<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
School Specialty, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth the amount on which the filing fee is
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the offsetting fee was paid previously. Identify the previous
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<PAGE> 2
SCHOOL SPECIALTY, INC.
1000 NORTH BLUEMOUND DRIVE
APPLETON, WISCONSIN 54914
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 2, 1999
TO THE STOCKHOLDERS OF SCHOOL SPECIALTY, INC.:
The 1999 Annual Meeting of Stockholders of School Specialty, Inc. will
be held at the Park Plaza Paper Valley Hotel, 333 West College Avenue, Appleton,
Wisconsin, on Thursday, September 2, 1999 at 10:00 a.m. Central Time for the
following purposes:
(1) To elect two directors to serve until the 2002 Annual Meeting
of Stockholders as Class I directors;
(2) To ratify the appointment of PricewaterhouseCoopers LLP as
School Specialty's independent auditors for fiscal 2000; and
(3) To transact such other business as may properly come before
the Annual Meeting, all in accordance with the accompanying
Proxy Statement.
Stockholders of record at the close of business on July 19, 1999 are
entitled to notice of and to vote at the Annual Meeting.
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK MUST BE
PRESENT IN PERSON OR BY PROXY IN ORDER FOR THE MEETING TO BE HELD. THEREFORE,
STOCKHOLDERS ARE URGED TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE
ENCLOSED ENVELOPE WHETHER OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN
PERSON. IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR STOCK PERSONALLY, YOU
MAY DO SO BY REVOKING YOUR PROXY AT ANY TIME PRIOR TO THE VOTING THEREOF.
Joseph F. Franzoi IV, Secretary
July 29, 1999
<PAGE> 3
SCHOOL SPECIALTY, INC.
1000 NORTH BLUEMOUND DRIVE
APPLETON, WISCONSIN 54914
JULY 29, 1999
PROXY STATEMENT
Unless the context requires otherwise, all references to "School
Specialty," "we" or "our" refers to School Specialty, Inc. and its subsidiaries.
Our fiscal year ends on the last Saturday in April in each year. In this proxy
statement, we refer to fiscal years by reference to the calendar year in which
they end (e.g., the fiscal year ended April 24, 1999 is referred to as "fiscal
1999").
The enclosed proxy is solicited by the Board of Directors of School
Specialty for use at the Annual Meeting of Stockholders to be held at 10:00 a.m.
Central Time on Thursday, September 2, 1999 (the "Annual Meeting"). At the
Annual Meeting, our stockholders will elect two Class I directors, each of whom
will hold office until September 2002 and until his successor is duly elected
and qualified. Our stockholders will also vote on whether to ratify
PricewaterhouseCoopers LLP as our independent auditors for fiscal 2000.
The expense of printing and mailing proxy materials, including expenses
involved in forwarding materials to beneficial owners of common stock held in
the name of another person, will be borne by us. No solicitation other than by
mail is contemplated, except that officers or employees of School Specialty may
solicit the return of proxies from certain stockholders by telephone. The Proxy
Statement and the accompanying proxy together with our Annual Report to
Stockholders (which includes our Annual Report on Form 10-K) are being sent to
our stockholders commencing on or about July 29, 1999.
Only stockholders of record at the close of business on July 19, 1999
(the "Record Date") are entitled to notice of and to vote the shares of common
stock, $0.001 par value (the "Common Stock"), of School Specialty registered in
their name at the Annual Meeting. As of the Record Date, School Specialty had
outstanding 17,433,426 shares of Common Stock. The presence, in person or by
proxy, of the holders of a majority of the shares of the Common Stock
outstanding on the Record Date is required for a quorum with respect to the
matters on which action is to be taken at the Annual Meeting.
Any stockholder executing and delivering the enclosed proxy may revoke
the same at any time prior to the voting thereof by written notice of revocation
given to the Secretary of School Specialty.
Abstentions and broker non-votes (i.e., proxies from brokers or
nominees indicating that such persons have not received instructions from the
beneficial owners or other persons entitled to vote shares as to a matter with
respect to which brokers or nominees do not have discretionary power to vote)
will be treated as present for purposes of determining the quorum. Abstentions
and broker non-votes will not be counted as voting on any matter at the Annual
Meeting. Each share of Common Stock entitles its holder to cast one vote on each
matter to be voted upon at the Annual Meeting.
UNLESS OTHERWISE DIRECTED, ALL PROXIES WILL BE VOTED FOR THE ELECTION
OF EACH OF THE INDIVIDUALS NOMINATED TO SERVE AS CLASS I DIRECTORS AND FOR
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT
AUDITORS FOR FISCAL 2000.
DIRECTORS ARE ELECTED BY A PLURALITY OF THE VOTES CAST BY HOLDERS OF
OUR COMMON STOCK ENTITLED TO VOTE AT A MEETING AT WHICH A QUORUM IS PRESENT. IN
OTHER WORDS, THE TWO DIRECTORS WHO RECEIVE THE LARGEST NUMBER OF VOTES WILL BE
ELECTED AS DIRECTORS. ANY SHARES NOT VOTED, WHETHER BY WITHHELD AUTHORITY,
BROKER NON-VOTE OR OTHERWISE, WILL HAVE NO EFFECT IN THE ELECTION OF DIRECTORS
EXCEPT TO THE EXTENT THAT THE FAILURE TO VOTE FOR AN INDIVIDUAL RESULTS IN
ANOTHER INDIVIDUAL RECEIVING A LARGER NUMBER OF VOTES. ANY VOTES ATTEMPTED TO BE
CAST "AGAINST" A CANDIDATE ARE NOT GIVEN LEGAL EFFECT AND ARE NOT COUNTED AS
VOTES CAST IN AN ELECTION OF DIRECTORS. THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE VOTES CAST SHALL CONSTITUTE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS
THE INDEPENDENT AUDITORS FOR FISCAL 2000. ANY SHARES NOT VOTED, WHETHER BY
WITHHELD AUTHORITY, BROKER NON-VOTE OR OTHERWISE, WILL HAVE NO EFFECT ON THE
APPROVAL OF THE PROPOSAL.
<PAGE> 4
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table lists as of the Record Date (unless otherwise
indicated) information regarding the beneficial ownership of shares of Common
Stock by (i) each director and each of our most highly compensated executive
officers (the "Named Officers"), (ii) each person believed by us to be a
beneficial owner of more than 5% of the Common Stock and (iii) all directors and
executive officers as a group. Except as otherwise indicated, the business
address of each of the following is 1000 North Bluemound Drive, Appleton,
Wisconsin 54914.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES (3)*
- ------------------- -------------------- -----------------------
<S> <C> <C>
Daniel P. Spalding (1)........................... 411,996 2.3%
Ronald E. Suchodolski (1)........................ 46,035 *
Douglas Moskonas (1)............................. 54,335 *
Donald J. Noskowiak (1).......................... 59,705 *
Richard H. Nagel (1)............................. 46,061 *
David J. Vander Zanden (1)....................... 278,519 1.6
Jonathan J. Ledecky (1).......................... 914,079 5.0
Leo C. McKenna (1)............................... 9,239 *
Rochelle Lamm Wallach (1)........................ 4,950 *
Jerome M. Pool................................... -- --
All executive officers and directors as a group
(17 persons) (1).............................. 2,262,996 11.8
Dresdner RCM Global Investors LLC (2)
Dresdner RCM Global Investors US Holdings
LLC
Dresdner Bank AG
Four Embarcadero Center
San Francisco, California 94111.............. 1,084,900 6.2%
</TABLE>
- -----------------
* Less than 1% of the outstanding Common Stock.
(1) Share amounts include options currently exercisable, or exercisable within
60 days after the Record Date, in the amount of 264,778 for Mr. Spalding,
46,021 for Mr. Suchodolski, 53,035 for Mr. Moskonas, 56,461 for Mr.
Noskowiak, 46,021 for Mr. Nagel, 228,519 for Mr. Vander Zanden, 914,079 for
Mr. Ledecky, 3,000 for Mr. McKenna, 3,000 for Ms. Lamm Wallach and
1,755,926 for all executive officers and directors as a group.
(2) Dresdner RCM Global Investors LLC ("Dresdner RCM"), Dredsner RCM Global
Investors US Holdings LLC ("Dresdner RCM Global") and Dresdner Bank AG
("Dresdner Bank") have jointly filed a Schedule 13G with the Securities and
Exchange Commission (the "SEC") reporting that they had, as of December 31,
1998, sole voting power over 928,000 shares of Common Stock (including
904,900 shares beneficially owned by Dresdner RCM and Dresdner RCM Global)
and sole dispositive power over 1,084,900 (including 1,060,900 shares
beneficially owned by Dresdner RCM and Dresdner RCM Global). Dresdner
Bank's principal business office is located at Jurgen-Ponto-Platz 1, 60301
Frankfurt, Germany. The principal business address of both Dresdner RCM and
Dresdner RCM Global is as indicated in the table.
(3) Based on 17,433,426 shares of Common Stock outstanding as of the Record
Date.
2
<PAGE> 5
1. ELECTION OF DIRECTORS
School Specialty's directors are divided into three classes, designated
as Class I, Class II and Class III, with staggered terms of three years each.
The term of office of directors in Class I expires at the Annual Meeting. The
Board of Directors proposes that the nominees described below, who are currently
serving as Class I directors, be elected as Class I directors for a new term of
three years ending at the 2002 Annual Meeting and until their successors are
duly elected and qualified.
The nominees have indicated a willingness to serve as directors, but if
either of them should decline or be unable to act as a director, the persons
named in the proxy will vote for the election of another person or persons as
the Board of Directors recommends.
NOMINEES FOR DIRECTOR -- CLASS I
NAME AND AGE OF DIRECTOR OFFICE
------------------------ ------
Jonathan J. Ledecky Mr. Ledecky has served as a director and an
Age 41 employee of School Specialty since June
1998. He founded Building One Services
Corporation (formerly Consolidation Capital
Corporation) in February 1997 and serves as its
Chairman and Chief Executive Officer. Mr.
Ledecky founded U.S. Office Products in October
1994, served as its Chairman of the Board until
June 1998 and served as its Chief Executive
Officer until November 1997. Mr. Ledecky also
serves as a director of Aztec Technology
Partners, Inc., Navigant International, Workflow
Management, USA Floral Products, UniCapital
Corporation and MicroStrategy Corporation. Mr.
Ledecky served from 1989 to 1991 as the
President of The Legacy Fund, Inc., and from
1991 to September 1994 as President and Chief
Executive Officer of Legacy Dealer Capital Fund,
Inc., a wholly-owned subsidiary of Steelcase
Inc. Prior to his tenure at The Legacy Fund,
Inc., Mr. Ledecky was a partner at Adler and
Company and a Senior Vice President at Allied
Capital Corporation, an investment management
company.
Jerome M. Pool Mr. Pool was appointed to the Board of Directors
Age 63 of School Specialty in June 1999. Mr. Pool is a
self-employed business advisor/consultant to
several private companies in Poland, Hungary and
Bulgaria. He retired from Jantzen, Inc., a
manufacturer of apparel, in 1992 having served
as Chairman, President and Chief Executive
Officer since 1983. Prior to 1983, Mr. Pool
served in various sales and management positions
with Jantzen. Mr. Pool is presently serving as a
director of Frederick Brewing Company, Pacific
University and the Portland State University
Business School. He has also served as a
director of Pacific Metal Company, the Oregon
Independent College Foundation, the Salvation
Army, Waverly Children's Home and the University
of Oregon Alumni Board.
3
<PAGE> 6
CONTINUING DIRECTORS -- CLASS II
(TERM EXPIRING 2000)
NAME AND AGE OF DIRECTOR OFFICE
------------------------ ------
David J. Vander Zanden Mr. Vander Zanden became the President and
Age 44 Chief Operating Officer of School
Specialty in March 1998. From 1992 to March
1998, he served as President of Ariens Company,
a manufacturer of outdoor lawn and garden
equipment. Mr. Vander Zanden has served as a
director of School Specialty since completion
of the spin-off from U.S. Office Products in
June 1998.
Rochelle Lamm Wallach Ms. Wallach has served as a director of School
Age 51 Specialty since the completion of the
spin-off from U.S. Office Products in June
1998. Ms. Wallach is Chairman and Chief
Executive Officer of Precision Marketing
Partners, LLC and The Academy of Financial
Services Studies, LLC. Ms. Wallach was
associated with Strong Advisory Services, a
division of Strong Capital Management, Inc., as
its President from 1995 to March 1998. Prior to
that time, she was President and the Chief
Operating Officer of AAL Capital Management, a
mutual fund manager.
CONTINUING DIRECTORS -- CLASS III
(TERM EXPIRING 2001)
Daniel P. Spalding Mr. Spalding became Chairman of the Board and
Age 44 Chief Executive Officer of School
Specialty in February 1998. From 1996 to
February 1998, Mr. Spalding served as
President of the Educational Supplies and
Products Division of U.S. Office
Products. From 1988 to 1996, he served as
President, Chief Executive Officer and a
director of School Specialty, Inc., a Wisconsin
corporation ("Old School"), acquired
by U.S. Office Products in July 1996. Prior
to 1988, Mr. Spalding was an officer of
JanSport, a manufacturer of sports apparel
and backpacking equipment. Mr. Spalding was a
co-founder of JanSport and served as President
and Chief Executive Officer from 1977 to 1984.
Mr. Spalding has been a director of the
National School Supply and Equipment
Association since 1992 and completed his term
as the association's Chairman in November 1997.
Leo C. McKenna Mr. McKenna has served as a director of School
Age 65 Specialty since completion of the
spin-off from U.S. Office Products in June 1998.
Mr. McKenna is a self-employed financial
consultant working with personal asset
management, corporate planning, acquisitions,
merger studies and negotiations. Mr. McKenna is
currently on the Executive Committee of the
Boston and New York Life Insurance Company, a
subsidiary of Boston Mutual Life Insurance
Company. He is the founder and a director of
Ledyard National Bank, where he also serves on
the Investment Advisory Board and the Trust
Committee. He is a director and member of the
John Brown Cook Foundation and an overseer and
Chairman of the Finance Committee for the
Catholic Student Center at Dartmouth College.
The Board of Directors has standing Compensation and Audit Committees.
The Board of Directors does not have a Nominating Committee. The Board of
Directors held six meetings in fiscal
4
<PAGE> 7
1999. Each director, except Mr. Pool, who was elected as a director on June 1,
1999, attended at least 75% of the meetings of the Board of Directors held
during the period for which he or she served on the Board, and each director,
except Mr. Pool, attended at least 75% of the meetings of the Board Committees,
if any, on which the director served in fiscal 1999.
The Compensation Committee is responsible for reviewing and, if
appropriate, approving, the recommendations of our Chief Executive Officer and
our President concerning the compensation of our executive officers and for
administering our 1998 Stock Incentive Plan. The members of the Compensation
Committee are Mr. Pool (Chairman), Mr. McKenna and Ms. Wallach, none of whom is
an employee of School Specialty. Mr. Pool became a member and Chairman of the
Compensation Committee upon his appointment as a director on June 1, 1999. The
Compensation Committee did not formally meet in fiscal 1999 but acted by
unanimous consent on one occasion.
The Audit Committee is responsible for reviewing our annual audit and
meeting with our independent accountants to review our internal controls and
financial management practices. The members of the Audit Committee are Mr.
McKenna (Chairman), Ms. Wallach and Mr. Pool. Mr. Pool became a member of the
Audit Committee upon his appointment as a director on June 1, 1999. The Audit
Committee held one meeting in fiscal 1999.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our main office and warehouse facility, a 120,000 square foot building
located in Appleton, Wisconsin, is leased from Bluemound Corporation. John S.
Spalding, a former member of the Board of Directors of Old School and the father
of Daniel P. Spalding, holds a one-third stake in Bluemound. Donald Killoren,
father of Michael J. Killoren and uncle of Daniel P. Spalding, executive
officers of School Specialty, also holds a one-third stake in Bluemound. The
lease provides for annual payments of $196,000 through December 31, 2001. We
believe that this transaction was as favorable as could be negotiated with third
parties. We are currently negotiating a transaction to acquire this facility
from Bluemound. It is expected that this transaction would be effected at a
price not greater than fair market value as determined by an independent
appraisal, net of any indebtedness assumed. We believe the total value of any
such transaction (which includes assumed indebtedness) would be approximately
$2.5 million.
On June 30, 1998, we acquired Hammond & Stephens, Co. ("Hammond &
Stephens"). We paid $16.5 million in cash for Hammond & Stephens. As the sole
shareholders of Hammond & Stephens, Roger P. Pannier and his wife were the
primary beneficiaries of this transaction. Mr. Pannier has subsequently been
named the Executive Vice President of School Specialty for Hammond & Stephens
and an executive officer of School Specialty.
On August 17, 1998, we acquired the National School Supply Company,
including its subsidiary Beckley-Cardy, Inc. ("Beckley-Cardy"). We paid $78.1
million in cash for Beckley-Cardy and refinanced $56.6 million of its debt with
borrowings under our senior credit facility. Garett H. D. Reid received $123,000
in cash in connection with this transaction as payment for options held to
purchase Beckley-Cardy stock. Mr. Reid has subsequently been named the Executive
Vice President of School Specialty for Frey Scientific and an executive officer
of School Specialty.
On March 29, 1999, we acquired SmartStuff Development Corporation
("SmartStuff"). We paid $8.2 million for SmartStuff, of which $3.7 million was
paid in cash and $4.5 million in shares of Common Stock (an aggregate of 204,778
shares were issued). As a selling shareholder of SmartStuff, Brian E. Chapin
received 116,723 shares of Common Stock and $2.07 million in cash as
consideration for the acquisition. Mr. Chapin has subsequently been named the
Executive Vice President for SmartStuff and an executive officer of School
Specialty.
5
<PAGE> 8
EXECUTIVE COMPENSATION
Summary Compensation Information. The following table sets forth the
compensation paid by us for services rendered during fiscal 1999, fiscal 1998
and fiscal 1997 to the Named Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION(3) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- --------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Daniel P. Spalding (1)........................ 1999 $225,000 $ -- 332,520 $ 1,072(4)
Chairman of the Board and CEO 1998 212,104 34,200 -- --
1997 178,846 -- -- --
Ronald E. Suchodolski (2)..................... 1999 $146,017 $144,853 59,570 $ --
Executive Vice President, Childcraft 1998 157,646 62,633 -- --
1997 141,535 30,000 -- --
Douglas Moskonas.............................. 1999 $150,000 $ 89,625 69,970 $ 433(4)
Executive Vice President, School Specialty 1998 139,525 -- -- --
Division 1997 97,266 44,500 -- --
Donald J. Noskowiak........................... 1999 $140,000 $ 97,790 71,703 $ 1,345(4)
Chief Financial Officer 1998 110,000 25,080 -- --
1997 97,500 -- -- --
Richard H. Nagel (2).......................... 1999 $127,166 $101,232 59,570 $ 1,108(4)
Executive Vice President, 1998 130,660 29,500 -- --
Sax Arts and Crafts 1997 118,000 29,500 -- 32,000(5)
</TABLE>
- -----------
(1) On June 1, 1999, Mr. Spalding was granted options to purchase 30,000
shares of Common Stock at an exercise price of $15.00 per share, which
represented the market price of our Common Stock on the date of grant. The
options vest in increments of one-fourth of the total grant annually,
beginning one year from the date of grant. This option grant, which
occurred in fiscal 2000, is not reflected in the table. Because the option
grant reflected, in part, his performance in fiscal 1999, Mr. Spalding did
not receive a cash bonus for fiscal 1999.
(2) Mr. Suchodolski and Mr. Nagel joined School Specialty in May 1997 and July
1997, respectively. The compensation information included in this table
includes the compensation received when employed by predecessor companies.
(3) On June 1, 1999, David J. Vander Zanden, our President and Chief Operating
Officer, was granted options to purchase 30,000 shares of Common Stock at
an exercise price of $15.00 per share, which represented the market price
of our Common Stock on the date of grant. The options vest in increments
of one-fourth of the total grant annually, beginning one year from the
date of grant. Because the option grant reflected, in part, his
performance in fiscal 1999, Mr. Vander Zanden did not receive a cash bonus
for fiscal 1999. If he had, it is likely that he would have been included
among our Named Officers.
(4) Reflects 401(k) plan matching amount paid by School Specialty.
(5) Reflects Mr. Nagel's automobile allowance and stay-bonus compensation
received from his prior employer.
6
<PAGE> 9
Option Grants. The following table provides information on options to
acquire School Specialty Common Stock granted to the Named Officers during
fiscal 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(3)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION -------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ------------ ------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Spalding....... 104,001(1) 4.5% $16.80 4/28/07 $1,098,515 $2,783,841
228,519(2) 9.8 15.50 6/10/08 2,227,580 5,645,105
Ronald E. Suchodolski.... 13,867(1) 0.6 19.93 12/12/07 173,797 440,437
45,703(2) 2.0 15.50 6/10/08 445,508 1,129,001
Douglas Moskonas......... 6,774(1) 0.3 29.43 5/13/06 125,370 317,713
17,493(1) 0.8 19.93 12/12/07 219,236 555,589
45,703(2) 2.0 15.50 6/10/08 445,508 1,129,001
Donald J. Noskowiak...... 5,677(1) 0.2 29.43 5/13/06 105,064 266,254
20,323(1) 0.9 16.80 4/28/07 214,663 543,995
45,703(2) 2.0 15.50 6/10/08 445,508 1,129,001
Richard H. Nagel......... 13,867(1) 0.6 19.93 12/12/07 173,792 440,426
45,703(2) 2.0 15.50 6/10/08 445,508 1,129,001
</TABLE>
- -----------
(1) The options granted are non-qualified stock options which replace
options that were previously granted by U.S. Office Products. Prior to
June 9, 1998, School Specialty was a subsidiary of U.S. Office
Products. On June 9, 1998, U.S. Office Products distributed all of its
shares of School Specialty to its shareholders. The options were
granted by School Specialty on June 10, 1998, have various exercise
schedules based on the original date of grant by U.S. Office Products
and expire ten years from the original date of grant. The options are
exercisable at the market price on the original date of grant by U.S.
Office Products, as adjusted by a fraction, the numerator of which is
the initial public offering price of School Specialty Common Stock on
June 10, 1998 and the denominator of which is the trading price of U.S.
Office Products' common stock prior to the spin-off.
(2) The options granted are both qualified and non-qualified stock options
which were granted on June 10, 1998, are exercisable in full on June
10, 1999 at $15.50 per share, expire on June 10, 2008 and become fully
exercisable upon a change in control, as defined in the 1998 Stock
Incentive Plan.
(3) The dollar amounts under these columns are the results of calculations
at assumed annual rates of stock appreciation of 5% and 10%. These
assumed rates of growth were selected by the SEC for illustration
purposes only. They are not intended to forecast possible future
appreciation, if any, of stock prices. No gain to the optionees is
possible without an increase in stock prices, which will benefit all
stockholders.
7
<PAGE> 10
Option Exercises. The following table sets forth certain information
regarding options held at the end of fiscal 1999 by Named Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
SHARES OPTIONS/SARS AT FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <S> <S> <S>
Daniel P. Spalding.......... -- -- 2,389 330,131 $6,461 $1,188,897
Ronald E. Suchodolski....... -- -- 318 59,252 -- 182,812
Douglas Moskonas............ -- -- 3,945 66,025 -- 182,812
Donald J. Noskowiak......... -- -- 2,291 69,412 -- 237,778
Richard H. Nagel............ -- -- 318 59,252 -- 182,812
</TABLE>
- ------------
(1) For valuation purposes, an April 23, 1999 market price of $19.50 was used.
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Non-management directors (other than Mr. Ledecky) are granted options
to purchase 15,000 shares of Common Stock upon their initial election as members
of the Board of Directors and 5,000 shares of Common Stock for each additional
year of service. These options are granted at an exercise price equal to the
fair market value on the date of grant and have three year vesting schedules.
Non-management directors (other than Mr. Ledecky) are also paid an annual
retainer of $20,000 plus $1,000 for each additional special meeting and
committee meeting attended and are reimbursed for all out-of-pocket expenses
related to their service as directors.
As of June 10, 1998, Mr. Ledecky received options to purchase 914,079
shares of Common Stock under our 1998 Stock Incentive Plan (the "Plan"). The
options were intended to compensate Mr. Ledecky for his services to us as an
employee. The options have a per share exercise price equal to $15.50. Based on
an exercise price of $15.50 per share and an assumed trading volatility index of
the Common Stock of 35%, the estimated value of the options at the date of grant
was approximately $2.6 million, net of taxes at an assumed 40% rate. Mr.
Ledecky's options became fully exercisable on June 10, 1999. All unexercised
options will expire ten years after the date of grant or, if applicable, as of
the date Mr. Ledecky violates the non-competition agreement he entered into with
us (see below).
We entered into an employment agreement with Mr. Ledecky effective as
of June 10, 1998 that implemented certain portions of an agreement that Mr.
Ledecky had previously entered into with U.S. Office Products (the "Ledecky
Services Agreement"). Under the employment agreement, Mr. Ledecky reports to the
Board of Directors and senior management of School Specialty. In such capacity,
Mr. Ledecky provides high-level acquisition negotiation services and strategic
business advice. We can require Mr. Ledecky's performance of such services,
consistent with his other contractual obligations to Building One Services
Corporation, U.S. Office Products and the three companies (besides School
Specialty) whose shares were distributed to the shareholders of U.S. Office
Products on June 9, 1998 (the "spin-off companies"). As an employee, Mr. Ledecky
is subject to our generally applicable personnel policies and is eligible for
such benefit plans in accordance with their terms. Under the Ledecky Services
Agreement, we are required to pay Mr. Ledecky an annual salary of $48,000
through June 30, 2000. We may terminate Mr. Ledecky's employment for "cause,"
where cause consists of (1) his conviction of, or guilty or nolo contendere plea
to, a felony demonstrably and materially injurious to us or (2) his violation of
the non-competition provision (see below) as it relates to us.
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<PAGE> 11
The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions that continue until the later of June 10, 2000 or
one year after Mr. Ledecky leaves our employ. These provisions generally
restrict Mr. Ledecky from, among other things, investing in or working for or on
behalf of any business selling any products or services in direct competition
with U.S. Office Products, School Specialty or the three other spin-off
companies within 100 miles of any location where U.S. Office Products or a
spin-off company, as applicable, regularly maintains an office with employees.
(For this purpose, "products or services" are those that U.S. Office Products or
a spin-off company offered on or before January 13, 1998.) Notwithstanding this
prohibition, Mr. Ledecky may serve in a policy making role (but not engage in
direct personal competition) with respect to the following businesses: (1) any
electrical contracting business that derives more than 50% of its revenues from
electrical contracting and maintenance services, without regard to whether the
business competes with certain activities of Aztec Technology Partners, Inc.
(one of the spin-off companies) or any of its subsidiaries (collectively,
"Aztec"); (2) any business whose revenue from certain activities that compete
with Aztec is less than $15 million per year; (3) any business engaged in
computer monitoring for facilities management; (4) businesses selling, supplying
or distributing janitorial or sanitary products or services; (a) businesses
managing or servicing office equipment (other than computers); (6) businesses
providing Internet services; (7) UniCapital Corporation's current businesses
(which include equipment leasing); or (8) U.S. Marketing Services,
shelf-stocking and merchandising and point-of-purchase display creation
business. The Ledecky Services Agreement prohibits Mr. Ledecky from trying to
hire away our managerial employees or from calling upon our customers to solicit
or sell products or services in direct competition with us. Mr. Ledecky also may
not hire away for Building One Services Corporation any person then or in the
preceding one year employed by us.
EMPLOYMENT CONTRACTS AND RELATED MATTERS
We have entered into employment agreements with Daniel P. Spalding and
Richard H. Nagel, each of whom is a Named Officer, as well as certain of our
other executive officers including David J. Vander Zanden.
Daniel P. Spalding, Chief Executive Officer of School Specialty,
entered into an employment contract with Old School on April 29, 1996 (School
Specialty is the successor to this agreement). The contract has an initial term
of four years but, unless terminated, is automatically extended at the end of
each of the last three years of the initial term for another year. Mr. Spalding
receives a base salary of at least $180,000 and participates in an incentive
bonus plan which provides for an annual bonus up to 100% of base salary upon the
attainment of profit and revenue objectives. Following the termination of his
employment for any reason, Mr. Spalding has agreed not to compete with us for a
period equal to the longer of two years or, in the case of early termination,
the years remaining on his contract. If Mr. Spalding is terminated without
cause, as defined in the contract, he is entitled to his entire base salary for
the years remaining on the contract. In addition, Mr. Spalding may terminate his
contract for good cause (e.g., a material, adverse change in his position or
responsibilities or any material breach on our part) or within five days of a
change in control of School Specialty, as defined in the agreement.
Richard H. Nagel, President of Sax Arts and Crafts, entered into a
four-year employment contract with Sax Arts and Crafts on June 27, 1997. Mr.
Nagel receives an annual base salary of at least $125,000, and he participates
in an incentive bonus plan based upon the attainment of profit and revenue
objectives. Mr. Nagel also entered into a covenant not to compete agreement with
Sax Arts and Crafts on June 27, 1997 for which he will receive consideration of
$31,250 within ten days of the date of the termination of his employment with
Sax Arts and Crafts (other than termination because of death). Pursuant to this
agreement, following the termination of his employment for any reason, Mr. Nagel
has agreed not to compete with Sax Arts and Crafts for one year. If Mr. Nagel is
terminated without cause, he is entitled to receive his base salary for one year
or until the end of the contractual term, whichever period is lesser.
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<PAGE> 12
David J. Vander Zanden became President and Chief Operating Officer of
School Specialty in March 1998. We entered into an employment contract with Mr.
Vander Zanden on July 15, 1998. The contract has an initial term of two years,
with automatic two-year extensions unless either party gives 90 days written
notice of such party's intent not to renew. The employment contract provides for
a base salary of $225,000 and participation in an incentive bonus plan based
upon the attainment of profit and revenue objectives. The employment contract
also contains a covenant not to compete upon termination of the agreement, and
provides Mr. Vander Zanden the right to terminate the agreement upon a change of
control in School Specialty, as defined in the agreement.
COMPENSATION COMMITTEE REPORT
The Compensation Committee was established after completion of our
initial public offering in June 1998. The Compensation Committee consists of Mr.
McKenna (Initial Chairman) and Rochelle Lamm Wallach, neither of whom is an
employee of School Specialty. During the June 1999 Board of Directors meeting,
Jerome Pool was added as the third member of the Compensation Committee and was
elected its new Chairman effective June 1, 1999. The Compensation Committee is
responsible for reviewing and, if appropriate, approving the recommendations of
our Chief Executive Officer and our President concerning the compensation levels
of our other executive officers. The compensation structure for our Chief
Executive Officer and our President are governed by employment agreements. Our
Chief Executive Officer's employment agreement pre-dates our spin-off from U.S.
Office Products in June 1998. On a going-forward basis, the Compensation
Committee will review and approve any modifications to these agreements. The
Compensation Committee also administers our 1998 Stock Incentive Plan, with
responsibility for determining the awards to be made under such plan. The
Compensation Committee reviews compensation programs for executive officers in
June of each year.
Overview. The compensation structure for our executive officers
consists in general of three principal components: base salary, annual cash
bonus and periodic grants of stock options. Base salary determinations are an
important ingredient in attracting and retaining quality personnel in a
competitive market. Base salaries are set at levels based generally on
subjective factors, including the individual's level of responsibility,
experience and past performance record. In addition, a significant portion of
compensation is directly related to and contingent upon our profitability based
on objective performance criteria. Accordingly, our executives participate in
cash bonus arrangements based on formulas and other criteria tied to the
individual's profit center and/or School Specialty as a whole. Finally, to
ensure that executive officers hold equity positions in School Specialty, which
we think is important, stock options are granted to executives to enable them to
hold equity interests at more meaningful levels than they could through
alternative methods.
Base Salary. With the exception of the base salary of David J. Vander
Zanden and adjustments made to the base salary of Daniel P. Spalding, the base
salaries of all of our executives for fiscal 1999 were established and carried
forward in connection with our spin-off from U.S. Office Products in June 1998.
Accordingly, the Compensation Committee did not have any input on these
salaries. Mr. Vander Zanden's base salary was set by his employment agreement
entered into in July 1998. Accordingly, the Compensation Committee did have the
opportunity to review and approve this agreement. Mr. Spalding's base salary was
set by his employment agreement entered into prior to the spin-off, but was
adjusted upward by the Board, upon recommendation of the Compensation Committee,
based on his performance during fiscal 1999 (as permitted by the agreement). On
a going-forward basis, executive salaries for officers other than the Chief
Executive Officer and the President will be recommended to the Committee by our
Chief Executive Officer and our President and reviewed and, if appropriate,
approved by the Committee. The salaries of our Chief Executive Officer and
President will be governed by their employment agreements, with modifications
reviewed and approved by the Committee.
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<PAGE> 13
Cash Bonus. At the time of the spin-off, an executive bonus plan was
established by the Board of Directors, but was not specifically reviewed or
approved by the Compensation Committee. For corporate executives, this plan
permits such persons to receive up to 100% of their base compensation in cash
bonus and is tied to the operating profits of School Specialty as a whole. For
divisional executives, the plan permits up to the same level of cash bonus
compensation, but is tied primarily to the operating profits of the division in
which each such person operates and partially to School Specialty as a whole.
While the Compensation Committee did not have any input on the executive bonus
plan when it was initially established, the Committee believes that the plan
provides important incentives to executives thereby benefiting not only the
executive but School Specialty as well. The Compensation Committee intends to
continue the plan in fiscal 2000 with minor modifications. In June 1999, Messrs.
Spalding and Vander Zanden each received an option grant which, in part,
reflected fiscal 1999 performance. Because of these option grants, no separate
cash bonus was paid to either of them for fiscal 1999.
Equity Based Compensation. Our 1998 Stock Incentive Plan was
established at the time of the spin-off. Under the Plan, the Compensation
Committee determines the awards to be made to executive officers and others.
With respect to our Chief Executive Officer and our President, the Committee
bases its determination upon its long-term incentive goals as well as existing
overall compensation. With respect to other executives, the Committee bases its
determinations on recommendations made by management.
CEO Compensation. Mr. Spalding's base salary is set pursuant to his
employment agreement (subject to adjustment upon recommendation of the
Compensation Committee). This agreement was negotiated with U.S. Office Products
before the spin-off in June 1998. Mr. Spalding's employment agreement contains a
bonus provision which was not implemented in fiscal 1999 due to the option grant
discussed below. The Compensation Committee did not have any input on Mr.
Spalding's employment agreement, although the Compensation Committee did
recommend to the Board, and the Board approved, an upward adjustment in Mr.
Spalding's base salary for fiscal 1999. For fiscal 1999, the Compensation
Committee determined to issue to Mr. Spalding two stock option grants under the
Plan. One such grant was made at the time of our initial public offering in June
1998 and the other was made in June 1999, in part, for fiscal 1999 performance.
Because of the second option grant, Mr. Spalding did not receive a cash bonus
for fiscal 1999. The Committee believes Mr. Spalding's compensation is
appropriate given School Specialty's size and financial performance.
In making compensation decisions, it is the Compensation Committee's
current intention to recommend plans and awards which will meet the requirements
for deductibility for tax purposes under Section 162(m) of the Internal Revenue
Code of 1986, as amended.
THE COMPENSATION COMMITTEE:
Jerome M. Pool (Chairman)
Leo C. McKenna
Rochelle Lamm Wallach
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
With the exception of Leo C. McKenna, no member of the Compensation
Committee has ever been an officer of our company or any of our subsidiaries and
none of our executive officers has served on the compensation committee or the
board of directors of any company of which any of our directors is an executive
officer. Mr. McKenna is a former officer of Old School.
11
<PAGE> 14
PERFORMANCE GRAPH
The following graph compares the total stockholder return on our Common
Stock since our initial public offering on June 9, 1998 with that of the Russell
2000 Stock Market Index and a peer group index constructed by us. The issuers
included in the peer group index are: Advantage Learning Systems, Inc. (ALSI),
American Educational Products, Inc. (AMEP), Nobel Learning Communities, Inc.
(NLLI), National Computer Systems, Inc. (NLCS) and Scholastic Corporation
(SCHL). The total return calculations set forth below assume $100 invested on
June 9, 1998, with reinvestment of dividends into additional shares of the same
class of securities at the frequency with which dividends were paid on such
securities through April 24, 1999. The stock price performance shown in the
graph below should not be considered indicative of potential future stock price
performance.
<TABLE>
<S> <C> <C>
School Specialty................ $100.00 $125.81
Peer Group...................... $100.00 $133.19
Russell 2000.................... $100.00 $ 95.59
</TABLE>
2. RATIFICATION OF INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee and subject to ratification
by the stockholders at the Annual Meeting, the Board of Directors has appointed
PricewaterhouseCoopers LLP, an independent public accounting firm, to audit the
consolidated financial statements of School Specialty for the fiscal year ending
April 29, 2000. PricewaterhouseCoopers LLP has audited the financial statements
of School Specialty since the fiscal year ended April 26, 1997. Representatives
of PricewaterhouseCoopers LLP will be present at the Annual Meeting to make any
statement they may desire and to respond to questions from stockholders.
If the stockholders do not ratify the appointment of
PricewaterhouseCoopers LLP, the selection of our independent auditors will be
reconsidered by the Board of Directors.
SUBMISSION OF SHAREHOLDER PROPOSALS
In accordance with our Amended and Restated By-Laws, nominations, other
than by or at the direction of the Board of Directors, of candidates for
election as directors at the 2000 Annual Meeting of Stockholders and any other
stockholder proposed business to be brought before the 2000 Annual Meeting of
Stockholders must be submitted to us no later than July 4, 2000. Stockholder
proposed nominations and other stockholder proposed business must be made in
accordance with our Amended and Restated By-Laws which provide, among other
things, that stockholder proposed nominations must be accompanied by certain
information concerning the nominee and the stockholder submitting the
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<PAGE> 15
nomination, and that stockholder proposed business must be accompanied by
certain information concerning the proposal and the stockholder submitting the
proposal. To be considered for inclusion in the proxy statement solicited by the
Board of Directors, stockholder proposals for consideration at the 2000 Annual
Meeting of Stockholders of School Specialty must be received by us at our
principal executive offices, 1000 North Bluemound Drive, Appleton, Wisconsin,
54914 on or before March 28, 2000. Proposals should be directed to Daniel P.
Spalding, Chief Executive Officer. To avoid disputes as to the date of receipt,
it is suggested that any stockholder proposal be submitted by certified mail,
return receipt requested.
PENDING LEGAL PROCEEDINGS
No director or executive officer of School Specialty is an adverse
party or has an interest adverse to School Specialty or its subsidiaries in any
material pending legal proceeding.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and officers, among others, to file reports with the Securities and
Exchange Commission disclosing their ownership, and changes in their ownership,
of stock in School Specialty. Copies of these reports must also be furnished to
School Specialty. Based solely on a review of these copies, we believe that
during fiscal 1999, all filing requirements were complied with, except that
Melvin D. Hilbrown filed one late report.
3. OTHER MATTERS
Although management is not aware of any other matters that may come
before the Annual Meeting, if any such matters should be presented, the persons
named in the accompanying proxy intend to vote such proxy in accordance with
their best judgment.
Stockholders may obtain a copy of our Annual Report to Stockholders,
which includes our Annual Report on Form 10-K, at no cost by writing to Karen A.
Riching, Assistant Secretary, 1000 North Bluemound Drive, Appleton, Wisconsin,
54914.
By Order of the Board of Directors,
Joseph F. Franzoi IV, Secretary
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<PAGE> 16
PROXY CARD
SCHOOL SPECIALTY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Daniel P. Spalding and Donald J. Noskowiak, and
each of them, as proxies, each with the power to appoint his substitute, and
authorizes each of them to represent and to vote, as designated on the reverse
side, all of the shares of stock of School Specialty, Inc. held of record by the
undersigned on July 19, 1999 at the 1999 Annual Meeting of Stockholders of
School Specialty, Inc. to be held on September 2, 1999 or at any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" THE ELECTION OF THE NOMINEES AS CLASS I DIRECTORS AND "FOR" THE
RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS.
(Continued and to be signed on reverse side.)
<PAGE> 17
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE.
ANNUAL MEETING OF STOCKHOLDERS
SCHOOL SPECIALTY, INC.
SEPTEMBER 2, 1999
<TABLE>
<CAPTION>
1. ELECTION OF DIRECTORS:
<S> <C> <C> <C>
(To serve until the 2002 1-Jonathan J. Ledecky [ ] FOR all nominees [ ] WITHHOLD AUTHORITY
Annual Meeting and until 2-Jerome M. Pool listed to the left to vote for all
their successors are (except as specified nominees listed
elected and qualified) below). to the left.
</TABLE>
(Instructions: To withhold authority to vote for any ---------------
indicated nominee, write the number(s) of the nominee(s) | |
in the box provided to the right. ---------------
2. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS SCHOOL SPECIALTY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING APRIL 29, 2000.
[ ] FOR ratification of PricewaterhouseCoopers LLP
[ ] AGAINST ratification of PricewaterhouseCoopers LLP
[ ] ABSTAIN from voting on the ratification of PricewaterhouseCoopers LLP
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
No. of Shares
-------------
Date:
------------------------------
Check appropriate box
Indicate changes below:
-----------------------------------
(Signature of Stockholder)
Address Change? [ ] Name Change? [ ]
-----------------------------------
(Signature of Stockholder -
if held jointly)
Please sign exactly as name appears
hereon. When shares are held by
joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
