UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
QUARTERLY PERIOD ENDED JULY 24, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM __________ TO __________
Commission File Number: 000-24385
SCHOOL SPECIALTY, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 39-0971239
(State of Other (IRS Employer
Jurisdiction of Incorporation) Identification No.)
426 West College Avenue
Appleton, Wisconsin
(Address of Principal Executive Offices)
54911
(Zip Code)
(920) 734-2756
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest
practicable date.
Outstanding at
Class August 31, 1999
Common Stock, $0.001 par value 17,433,426
<PAGE>
SCHOOL SPECIALTY, INC.
INDEX TO FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JULY 24, 1999
PART I - FINANCIAL INFORMATION
Page
Number
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets at July 24, 1999
(Unaudited) and April 24, 1999 1
Unaudited Consolidated Statements of Operations for the
Three Months Ended July 24, 1999 and July 25, 1998 2
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended July 24, 1999 and July 25, 1998 3
Notes to Unaudited Consolidated Financial Statements 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 12
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SCHOOL SPECIALTY, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
July 24, April 24,
1999 1999
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ - $ 9,779
Accounts receivable, less allowance for
doubtful accounts of $2,135 and $2,234,
respectively 141,015 74,781
Inventories 85,624 78,783
Deferred taxes 8,371 8,371
Prepaid expenses and other current assets 19,355 18,673
------- -------
Total current assets 254,365 190,387
Property and equipment, net 42,252 42,305
Intangible assets, net 202,209 201,206
Deferred taxes 4,100 3,789
Other 21 21
-------- --------
Total assets $502,947 $437,708
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion - long term debt $ 11,650 $ 11,594
Accounts payable 63,718 37,050
Accrued compensation 7,422 8,410
Accrued income taxes 10,740 4,193
Accrued restructuring 2,354 2,752
Other accrued liabilities 13,212 9,194
-------- --------
Total current liabilities 109,096 73,193
Long term debt 176,302 161,691
Other 177 137
-------- --------
Total liabilities 285,575 235,021
Stockholders' equity:
Preferred stock, $0.001 par value per share,
1,000,000 shares authorized; none outstanding - -
Common stock, $0.001 par value per share,
150,000,000 shares authorized and 17,433,426
shares issued and outstanding 17 17
Capital paid-in excess of par value 195,517 192,196
Accumulated other comprehensive loss (5) (5)
Retained earnings 21,843 10,479
-------- --------
Total stockholders' equity 217,372 202,687
-------- --------
Total liabilities and stockholders' equity $502,947 $437,708
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
For the Three Months Ended
July 24, July 25,
1999 1998
Revenues $194,299 $126,657
Cost of revenues 121,420 82,615
-------- --------
Gross profit 72,879 44,042
Selling, general and administrative expenses 48,315 29,642
Restructuring costs - 1,074
-------- --------
Operating income 24,564 13,326
Other income (expense):
Interest expense (3,168) (1,177)
Interest income 38 4
Other 6 -
-------- --------
Income before provision for income taxes 21,440 12,153
Provision for income taxes 10,076 5,590
-------- --------
Net income $ 11,364 $ 6,563
======== ========
Weighted average shares outstanding:
Basic 17,383 14,728
Diluted 17,468 14,848
Net income per share:
Basic $0.65 $0.45
Diluted $0.65 $0.44
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Three Months Ended
July 24, July 25,
1999 1998
Cash flows from operating activities:
Net income $ 11,364 $ 6,563
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization expense 3,049 1,428
Restructuring costs - 1,074
Deferred taxes (311) -
Amortization of loan fees 140 -
Change in current assets and liabilities
(net of assets acquired and liabilities assumed
in business combinations accounted for under
the purchase method):
Accounts receivable (64,218) (52,917)
Inventory (6,209) (3,405)
Prepaid expenses and other current assets (636) 1,273
Accounts payable 25,831 18,967
Accrued liabilities 8,610 10,214
--------- --------
Net cash used in operating activities (22,380) (16,803)
--------- --------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received (1,085) (16,895)
Additions to property and equipment (1,277) (902)
Other (1,052) 527
--------- ---------
Net cash used in investing activities (3,414) (17,270)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,233 32,735
Proceeds from bank borrowings 38,700 77,600
Repayment of bank debt and capital leases (24,918) -
Repayment of amounts due to U.S. Office Products - (82,976)
Capital contribution by U.S. Office Products - 8,818
Capitalized loan fees - (2,104)
--------- ---------
Net cash provided by financing activities 16,015 34,073
--------- ---------
Net decrease in cash and cash equivalents (9,779) -
Cash and cash equivalents, beginning of period 9,779 -
--------- ---------
Cash and cash equivalents, end of period $ - $ -
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(In thousands)
The Company issued common stock and cash in connection
with certain business combinations accounted for under
the purchase method in the three months ended July 24,
1999, and July 25, 1998. The fair values of the assets
and liabilities of the acquired companies at the dates
of the acquisitions are presented as follows:
For the Three Months Ended
July 24, July 25,
1999 1998
Accounts receivable $2,015 $ 996
Inventories 632 3,381
Prepaid expenses and other current assets 46 302
Property and equipment 85 596
Intangible assets 1,672 11,301
Other assets 13 520
Accounts payable (837) (201)
Accrued liabilities (568) -
Long-term debt (885) -
------ -------
Net assets acquired $2,173 $16,895
====== =======
Acquisitions were funded as follows:
Common stock $1,088 $ -
Cash paid, net of cash acquired 1,085 16,895
------ -------
Total $2,173 $16,895
====== =======
See accompanying notes to consolidated financial statements.
<PAGE>
SCHOOL SPECIALTY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
NOTE 1-BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements have been prepared in accordance with
generally accepted accounting principles for interim
financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and
footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a
fair presentation have been included. The Balance
Sheet at April 24, 1999, has been derived from the
Company's audited financial statements for the fiscal
year ended April 24, 1999. For further information,
refer to the consolidated financial statements and
notes thereto included in the Company's Annual Report
on Form 10-K for the year ended April 24, 1999.
NOTE 2-STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the three months
ended July 24, 1999, were as follows:
Stockholders' equity balance at April 24, 1999 $202,687
Issuance of common stock 3,321
Net income 11,364
---------
Stockholders' equity balance at July 24, 1999 $217,372
=========
On May 17, 1999, the underwriters of the Company's
secondary offering, which occurred on April 16, 1999,
exercised their over allotment option for 151 shares of
Common Stock for net proceeds of approximately $2.3
million. The Company issued 53 shares of Common Stock,
valued at approximately $1,088, as part of the
acquisition of Audio Graphics, which occurred during
the quarter ended July 24, 1999.
NOTE 3-EARNINGS PER SHARE
The following information presents the Company's
computations of basic earnings per share ("basic EPS")
and diluted earnings per share ("diluted EPS") for the
periods presented in the consolidated statements of
operations:
Income Share Per Share
(Numerator) (Denominator) Amount
Three months ended July 24, 1999:
Basic EPS $11,364 17,383 $ 0.65
Effect of dilutive employee stock options - 85 =======
------- -------
Diluted EPS $11,364 17,468 $ 0.65
======= ======= =======
Three months ended July 25, 1998:
Basic EPS $ 6,563 14,728 $ 0.45
Effect of dilutive employee stock options - 120 =======
------- ------
Diluted EPS $ 6,563 14,848 $ 0.44
======= ======= =======
The Company had additional employee stock options
outstanding during the periods presented that were not
included in the computation of diluted EPS because they
were anti-dilutive.
NOTE 4-ACCOUNTING PRONOUNCEMENT
In June, 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 137, which delays
the adoption date of SFAS No. 133 and was issued in
July, 1999, requires adoption of SFAS No. 133 for
annual periods beginning after June 15, 2000. SFAS No.
133 establishes standards for recognition and
measurement of
<PAGE>
derivatives and hedging activities. The
Company will implement this statement in fiscal year
2002 as required. The adoption of SFAS No. 133 is not
expected to have a material effect on the Company's
financial position or results of operations.
NOTE 5-BUSINESS COMBINATIONS
During the fiscal period ended April 24, 1999, the
Company completed five business combinations which were
accounted for under the purchase method.
In the first three months of fiscal 2000, the Company
made one insignificant acquisition, which was accounted
for under the purchase method of accounting, for an
aggregate purchase price of $2,177, resulting in
goodwill of $1,672, which will be amortized over 40
years. The results of this acquisition have been
included in the Company's results from the respective
date of acquisition.
The following presents the unaudited pro forma results
of operations of the Company for the three months ended
July 24, 1999 and July 25, 1998, and includes the
Company's consolidated financial statements, which give
retroactive effect to the acquisitions as if all such
purchase acquisitions had been made at the beginning of
fiscal 1999. The results presented below include
certain pro forma adjustments to reflect the
amortization of intangible assets, adjustments to
interest expense, and the inclusion of a federal income
tax provision on all earnings for the periods ended
July 24, 1999 and July 25, 1998, respectively:
Three Months Ended
July 24, July 25,
1999 1998
Revenues $194,299 $199,926
Net income 11,357 7,869
Net income per share:
Basic $ 0.65 $ 0.52
Diluted $ 0.65 $ 0.52
The unaudited pro forma results of operations are
prepared for comparative purposes only and do not
necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning
of fiscal 1999 or the results that may occur in the
future.
NOTE 6-SEGMENT INFORMATION
The Company's business activities are organized around
its two principal business segments, Traditional and
Specialty. Both internal and external reporting
conform to this organizational structure with no
significant differences in accounting policies applied.
The Company evaluates the performance of its segments
and allocates resources to them based on revenue growth
and profitability. While the two segments serve a
similar customer base, notable differences exist in
products, gross margin and revenue growth rate.
Products supplied within the Traditional segment
include consumables, consisting of classroom supplies,
instructional materials, educational games, art
supplies, school forms, educational software, and
school furniture, and indoor and outdoor equipment.
Products supplied within the Specialty segment target
specific educational disciplines, such as art,
industrial arts, physical education, sciences, library
and early childhood. The following table presents
segment information:
<PAGE>
Three Months Ended
July 24, July 25,
1999 1998
Revenues:
Traditional $121,239 $ 83,563
Specialty 73,060 43,094
-------- --------
Total $194,299 $126,657
======== ========
Operating Profit and Pretax Profit (a)
Traditional $ 16,220 $ 10,725
Specialty 11,479 6,430
-------- --------
Total 27,699 17,155
General Corporate Expense 3,135 2,755
One Time Charges - 1,074
Interest Expense and Other 3,124 1,173
-------- --------
Income Before Taxes $ 21,440 $ 12,153
======== ========
Identifiable Assets (at quarter end):
Traditional $309,229 $159,351
Specialty 179,407 124,968
-------- --------
Total 488,636 284,319
Corporate Assets 14,311 12,715
-------- --------
Total $502,947 $297,034
======== ========
Depreciation and Amortization:
Traditional $ 1,712 $ 681
Specialty 1,180 614
-------- --------
Total 2,892 1,295
Corporate 157 133
-------- --------
Total $ 3,049 $ 1,428
======== ========
Expenditures for Property and Equipment:
Traditional $ 66 $ 141
Specialty 1,087 393
-------- --------
Total 1,153 534
Corporate 124 368
-------- --------
Total $ 1,277 $ 902
======== ========
____________
(a) Operating profit is defined as operating income
before nonrecurring acquisition and restructuring costs.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth various items as a
percentage of revenues on a historical basis.
Three Months Ended
July 24, July 25,
1999 1998
Revenues 100.0% 100.0%
Cost of revenues 62.5 65.2
----- -----
Gross profit 37.5 34.8
Selling, general and administrative expenses 24.9 23.4
Restructuring costs - 0.9
----- -----
Operating income 12.6 10.5
Interest expense, net 1.6 0.9
----- -----
Income before provision for income taxes 11.0 9.6
Provision for income taxes 5.2 4.4
----- -----
Net income 5.8% 5.2%
===== =====
Three Months Ended July 24, 1999 Compared to Three Months Ended July 25, 1998
Revenues
Revenues increased 53.4% from $126.7 million for the
three months ended July 25, 1998, to $194.3 million for
the three months ended July 24, 1999. This increase
was primarily due to the inclusion of revenues from the
five companies acquired in business combinations
accounted for under the purchase method of accounting
during fiscal 1999 and internal growth on existing
business.
Gross Profit
Gross profit increased 65.5% from $44.0 million or
34.8% of revenues for the three months ended July 25,
1998 to $72.9 million or 37.5% of revenues for the
three months ended July 24, 1999. The increase in
gross profit as a percentage of revenues was due
primarily to (1) an improvement in traditional business
gross margins, which was primarily driven by a shift in
revenue mix consisting of increased revenue from
consumable products, which typically have higher gross
margins than furniture and equipment and (2) an
increase in specialty business revenue, which has
higher margins than the traditional business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include
selling expenses (the most significant component of
which is sales wages and commissions), operations
expenses (which includes customer service, warehouse
and outbound transportation costs), catalog costs and
general administrative overhead (which includes
information systems, accounting, legal, human resources
and purchasing expense).
Selling, general and administrative expenses increased
63.0% from $29.6 million or 23.4% of revenues for the
three months ended July 25, 1998, to $48.3 million or
24.9% of revenues for the three months ended July 24,
1999. The increase in selling, general and
administrative expenses is primarily due to the
acquired businesses. The increase in selling, general
and administrative expenses as a percentage of revenue
is primarily due to (1) the acquisition of specialty
businesses, which have higher operating expenses as a
percentage of revenue than the traditional business and
(2) higher amortization expense, due to our six
acquisitions since the beginning of fiscal 1999.
<PAGE>
Interest Expense
Interest expense, net of interest income, increased
$1.9 million from $1.2 million or 0.9% of revenues for
the three months ended July 25, 1998 to $3.1 million or
1.6% of revenues for the three months ended July 24,
1999. The increase in interest expense is primarily
attributed to the debt assumed and cash paid for the
six companies acquired since the beginning of fiscal
1999, partially offset by debt repaid from the net
proceeds of our secondary offering.
Provision for Income Taxes
Provision for income taxes for the three months ended
July 24, 1999 increased 80.3% or $4.5 million over the
three months ended July 25, 1998, reflecting income tax
rates of 47% and 46% for the three months ended July
24, 1999 and July 25, 1998, respectively. The higher
effective tax rate, compared to the federal statutory
rate of 35.0%, is primarily due to state income taxes
and non-deductible goodwill amortization.
Liquidity and Capital Resources
We have a five-year secured $350 million revolving
Senior Credit Facility with NationsBank. The Senior
Credit Facility has a $100 million term loan payable
quarterly over five years commencing in January 1999
and revolving loans which mature on September 30, 2003.
The amount outstanding as of July 24, 1999 under the
Senior Credit Facility was approximately $187.2
million, consisting of $92.2 million outstanding under
the revolving loan portion of the facility and $95
million outstanding under the term loan portion of the
facility. Borrowings under the Senior Credit Facility
are usually significantly higher during our first and
second quarters to meet the working capital needs of
our peak selling season. On October 28, 1998, we
entered into an interest rate swap agreement with the
Bank of New York covering $50 million of the
outstanding Senior Credit Facility. The agreement
fixes the 30 day LIBOR interest rate at 4.37% per annum
on the $50 million notional amount and has a three year
term that may be canceled by the Bank of New York on
the second anniversary. Our effective interest rate
for the three months ended July 24, 1999 was
approximately 7.4%. During the quarter, we had net
borrowings under our Senior Credit Facility of $13.8
million, which were used to meet our seasonal working
capital requirements, to fund an acquisition and to
fund capital expenditures.
On April 16, 1999, we sold 2,400,000 shares of common
stock in a secondary public offering. On May 17, 1999,
we sold an additional 151,410 shares of common stock to
cover over-allotments for approximately $2.3 million in
net proceeds. The proceeds to us were used to reduce
indebtedness outstanding under our Senior Credit
Facility.
At July 24, 1999, we had working capital of $145.3
million. Our capitalization at July 24, 1999 was
$404.6 million and consisted of bank debt of $187.2
million and stockholders' equity of $217.4 million.
We anticipate that our cash flow from operations and
borrowings available from our existing bank credit
facility will be sufficient to meet our liquidity
requirements for our operations (including anticipated
capital expenditures) and our debt service obligations
for the remainder of the fiscal year.
During the three months ended July 24, 1999, net cash
used in operating activities was $22.4 million. This
net use of cash by operating activities during the
period is indicative of the high seasonal nature of our
business, with sales occurring in the first and second
quarter of the fiscal year and cash receipts in the
second and third quarters. Net cash used in investing
activities was $3.4 million, including $1.1 million for
an acquisition, $1.3 million for additions to property
and equipment and approximately $1.0 million for other
long-term assets. Net cash provided by financing
activities was $16.0 million, which consisted primarily
of net borrowings under our Senior Credit Facility.
During the three months ended July 25, 1998, net cash
used in operating activities was $16.8 million. Net
cash used in investing activities was $17.3 million,
including $16.9 million for acquisitions. Net cash
provided by financing activities was $34.1 million, and
included (1) repayment of debt to U.S. Office Products
of $83.0 million, (2) borrowings under the Senior
Credit Facility of $77.6 million, (3) payment of loan
fees of $2.1 million, (4) $32.7 million in net proceeds
from the issuance of common stock in conjunction with
our initial public offering and sale of 250,000 shares
of common stock to management, and (5) $8.8 million of
contributed capital from U.S. Office Products under a
distribution agreement entered into in connection with
the spin-off.
<PAGE>
We have entered into agreements, subject to due
diligence and certain other contingencies, to sell and
leaseback four distribution facilities in Ohio,
Massachusetts, Kansas and Texas. We believe that the
fair market value for these distribution facilities is
approximately $21 million, with net proceeds to us
estimated to be approximately $20.3 million, which
would be used to repay outstanding indebtedness under
our Senior Credit Facility or for general corporate
purposes, including working capital and for
acquisitions. Currently, this transaction is expected
to close in the second quarter of fiscal 2000.
Fluctuations in Quarterly Results of Operations
Our business is subject to seasonal influences. Our
historical revenues and profitability have been
dramatically higher in the first two quarters of our
fiscal year (May-October) primarily due to increased
shipments to customers coinciding with the start of
each school year.
Quarterly results also may be materially affected by
the timing of acquisitions, the timing and magnitude of
costs related to such acquisitions, variations in our
costs for the products we sell, the mix of products
sold and general economic conditions. Moreover, the
operating margins of companies acquired by us may
differ substantially from our own margins, which could
contribute to further fluctuation in our quarterly
operating results. Therefore, results for any quarter
are not indicative of the results that we may achieve
for any subsequent fiscal quarter or for a full fiscal
year.
Inflation
Inflation has and is expected to have only a minor
affect on our results of operations and our internal
and external sources of liquidity.
Year 2000
We have established a centrally managed company-wide
plan to identify, evaluate and address Year 2000
issues. Although most of our mission critical systems,
network elements and products were verified for Year
2000 compliance as of the end of June 1999, we may
still be susceptible to Year 2000-related problems. In
addition, if our suppliers, service providers and/or
customers fail to resolve their Year 2000 issues in an
effective and timely manner, our business could be
significantly and adversely affected. We believe that
some of our school customers have not yet addressed or
resolved their Year 2000 issues.
We estimate that expenses of approximately $100,000
will be incurred in fiscal 2000 in connection with our
anticipated Year 2000 expenses, in addition to
approximately $20,000 in expenses incurred through
April 24, 1999. We also expect to incur certain
capital improvement costs (totaling approximately
$300,000) to support this project. We expect to fund
our Year 2000 efforts through operating cash flows. We
will use the Senior Credit Facility for capital
improvements related to the effort.
As part of our Year 2000 initiative, we are evaluating
scenarios that may occur as a result of the century
change and are in the process of developing contingency
and business continuity plans tailored for Year 2000-
related occurrences. We are highly reliant on our
computer order processing and inventory systems to fill
orders, bill customers and collect payments. A loss of
either of these systems would cause long delays in
filling and shipping products, billing customers and
collecting accounts receivable. The highly seasonal
nature of our business does not allow for any delay in
shipping products to customers. Although the seasonal
nature of our business would heighten any problems
encountered, the timing of the majority of our sales,
shipping, billing and collection efforts for fiscal
2000 will be complete prior to the Year 2000. We
expect that any unforeseen problems related to Year
2000 issues would be identified within the months of
January and February 2000, which is our slowest period.
We have identified that we may experience certain
inconveniences or inefficiencies as a result of a
supplier's failure to remediate its Year 2000 issue.
We believe, however, that most of our business will
proceed without any significant interruption.
<PAGE>
Forward-Looking Statements
Statements in this report which are not strictly
historical are "forward looking." In accordance with
the Private Securities Litigation Reform Act of 1995,
we can obtain a "safe-harbor" for forward-looking
statements by identifying those statements and by
accompanying those statements with cautionary
statements which identify factors that could cause
actual results to differ materially from those in the
forward-looking statements. Accordingly, the foregoing
"Management's Discussions and Analysis of Financial
Condition and Results of Operations" contains certain
forward-looking statements relating to growth plans and
projected revenues, earnings and costs. Our actual
results may differ materially from those contained in
the forward-looking statements herein. Factors which
may cause such a difference to occur include those
factors identified in Item 1, "Business - Forward
Looking Statements," contained in the Company's Form
10-K for the year ended April 24, 1999, which factors
are incorporated herein by reference to such Form 10-K.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For information as to our Quantitative and Qualitative
Disclosures about Market Risk, please see our Annual
Report on Form 10-K for the fiscal year ended April 24,
1999. There have been no material changes in our
quantitative or qualitative exposure to market risk
since the end of fiscal 1999.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
The following information is furnished as to securities
of School Specialty sold during the three months ended
July 24, 1999 that were not registered under the
Securities Act:
In May 1999, we issued 52,819 shares of our common
stock to the principal shareholder of Audio Graphic
Systems as partial consideration for our acquisition of
Audio Graphic Systems from such shareholder. These
shares were issued at an aggregate price of $1,088,500
(or $20.608 per share). The sale of these shares was
exempt from registration pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
10.1 Employment Agreement dated as of June 30, 1998
between School Specialty, Inc. and Roger D. Pannier
10.2 Employment Agreement dated as of March 2, 1999
between School Specialty, Inc. and Peter Savitz
10.3 Employment Agreement dated as of March 29, 1999
between School Specialty, Inc. and Brian Chapin
27.1 Financial Data Schedule
(b) We have filed two reports on Form 8-K during the
quarter covered by this report, as follows:
(i) Form 8-K/A dated February 9, 1999, filed on
April 26, 1999 under Items 2 and 7
(historical financial statements of acquired
company and pro forma financial statements of
School Specialty, Inc. were filed).
(ii) Form 8-K dated July 14, 1999, filed on July 14, 1999
under Item 5 (no financial statements filed).
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto
duly authorized.
SCHOOL SPECIALTY, INC.
(Registrant)
September 3, 1999 /s/ Daniel P. Spalding
- ------------------------- --------------------------
Date Daniel P. Spalding
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
September 3, 1999 /s/ Mary M. Kabacinski
- ------------------------- ---------------------------
Date Mary M. Kabacinski
Executive Vice President and
Chief Financial Officer
(Principal Financial
and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
10.1 Employment Agreement dated as of June 30, 1998
between School Specialty, Inc. and Roger D. Pannier
10.2 Employment Agreement dated as of March 2, 1999
between School Specialty, Inc. and Peter Savitz
10.3 Employment Agreement dated as of March 29, 1999
between School Specialty, Inc. and Brian Chapin
27.1 Financial Data Schedule
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 30th
day of June, 1998, and effective on July 1, 1998 (the
"Effective Date"), is by and between SCHOOL SPECIALTY,INC.,
a Delaware Corporation (the "Company") and ROGER D. PANNIER
(the "Employee").
RECITALS
The Company desires to employ Employee and to have
the benefit of his skills and services, and Employee
desires to accept employment with the Company, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual
promises, terms, covenants and conditions set forth
herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as
follows:
AGREEMENTS
1. Employment, Term.
The Company hereby employs Employee to perform the duties
described herein, and Employee hereby accepts
employment with the Company, for a term beginning on
the Effective Date and continuing for a period of two
(2) years (the "Term"). This Agreement may be
terminated prior to the end of the Term in the manner
provided for in Section 5 below.
2. Position and Duties.
The Company hereby employs Employee as president of the
Hammond & Stephens division of the Company. As such,
Employee shall have responsibilities, duties and
authority reasonably accorded to and expected of a
divisional General Manager of the Company. Employee
hereby accepts this employment upon the terms and
conditions herein contained and agrees to devote all of
his professional time, attention, and efforts to
promote and further the business of the Company.
Employee shall faithfully adhere to, execute, and
fulfill all policies established by the Company.
3. Compensation.
For all services rendered by Employee, the Company shall
compensate Employee as follows:
(a) Base Salary.
Effective on the date hereof, the base salary payable to Employee
shall be One Hundred Thousand Dollars ($100,000.00) per
year, payable on a regular basis in accordance with the
Company's standard payroll procedures, but not less
than monthly.
(b) Incentive Bonus.
During the Term, Employee shall be eligible to
participate in the Company's executive management bonus
program according to the schedule attached hereto as
Exhibit A.
(c) Perquisites, Benefits, and Other Compensation.
During the Term, Employee shall be entitled
to received all perquisites and benefits as are
customarily provided by the Company to its
employees, subject to such
<PAGE>
changes, additions, or
deletions as the Company may make generally from time
to time, as well as such other perquisites or benefits
as may be specified from time to time by the Board or
the President of the Company. Under no circumstances,
however shall the Company be responsible with providing
the Employee with an automobile for his use in his
employment with the Company.
4. Expense Reimbursement.
The Company shall reimburse Employee for, or at the Company's
option, pay all business travel and other out-of-pocket expenses
reasonably incurred by Employee in the performance of
his services hereunder during the Term. All
reimbursable expenses shall be appropriately documented
in reasonable detail by Employee upon submission of any
request for reimbursement, and in a format and manner
consistent with the Company's expense reporting policy,
as well as applicable federal and state tax record
keeping requirements.
5. Termination; Rights on Termination.
Employee's employment may be terminated in any one of
the following ways, prior to the expiration of the Term:
(a) Death.
The death of Employee shall immediately terminate the
Term, and no severance compensation shall be owed to
the Employee's estate.
(b) Disability.
If, as a result of incapacity due to physical or mental illness
or injury, Employee shall have been unable to perform
the material duties of his position on a full time
basis for a period of three consecutive months, or for
a total of three months in any (6) six-month period,
then 30 days after written notice to the Employee
(which notice may be given before or after the end of
the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable
period), the Company may terminate Employee's
employment hereunder if Employee is unable to resume
his full-time duties at the conclusion of such notice period.
(c) Termination by the Company "For Cause".
The Company may terminate the
Term (10) ten days after written notice to Employee
"for cause," which shall be: (i) Employee's material
breach of this Agreement, which breach is not cured
within ten (10) days of receipt by Employee of written
notice from the Company specifying such breach; (ii)
Employee's negligence in the performance of his duties
hereunder, intentional nonperformance or mis-
performance of such duties, or refusal to abide by or
comply with the directives of the Board, his superior
officers, or the Company's policies and procedures,
which actions continue for a period of at least ten
(10) days after receipt by Employee of written notice
of the need to cure or cease; (iii) Employee's willful
dishonesty, fraud or misconduct with respect to the
business or affairs of the Company and that in the
judgment of the Company materially and adversely
affects the operations or reputation of the Company;
(iv) Employee's conviction of a felony or other crime
involving moral turpitude; or (v) Employee's abuse of
alcohol or drugs (legal or illegal) that, in the
Company' judgment, materially impairs Employee's
ability to perform his duties hereunder. In the event
of a termination "for cause," as enumerated above,
Employee shall have no right to any severance compensation.
<PAGE>
(d) Without Cause.
At any time after the commencement of employment, the Company
may, without cause, terminate the Term and Employee's
employment, effective thirty (30) days after written
notice is provided to the Employee. Should Employee be
terminated by the Company without cause, subject to
Section 5(f) below, Employee shall receive from the
Company four (4) months salary. Such payments shall be
made in accordance with the Company' regular payroll
cycle. If Employee resigns or otherwise terminates his
employment for any reason or for no reason, Employee
shall receive no severance compensation.
(e) Payment Through Termination.
Upon termination of Employee's employment
for any reason provided above, Employee shall be
entitled to receive all compensation earned and all
benefits and reimbursements (including payments for
accrued vacation and sick leave, in each case in
accordance with applicable policies of the Company) due
through the effective date of termination. Additional
compensation subsequent to termination, if any, will be
due and payable to Employee only to the extent and in
the manner expressly provided above in this Section 5.
With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not
paid prior to termination. In addition, in the event
of a termination by the Company under Section 5(d),
Employee shall be entitled to receive incentive bonus
compensation as described on Exhibit A as attached
hereto and incorporated herein through the end of the
Company's fiscal year in which the termination occurs,
calculated as if Employee had remained employed by the
Company through the end of such fiscal year, and paid
in such amounts, at such times, and in such forms as
are determined pursuant to Section 3(b) above. Except
as specified in the preceding two sentences, Employee
shall not be entitled to receive any incentive bonus
compensation after the effective date of termination of
his employment. All other rights and obligations of
the Company and Employee under this Agreement shall
cease as of the effective date of termination, except
that the Company's obligations under Section 10 below
and Employee's obligations under Sections 6 and 7 below
shall survive such termination in accordance with their
terms.
(f) Right to Offset.
In the event of any termination of Employee's employment
under this Agreement, the Employee shall have no
obligation to seek other employment; provided, that in
the event that Employee secures employment or any
consulting or other similar arrangement during the
period that any payment is continuing pursuant to the
provisions of this Section 5, the Company shall have
the right to reduce the amounts to be paid hereunder by
the amount of Employee's earnings from such other
employment.
6. Restriction on Competition.
(a) During the Term, and
thereafter, if Employee continues to be employed by the
Company and/or any other entity owned by or affiliated
with the Company on an "at will" basis, for the
duration of such period, and thereafter for a period
equal to the longer of (x) two years, or (y) the period
during which Employee
<PAGE>
is receiving any severance pay
from the Company Employee shall not, directly or
indirectly, for himself or on behalf of or in
conjunction with any other person, company,
partnership, corporation, business, group or other
entity (each, a "Person"):
(i) Engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant, advisor,
or sales representative, in any business selling any
products or services in direct competition with the
Company within 100 miles of any location where the
Company conducts business, with the expressed exception
of the operation of video production and sale by HSO
Enterprises, LLC which videos deal with educational
training (the "Territory");
(ii) Call upon any Person who is, at that time, within the Territory,
an employee of the Company for the purpose of with the
intent of enticing such employee away from or out of
the employ of the Company;
(iii) Call upon Person who that is, at that time, or has been within
one year prior to that time, a customer of the Company
within the Territory for the purpose of soliciting or
selling products or services in direct competition with
the Company within the Territory; or
(iv) On Employee's own behalf or on behalf of any competitor, call
upon any Person who or that, during Employee's employment by
the Company was either called upon by the Company as a
prospective acquisition candidate or was the subject of
an acquisition analysis conducted by the Company.
(b) The foregoing covenants shall not be deemed to prohibit Employee
from acquiring as an investment not more than one percent (1%)
of the capital stock of a competing business, whose stock is
traded on a national securities exchange or through the
automated quotation system of a registered securities
association.
(c) It is further agreed that, in the event that Employee shall
cease to be employed by the Company and enters into a business or
pursues other activities that, at such time, are not in
competition with the Company, Employee shall not be
chargeable with a violation of this Section 6 if the
Company subsequently enters the same (or a similar)
competitive business or activity or commences
competitive operations within 100 miles of the
Employee's new business or activities. In addition, if
Employee has no actual knowledge that his actions
violate the terms of this Section 6, Employee shall not
be deemed to have breached the restrictive covenants
contained herein if, promptly after being notified by
the Company of such breach, Employee ceases the
prohibited actions.
(d) The covenants in this Section 6 are severable and separate, and
the enforce ability of any specific covenant shall not affect the
provisions of any other covenant. If any provision of
this Section 6 relating to the time period or
<PAGE>
geographic area of the restrictive covenants shall be
declared by a court of competent jurisdiction to exceed
the maximum time period or largest geographic area, as
applicable, that such court deems reasonable and
enforceable, said time period of geographic area shall
be deemed to be, and thereafter shall become, the
maximum time period or largest geographic area that
such court deems reasonable and this Agreement shall
automatically be considered to have been amended and
revised to reflect such determination.
(e) Employee has carefully read and considered the provisions of
this Section 6 and, having done so, agrees that the restrictive
covenants in this Section 6 impose a fair and
reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and
their respective officers, directors, employees and
stockholders.
(f) It is acknowledged by the Employee that in addition to the
consideration provided under the terms of this Employment
Contract that, as the sole shareholder of Hammond & Stephens,
Inc. ("H&S"), he significantly benefitted from the
acquisition of the operating assets of H&S by the
Company. The Employee acknowledges that the covenants
he has given pursuant to the terms of Section 6 and 7
of this Agreement are also in exchange for the above
described asset purchase. The Employee further
expressly acknowledges that the consideration for these
covenants is adequate for the benefits received by the
Employee under either this Employment Contract or the
above described asset purchase.
7. Confidential Information.
Employee hereby agrees to hold in strict confidence and not to
disclose to any third party any of the valuable, confidential,
and proprietary business, financial, technical,
economic, sales, and/or other types of proprietary
business information relating to the Company (including
all trade secrets), in whatever form, whether oral,
written, or electronic (collectively, the "Confidential
Information"), to which Employee has, or is given (or
has had or been given), access as a result of his
employment by the Company. It is agreed that the
Confidential Information is confidential and
proprietary to the Company because such Confidential
Information encompasses technical know-how, trade
secrets, or technical, financial, organizational, sales
or other valuable aspects of the Company's business and
trade, including, without limitation, technologies,
products, processes, plans, clients, personnel,
operations, and business activities. This restriction
shall not apply to any Confidential Information that
(a) becomes known generally to the public through no
fault of the Employee; (b) is required by applicable
law, legal process, or any order or mandate of a court
or other govenimental authority to be disclosed; or (c)
is reasonably believed by Employee, based upon the
advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or
administration action brought against Employee,
provided, that in the case of clauses (b) or (c),
Employee shall give the Company reasonable advance
notice of the Confidential Information intended to be
disclosed and the reasons and circumstances surrounding
such disclosure, in order to permit the Company to seek
a protective order or other appropriate request for
confidential treatment of the applicable Confidential
Information.
<PAGE>
8. Return of Company Property.
Promptly upon termination of Employee's employment by the Company
for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a)
all Confidential Information; (b) all other records,
designs, patents, business plans, financial statements,
manuals, memoranda, lists, correspondence, reports,
records, charts, advertising materials, and other data
or property delivered to or compiled by Employee by or
on behalf of the Company or its respective
representatives, vendors, or customers that pertain to
the business of the Company, whether in paper,
electronic, or other form; and (c) all keys, credit
cards, vehicles, and other property of the Company.
Employee shall not retain or cause to be retained any
copies of the foregoing. Employee hereby agrees that
all of the foregoing shall be and remain the property
of the Company, as the case may be, and be subject at
all times to their discretion and control.
9. No Prior Agreements.
Employee hereby represents and warrants to the Company that the
execution of this Agreement by Employee, his employment
by the Company, and the performance of his duties
hereunder will not violate or be a breach of any
agreement with a former employer, client, or any other
Person. Further, Employee agrees to indemnify and hold
harmless the Company and its officers, directors, and
representatives for any claim, including, but not
limited to, reasonable attorney's fees and expenses of
investigation of any such third party that such third
party may now have or may hereafter come to have
against the Company or such other persons, based upon
or arising out of any non-competition agreement,
invention, secrecy, or other agreement between Employee
and such third party that was in existence as of the
date of this Agreement. To the extent that Employee
had any oral or written employment agreement or
understanding with the Company, this Agreement shall
automatically supersede such agreement or
understanding, and upon execution of this Agreement by
Employee and the Company, such prior agreement or
understanding automatically shall be deemed to have
been terminated and shall be null and void.
10. Assignment, Binding Effect.
Employee understands that he has been selected for employment by
the Company on the basis of his personal
qualifications, experience, and skills. Employee
agrees, therefore, that he cannot assign all or any
portion of his performance under this Agreement. This
Agreement may be assigned or transferred by the Company
without the prior written consent of Employee. Subject
to the preceding two sentences, this Agreement shall be
binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective
heirs, legal representatives, successors, and assigns.
It is intended that the Company will be a third-party
beneficiary of the rights of the Company under this
Agreement. No other Person shall be a third-party
beneficiary.
11. Complete Agreement, Waiver, Amendment.
This Agreement is not a promise of future employment.
Employee has no oral representations, understandings,
or agreements with the Company or any of its officers,
directors, or representatives covering the same subject
matter as this Agreement. This Agreement by and
between the Company and Employee, is the final,
complete, and exclusive statement and expression of the
agreement between the Company and Employee with respect
to the subject matter hereof and thereof, and cannot be varied,
<PAGE>
contradicted, or supplemented by evidence of
any prior or contemporaneous oral or written
agreements. This written Agreement may not be later
modified except by a further writing signed by a duly
authorized officer of the Company and Employee, and no
term of this Agreement may be waived except by a
writing signed by the party waiving the benefit of such
term.
12. Notice.
Whenever any notice is required hereunder,
it shall be given in writing addressed as follows:
To the Company: School Specialty Inc.
1000 North Bluemound Drive
P.O. Box 1579
Appleton, WI 54913-1579
Attention: Mr. David J. Vander Zanden
With a copy to: Mr. Joseph F. Franzoi IV
Franzoi & Franzoi, S.C.
514 Racine Street
Menasha, WI 54952
To Employee: Mr. Roger D. Pannier
1415 N. Bristolwood Drive
Fremont, NE 68025
With a copy to: Mr. Bradley D. Holtorf
Sinder, Svoboda, Schilke, Thomsen,
Holtorf, Boggy & Nick
Military Colonial Building
340 E. Military
Fremont, NE 68025
Notice shall be deemed given and effective
three days after the deposit in the U.S. mail
of a writing addressed as above and sent first
class mail, certified, return receipt
requested, or, if sent by express delivery,
hand delivery, or facsimile, when actually
received. Either party may change the address
for notice by notifying the other party of
such change in accordance with this Section 12.
13. Severability, Headings.
If any portion of this Agreement is held invalid or inoperative,
the other portions of this Agreement shall be deemed valid
and operative and, so far as is reasonable and
possible, effect shall be given to the intent
manifested by the portion held invalid or inoperative.
This severability provision shall be in addition to,
and not in place of, the provisions of Section 6(e) above.
<PAGE>
The paragraph headings herein are for reference
purposes only and are not intended in any way to
describe, interpret, define or limit the extent or
intent of the Agreement or of any part hereof.
14. Equitable Remedy.
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the restrictive covenants
set forth in Sections 6 and 7, and because of the
immediate and irreparable damage that would be caused
to the Company for which monetary damages would not be
a sufficient remedy, it is hereby agreed that in
addition to all other remedies that may be available to
the Company, at law or in equity, the Company shall be
entitled to specific performance and any injunctive or
other equitable relief as a remedy for any breach or
threatened breach of the aforementioned restrictive
covenants.
15. Arbitration.
Any unresolved dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American
Arbitration Association then in effect. The
arbitrators shall not have the authority to add to,
detract from, or modify any provision hereof nor to
award punitive damages to any injured party. A
decision by a majority of the arbitration panel shall
be final and binding. Judgment may be entered on the
arbitrators' award in any court having jurisdiction.
The direct expense of any arbitration proceeding shall
be borne by the Company. Each party shall bear its own
counsel fees. The arbitration proceeding shall be held
in the city where the Company is located.
Notwithstanding the foregoing, the Company shall be
entitled to seek injunctive or other equitable relief,
as contemplated by Section 14 above, from any court of
competent jurisdiction, without the need to resort to
arbitration.
16. Governing Law.
This Agreement shall in all respects be construed according to
the laws of the State of Nebraska, without regard to its conflict of
laws principles.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed as of the date first
written above.
SCHOOL SPECIALTY, INC.
/s/ Donald J. Noskowiak
-----------------------------------
Donald J. Noskowiak, Vice-President
& Chief Financial Officer
EMPLOYEE:
/s/ Roger D. Pannier
------------------------
Roger D. Pannier
<PAGE>
Exhibit A
To: Incentive Plan III Participants
From: Dan Spalding
Date: June 3, 1997
Subject: Bonus Program for Fiscal 1998
Enclosed you will find your bonus program for fiscal
1998. If your objectives are not listed on your bonus
sheet, you need to submit your objectives for approval
by June 12th. The following criteria apply to this
program:
1. A threshold target of 8% operating profit
2. Normal bonus calculations based on operating profit
3. Corporate normal bonus (the calculated base bonus
before individual factors) 100% tied to the combined
School Specialty operations, including all divisions,
based on operating profit before interest and taxes.
4. Divisions normal bonus based 25% on the corporate
number with the remaining 75% tied to the operating
profit of the specific division.
5. Scale of performance: unlimited top side to 100%
of salary.
* Corporate factor starts at 50% of budget
* Division targets start at 80% of budget
1. Scale fluctuations based on threshold
* 8% is the threshold target. The scale as attached
will apply for any division or corporate, as long as
the threshold is met.
* Below 8% attainment, no bonus will be paid under
plan. If the operating profit is 7% and results are
94% of plan, no bonus is paid. If results reach plan
or better, the scale applies. Exception: if
performance shows 20% or better improvement over the
previous year, the entire scale applies.
1. The scale is based on the dollar amount of
operating profit, not the percentage. For larger
divisions, however, it may be beneficial to offer a
choice of either dollar or percentage targets.
Individual factors will still be calculated in the same
way. I highly recommend that targets for division
managers include cash flow numbers, growth numbers,
customer service audit numbers and one or two strategic
initiatives with a scale allowing the individual
factors to fluctuate anywhere from 50% to 150%.
<PAGE>
Division Bonus Scale for 30% Group
1.00% increment salary to profit over
100%
0.6% increment salary to profit under 100%
Profit % Bonus % Profit % Bonus % Profit % Bonus %
of Budget of Salary of Budget of Salary of Budget of Salary
80 18.00 122 52.00 164 94.00
81 18.60 123 53.00 165 95.00
82 19.20 124 54.00 166 96.00
83 19.80 125 55.00 167 97.00
84 20.40 126 56.00 168 98.00
85 21.00 127 57.00 169 99.00
86 21.60 128 58.00 170 100.00
87 22.20 129 59.00
88 22.80 130 60.00
89 23.40 131 61.00
90 24.00 132 62.00
91 24.60 133 63.00
92 25.20 134 64.00
93 25.80 135 65.00
94 26.40 136 66.00
95 27.00 137 67.00
96 27.60 138 68.00
97 28.20 139 69.00
98 28.80 140 70.00
99 29.40 141 71.00
100 30.00 142 72.00
101 31.00 143 73.00
102 32.00 144 74.00
103 33.00 145 75.00
104 34.00 146 76.00
105 35.00 147 77.00
106 36.00 148 78.00
107 37.00 149 79.00
108 38.00 150 80.00
109 39.00 151 81.00
110 40.00 152 82.00
111 41.00 153 83.00
112 42.00 154 84.00
113 43.00 155 85.00
114 44.00 156 86.00
115 45.00 157 87.00
116 46.00 158 88.00
117 47.00 159 89.00
118 48.00 160 90.00
119 49.00 161 91.00
120 50.00 162 92.00
121 51.00 163 93.00
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 2nd
day of March, 1999 and having an "Effective Date" of
February 1, 1999, is by and between Sportime, LLC, a
Delaware limited liability company (the "Company") and
Peter Savitz ("Employee").
RECITALS
The Company desires to employ Employee and to have
the benefit of his skills and services, and Employee
desires to accept employment with the Company, on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual
promises, terms, covenants and conditions set forth
herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as
follows:
AGREEMENTS
1. Employment and Duties.
The Company hereby agrees to employ the Employee and the Employee
hereby accepts employment as the general manager of the
Company and agrees to devote his full business time and
efforts to the diligent and faithful performance of his
duties as a general manager of the Company, as he has
historically performed same, under the direction of the
President of School Specialty, Inc. Such duties shall
be performed in the metropolitan area of Atlanta,
Georgia.
2. Term of Employment.
Unless sooner terminated as hereinafter provided, the term of the
Employee's employment hereunder shall commence with and
only with the Effective Date of this agreement and
shall continue until January 31, 2003. This Agreement
may be terminated prior to the end of the Term in the
manner provided herein.
3. Compensation.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) Base Salary.
Effective on the date hereof, the base salary payable to Employee
shall be One Hundred Ninety Thousand Dollars
($190,000.00) per year (the "Base Salary"), payable on
a regular basis in accordance with the Company's
standard payroll procedures, but not less than monthly.
The Base Salary shall be subject to annual review for
increase by the managing member of the Company. In the
event that the Employee shall be terminated for any
reason other than death, disability or cause, he shall
be paid his then current Base Salary, as then
periodically paid, for the balance of the term of this
agreement as described in Section 2 herein. In the
event that the Company
<PAGE>
and the Employee shall not agree
on whether a termination shall be for cause, such issue
shall be resolved pursuant to the arbitration
provisions of Section 11 of this Agreement.
(b) Incentive Bonus.
During the Term, Employee shall be eligible to
participate in the Company's executive management bonus
program according to the schedule attached hereto as
Exhibit A, which executive management bonus program
shall permit bonuses from 0% to 100% of the Base Salary
as described in Section 3(a) herein. This bonus
program shall be subject to the annual review and
revision of same by the managing member of the Company.
(c) Perquisites, Benefits, and Other Compensation.
During the Term, Employee shall be entitled to received all
perquisites and benefits as are customarily provided by the
Company to its employees, subject to such changes, additions, or
deletions as the Company may make generally from time
to time, as well as such other perquisites or benefits
as may be specified from time to time by the Board or
the President of School Specialty, Inc. In addition to
the foregoing the employee shall continue to be
provided by the Company with the 1996 Lexus automobile
for the balance of its current lease term. Following
the expiration of this automobile lease and throughout
the term of the Employee's employment under the terms
of this agreement, the Company shall pay to the
Employee One Thousand Four Hundred Dollars ($1,400.00)
on a monthly basis, as additional compensation. These
payments shall be gross and the amount received by the
Employee shall be net of all related employment taxes
which are the normal responsibility of the Employee.
Throughout the term of this agreement the Company shall
continue to maintain the current disability insurance
coverage on the Employee. The Employee shall be
permitted to take up to eight (8) weeks of vacation
during each anniversary year during the term of this
agreement, with the anniversary year to be measured
from the effective date of this agreement.
4. Expense Reimbursement.
The Company shall reimburse Employee for, or at the Company's
option, pay all business travel and other out-of-pocket expenses
reasonably incurred by Employee in the performance of
his services hereunder during the Term. All
reimbursable expenses shall be appropriately documented
in reasonable detail by Employee upon submission of any
request for reimbursement, and in a format and manner
consistent with the Company's expense reporting policy,
as well as applicable federal and state tax record
keeping requirements.
5. Covenants and Conditions.
(a) The Employee will
acquire information and knowledge respecting the
intimate and confidential affairs of the Company in the
various phases of its business. Accordingly, the
Employee agrees that he shall not during his
<PAGE>
employment with the Company or for twenty four (24) months
thereafter (the "Effective Period"), use for himself or
disclose to any person not employed by the Company any
such knowledge or information heretofore acquired or
acquired during the term of this employment hereunder.
Nothing in this agreement shall be construed to limit
or supersede the common law of torts or statutory or
other protection of trade secrets where such law
provides the Company with greater protections or
protections for a longer duration than that provided in
this section 4 of this Agreement.
(b) The Employee agrees that all memoranda, notes, records, papers,
or other documents and all copies thereof relating to the
Company's operations or business, some of which may be
prepared by him, and all objects associated therewith
(such as models and samples) in any way obtained by him
shall be the Company's property. This shall include,
but is not limited to, documents and objects concerning
any process, apparatus, or product manufactured, used,
developed, investigated, or considered by the Company.
The Employee shall not, except for Company use, copy or
duplicate any of the aforementioned documents or
objects, nor remove them from the Company's facilities.
The Employee shall not use any information concerning
the aforementioned documents or objects, except for the
Company's benefit, either during the Effective Period.
The Employee agrees that he will deliver all of the
aforementioned documents and objects that may be in his
possession to the Company on termination of his
employment, or at any other time on the Company's
request, together with his written certification of
compliance, except for those documents and objects
received as a director of the Company.
(c) During the Effective Period, the Employee will not, without
the written consent of the Company, either as principal, agent,
consultant, employee, director, or otherwise, directly
or indirectly, contact (1) any customer, supplier or
vendor of the Company with whom the Employee had direct
contact on behalf of the Company; (2) any customer,
supplier or vendor of the Company who was contacted by
an individual directly or indirectly supervised by the
Employee; and (3) any customer, supplier or vendor of
the Company about whom the Employee obtained non-public
information in connection with his/her relationship
with the Company, with the purpose or effect of causing
such customer to buy or use products competitive with
the Company's. The customer contacts/acquisition of
knowledge described in this Paragraph 4 only apply to
those occurring during the eighteen (18) months prior
to the termination of Employee's relationship with the
Company.
(d) During the Effective Period, the Employee will not, without
the written consent of the Company, either as principal, agent,
consultant, employee, director, or otherwise, directly
or indirectly, contact any of the employees of
<PAGE>
the Company or School Specialty, Inc. in an effort cause
any such employees to leave the employ of the Company
and/or School.
(e) The Company shall pay to the Employee a monthly payment of
$4,166.67 during that portion of the Effective Period that the
Employee is not receiving other consideration under the terms of
this Agreement.
6. Death or Disability of the Employee.
The Employee's employment shall terminate immediately upon
his/her death. In the event the Employee becomes
physically or mentally disabled under the terms of the
then currently effective disability coverage for full
time employees of the Company, they shall cease
receiving compensation under the terms of this
agreement. In the event that the Employee returns to
active full time employment with the Company during the
term of this agreement, or any extension or renewal
thereof, he shall then be compensated for his
employment under the terms of this agreement.
7. Termination.
The Company reserves the right to terminate the Employee's employment
immediately under this agreement should any of the
following occur:
(a) The Employee's commission of a felony that is an act which, in
the opinion of the Board of Directors, is either abhorrent
to the community or is an intentional act which the
Board of Directors considers materially damaging to the
reputation of the Company or its successors or assigns.
(b) The Employee's breach of or failure to perform his obligations
in accordance with the terms and conditions of this agreement
following receipt of a written notice detailing such
failure or material breach and failure to cure same
during a thirty (30) day period following receipt of said notice.
(c) The death or disability of the Employee.
8. Successors and Assigns.
Rights and duties under this Agreement shall be and are binding
upon and inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors
and assigns, although this agreement, and the right of
the employee to act as a sales representative of the
Company, is purely personal and not transferable.
9. Representations of the Employee.
The Employee warrants and represents to the Company that as
of the Effective Date, he is not subject to any
employment, consulting or services agreement, or any
restrictive covenants or agreements of any type which
would conflict or prohibit the Employee from fully
carrying our their duties as described under the terms
of this agreement. Further the Employee warrants and
represents to the Company that he has not and will not
retain or use, for the benefit of the Company, any
confidential information, records, trade secrets, or
other property of a former employer. These warranties
<PAGE>
and representations shall remain in full force and
effect beyond the term of the employment of the
Employee with the Company.
10. Notice.
All notices, demands and other communications hereunder shall be
deemed to have been duly given, if delivered by hand or mailed,
certified or registered mail with postage prepaid:
To the Company: School Specialty Inc.
1000 North Bluemound Drive
P.O. Box 1579
Appleton, WI 54913-1579
Attention: Mr. David Vander Zanden
Fax: 1-920-734-6276
With a copy to: Joseph F. Franzoi IV, Esq.
Franzoi & Franzoi, S.C.
514 Racine Street
Menasha, WI 54952
Fax: (920) 725-0998
To Employee: Mr. Peter Savitz
800 Marseilles Drive
Atlanta, GA 30327
or to such other address as the person to
whom notice is to be given may have specified
in a notice duly given to the sender as
provided herein. Such notice, request, claim,
demand, waiver, consent, approval or other
communication shall be deemed to have been
given as of the date so delivered, telefaxed,
mailed or dispatched and, if given by any
other means, shall be deemed given only when
actually received by the addressees.
11. Entire Agreement; Amendment; Waiver.
This Agreement (including any documents referred
to herein) sets forth the entire
understanding of the parties hereto with
respect to the subject matter contemplated
hereby. Any and all previous agreements and
understandings between or among the parties
regarding the subject matter hereof, whether
written or oral, are superseded by this
Agreement. This Agreement shall not be
amended or modified except by a written
instrument duly executed by each of the
parties hereto. Any extension or waiver by
any party of any provision hereto shall be
valid only if set forth in an instrument in
writing signed on behalf of such party.
12. Arbitration.
Any controversy or dispute
arising out of or relating to a provision of
this agreement shall be settled by a single
arbitrator selected by the Company and the
Employee or, if the Company and the Employee
cannot agree on one arbitrator, by three
arbitrators selected in accordance with the
Commercial Arbitration Rules of the American
Arbitration Association. All arbitration
<PAGE>
proceedings shall take place in Atlanta,
Georgia and judgment upon the award rendered
by the arbitrator(s) may be entered in any
court having jurisdiction thereof. The
decision of the arbitrator(s) shall be in
writing and shall be final and nonappealable.
The arbitrator(s) shall also make a decision
regarding which party's legal position in any
such controversy or dispute is the more
substantially correct (the "Prevailing
Party"), and the arbitrator(s) may require
the other party to pay the reasonable legal
and other professional fees and costs
incurred by the Prevailing Party in
connection with such arbitration proceeding
and any necessary court action.
13. Expenses.
Each party hereto shall bear and
pay all of their respective fees, expenses
and disbursements of their agents,
representatives, accountants and counsel
incurred in connection with the subject
matter of this Agreement, and its
enforcement.
14. Governing Law.
This Agreement shall in all respects be construed
according to the laws of the State of Georgia, without
regard to its conflict of laws principles.
IN WITNESS WHEREOF, the parties hereto have cause
this Agreement to be duly executed as of the date first
written above.
COMPANY: SPORTIME, LLC
/s/ Daniel P. Spalding
-------------------------
Daniel P. Spalding, Chief Executive Officer
of School Specialty, Inc., the Sole Member
of Sportime, LLC
EMPLOYEE:
/s/ Peter Savitz
--------------------
Peter Savitz, Individually
<PAGE>
EXHIBIT A
EXECUTIVE PLAN
The Executive Incentive Plan will be based on the
operating profit budget. The incentive of company
presidents will be based 25% on the consolidated
operating budget and 75% on their company's operating
profit budget. Corporate executives' incentive will be
based 100% on the consolidated operating profit budget.
If the budget is met, participants will be eligible to
receive a bonus of 50% of base salary. If the budget
is exceeded, participants will be eligible for
additional bonus of up to 50% of base salary which will
be calculated as a percentage of salary based upon the
amount exceeding budget and the maximum payout level.
If the budget is not met, the bonus amount will be
zero. New acquisitions will not be included in these
calculations.
Consolidated operating profit must be at least 7% of
sales in order for any incentives to be paid. Payment
will be made annually after the audit and approval by
the Board of Directors' Compensation Committee.
Target
Operating Profit 1
Maximum
Budget Payout Level
Consolidated $31,000,000 $40,000,000
Childcraft $3,900,000 $5,000,000
Re-Print $5,500,000 $7,100,000
Sax $5,700,000 $7,400,000
Traditional $18,000,000 $23,200,000
Gresswell $750,000 $1,500,000
Education Access $900,000 $1,800,000
1 These figures are based on the most recent version of
the budget. When the budget is finalized, they will
be revised to reflect our final operating budget.
<PAGE>
Calculations for Executive Incentive Plan
Example 1
Act. Consolidated Act. Childcraft
Salary Operating Profit Operating Profit
President of Specialty Division $100,000 $35,000,000 $4,900,000
- -------------------------------------------------------
Percentage for exceeding budget
Consolidated Portion
Maximum payout level $40,000,000
Budget - 31,000,000
-------------
$9,000,000
(50% of salary) $50,000/ $9,000,000 = .56% x 25% = .139%
Division Portion
Maximum payout level $5,000,000
Budget $3,900,000
-----------
$1,100,000
(50% of salary) $50,000/ $1,100,000 = 4.55% x 75% = 3.41%
- -------------------------------------------------------
Bonus earned for meeting budget
Consolidated Operating Profit: 50% x 100,000 x .25 = $12,500
Division Operating Profit 50% x 100,000 x .75 = $37,500
--------
$50,000
Bonus earned for exceeding budget
35,000,000 - 31,000,000 = 4,000,000 x .139% = $ 5,560
4,900,000 - 3,900,000 = 1,000,000 x 3.41% = $34,100
--------
$39,660
--------
TOTAL BONUS EARNED $89,660
========
89.7%
<PAGE>
Example 2
Act. Consolidated Act. Division
Salary Operating Profit Operating Profit
President of Specialty Division $100,000 $30,000,000 $4,900,000
Bonus earned for meeting budget
Consolidated Operating Profit: 0% x 100,000 x .25 = $0
Division Operating Profit 50% x 100,000 x .75 = $37,500
-------
$37,500
Bonus earned for exceeding budget
30,000,000 - 31,000,000 = (1,000,000) $0
4,900,000 - 3,900,000 = 1,000,000 x 3.41% = $34,100
-------
$34,100
-------
TOTAL BONUS EARNED $71,600
=======
71.6%
Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of this 29th
day of March, 1999, and having an "Effective Date" of
March 29, 1999, is by and among SCHOOL SPECIALTY, INC.,
a Delaware corporation (the "Company") and BRIAN CHAPIN
("Employee").
RECITALS
The Company desires to employ the Employee on the
terms set forth in this Employment Agreement.
NOW, THEREFORE, in consideration of the mutual
promises, terms, covenants and conditions set forth
herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as
follows:
AGREEMENTS
1. Employment and Duties.
The Company hereby agrees to employ the Employee and the Employee
hereby accepts employment as the General Manager of the
SmartStuff division of the Company and agrees to devote
his full business time and efforts to the diligent and
faithful performance of his duties as the General
Manager hereunder under the direction of the Chief
Executive Officer and/or the President of the Company.
Such duties shall be performed from headquarters of the
Company in the Portland, Oregon area.
2. Term of Employment.
Unless sooner terminated as hereinafter provided, the term of the
Employee's employment hereunder shall commence with and
only with the Effective Date of this agreement and
shall continue for a period of two (2) years. This
Agreement may be terminated prior to the end of the
Term in the manner provided herein. For the purpose of
this Agreement, the term "Contract Year" shall mean the
annual period commencing on the Effective Date.
3. Compensation.
For all services rendered by Employee, the Company shall compensate
Employee as follows:
(a) Base Salary.
Effective on the date hereof, the base salary payable
to Employee shall be One Hundred Fifty Thousand Dollars
($150,000.00) per year or such greater amount as
determined from time to time by the Chief Executive
Officer and/or the President of the Company (but not
reviewed less frequently than on an annual basis),
payable on a regular basis in accordance with the
Company's standard payroll procedures, but not less
than monthly. It is understood that the base salary is
a minimum amount, and shall not be reduced during the
term of this Agreement.
<PAGE>
(b) Incentive Bonus.
During the initial term and any extensions thereof, Employee
shall be eligible to receive an incentive bonus based upon
his participation in the Company's senior management
bonus program as specified in Exhibit A as attached
hereto. The first and last years of employment will be
prorated. Said bonus program shall provide the
Employee the opportunity for incentive compensation up
to one hundred percent (100%) of his base salary.
(c) Perquisites, Benefits, and Other Compensation.
During the initial term and any extensions thereof, Employee
shall be entitled to receive all perquisites and benefits as are
customarily and generally provided by or at the
direction of The Company, to its executive employees
and executive employees of its subsidiaries, subject to
such changes, additions, or deletions as the Company
may make generally from time to time, as well as such
other perquisites or benefits as may be specified from
time to time by the Board of Directors, President or
the Chief Executive Officer of the Company.
Notwithstanding the foregoing the Employee shall be
permitted six (6) weeks of vacation during the calendar
year of 1999. Beyond 1999 the standard vacation policy
of the Company shall apply to the Employee. For the
purpose of calculating the amount of vacation due the
employee for years 2000 and forward the Employee shall
be given credit for his time of employment with the
Company prior to its acquisition by School Specialty,
Inc.
(d) Stock Options.
The Employee shall be granted a combination of options
granted under the School Specialty, Inc, 1998 Stock
Incentive Plan Incentive Stock Option Agreement ("ISO")
(as defined and qualified under 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) and
School Specialty, Inc, 1998 Stock Incentive Plan
Nonqualified Stock Option Agreement ("NSO") in a total
amount not to exceed Seventy Five Thousand (75,000)
shares of common stock of the Company (the "Option
Shares"). The Employee shall have the right for sixty
(60) days following the execution and delivery of this
Employment Agreement to allocate among other employees
of the Corporation and himself the Option Shares. At
or before the end of that sixty (60) day period the
Employee shall provide a list to the Company of the
allocation of the Option Shares. The exercise price of
these options shall be established as of the date of
grant pursuant to the terms of the ISO and NSO. The
Option Shares shall be composed of the maximum amount
of shares permitted to be issued under the terms of the
ISO with the balance to be issued under the terms of
the NSO. The ability to purchase the Option Shares
shall have the following characteristics: (i) an
exercise price equal to the fair market price of the
common stock of the Company on at date of grant; (ii)
expiration date of ten (10) years from the Effective
Date; (iii) vested over a four (4) year period, at 25%
per year, with such vesting to occur at the end of
Contract Year (unless the Compensation
<PAGE>
Committee of the Board of Directors of the Company provides for
earlier vesting before such date); and (iv) subject to forfeiture
on conditions as provided in the ISO and/or NSO documents.
4. Covenants and Conditions.
(a) The Employee will acquire information and knowledge respecting
the intimate and confidential affairs of the Company in the
various phases of its business. Accordingly, the
Employee agrees that he shall not for the term of his
employment and for a period of two (2) years
thereafter, use for himself or disclose to any person
not employed by the Company (other than disclosures
reasonably required to be made in the ordinary course
of the Company's business) any such knowledge or
information heretofore acquired or acquired during the
term of this employment hereunder. Nothing in this
agreement shall be construed to limit or supersede the
common law of torts or statutory or other protection of
trade secrets where such law provides the Company with
greater protections or protections for a longer
duration than that provided in this Section 4 of this
Agreement.
(b) The Employee agrees that all memoranda, notes, records, papers,
or other documents and all copies thereof relating to the
Company's operations or business and containing
confidential or proprietary information subject to
protection under the Oregon Trade Secrets Act, some of
which may be prepared by him, and all objects
associated therewith (such as models and samples) in
any way obtained by him shall be the Company's
property. This shall include, but is not limited to,
documents and objects concerning any process,
apparatus, or product manufactured, used, developed,
investigated, or considered by the Company. The
Employee shall not, except for Company use, copy or
duplicate any of the aforementioned documents or
objects, nor remove them from the Company's facilities,
nor use any information concerning them except for the
Company's benefit, either during his employment or
thereafter. The Employee agrees that he will deliver
all of the aforementioned documents and objects that
may be in his possession to the Company on termination
of his employment, or at any other time on the
Company's request, together with his written
certification of compliance, except for those documents
and objects received as a director of the Company.
5. Death or Disability of the Employee.
The Employee's employment shall terminate immediately upon
his death. In the event the Employee becomes
physically or mentally disabled under the terms of the
then currently effective disability coverage for full
time employees of the Company (which shall not be
materially different from such coverage afforded to
executive employees of The Company), he shall cease
receiving compensation under the terms of this
agreement. In the event that the Employee returns to
active full time employment
<PAGE>
with the Company during the
term of this agreement, or any extension or renewal
thereof, he shall then be compensated for his
employment under the terms of this agreement.
6. Termination.
The Company reserves the right to terminate the Employee's
employment under this agreement should any of the following occur:
(a) The Employee's commission of a felony that is an act which, in
the opinion of the Board of Directors, is either abhorrent
to the community or is an intentional act, which the
Board of Directors considers materially damaging to the
reputation of the Company or its successors or assigns.
(b) The Employee's material breach of or failure to perform his
obligations in accordance with the terms and conditions
of this agreement following notice thereof and a thirty
(30) day period to cure same.
(c) The death or disability of the Employee.
7. Covenant Not to Compete.
In consideration of the employment hereunder, the Employee hereby
agrees that during the term of his employment by the Company
and for the term of his employment with the Company and
for a period of two (2) years thereafter, the Employee
will not either directly or indirectly own, have
proprietary interest (except for less then 5% of any
listed company or company traded in the over-the-
counter market) of any kind in, be employed by, or
serve as a consultant to or in any other capacity for
any firm, other than the Company and its subsidiaries,
engaged in the manufacture and/or distribution of
school supplies, software, Internet services,
equipment, furniture or other products, if such
products or directly competitive products were made
and/or distributed by the Company or any of the
Company's present or future subsidiary corporations
(acquired during the term of this Agreement) during the
period of the Employee's employment, by the Company or
any such subsidiary, in the area where they are engaged
in business without the express written consent of the
Company. The Employee agrees that a breach of the
covenant contained herein may result in irreparable and
continuing damage to the Company for which there may be
no adequate remedy at law and in the event of any
breach of such agreement, the Company shall be entitled
to injunctive and such other and further relief
including damages as may be proper.
8. Notice.
All notices, demands and other
communications hereunder shall be deemed to have been
duly given, if delivered by hand, telefaxed or mailed,
certified or registered mail with postage prepaid:
<PAGE>
To the Company: School Specialty, Inc.
1000 North Bluemound Drive
P.O. Box 1579
Appleton, WI 54913-1579
Attention: Mr. Daniel P. Spalding
Fax: (920) 734-6276
With a copy to: Joseph F. Franzoi IV, Esq.
Franzoi & Franzoi, S.C.
514 Racine Street
Menasha, WI 54952
Fax: (920) 725-0998
To Employee: Brian E. Chapin
SmartStuff Development Corporation
2100 SE 10th Avenue
Portland, Oregon 97214
or to such other address as the person to
whom notice is to be given may have specified
in a notice duly given to the sender as
provided herein. Such notice, request, claim,
demand, waiver, consent, approval or other
communication shall be deemed to have been
given as of the date so delivered, telefaxed,
mailed or dispatched and, if given by any
other means, shall be deemed given only when
actually received by the addressees.
9. Entire Agreement; Amendment; Waiver.
This Agreement (including any documents referred
to herein) sets forth the entire
understanding of the parties hereto with
respect to the subject matter contemplated
hereby. Any and all previous agreements and
understandings between or among the parties
regarding the subject matter hereof, whether
written or oral, are superseded by this
Agreement. This Agreement shall not be
amended or modified except by a written
instrument duly executed by each of the
parties hereto. Any extension or waiver by
any party of any provision hereto shall be
valid only if set forth in an instrument in
writing signed on behalf of such party.
10. Expenses.
The Company will pay all fees,
expenses and disbursements of their agents,
representatives, accountants and counsel
incurred in connection with the subject
matter of this Agreement, and its
enforcement.
11. Governing Law.
This Agreement shall in all respects be construed according to the
laws of the State of Delaware, without regard
to its conflict of laws principles.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause
this Agreement to be duly executed as of the date first
written above.
THE COMPANY:
SCHOOL SPECIALTY, INC.
/s/ David Vander Zanden
----------------------------------
David Vander Zanden, President
EMPLOYEE:
/s/ Brian E. Chapin
------------------------------------
Brian E. Chapin, Individually
<PAGE>
EXHIBIT A
EXECUTIVE PLAN
The Executive Incentive Plan will be based on the
operating profit budget. The incentive of company
presidents will be based 25% on the consolidated
operating budget and 75% on their company's operating
profit budget. Corporate executives' incentive will be
based 100% on the consolidated operating profit budget.
If the budget is met, participants will be eligible to
receive a bonus of 50% of base salary. If the budget
is exceeded, participants will be eligible for
additional bonus of up to 50% of base salary which will
be calculated as a percentage of salary based upon the
amount exceeding budget and the maximum payout level.
If the budget is not met, the bonus amount will be
zero. New acquisitions will not be included in these
calculations.
Consolidated operating profit must be at least 7% of
sales in order for any incentives to be paid. Payment
will be made annually after the audit and approval by
the Board of Directors' Compensation Committee.
Target
Operating Profit 1
Maximum
Budget Payout Level
Consolidated $31,000,000 $40,000,000
Childcraft $3,900,000 $5,000,000
Re-Print $5,500,000 $7,100,000
Sax $5,700,000 $7,400,000
Traditional $18,000,000 $23,200,000
Gresswell $750,000 $1,500,000
Education Access $900,000 $1,800,000
1 These figures are based on the most recent version of
the budget. When the budget is finalized, they will
be revised to reflect our final operating budget.
<PAGE>
Calculations for Executive Incentive Plan
Example 1
Act. Consolidated Act. Childcraft
Salary Operating Profit Operating Profit
President of Specialty Division $100,000 $35,000,000 $4,900,000
- -------------------------------------------------------
Percentage for exceeding budget
Consolidated Portion
Maximum payout level $40,000,000
Budget - 31,000,000
------------
$9,000,000
(50% of salary) $50,000/ $9,000,000 = .56% x 25% = .139%
Division Portion
Maximum payout level $5,000,000
Budget $3,900,000
-----------
$1,100,000
(50% of salary) $50,000/ $1,100,000 = 4.55% x 75% = 3.41%
- -------------------------------------------------------
Bonus earned for meeting budget
Consolidated Operating Profit: 50% x 100,000 x .25 = $12,500
Division Operating Profit 50% x 100,000 x .75 = $37,500
--------
$50,000
Bonus earned for exceeding budget
35,000,000 - 31,000,000 = 4,000,000 x .139% = $ 5,560
4,900,000 - 3,900,000 = 1,000,000 x 3.41% = $34,100
-------
$39,660
TOTAL BONUS EARNED $89,660
=======
89.7%
<PAGE>
Example 2
Act. Consolidated Act. Division
Salary Operating Profit Operating Profit
President of Specialty Division $100,000 $30,000,000 $4,900,000
Bonus earned for meeting budget
Consolidated Operating Profit: 0% x 100,000 x .25 = $0
Division Operating Profit 50% x 100,000 x .75 = $37,500
--------
$37,500
Bonus earned for exceeding budget
30,000,000 - 31,000,000 = (1,000,000) $0
4,900,000 - 3,900,000 = 1,000,000 x 3.41% = $34,100
--------
$34,100
--------
TOTAL BONUS EARNED $71,600
========
71.6%
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from our unaudited
consolidated financial statements of the Company
included in the Report on Form 10-Q and is
qualified in its entirety by reference
to such financial statements.
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-29-2000
<PERIOD-START> APR-25-1999
<PERIOD-END> JUL-24-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 143,150
<ALLOWANCES> (2,135)
<INVENTORY> 85,624
<CURRENT-ASSETS> 254,365
<PP&E> 55,663
<DEPRECIATION> (13,411)
<TOTAL-ASSETS> 502,947
<CURRENT-LIABILITIES> 109,096
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 217,355
<TOTAL-LIABILITY-AND-EQUITY> 502,947
<SALES> 194,299
<TOTAL-REVENUES> 194,299
<CGS> 121,420
<TOTAL-COSTS> 121,420
<OTHER-EXPENSES> 48,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,168
<INCOME-PRETAX> 21,440
<INCOME-TAX> 10,076
<INCOME-CONTINUING> 11,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,364
<EPS-BASIC> 0.65
<EPS-DILUTED> 0.65
</TABLE>
