs. Dimitriou and Doyle elected to
participate. For the 1995 Plan, Messrs. Dimitriou, Doyle and Stearns elected to
participate. For the 1994 Plan and the 1993 Plan, Mr. Doyle elected to
participate. Each participating director was allowed to elect to defer up to
100% of his director's and meeting fees. Subject to certain conditions, the
amount of fees deferred bears interest, compounded annually at 12% per annum. A
participating director is entitled to receive payment of the undistributed
amount of his deferral account in either fifteen annual installments beginning
at age 65 or, if a participating director so elects, in ten annual installments
beginning at age 70 or age 72. If a participating director has not previously
begun to receive installment payments from his deferral account, he will receive
an interim distribution from his deferral account in both the seventh and the
eighth years following the deferral year in an amount equal to the amount of
fees that he deferred.
The stockholders approved the Wallace Computer Services, Inc. 1997 Stock
Incentive Plan (the "1997 Stock Incentive Plan"), at a special meeting on
February 28, 1997. Pursuant to the 1997 Stock Incentive Plan, at the Annual
Meeting or, if later, on the date on which a person is first elected or begins
to serve as a non-employee Director, and on the date of each annual meeting of
stockholders thereafter, each non-employee Director will be granted an option to
purchase 2,000 shares of Common Stock (which number will be prorated if such
non-employee Director is first elected or begins to serve as a non-employee
Director on a date other than the date of an annual meeting of stockholders) at
a purchase price per share equal to the fair market value of a share of Common
Stock on the date of
5
<PAGE> 8
grant of such option. In addition, pursuant to the 1997 Stock Incentive Plan,
each non-employee Director may from time to time elect, in lieu of all or any
portion of the cash retainer fee that would otherwise be payable to such
non-employee Director, to be granted on the date of the meeting of the
Compensation Committee next following the date of the annual meeting and each
subsequent annual meeting of stockholders, the number of options ("Retainer Fee
Options") to purchase shares of Common Stock which is equal to four times the
amount of the retainer fee subject to such election divided by the fair market
value of a share of Common Stock on the date of such grant. The purchase price
of the shares of Common Stock subject to a Retainer Fee Option will be equal to
the fair market value of a share of Common Stock on the date of grant of such
Retainer Fee Option. Each option granted to a non-employee Director will become
exercisable for one-fourth of the shares of Common Stock subject to such option
on the first day of February, and an additional one-fourth thereof will become
exercisable on the first day of May, August and November, next following its
date of grant, provided that such option shall become fully exercisable in the
event of a Material Change (as such term is defined in the 1997 Stock Incentive
Plan). For the 1998 plan year, Mr. Lane elected to participate in the Retainer
Fee Option portion of the 1997 Stock Incentive Plan.
The Company has established a Directors Retainer Fee Plan whereby the
Company's Directors are eligible to receive annual retainer and meeting fees in
Company Common Stock in lieu of cash. The Company will use the fees otherwise
payable to the director to purchase treasury shares. Treasury shares will be
purchased from the Company at the closing market price of the stock, on the date
that quarterly retainer installments would otherwise be payable. At the election
of the Director, the purchased shares will either be distributed when purchased
or deferred pursuant to a separate deferral agreement. Messrs. Lane and Pope
have elected to participate in this plan during fiscal year 1998.
ITEM 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Audit Committee and subject to ratification
by the stockholders, the Board of Directors has appointed Arthur Andersen LLP as
independent public accountants for the Company for fiscal year 1999.
Arthur Andersen LLP has served as the Company's independent public
accountants since fiscal year 1960. Representatives of Arthur Andersen LLP are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they so desire, and such representatives will be available to
respond to appropriate questions from the stockholders.
6
<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the cash compensation and certain other
components of compensation for fiscal years 1998, 1997 and 1996 for the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company for the fiscal year ended July 31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS
-------------------- ----------------------------
AWARDS PAYOUTS
---------- ---------------
SECURITIES ALL OTHER
FISCAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(1) OPTIONS(2) LTIP PAYOUTS(3) (4)(5)
- ------------------------------- ------ --------- -------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Cronin 1998 $513,942 $ 0 56,250 $234,000 $104,359
Chairman and Chief 1997 440,040 121,500 110,000 309,000 105,334
Executive Officer 1996 392,375 216,810 33,500 101,174
Michael O. Duffield 1998 276,441 0 25,000 176,000 62,424
President and Chief Operating 1997 249,960 72,421 55,000 232,000 36,344
Officer 1996 218,800 78,365 15,100 35,231
Michael T. Leatherman 1998 245,655 0 25,000 176,000 58,240
Executive Vice President/ 1997 215,524 61,488 55,000 193,000 34,711
Chief Administrative Officer 1996 199,975 71,155 15,100 26,327
Michael J. Halloran 1998 247,287 0 12,500 118,000 56,092
Vice President/Chief
Financial 1997 225,150 41,292 42,000 154,000 45,868
Officer/Assistant Secretary 1996 208,925 63,720 12,600 35,593
Bruce D'Angelo 1998 232,325 0 12,500 118,000 37,184
Senior Vice President/ 1997 214,325 39,410 42,000 154,000 34,145
Commercial Print Division 1996 191,526 58,410 12,600 24,880
</TABLE>
(1) Compensation deferred at the election of the executive officer pursuant to
Deferred Compensation/Capital Accumulation Plans established by the Company
for the calendar years 1998, 1997 and 1996 is included in the relevant
salary and bonus columns.
(2) Represents the number of shares of the Company's Common Stock for which
options were granted to each executive officer for fiscal years 1998, 1997
and 1996 under the 1997 Stock Incentive Plan and the 1989 Stock Option Plan.
Stock options granted to each executive officer for fiscal year 1998 were
approved and granted by the Compensation Committee on September 8, 1998.
(3) Indicates LTIP compensation paid on September 16, 1998 for awards made
during fiscal year 1996 and September 16, 1997 for awards made during fiscal
year 1995 pursuant to the Company's Long-Term Performance Plan. The
Company's Long-Term Performance Plan was discontinued in fiscal year 1997.
Under the terms of the Long-Term Performance Plan, the awards could be
decreased if the Company failed to achieve ROI targets during a three year
period. At the time that the Long-Term Performance Plan was discontinued,
the awards for 1996 and 1997 were fixed at the then current level.
7
<PAGE> 10
(4) All Other Compensation includes (a) Company contributions under the
Company's Profit Sharing and Retirement Plan, (b) Company contributions
under the Company's Supplemental Profit Sharing Plan and (c) above-market
accrued interest on compensation deferred under the Company's Deferred
Compensation/Capital Accumulation Plans to the extent that such accrued
interest exceeds interest that would have accrued on such deferred
compensation at market interest rates. The amounts of All Other Compensation
for each of the three components above were as follows:
<TABLE>
<CAPTION>
PROFIT SHARING AND SUPPLEMENTAL PROFIT ABOVE-MARKET
FISCAL YEAR 1998 RETIREMENT PLAN SHARING PLAN ACCRUED INTEREST
- ---------------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Mr. Cronin $19,631 $29,337 $25,391
Mr. Duffield 19,631 29,326 13,465
Mr. Leatherman 17,176 24,055 17,009
Mr. Halloran 19,631 24,572 11,889
Mr. D'Angelo 19,631 8,564 8,989
</TABLE>
<TABLE>
<CAPTION>
PROFIT SHARING AND SUPPLEMENTAL PROFIT ABOVE-MARKET
FISCAL YEAR 1997 RETIREMENT PLAN SHARING PLAN ACCRUED INTEREST
- ---------------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Mr. Cronin $18,909 $30,445 $17,980
Mr. Duffield 16,536 12,874 6,934
Mr. Leatherman 16,536 7,543 10,632
Mr. Halloran 18,909 17,791 9,168
Mr. D'Angelo 18,909 9,267 5,969
</TABLE>
<TABLE>
<CAPTION>
PROFIT SHARING AND SUPPLEMENTAL PROFIT ABOVE-MARKET
FISCAL YEAR 1996 RETIREMENT PLAN SHARING PLAN ACCRUED INTEREST
- ---------------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Mr. Cronin $16,009 $28,576 $12,589
Mr. Duffield 13,939 17,117 4,175
Mr. Leatherman 13,939 5,077 7,311
Mr. Halloran 16,009 12,665 6,919
Mr. D'Angelo 13,939 7,006 3,935
</TABLE>
(5) Director and meeting fees earned by Mr. Cronin as a director of the Company
are $30,000, $38,000, and $44,000, for fiscal years 1998, 1997 and 1996,
respectively, and are included in All Other Compensation.
OPTION GRANTS FOR FISCAL YEAR 1998
The following table sets forth information with respect to options granted
for fiscal year 1998 to purchase shares of Common Stock under the Company's 1997
Stock Incentive Plan to the five executive officers listed in the Summary
Compensation Table.
8
<PAGE> 11
OPTION GRANTS FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE OR
OPTIONS IN FISCAL BASE PRICE GRANT DATE
NAME GRANTED YEAR ($/SH.)(1) EXPIRATION DATE(1) PRESENT VALUE(2)
- --------------------------- ---------- ------------- ----------- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Robert J. Cronin 56,250 11.91% $16.125 9/08/08 $211,500
Michael O. Duffield 25,000 5.29% 16.125 9/08/08 94,000
Michael T. Leatherman 25,000 5.29% 16.125 9/08/08 94,000
Michael J. Halloran 12,500 2.65% 16.125 9/08/08 47,000
Bruce D'Angelo 12,500 2.65% 16.125 9/08/08 47,000
</TABLE>
- ------------------------------
(1) Indicates annual options granted on September 8, 1998. Options generally
become exercisable as to 40% of the shares one year after the grant date and
as to the remaining 60% of the shares two years after the grant date;
however, the Committee has the authority to accelerate the exercisability of
an option. Under the terms of the Company's 1997 Stock Incentive Plan,
options can be either tax-favored incentive stock options or non-qualified
stock options. Tax favored incentive stock options must have an option price
not less than 100% of the market value on the date of grant. Non-qualified
stock options may have an option price not less than 85% of market value on
the date of grant; however, no options have been granted to date at an
option price less than 100% of market value on the grant date.
(2) The Black-Scholes option pricing model has been used to calculate the
present value of options as of the date of grant. The model assumptions
include: (a) an option term of 5.21 years, which represents the weighted
average (by number of option shares) over the past ten years of the length
of time between the grant date of options and the exercise date of such
options for the listed executive officers; (b) an interest rate equal to the
interest rate on a U.S. Treasury Bond with a maturity date corresponding to
that of the option term; (c) a volatility factor calculated using monthly
stock prices for Common Stock for the 3 years (36 months) prior to the grant
date; and (d) a dividend rate of $.62 per share, which was the total amount
of dividends paid with respect to a share of Common Stock during the
relevant period.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information with respect to the exercise in
fiscal year 1998 of options to purchase shares of Common Stock granted under the
Company's Stock Option Plans by the five executive officers named in the Summary
Compensation Table. In addition, this table includes the fiscal year-end number
and value of unexercised options held by each named executive officer.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NUMBER OF OPTIONS AT 7/31/98 7/31/98(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Cronin 8,473 $228,889 140,773 130,100 $563,554 $0
Michael O. Duffield 1,465 38,364 70,556 64,060 251,145 0
Michael T. Leatherman 0 0 21,840 64,060 0 0
Michael J. Halloran 0 0 51,640 49,560 181,328 0
Bruce D'Angelo 7,000 179,812 28,840 49,560 22,480 0
</TABLE>
- ------------------------------
(1) Value realized equals the aggregate amount of the excess of the fair market
value on the date of exercise over the relevant exercise price(s).
9
<PAGE> 12
(2) Value of unexercised in-the-money options is calculated as the aggregate
difference between the fair market value of $19.50 per share (which was the
closing price of the Company's Common Stock as reported in the New York
Stock Exchange Composite Transactions for July 31, 1998) over the relevant
exercise price(s).
LONG-TERM INCENTIVE PLANS--AWARDS IN FISCAL YEAR 1998
The following table sets forth information with respect to awards made for
fiscal year 1998 under the Company's Performance Share Plan to the five
executive officers named in the Summary Compensation Table.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE OR
SHARES, UNITS OTHER PERIOD ESTIMATED FUTURE PAYOUTS
OR OTHER UNTIL MATURATION ------------------------------
NAME RIGHTS OR PAYOUT THRESHOLD TARGET MAXIMUM
- --------------------------------------- ------------- ---------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
Robert J. Cronin 8,198 10/01/00 0 8,198 16,396
Michael O. Duffield 3,497 10/01/00 0 3,497 6,994
Michael T. Leatherman 3,123 10/01/00 0 3,123 6,246
Michael J. Halloran 2,342 10/01/00 0 2,342 4,684
Bruce D'Angelo 2,201 10/01/00 0 2,201 4,402
</TABLE>
At the 1997 Annual Meeting, the stockholders approved the Performance Share
Plan, the purpose of which was to provide incentive compensation to certain key
employees in a form which aligns the interest of those key employees with the
stockholders. The 1998 Awards under the Performance Share Plan will be
distributed no later than October 1, 2000, unless a Participant makes an
election to defer payment in accordance with the terms of the Performance Share
Plan. Depending on actual results for the three fiscal years 1998, 1999 and
2000, participants could earn awards ranging from zero percent to 200% of the
targeted number of shares. Since awards are payable in shares of Common Stock,
appreciation or depreciation of the market value of the Common Stock during a
three-year performance period would affect the final award value. Upon a change
of control, all performance criteria will be deemed to have been achieved at the
target level. The Performance Share Plan is more fully described under the
heading "Compensation of Executive Officers--Incentive Bonuses."
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE OF CONTROL
ARRANGEMENTS
The Company and Mr. Cronin executed an employment agreement on September 3,
1997, effective as of July 1, 1997, (the "Agreement") which provides that Mr.
Cronin will serve as the Company's Chief Executive Officer through June 30,
2000, with automatic annual extensions, which will then provide for a continuous
three-year term after that date (subject to earlier termination in certain
circumstances as described below).
The Agreement provides for an annual base salary of at least $458,646, plus
annual bonuses that may be awarded to Mr. Cronin under the Company's Annual
Bonus Plan or otherwise. The Agreement calls for a target bonus of 60% of Mr.
Cronin's annual base salary. In addition, Mr. Cronin is eligible to receive
additional benefits under plans that are then in effect for the Company's senior
executives.
At the election of Mr. Cronin, his annual bonus for any fiscal year may be
deferred and paid, with interest (based on the rate paid on 90-day bank
certificates of deposit), in 120 equal monthly installments following the
termination of his employment. In lieu of receiving interest on deferred sums,
Mr. Cronin may elect to use deferred amounts to purchase shares of Common Stock
which will be held in a grantor trust for the benefit of Mr. Cronin until
distribution pursuant to a predetermined distribution schedule. Subject to
certain limitations, during the term of the Agreement, Mr. Cronin and his
dependents will receive all benefits, and may participate in other plans and
programs, which executive employees of the Company are entitled to receive or in
which they are entitled to
10
<PAGE> 13
participate. In addition, Mr. Cronin and his wife will be entitled to receive
medical insurance benefits, and subject to certain limitations, reimbursement of
all additional medical expenses they may incur during Mr. Cronin's lifetime. The
Agreement also provides for Mr. Cronin to receive a monthly supplemental
retirement benefit in an amount up to 50% of his average monthly compensation
from the Company for the last sixty months of his full-time employment, reduced,
but to not below 15% of his average monthly compensation, by the monthly amount
payable under a single life annuity equal to the value of all other amounts
payable under any retirement plan or program of the Company and his monthly
Social Security benefits (in each case, other than amounts attributable to his
contributions). Subject to certain limitations, during the term of the Agreement
and for a period of two years after the later to occur of (i) the end of the
term of the Agreement and (ii) the termination of Mr. Cronin's employment for
any reason, Mr. Cronin has agreed not to, directly or indirectly, own, manage,
operate, control, be employed by, participate in or be connected with the
ownership, management, operation or control of, any entity that is directly
engaged in any business or activity directly competitive with any business of
the Company.
Under the Agreement, in the event of Mr. Cronin's voluntary resignation or
termination for cause, he will be entitled to receive compensation and benefits
accrued to date, but shall forfeit any options or other awards not then vested.
In the event of his death or disability, he will be entitled to compensation and
benefits accrued to date and he will be fully vested in any options or other
awards. If Mr. Cronin's employment is terminated by the Company without "cause",
or if he resigns for "good reason" (as such terms are defined in the Agreement),
in addition to compensation and benefits accrued to date and full vesting of any
options and other awards, he will be entitled to receive a pro rata bonus for
the year of termination based upon his then current target annual bonus amount,
continuation for a period of two years of his then current annual base salary
and target annual bonus amount (paid in substantially equal monthly
installments) and of participation in Company employee benefit plans.
The Company has entered into a change of control severance agreement with
Mr. Cronin providing for the payment of compensation and benefits in the event
of termination of employment following a change of control. A Change of Control
is generally defined as: (i) the acquisition by a person, other than the
Company, of 35% or more in voting power of the Company's securities; (ii) the
election as directors representing one-half or more of the Company's Board of
Directors of persons who were not nominated or recommended by the incumbent
Board of Directors, (iii) a business combination resulting in the then current
beneficial owners of Common Stock owning less than 65% of the outstanding
shares, (iv) approval of the stockholders of the sale or other disposition of
substantially all of the assets of the Company, or (v) a complete liquidation of
the Company.
The change of control agreement will remain in effect for at least three
years following the date of its execution. Thereafter, the agreement will be
extended annually unless the company gives proper notice of its election not to
extend, but will remain in effect for three years following the Change of
Control.
In the event of a Change of Control, Mr. Cronin may elect to terminate his
services if (i) the Company fails to continue to employ Mr. Cronin in the same
capacity in which he was employed immediately prior to the Change of Control,
(ii) the Company impedes or otherwise fails to permit Mr. Cronin to exercise
fully and properly his duties and responsibilities, (iii) the Company fails to
pay Mr. Cronin's base salary or award to him an annual bonus when due, (iv) the
Company requires Mr. Cronin to be based more than 50 miles from his current
office, or (v) the Company otherwise fails to comply with the terms of the
change of control severance agreement. Mr. Cronin may also elect to terminate
his services for any reason during the 30 day period following the sixth month
after a Change of Control. In the event the Company terminates Mr. Cronin's
employment or Mr. Cronin elects to terminate his services in such circumstances,
Mr. Cronin will be entitled to a termination payment equal to the sum of all
accrued amounts including a pro rata portion of the target bonus for the then
current year and a Severance Amount equal to three times Mr. Cronin's then
current annual salary and the then current target annual bonus. In the event
that the termination payment or any other amounts
11
<PAGE> 14
payable to Mr. Cronin or certain of his beneficiaries is subject to the excise
tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended,
or any similar tax or assessment (collectively, "excise taxes"), the Company
shall pay the amount necessary to reimburse Mr. Cronin or his beneficiaries, as
the case may be, for (i) all Excise Taxes that may be imposed and (ii) any and
all income, excise and other taxes that may be imposed on Mr. Cronin or his
beneficiaries for the reimbursements described in clause (i) and this clause
(ii).
The Company and Mr. Duffield executed an employment agreement on September
8, 1998, which provides that Mr. Duffield will serve as the Company's President
through September 8, 2000, with automatic annual extensions, which will then
provide for a continuous two-year term after that date (subject to earlier
termination in certain circumstances). The agreement provides for an annual base
salary of at least $345,000. All other terms are comparable to those of Mr.
Cronin's employment agreement. In addition, the Company has entered into a
change of control severance agreement with Mr. Duffield, substantially similar
to that of Mr. Cronin. Mr. Duffield's change of control agreement will remain in
effect for two years and will be extended annually unless the Company gives
proper notice of its election not to extend, but will remain in effect for three
years following a Change of Control. Mr. Duffield's termination payment would be
based on two years base salary and in certain circumstances would provide him
with a severance payment equal to two times Mr. Duffield's then current base
salary and the then current target annual bonus.
Pursuant to an employment agreement between the Company and Mr. Dimitriou,
he is entitled to receive a supplemental retirement benefit of $230,560 per year
until his death, but in no event less than 10 years.
The Company has adopted an Executive Severance Pay Plan, in which Messrs.
Leatherman, Halloran, and D'Angelo are Level II Participants and certain other
executive employees are either Level I Participants or Level II Participants.
The Executive Severance Pay Plan provides for each participant to receive a
severance benefit of either one (in the case of Level I Participants) or two (in
the case of Level II Participants) times the participant's annual compensation
if the participant's employment with the Company and its subsidiaries
voluntarily (subject to certain conditions) or involuntarily terminates at any
time during the two-year period after the occurrence of a Material Change (as
defined in the Executive Severance Pay Plan) for any reason other than Cause (as
defined in the Executive Severance Pay Plan). A "Material Change" as defined in
the Executive Severance Pay Plan includes the acquisition of beneficial
ownership of 35% or more of the outstanding shares of Common Stock, the election
as directors representing one-half or more of the Company's Board of Directors
of persons who were not nominated or recommended by the incumbent Board of
Directors, or the occurrence of any other event or state of facts that the Board
of Directors determines to be a "Material Change" for the purposes of the
Executive Severance Pay Plan. Participants in the Company's Executive Severance
Pay Plan may also be entitled to receive a severance benefit under the Company's
Employee Severance Pay Plan, which provides a severance benefit to non-union
employees of the Company and its subsidiaries based upon length of service in
the event that a participant's employment is involuntarily terminated without
Cause within a period of two years after the occurrence of a Material Change (as
such terms are defined in the Employee Severance Pay Plan); however, any
severance benefit provided under the Company's Employee Severance Pay Plan is
reduced by any severance benefit under the Executive Severance Pay Plan, and, in
most cases, the severance benefit provided under the Executive Severance Pay
Plan would exceed the severance benefit provided under the Company's Employee
Severance Pay Plan.
Upon any Material Change, (i) the Board of Directors of the Company may
accelerate the vesting of all outstanding unvested options to purchase shares of
Common Stock, (ii) earned benefits would vest early under the Company's
Long-Term Performance Plan, Executive Incentive Plan and Annual Bonus Plan and
(iii) earnings would be preserved on benefits accrued under the Company's
Deferred Compensation/Capital Accumulation Plans. The Company's Profit Sharing
and Retirement Plan, which covers all full-time employees of the Company (other
than employees covered by collective bargaining agreements) who have completed
thirty-one days of service, has a provision that is intended to
12
<PAGE> 15
preserve and protect the plan assets for the benefit of participants in the
event of a change of control or other similar material change with respect to
the Company.
In 1996, the Company established the Wallace Computer Services, Inc.
Benefit Trust (the "Trust") to provide for the funding of certain plans and
arrangements in the event of the occurrence of a "Material Change" (as defined
in the Trust). Under the Trust, a "Material Change" includes the acquisition of
beneficial ownership of 35% or more of the outstanding shares of the Common
Stock, the election of directors representing one-half or more of the Company's
Board of Directors of persons who were not nominated or recommended by the
incumbent Board of Directors, or the occurrence of any other event or state of
facts that the Board of Directors determines to constitute a "Material Change"
for purposes of the Trust. The following plans and arrangements of the Company
are subject to the Trust: the Deferred Compensation/Capital Accumulation Plans,
the Supplemental Profit Sharing Plan, the Supplemental Retirement Plan, the
Executive Incentive Plan, the Long-Term Performance Plan, Mr. Cronin's and Mr.
Duffield's employment and change of control severance agreements, Mr.
Dimitriou's supplemental retirement benefit, individual pension arrangements for
certain executive officers and directors and benefits payable to retired
directors under the Retirement Plan for Outside Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Dimitriou serves on the Board of Directors of General Binding
Corporation. Mr. Lane, who is the Chairman of the Board of General Binding
Corporation, serves on the Compensation Committee of the Company. Mr. Dimitriou
does not serve on the Compensation Committee of General Binding Corporation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") consists of three non-employee
members of the Board of Directors. The Committee is responsible for reviewing
and recommending to the Board of Directors the compensation of officers and key
management personnel of the Company. The Committee, in consultation with the
Chief Executive Officer, defines the Company's compensation philosophy and
objectives and develops compensation plans to achieve those objectives. The
Company's compensation philosophy and objectives as they relate to executives
are: (a) to include in the Company's incentive plans those individuals who are
officers or are in other key management positions that have a direct effect on
profits, (b) to adequately compensate those individuals at levels that are
competitive with similar positions in other companies and (c) to provide methods
of compensation that both retain executives long-term and offer incentives in a
manner that enhances stockholder value.
COMPENSATION OF EXECUTIVE OFFICERS
Compensation of executive officers for fiscal year 1998 was structured to
consist of the following elements:
BASE SALARY--Base salary is intended to provide a sufficient level of
compensation to attract and retain qualified management. Base salary ranges are
determined and reviewed through comparative compensation surveys supplied by
professional compensation consultants. The surveys compare the evaluated
position to positions of equal responsibilities at companies of similar size and
complexity. Base salary increases are determined based on the incumbent's
performance in the position as measured by performance objectives established at
the beginning of the fiscal year. The Company's salaries generally fall at
median levels of the established range. Salary increases for executive officers
generally range from four to seven percent depending on the evaluation of the
executive's performance and the executive's salary relative to the established
salary range. The Committee believes that the Company's direct competitors for
executive talent are not limited to the companies that would be
13
<PAGE> 16
included in a peer group. Thus, the survey comparison group is not the same as
the peer group used in the performance graph under the heading "Performance
Graph" below.
INCENTIVE BONUSES--The Company's incentive bonus plans were developed to
provide incentive compensation in a form that aligns the employee's financial
reward to the financial results of the Company. The two incentive bonus plans
are the Annual Bonus Plan and the Performance Share Plan.
Annual Bonus Plan--The Annual Bonus Plan ("ABP") is a cash bonus plan
pursuant to which the payout is determined based upon a matrix that
measures the level of the expected financial performance and the percentage
of completion an executive achieves on predefined individual performance
objectives. Under the Annual Bonus Plan, executives were targeted to
receive a bonus of 25% to 60% of base salary (Mr. Cronin's fiscal year 1998
target was 60%). The ABP is designed so that a payment will be made only if
the expected financial performance level is reached. ABP awards will vary
from zero, if minimum threshold financial goals are not met, to a maximum
of 2.25 times the target award for specified above-goal performances.
Target awards will range from 20% of base salary for lower level management
positions to 60% of base salary for the Chief Executive Officer. ABP awards
will be paid in a lump sum by October 1 of the fiscal year following the
fiscal year for which performance is measured ("Performance Year"). For
each Performance Year, the Committee will establish one or more individual
performance goals for each participant, including the Chief Executive
Officer, the relative weight to be assigned to each such goal, a specific
target objective or objectives with respect to each such performance goal,
and objective formulae or methods for computing the Individual Performance
Multiplier for each participant on the basis of the extent to which the
individual performance goals are attained. Individual performance goals
will be based upon such objectively determinable business criteria as the
Committee deems appropriate, which may include (but not by way of
limitation) the following criteria as to the Company as a whole or the
particular business unit(s) to which the participant's major
responsibilities relate: (a) productivity and efficiency; (b) cost control;
(c) cash flow; (d) sales revenue; (e) earnings from operations; (f) market
share; (g) assimilation of acquired business; (h) employee development and
retention; (i) quality; and (j) customer satisfaction. Once established,
individual performance goals for a particular Performance Year cannot be
changed.
Performance Share Plan--At the commencement of each performance
period, a target award is established for each participant. The actual
number of Performance Shares to which a participant is entitled at the end
of a performance period, if any, is determined based on a matrix
established by the Committee based on levels of the Company's Invested
Capital and Return on Capital and certain other conditions prescribed by
the Performance Share Plan. Each performance period consists of three
fiscal years of the Company, with a new three-year performance period
beginning on the first day of each fiscal year of the Company during the
term of the Performance Share Plan. For example, fiscal year 1998 was the
first year of the three-year performance period consisting of fiscal years
1998, 1999 and 2000. Awards for each three-year performance period are paid
no later than October 1 following the end of the third fiscal year of such
performance period, unless a Participant makes an election to defer payment
in accordance with the terms of the Performance Share Plan. The established
objectives for Invested Capital and Return on Capital used to determine the
number of Performance Shares payable to a participant under the Performance
Share Plan are based on the Company's strategic plan, which is approved
annually by the Board of Directors. Depending on actual results for the
three fiscal years 1998, 1999 and 2000, participants could earn awards
ranging from zero percent to 200% of the targeted number of Performance
Shares. In no event will a participant's award for a performance period
exceed 50,000 Performance Shares. Since awards are payable in shares of
Common Stock, appreciation or depreciation of the market value of the
Common Stock during a three-year performance period would affect the final
award value. Participants will not be entitled to vote the Performance
Shares until they are awarded. To the extent provided in the agreement
relating to an award, a participant may receive, on a current or deferred
basis, dividend equivalents and interest thereon
14
<PAGE> 17
with respect to the number of shares subject to such award. At the end of
each performance period, the Performance Share Plan requires the Committee
to certify that the performance targets for the performance period have
been achieved and to calculate the number of Performance Shares earned by
each participant for such period.
DEFERRED COMPENSATION/CAPITAL ACCUMULATION PLAN--The Deferred
Compensation/Capital Accumulation Plan ("CAP") is intended to motivate executive
officers and employees in certain key management positions to remain in the
employment of the Company, thus providing the Company with a qualified and
stable executive team to achieve its long term goals. The CAP allows
participants to elect to defer up to 20% of their salary and cash bonus. A CAP
has been in effect for each calendar year since 1988, with the exception of
1992. The deferred amount bears interest at a rate determined by the Committee
and has ranged between 12% and 16% per annum. The Committee elected 12% for the
1998 Plan. If a participant remains in the continuous employment of the Company
for a period of seven years after the year of deferral, an interim distribution
equal to the amount deferred will be made from the participant's deferral
account. A second interim distribution equal to the first interim distribution
will be made to each participant who remains in the continuous employment of the
Company for a period of eight years after the year of deferral. Most
participants will also receive additional distributions beginning at age 65. A
participant whose employment terminates prior to retirement receives a lump sum
distribution equal to the amount deferred plus interest between 6% and 8%, less
the amount of any interim distributions. The Company has purchased for its
account life insurance on the participants, which is expected to be sufficient
to fund distributions under the Capital Accumulation Plans.
STOCK COMPENSATION--Stock compensation is intended to provide a longer term
reward to executives for sound Company performance and to align the interests of
the executives more closely with those of the stockholders by increasing
management stock ownership.
1997 Stock Incentive Plan: The Committee administers the 1997 Stock
Incentive Plan pursuant to which options to purchase shares of Common Stock
were granted to executive officers and other key members of management.
Options under the 1997 Stock Incentive Plan generally become exercisable as
to 40% of the shares one year after grant and the remaining 60% of the
shares become exercisable two years after grant; however, the Committee has
the authority to accelerate the exercisability of any option. Awards are
based on the recommendation of the Chief Executive Officer subject to
Committee approval. The award for the Chief Executive Officer, however,
will be at the sole discretion of the Committee. The Committee also
considers comparative information, including the number of stock option
grants made by similar companies. The Committee has adopted stock option
guidelines denominated in terms of a number of shares with a range around
competitive practice of plus or minus 25%. The targeted awards under this
program range from 6,000 options for selected vice presidents to 45,000
options for Mr. Cronin. Mr. Cronin's award could be adjusted by the
Committee within a range of 33,750 to 56,250 options. However, nothing
within the plan or guidelines would require annual awards and the Committee
may award no options to a plan participant should the Committee so
determine. As described under "ELECTION OF DIRECTORS--Compensation of
Directors," the 1997 Stock Incentive Plan also provides for directors to
receive stock options annually and to elect to receive stock options in
lieu of cash for director fees.
Employee Stock Purchase Plan: The Employee Stock Purchase Plan is
available to all employees of the Company who have completed at least
thirty-one days of service and are employees of the Company as of the
commencement of an offering period. Under the Employee Stock Purchase Plan,
employees electing to participate may purchase shares of Common Stock at an
exercise price equal to the lower of (a) 85% of the mean market value on
the first day of the offering period or (b) 85% of the mean market value on
the last day of the offering period. The offering period is a six month
period beginning on January 1 and July 1 of each year. Participating
employees may purchase stock equal to the lesser of (a) shares having a
market value of no more than 10% of the
15
<PAGE> 18
participant's compensation or (b) shares having a market value of $25,000
(market value is determined using the market price of the stock as of the
first day of the offering period).
STOCK OWNERSHIP GUIDELINES--The Committee and the Board of Directors have
established stock ownership guidelines for the executives of the Company. The
guidelines recommend that executive officers own a minimum of one to three times
their base salary in Common Stock or stock equivalents of the Company (Mr.
Cronin and Mr. Duffield are recommended to own a minimum of three times their
base salary). The guidelines suggest that ownership levels in Common Stock or
stock equivalents should be achieved by August 1, 2001.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Cronin's compensation is governed by the terms described below and as
set forth in his employment agreement with the Company (which is described above
under the heading "Employment Contracts and Termination, Severance and Change of
Control Arrangements").
In addition to the benefits provided under the Agreement, Mr. Cronin is
eligible for Incentive Bonuses, the Deferred Compensation/Capital Accumulation
Plan, Stock Compensation and the Executive Compensation Plan, each discussed
above in "Compensation of Executive Officers."
The fiscal year 1998 compensation for Mr. Cronin, the Chief Executive
Officer, was established following the same philosophy and objectives as
discussed in this report. As reported in the Summary Compensation Table, total
fiscal year 1998 annual compensation of Mr. Cronin was $513,942, consisting
entirely of base salary. Despite achieving record sales and the second best year
in terms of earnings per share in the Company's history, the Company's actual
ROC did not meet the targeted level established at the beginning of the year.
Accordingly, Mr. Cronin was not awarded a bonus for fiscal year 1998. The
Company's actual ROC was 82% of its targeted ROC. Mr. Cronin was awarded 8,198
Shares of Common Stock pursuant to the Performance Share Plan that is deferred,
and payable in October, 2000. Pursuant to the terms of the Performance Share
Plan, such award can be doubled or decreased to zero based on predetermined
Company performance criteria. Mr. Cronin also was granted 56,250 stock options
under the 1997 Stock Incentive Plan. Mr. Cronin's base salary as of July 31,
1998, of $525,000 was determined based upon the Company's established salary
range for the Chief Executive Officer. Effective October 1, 1998, Mr. Cronin's
base salary will be increased to $575,000, consistent with the Committee's
decision to target salaries at approximately the 50th percentile of comparable
CEO positions. The Committee believes Mr. Cronin's incentive bonuses are
reasonable as compared to the Company's performance. In summary, the Committee
views Mr. Cronin's total fiscal year 1998 compensation as an appropriate amount,
given the Company's financial performance in fiscal year 1998, his individual
achievements and the competitive standards for Chief Executive Officer talent.
Submitted by the Compensation Committee of the Board of Directors of the
Company.
William N. Lane III, Chairman
Albert W. Isenman III
John C. Pope
16
<PAGE> 19
PERFORMANCE GRAPH
The following performance graph compares the cumulative total stockholder
return on the Company's Common Stock for the five year period from July 31, 1993
to July 31, 1998, with the cumulative total return for the same period of the
Standard & Poor's ("S&P") 500 Index, the S&P MIDCAP 400 Index, a stock index
composed of a group of five publicly traded companies, consisting of The Moore
Corporation, The Standard Register Company, The Reynolds & Reynolds Company, New
England Business Services, and Ennis Business Forms (the "Old Peer Group
Index"), and a stock index composed of a group of eight publicly traded
companies, consisting of The Moore Corporation, The Standard Register Company,
The Reynolds & Reynolds Company, Banta, Mail-Well, Quebecor, Big Flower Holdings
and World Color Press (the "New Peer Group Index"). With the acquisition of
Graphic Industries, Inc. during fiscal year 1998, the Company has significantly
expanded its presence in the commercial printing market. Accordingly, the New
Peer Group Index includes five commercial printing companies: Mail-Well, Banta,
Quebecor, Big Flower Holdings and World Color Press. Since business forms
currently make up less than 30% of the Company's revenues, two traditional
business forms companies, Ennis Business Forms and New England Business Service
which are included in the Old Peer Group Index are not included in the New Peer
Group Index. Prospectively, the New Peer Group Index will replace the Old Peer
Group Index. Comparisons are based on the assumption that the value of an
investment on July 31, 1993, in the Company's Common Stock, the S&P 500 stock
index, the S&P MIDCAP 400 index and the Peer Group Index was $100 and that all
dividends were reinvested.
<TABLE>
<CAPTION>
Wallace
Measurement Period Computer Old New
(Fiscal Year Covered) Services, Inc. Peer Group Peer Group S&P 500 S&P MidCap
<S> <C> <C> <C> <C> <C>
7/30/93 100.00 100.00 100.00 100.00 100.00
7/29/94 133.34 117.50 108.49 105.13 101.48
7/31/95 252.69 151.67 147.31 132.54 123.87
7/31/96 259.08 187.50 173.48 154.48 131.27
7/31/97 298.71 217.50 261.99 234.99 187.92
7/31/98 177.54 182.95 265.66 280.29 206.50
</TABLE>
INDEMNIFICATION ARRANGEMENTS AND LIMITATION ON LIABILITY
Pursuant to the provisions of the Company's Restated Certificate of
Incorporation, as amended, and the provisions of indemnification agreements
between the Company and each of its directors and officers, the Company is
obligated (subject to certain conditions) to hold harmless and indemnify its
directors and officers, to the fullest extent permitted from time to time by
applicable law, from and against expenses (including attorney's fees),
judgments, fines, amounts paid in settlement, and other liabilities and claims
that its directors and officers may incur or become subject to as a result of or
in
17
<PAGE> 20
connection with serving or having served at any time as a director or officer of
the Company (including liabilities relating to service as a trustee or otherwise
in connection with employee benefit plans) and, in the case of officers, as an
employee or agent of the Company or as a director, officer, employee or agent or
in any other capacity at the request of the Company with any subsidiary or other
entity. The Company's indemnification obligations under its Restated Certificate
of Incorporation and under indemnification agreements with its directors and
officers do not extend to liabilities or claims based upon or attributable to
any breach of duty of loyalty to the Company or its stockholders, any acts or
omissions that are not in good faith or that involve intentional misconduct or
deliberate dishonesty, any improper personal profit or benefit, or any income
taxes in respect of compensation. Directors and officers also have
indemnification rights against the Company under Section 145 of the Delaware
General Corporation Law, and the Company maintains director and officer
liability insurance coverage for its directors and officers.
Pursuant to the above indemnification agreements, subject to certain
limitations, the Company must advance any and all defense costs (including
attorney's fees) of investigating, defending or otherwise contesting any claim
made against the director with respect to any alleged act or omission by him as
a director of the Company, provided that the director gives the Company a
written undertaking to repay all such advances if and to the extent it is
ultimately determined that the director is not entitled to indemnification with
respect to such claim.
Under the provisions of the Company's Restated Certificate of
Incorporation, no director of the Company shall have any personal liability to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that, unless and except to the extent
otherwise permitted from time to time by applicable law, the liability of a
director for monetary damages is not eliminated or limited for any breach of
duty of loyalty to the Company or its stockholders, for acts or omissions that
are not in good faith or that involve intentional misconduct, deliberate
dishonesty, or a knowing violation of law, for any dividends or redemption's or
repurchases of stock that are unlawful under the Delaware General Corporation
Law, or for any act or omission that occurred prior to November 12, 1986.
18
<PAGE> 21
VOTING SECURITIES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of September 21, 1998, the only persons known to the Board of Directors
(based on a review of public filings) to be the beneficial owner of more than
five percent (5%) of the outstanding shares of the Company's Common Stock are
the following:
<TABLE>
<CAPTION>
NAME AND ADDRESS SHARES BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------- ------------------- ----------
<S> <C> <C>
Nicholas & Company
700 North Water St
Milwaukee, WI 53202 3,405,000 7.84%
David L. Babson & Co.
One Memorial Drive
Cambridge, MA 02142 3,192,000 7.35%
Franklin Resources
1 Parker Plaza
Fort Lee, NJ 07024 3,068,000 7.06%
Fidelity Management and
Resources
82 Devonshire St
Boston, MA 02109-3614 2,292,000 5.28%
</TABLE>
- ------------------------------
(1) Holdings as of June 30, 1998, as reported to the Securities and Exchange
Commission pursuant to Rule 13(f).
SECURITY OWNERSHIP OF DIRECTORS, DIRECTOR NOMINEES AND OFFICERS
The following table lists the beneficial ownership of shares of the
Company's Common Stock as well as all other Company stock-based holdings as of
September 21, 1998 by each director, the Board's nominees, the executive
officers listed in the Summary Compensation Table, and all directors, director
nominees and executive officers as a group.
<TABLE>
<CAPTION>
NAME OF OWNER BENEFICIALLY OWNED(1) TOTAL(2)
- ------------- --------------------- ---------
<S> <C> <C>
Robert J. Cronin 211,377 396,983
Theodore Dimitriou 174,596 174,596
Richard F. Doyle 11,600 11,600
Albert W. Isenman III 6,202 6,202
William N. Lane III 178,987(3) 178,987
Andrew J. McKenna, Jr. 0 0
Bettye Martin Musham 6,650 6,650
John C. Pope 8,915 8,915
Robert P. Rittereiser 5,800 5,800
Neele E. Stearns, Jr. 10,000 10,000
Bruce D'Angelo 52,511 108,605
Michael O. Duffield 93,999 178,714
Michael J. Halloran 74,952 137,364
Michael T. Leatherman 55,700 138,332
--------- ---------
All Directors, Director Nominees and Executive
Officers as a group (22 persons) 1,011,163 1,657,461
--------- ---------
Percent of the Outstanding Shares of Company
Stock 2.35% 3.86%
--------- ---------
</TABLE>
- ------------------------------
(1) No individual director, director nominee nor executive officer beneficially
owns more than 1% of the outstanding shares of Common Stock. This column
includes shares that may be acquired through the exercise of options granted
under the Company's stock option plans which are presently exercisable or
will become exercisable within a period of 60 days.
19
<PAGE> 22
(2) The amounts shown include the shares of the Company's Common Stock
beneficially owned combined with other stock-based holdings including stock
appreciation rights, share units held in deferred compensation accounts and
the Company's Profit Sharing Plan and options that will not become
exercisable within a period of 60 days. As such, the amounts shown reflect
the economic stake which each of the named individuals and all directors,
director nominees and executive officers as a group have in the performance
of the Company's Common Stock. With the exception of the stock appreciation
rights and options, the officers and directors have the right to either vote
or direct the voting of the underlying shares.
(3) Includes 90,574 shares held in trusts for which Mr. Lane acts as a
co-trustee. Mr. Lane has shared powers to vote and dispose of the shares
held by such trusts.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended, the
Company's directors and executive officers are required to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission and the New York Stock Exchange. Whenever a director or
executive officer files a Form 3, 4 or 5, a copy of the Form is required to be
furnished to the Company.
Based solely upon a review of the Form 3, 4 and 5 filings received by the
Company since the beginning of fiscal year 1998, the Company has not identified
any failure on the part of any of its directors and executive officers to file
on a timely basis any Form 3, 4 or 5 during fiscal year 1998.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Stockholder proposals intended for inclusion in the proxy statement for the
1999 Annual Meeting must be received at the Company's corporate headquarters,
2275 Cabot Drive, Lisle, Illinois 60532, not later than July 9, 1999.
Stockholder proposals should be addressed to the attention of the Company's
Secretary.
In addition, the Company's By-laws require that there be furnished to the
Secretary of the Company written notice with respect to the nomination of a
person for election as a director (other than nominations submitted at the
direction of the Board) at an annual meeting of stockholders. In order for any
such nomination to be proper, the notice must contain certain information
concerning the nomination or proposing stockholder and the nominee, and must be
furnished to the Company not later than 90 days before the annual meeting.
Copies of the applicable By-law provisions may be obtained, without charge, upon
written request to the Secretary of the Company at its principal executive
offices.
By Order of the Board of Directors
BOB CRONIN
BOB CRONIN
Chairman of the Board of Directors
Lisle, Illinois
October 9, 1998
20
<PAGE> 23
IMPORTANT
If any of your shares of Common Stock are held in the name of a brokerage
firm, bank, bank nominee or other institution, only it can vote such shares.
Accordingly, please contact the person responsible for your account and instruct
that person to execute the Company's proxy card as soon as possible.
If you have any questions or require any additional information or
assistance, please contact our proxy solicitor:
MORROW & CO., INC.
CALL TOLL FREE: (800) 662-5200
21
<PAGE> 24
4650-PS-98
<PAGE> 25
[LOGO]
PROXY
WALLACE COMPUTER SERVICES, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON NOVEMBER 4, 1998.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby constitutes and appoints R. J. Cronin and W. N. Lane III,
and each of them, true and lawful agents and proxies of the undersigned, with
full power of substitution, to represent the undersigned and to vote all shares
of stock which the undersigned is entitled to vote at the Annual Meeting of
Stockholders of WALLACE COMPUTER SERVICES, INC. (the "Company") to be held on
November 4, 1998, and at any and all adjournments and postponements thereof, on
all matters before such meeting.
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. HOWEVER, IF NO VOTE
IS SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION AS DIRECTORS OF THE
NOMINEES LISTED ON THE REVERSE SIDE; AND "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
COMPANY FOR ITS FISCAL YEAR ENDING JULY 31, 1999; ALL OF WHICH MATTERS ARE MORE
FULLY DESCRIBED IN THE ANNUAL MEETING PROXY STATEMENT OF WHICH THE UNDERSIGNED
STOCKHOLDER ACKNOWLEDGES RECEIPT.
THIS PROXY GRANTS DISCRETIONARY AUTHORITY (1) TO VOTE FOR A SUBSTITUTE NOMINEE
OF THE BOARD OF DIRECTORS IF ANY NOMINEE FOR DIRECTOR LISTED ON THE REVERSE
SIDE IS UNABLE TO SERVE, OR FOR GOOD CAUSE WILL NOT SERVE AS A DIRECTOR (UNLESS
AUTHORITY TO VOTE FOR ALL NOMINEES OR FOR THE PARTICULAR NOMINEE WHO HAS CEASED
TO BE A CANDIDATE IS WITHHELD), AND (2) TO VOTE IN ACCORDANCE WITH THE BEST
JUDGMENT OF THE NAMED PROXIES ON OTHER MATTERS THAT MAY COME BEFORE THE
MEETING.
PLEASE VOTE, SIGN AND DATE THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN
THE ENCLOSED ENVELOPE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 26
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS OF WALLACE COMPUTER
SERVICES, INC.
THIS PROXY WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS INDICATED, THIS PROXY
WILL BE VOTED "FOR" EACH OF THE NOMINEES FOR DIRECTOR AND "FOR" PROPOSAL 2.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" BOTH OF THE NOMINEES FOR
DIRECTOR AND "FOR" PROPOSAL 2.
1. Election of Directors
Andrew J. McKenna, Jr., and
Bettye Martin Musham
FOR WITHHELD
/ / / /
/ /
-------------------------------------
For All nominees except as noted above
FOR AGAINST ABSTAIN
2. Ratification of Appointment of Arthur / / / / / /
Andersen LLP as Independent Public Accountants.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign this proxy exactly as your name appears hereon. Joint owners
should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name
appears, a majority should sign. If a corporation, the signature should
be that of an authorized officer who should state his or her title.
Signature Date
---------------------------- -----------------
Signature Date
---------------------------- -----------------
