<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 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:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(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 calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
--------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
SCHOOL SPECIALTY, INC.
1000 N. BLUEMOUND DRIVE
APPLETON, WISCONSIN 54914
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
AUGUST 29, 2000
To the Stockholders of School Specialty, Inc.:
The 2000 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 Tuesday, August 29, 2000 at 10:00 a.m. Central Time for the
following purposes:
(1) To elect two directors to serve until the 2003 Annual Meeting of
Stockholders as Class II directors;
(2) To vote upon a proposal to reincorporate School Specialty in Wisconsin
under a Merger Agreement which will merge the current Delaware
corporation into a newly formed Wisconsin corporation and wholly owned
subsidiary of School Specialty;
(3) To vote upon a proposal to amend and restate School Specialty's 1998
Stock Incentive Plan;
(4) To ratify the appointment of PricewaterhouseCoopers LLP as School
Specialty's independent auditors for fiscal 2001; and
(5) To transact such other business as may properly come before the Annual
Meeting (and any adjournment thereof), all in accordance with the
accompanying Proxy Statement.
Stockholders of record at the close of business on July 10, 2000 are
entitled to receive notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to complete, date and sign the enclosed proxy card and
return it as soon as possible in the enclosed envelope which has been provided
for your convenience. The prompt return of proxy cards will ensure a quorum. If
you send in your proxy card and then decide to attend the Annual Meeting to vote
your shares in person, you may still do so. Your proxy is revocable in
accordance with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors
Joseph F. Franzoi IV, Secretary
July 24, 2000
<PAGE> 3
SCHOOL SPECIALTY, INC.
1000 N. BLUEMOUND DRIVE
APPLETON, WISCONSIN 54914
JULY 24, 2000
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 29, 2000 is referred to as "fiscal
2000").
This Proxy Statement is furnished by the Board of Directors of School
Specialty for the solicitation of proxies from the holders of our common stock,
$0.001 par value (the "Common Stock"), in connection with the Annual Meeting of
Stockholders to be held at the Park Plaza Paper Valley Hotel, 333 West College
Avenue, Appleton, Wisconsin, on Tuesday, August 29, 2000 at 10:00 a.m. Central
Time, and at any adjournment thereof (the "Annual Meeting"). It is expected that
the Notice of Annual Meeting of Stockholders, this Proxy Statement and the
enclosed proxy card, together with our Annual Report to Stockholders for fiscal
2000, will be mailed to stockholders starting on or about July 24, 2000.
Stockholders can ensure that their shares are voted at the Annual Meeting
by signing and returning the enclosed proxy card in the envelope provided. The
submission of a signed proxy will not affect a stockholder's right to attend the
Annual Meeting and vote in person. Stockholders who execute proxies retain the
right to revoke them at any time before they are voted by filing with School
Specialty's Secretary a written revocation or a proxy bearing a later date. The
presence at the Annual Meeting of a stockholder who has signed a proxy does not
itself revoke that proxy unless the stockholder attending the Annual Meeting
files a written notice of revocation of the proxy with School Specialty's
Secretary at any time prior to the voting of the proxy.
Proxies will be voted as specified by the stockholders. Where specific
choices are not indicated, proxies will be voted as follows:
- FOR the election of each of the individuals nominated to serve as Class
II directors,
- FOR approval of the proposal to change School Specialty's state of
incorporation from Delaware to Wisconsin through the merger,
- FOR approval of the proposal to amend and restate School Specialty's 1998
Stock Incentive Plan,
- FOR ratification of the appointment of the independent auditors.
The Board of Directors knows of no other matters to be presented for
stockholder action at the Annual Meeting. If any other matters properly come
before the Annual Meeting, the persons named as proxies will vote on the same in
their discretion.
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 paid by School Specialty. No solicitation,
other than by mail, is currently planned, except that officers or employees of
School Specialty may solicit the return of proxies from certain stockholders by
telephone.
Only stockholders of record at the close of business on July 10, 2000 (the
"Record Date") are entitled to receive notice of and to vote the shares of
Common Stock registered in their name at the Annual Meeting. As of the Record
Date, we had outstanding 17,464,505 shares of Common Stock. Each share of Common
Stock entitles its holder to cast one vote on each matter to be voted upon at
the Annual Meeting.
Under Delaware law and School Specialty's Amended and Restated By-Laws, the
presence of a quorum is required to conduct business at the Annual Meeting. A
quorum is defined as the presence, either in person or by proxy, of a majority
of the total outstanding shares of Common Stock entitled to vote at the Annual
Meeting. The shares represented at the Annual Meeting by proxies that are
marked, with respect to the
<PAGE> 4
election of directors, "withhold authority" or, with respect to any other
proposals, "abstain," will be counted as shares present for the purpose of
determining whether a quorum is present. Broker non-votes will also be counted
as shares present for purposes of determining a quorum.
With respect to the vote required to approve the various proposals at the
Annual Meeting, the following rules apply:
- The affirmative vote of a plurality of the shares of Common Stock
present, either in person or by proxy, at the Annual Meeting and entitled
to vote is required for the election of the directors. For this purpose,
"plurality" means that the individuals receiving the largest number of
votes are elected as directors, up to the maximum number of directors to
be chosen at the election. In the election of directors, votes may be
cast in favor or withheld. Votes that are withheld and broker non-votes
will have no effect on the outcome of the election of directors.
- The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting is required
to approve the proposal to change School Specialty's state of
incorporation from Delaware to Wisconsin. Any shares not voted at the
Annual Meeting, whether due to abstentions or broker non-votes, will have
the same effect as a vote against the proposal.
- The affirmative vote of the holders of a majority of the shares of Common
Stock present, either in person or by proxy, at the Annual Meeting and
entitled to vote is required to approve the proposal to amend and restate
School Specialty's 1998 Stock Incentive Plan and to ratify the
appointment of the independent auditors. Abstentions will have the same
effect as a vote against these proposals, while broker non-votes will
have no effect on the approval of these proposals.
2
<PAGE> 5
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of July 10, 2000
regarding the beneficial ownership of shares of Common Stock by (i) each of our
directors, (ii) our Chief Executive Officer and the four most highly compensated
executive officers other than our Chief Executive Officer (the "Named
Officers"), (iii) all of our directors and executive officers as a group and
(iv) each person believed by us to be a beneficial owner of more than 5% of the
Common Stock. Except as otherwise indicated, the business address of each of the
following is 1000 N. Bluemound Drive, Appleton, Wisconsin 54914.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING SHARES(4)*
------------------- -------------------- ----------------------
<S> <C> <C>
Daniel P. Spalding(1)......................... 453,357 2.6%
Peter S. Savitz(1)............................ 11,250 *
Ronald E. Suchodolski(1)...................... 50,551 *
David J. Vander Zanden(1)..................... 286,019 1.6
Richard H. Nagel(1)........................... 50,577 *
Jonathan J. Ledecky(1)........................ 914,079 5.0
Leo C. McKenna(1)............................. 14,739 *
Rochelle Lamm(1).............................. 8,672 *
Jerome M. Pool................................ 4,000 *
All executive officers and directors as a
group
(17 persons)(1)............................. 2,345,970 12.2
Janus Capital Corporation(2).................. 1,486,515 8.5%
Janus Venture Fund
Thomas H. Bailey
100 Fillmore Street
Denver, Colorado 80206-4923
Dresdner RCM Global Investors LLC(3)
Dresdner RCM Global Investors US Holdings LLC
Dresdner Bank AG.............................. 1,333,000 7.6%
Four Embarcadero Center
San Francisco, California 94111
</TABLE>
---------------
* Less than 1% of the outstanding Common Stock.
(1) Share amounts include options granted under our 1998 Stock Incentive Plan
which are currently exercisable, or exercisable within 60 days after the
Record Date, in the amount of 306,139 for Mr. Spalding, 11,250 for Mr.
Savitz, 50,537 for Mr. Suchodolski, 236,019 for Mr. Vander Zanden, 50,537
for Mr. Nagel, 914,079 for Mr. Ledecky, 8,500 for Mr. McKenna, 8,500 for Ms.
Lamm, 3,000 for Mr. Pool and 1,832,840 for all executive officers and
directors as a group.
(2) Janus Capital Corporation, Janus Venture Fund and Thomas H. Bailey have
jointly filed a Schedule 13G with the SEC reporting that they had, as of
December 31, 1999, sole voting and sole dispositive power over 1,486,515
shares of Common Stock (including 958,820 shares beneficially owned by Janus
Venture Fund).
(3) 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,
1999, sole voting power over 1,068,700 shares of Common Stock and sole
dispositive power over 1,014,800 shares of Common Stock. 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.
(4) Based on 17,464,505 shares of Common Stock outstanding as of the Record
Date.
3
<PAGE> 6
PROPOSAL ONE: 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 II expires at the Annual Meeting. The Board
of Directors proposes that the nominees described below, who are currently
serving as Class II directors, be elected as Class II directors for a new term
of three years ending at the 2003 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.
<TABLE>
<CAPTION>
NAME AND AGE OF
DIRECTOR
---------------
<S> <C>
NOMINEES FOR DIRECTOR -- CLASS II
David J. Vander Zanden............... Mr. Vander Zanden became the President and Chief Operating
Age 45 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........................ Ms. Lamm has served as a director of School Specialty since
Age 52 the completion of the spin-off from U.S. Office Products in
June 1998. Ms. Lamm is Chairman and Chief Executive Officer
of Precision Marketing Partners, LLC and The Academy of
Financial Services Studies, LLC. Ms. Lamm was associated
with Strong Advisory Services, a division of Strong Capital
Management, Inc., as its President from 1995 to February
1998. Prior to that time, she was President and the Chief
Operating Officer of AAL Capital Management, a mutual fund
manager.
CONTINUING DIRECTORS -- CLASS I
(TERM EXPIRING 2002)
Jonathan J. Ledecky.................. Mr. Ledecky has served as a director of School Specialty
Age 42 since June 1998 and as an employee of School Specialty from
June 1998 to June 2000. He founded Building One Services
Corporation (formerly Consolidation Capital Corporation) in
February 1997 and served as its Chairman until March 2000.
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., 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.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
NAME AND AGE OF
DIRECTOR
---------------
<S> <C>
Jerome M. Pool....................... Mr. Pool was appointed to the Board of Directors of School
Age 64 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.
CONTINUING DIRECTORS -- CLASS III
(TERM EXPIRING 2001)
Daniel P. Spalding................... Mr. Spalding became Chairman of the Board and Chief
Age 45 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 Specialty
Age 66 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 a founder and a
director of Ledyard National Bank, where he also serves on
the Investment Advisory Board and is Chairman of 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.
</TABLE>
The Board of Directors has standing Compensation, Executive Performance
Compensation and Audit Committees. The Board of Directors does not have a
Nominating Committee. The Board of Directors held six meetings in fiscal 2000.
Each director attended at least 75% of the meetings of the Board of Directors
and meetings of committees on which each served, if any, in fiscal 2000.
The Compensation Committee is responsible for reviewing and, if
appropriate, approving the compensation of our Chief Executive Officer and our
President and the recommendations of our Chief Executive Officer and our
President concerning the compensation of our other executive officers. The
Compensation Committee is also responsible for administering our 1998 Stock
Incentive Plan and the 2000 Stock Incentive Plan of our JuneBox.com subsidiary.
The members of the Compensation Committee are Mr. Pool (Chairman), Mr. McKenna
and Ms. Lamm, 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 held two meetings in fiscal
2000.
5
<PAGE> 8
The Board of Directors appointed the Executive Performance Compensation
Committee as a sub-committee of the Compensation Committee on June 19, 2000 to
approve certain matters related to performance-based compensation when required
by Section 162(m) of the Internal Revenue Code of 1986, as amended. The members
of the Executive Performance Compensation Committee are Mr. Pool and Ms. Lamm.
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. Lamm 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 four meetings in fiscal 2000.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 1, 1999, we purchased our main office and warehouse facility, a
120,000 square foot building located in Appleton, Wisconsin, from Bluemound
Corporation. The purchase price for the facility was $2.6 million, which
represented the fair market value of the property as determined by an
independent appraisal. Previously, we leased this facility from Bluemound
Corporation. The lease provided for annual payments of $196,000 through December
31, 2001. John S. Spalding, a former member of the Board of Directors of the
Company's predecessor company 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.
On June 30, 1998, School Specialty entered into a lease with Roger D.
Pannier and Pamela S. Pannier for the lease of a 95,000 square foot facility
located in Fremont, Nebraska. Roger D. Pannier was an executive officer of
School Specialty and was Executive Vice President for Hammond and Stephens
through June 20, 2000. This lease expires June 30, 2003 and provides for annual
payments of $179,780. This amount is subject to an annual adjustment by the
Consumer Price Index.
On July 1, 1990, Larry Joseph and Peter Savitz Partners, as lessor, entered
into a lease with Select Service & Supply Co., Inc. for the leasing of certain
improved real property located at One Sportime Way in Norcross, Georgia. Through
a Sublease and a series of amendments thereto, on February 1, 1999 Sportime, LLC
became the Sub-Lessee of the leased premises. The Sublease arrangement expires
in January 2002, but is cancelable prior to that time upon six months' notice,
and currently requires an annual rental amount of $331,116. Peter Savitz has an
interest in Larry Joseph and Peter Savitz Partners and is also an executive
officer of School Specialty.
Franzoi and Franzoi, S.C. serves as corporate counsel to School Specialty.
Joseph F. Franzoi, IV, an executive officer of School Specialty and a part-time
employee of JuneBox.com, Inc. since June 2000, is a partner and shareholder of
Franzoi and Franzoi, S.C. For fiscal 2000, Franzoi and Franzoi, S.C. received
$257,946 in legal fees from School Specialty.
PENDING LEGAL PROCEEDINGS
No director or executive officer of School Specialty is an adverse party or
has an interest adverse to School Specialty or its subsidiaries in any material
pending legal proceeding.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and officers, among others, to file reports with the Securities and Exchange
Commission disclosing their ownership, and changes in their ownership, of stock
in School Specialty. Copies of these reports must also be furnished to School
Specialty. Based solely on a review of these copies, we believe that during
fiscal 2000, all filing requirements were complied with, except that Donald Ray
Pate, Jr. filed one report on Form 4 late.
6
<PAGE> 9
EXECUTIVE COMPENSATION
Summary Compensation Information. The following table sets forth the
compensation paid by us for services rendered during fiscal 2000, fiscal 1999
and fiscal 1998 to the Named Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)
--------------------------- ---- --------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Daniel P. Spalding..................... 2000 $233,654 -- 130,000 $ 2,400(7)
Chairman of the Board and CEO 1999 225,000 --(6) 332,520 1,072(7)
1998 212,104 $ 34,200 -- --
Peter S. Savitz(2)..................... 2000 $205,036 $107,197 10,000 $67,491(8)
Executive Vice President, Sportime 1999 47,500 -- 45,000 17,867(9)
1998 -- -- -- --
Ronald E. Suchodolski(3)............... 2000 $159,679 $103,509 10,000 $ 2,400(7)
Executive Vice President, Childcraft 1999 146,017 144,853 59,570 --
1998 128,757 62,134 -- --
David J. Vander Zanden(4).............. 2000 $233,654 -- 130,000 $ 1,038(7)
President and Chief Operating Officer 1999 225,000 --(6) 228,519 1,466(7)
1998 25,962 -- -- --
Richard H. Nagel(5).................... 2000 $129,768 $ 77,411 10,000 $ 2,399(7)
Executive Vice President, Sax Arts 1999 127,166 101,232 59,570 1,108(7)
and Crafts 1998 106,346 -- -- --
</TABLE>
---------------
(1) Consists of amounts awarded under School Specialty's Executive Incentive
Plan.
(2) Mr. Savitz was first employed by School Specialty in February 1999.
(3) Mr. Suchodolski was first employed by School Specialty in May 1997.
(4) Mr. Vander Zanden was first employed by School Specialty in March 1998.
(5) Mr. Nagel was first employed by School Specialty in June 1997.
(6) On June 1, 1999, Messrs. Spalding and Vander Zanden were granted options
under our 1998 Stock Incentive Plan to purchase 30,000 shares of Common
Stock at the market price on the date of grant of $15.00 per share. These
options were granted in fiscal 2000 and are reflected in the table as such.
Because the option grants reflected, in part, fiscal 1999 performance,
Messrs. Spalding and Vander Zanden did not receive a cash bonus for fiscal
1999.
(7) Consists of contributions by School Specialty under our 401(k) plan.
(8) Consists of $62,500 in non-competition payments, $2,367 in contributions by
School Specialty under our 401(k) plan and an automobile allowance of
$2,624.
(9) Consists of $15,625 in non-competition payments and an automobile allowance
of $2,242.
7
<PAGE> 10
Option Grants. The following table provides information on options to
acquire School Specialty Common Stock granted to the Named Officers during
fiscal 2000 under the School Specialty 1998 Stock Incentive Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1)
------------------------------------------------------ POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ------------ ------------ -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Spalding........ 30,000 3.9% $15.00 6/1/09 $ 283,003 $ 717,184
100,000 13.1% 17.69 3/27/10 1,112,357 2,818,932
Peter S. Savitz........... 10,000 1.3% $17.69 3/27/10 $ 111,236 $ 281,893
Ronald E. Suchodolski..... 10,000 1.3% $17.69 3/27/10 $ 111,236 $ 281,893
David J. Vander Zanden.... 30,000 3.9% $15.00 6/1/09 $ 283,003 $ 717,184
100,000 13.1% 17.69 3/27/10 1,112,357 2,818,932
Richard H. Nagel.......... 10,000 1.3% $17.69 3/27/10 $ 111,236 $ 281,893
</TABLE>
---------------
(1) The options reflected in the table were granted under our 1998 Stock
Incentive Plan and include incentive stock options granted under Section 422
of the Internal Revenue Code and nonstatutory stock options. The exercise
price of each option granted was equal to 100% of the fair market value of
the Common Stock on the date of grant. The options granted vest in
increments of one-fourth of the total grant on the first, second, third and
fourth anniversaries of the grant or earlier upon certain specified change
of control events.
(2) 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.
Option Exercises. The following table sets forth certain information
regarding options to acquire School Specialty Common Stock held at the end of
fiscal 2000 by the Named Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT THE-MONEY OPTIONS/SARS
SHARES FY-END(#) AT FY-END($)(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Spalding........ -- -- 298,639 163,881 $842,413 $264,489
Peter S. Savitz........... -- -- 11,250 43,750 -- $ 9,375
Ronald E. Suchodolski..... -- -- 50,537 19,033 $142,822 $ 9,375
David J. Vander Zanden.... -- -- 228,519 130,000 $714,122 $202,500
Richard H. Nagel.......... -- -- 50,537 19,033 $142,822 $ 9,375
</TABLE>
---------------
(1) For valuation purposes, an April 28, 2000 market price of $18.625 was used.
8
<PAGE> 11
DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS
Outside directors are granted options under our 1998 Stock Incentive Plan
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.
Outside directors 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.
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") and that continued until June 30, 2000. Under the employment
agreement, Mr. Ledecky reported to the Board of Directors and senior management
of School Specialty. In such capacity, Mr. Ledecky provided high-level
acquisition negotiation services and strategic business advice. As an employee,
Mr. Ledecky was subject to our generally applicable personnel policies and was
eligible for such benefit plans in accordance with their terms. Under the
Ledecky Services Agreement, we were required to pay Mr. Ledecky an annual salary
of $48,000 through June 30, 2000. As of July 1, 2000, Mr. Ledecky became a
non-employee outside director. Because of this change of status, the Board of
Directors, upon a recommendation of the Compensation Committee, authorized a
grant of options for 15,000 shares to Mr. Ledecky.
The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions that continue until June 30, 2001. 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
(determined as of January 1998) 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. Mr. Ledecky may serve in a policy
making role (but not engage in direct personal competition) with respect to
certain specified businesses generally not related to School Specialty's primary
business and businesses providing Internet services. 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, David
J. Vander Zanden, Peter S. Savitz and Richard H. Nagel, each of whom is a Named
Officer.
We entered into an employment agreement with Daniel P. Spalding, Chairman
and Chief Executive Officer of School Specialty, on September 3, 1999. The
agreement has an initial term of three years, and, at expiration, automatically
renews for additional three year terms unless either party gives notice of non-
renewal. The agreement provides for an annual base salary of at least $225,000
and participation in a performance-based incentive compensation plan. The
agreement contains confidentiality and non-compete provisions for two years
following a termination of employment. The agreement provides Mr. Spalding with
the right to terminate his employment upon a change of control of School
Specialty. If Mr. Spalding's employment is terminated due to his death, upon a
change of control, or due to disability, School Specialty is required to pay Mr.
Spalding his base salary through the balance of the then effective term of the
agreement. In the case of disability, these amounts are reduced by insurance
benefits provided by School Specialty.
We entered into an employment agreement with David J. Vander Zanden,
President and Chief Operating Officer of School Specialty, on July 15, 1998. The
agreement has an initial term of two years, and, at expiration, automatically
renews for additional two year terms unless either party gives notice of
non-renewal. The agreement provides for an annual base salary of at least
$225,000 and participation in a performance-based incentive compensation plan.
The agreement contains confidentiality and non-compete provisions for the period
during which he receives severance pay under the terms of the agreement. The
agreement provides
9
<PAGE> 12
Mr. Vander Zanden the right to terminate his employment upon a change of control
of School Specialty. In the event Mr. Vander Zanden's employment is terminated
due to his death, disability, his breach of or failure to perform under the
agreement, or upon a change of control, School Specialty is required to pay to
him his base salary for the balance of the then effective term of the agreement.
In the case of disability, these amounts are reduced by insurance benefits
provided by School Specialty.
We entered into an employment agreement with Peter S. Savitz, Executive
Vice President of Sportime, effective February 1, 1999. The agreement will
continue until January 31, 2003. The agreement provides for an annual base
salary of at least $190,000 and participation in a performance-based incentive
compensation plan. The agreement contains confidentiality and non-compete
provisions for two years following termination. In the event Mr. Savitz's
employment is terminated for any reason other than death, disability, or cause,
he is entitled to his then current base salary for the balance of the term of
the agreement. Mr. Savitz is entitled to receive a monthly payment of $4,167
during that portion of the term of his agreement during which he is not
receiving other compensation under the agreement.
Richard H. Nagel, Executive Vice President of Sax Arts and Crafts, entered
into a four-year employment contract with Sax Arts and Crafts on June 27, 1997.
The agreement provides for an annual base salary of at least $125,000 and
participation in a performance-based incentive compensation plan. 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 shorter. 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.
COMPENSATION COMMITTEE REPORT
The Compensation Committee consists of Mr. Pool (Chairman), Mr. McKenna and
Ms. Lamm. The Compensation Committee is responsible for reviewing and, if
appropriate, approving the compensation of Mr. Spalding, our Chief Executive
Officer, and Mr. Vander Zanden, our President, and the recommendations of
Messrs. Spalding and Vander Zanden concerning the compensation levels of our
other executive officers. The Compensation Committee also administers our 1998
Stock Incentive Plan and the 2000 Stock Incentive Plan of our JuneBox.com
subsidiary, with responsibility for determining the awards to be made under such
plans. 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. The base salaries of several of our executives for fiscal
2000, including the base salary of Mr. Spalding prior to September 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. However, the base salaries of Mr. Spalding (since
September 1999), Mr. Vander Zanden and several other executive officers were set
by employment agreements entered into after the spin-off. Accordingly, the
Compensation Committee reviewed and approved the base salaries of Messrs.
Spalding (since September 1999) and Vander Zanden and approved the
recommendations of Messrs. Spalding and Vander Zanden concerning the base
salaries of certain other executive officers, as set forth in their
10
<PAGE> 13
employment agreements. Going forward, executive salaries for officers other than
the Chief Executive Officer and the President will be recommended to the
Compensation Committee by Messrs. Spalding and Vander Zanden and reviewed and,
if appropriate, approved by the Compensation Committee. The salaries of Messrs.
Spalding and Vander Zanden will be governed by their employment agreements, with
modifications reviewed and approved by the Compensation Committee.
Cash Bonus. At the time of the spin-off, a performance-based executive
incentive compensation 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 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 continued the plan in fiscal 2000 with minor modifications and intends
to continue the plan in fiscal 2001. No cash bonuses were paid under the plan to
corporate executive officers in fiscal 2000. However, cash bonuses were paid to
certain divisional executive officers.
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 Compensation Committee bases its
determination upon long-term incentive goals as well as existing overall
compensation. With respect to other executives, the Compensation Committee bases
its determinations on recommendations made by management.
CEO Compensation. Mr. Spalding's base salary is set pursuant to his
employment agreement. This agreement was reviewed and approved by the
Compensation Committee in September 1999. Before September 1999, Mr. Spalding's
base salary was set by a prior employment agreement which had been in place
before our spin-off from U.S. Office Products in June 1998 and which, therefore,
was not reviewed or approved by the Compensation Committee. Mr. Spalding's
current employment agreement contains a bonus provision which was not
implemented in fiscal 2000. During fiscal 2000, the Compensation Committee
determined to issue to Mr. Spalding two stock option grants under the 1998 Stock
Incentive Plan. One such grant was made in June 1999, in part, for fiscal 1999
performance and the other was made in March 2000. The Committee believes Mr.
Spalding's compensation is appropriate given School Specialty's size and
financial performance.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a tax deduction to public corporations for compensation over $1.0
million for any fiscal year paid to the corporation's chief executive officer
and four other most highly compensated executive officers as of the end of any
fiscal year. However, Section 162(m) also provides that qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. 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) and has recently established the Executive Performance Compensation
Committee, consisting of Mr. Pool and Ms. Lamm, to assist in that regard.
Because of uncertainties as to the application and interpretation of Section
162(m), no assurance can be given that the compensation paid to our most highly
compensated officers will be deductible for federal income tax purposes,
notwithstanding School Specialty's efforts to satisfy such section. In addition,
School Specialty may pay compensation that does not satisfy these requirements
for deduction if it is deemed advisable for business reasons.
<TABLE>
<S> <C>
THE COMPENSATION COMMITTEE: THE EXECUTIVE PERFORMANCE COMPENSATION COMMITTEE:
Jerome M. Pool (Chairman) Jerome M. Pool
Leo C. McKenna Rochelle Lamm
Rochelle Lamm
</TABLE>
11
<PAGE> 14
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 and director of Old School.
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.
(NLCI), 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 any dividends into additional shares of the
same class of securities at the frequency with which dividends were paid on such
securities through April 29, 2000. The stock price performance shown in the
graph below should not be considered indicative of potential future stock price
performance.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
SCHOOL SPECIALTY PEER GROUP RUSSELL 2000
---------------- ---------- ------------
<S> <C> <C> <C>
100.00 100.00 100.00
125.81 133.29 94.52
120.16 152.52 110.84
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
JUNE 9, 1998 APRIL 24, 1999 APRIL 29, 2000
------------ -------------- --------------
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
School Specialty, Inc. $100.00 $125.81 $120.16
-----------------------------------------------------------------------------------------------------------
Russell 2000 Index $100.00 $ 94.52 $110.84
-----------------------------------------------------------------------------------------------------------
Peer Group $100.00 $133.29 $152.52
-----------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
PROPOSAL TWO: PROPOSED REINCORPORATION IN WISCONSIN
GENERAL
The Board of Directors has approved a plan to reincorporate School
Specialty in Wisconsin, subject to stockholder approval. The material terms of
the proposed reincorporation can be summarized as follows:
- The reincorporation involves changing School Specialty's state of
incorporation from Delaware to Wisconsin through a merger of School
Specialty into a newly-formed Wisconsin subsidiary pursuant to an
Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached hereto as Appendix A.
- Following the reincorporation, the surviving Wisconsin corporation will
continue to be named "School Specialty, Inc."
- The reincorporation will not involve any change in the business,
management, benefit plans, assets, liabilities or net worth of School
Specialty.
- The corporate headquarters of School Specialty will remain in Wisconsin.
- Stockholders of School Specialty will automatically become shareholders
of the Wisconsin corporation on a share-for-share basis, and the
Wisconsin corporation's shares will continue to be listed on the Nasdaq
National Market under the same symbol (SCHS).
- Stockholders will not have to exchange their stock certificates. The
current certificates will represent stock in the Wisconsin corporation
following the merger.
Under the Delaware General Corporation Law ("DGCL"), the affirmative vote
of the holders of a majority of the outstanding shares of Common Stock entitled
to vote at the Annual Meeting is required to approve the Merger Agreement and
the resulting reincorporation. The Board of Directors recommends a vote FOR
approval of the Merger Agreement and the reincorporation. Proxies solicited by
the Board of Directors will, unless otherwise directed, be voted in favor of the
Merger Agreement and the reincorporation.
PRINCIPAL REASONS FOR CHANGING THE STATE OF INCORPORATION
The primary reason for the proposed change in the state of incorporation is
to achieve cost savings. Under the DGCL, corporations are required to pay an
annual franchise tax to the State of Delaware, which is $150,000 annually for
School Specialty. Wisconsin corporations pay a one-time filing fee of $10,000
and a nominal fee of $25 annually.
An additional reason for the proposed change in the state of incorporation
is to conform School Specialty's legal residence to its principal place of
business. School Specialty believes that having its legal residence in Wisconsin
would enable it to have a more significant voice in the legislative process with
respect to the corporate laws directly affecting it. This opportunity can be an
important one, as corporations are substantially affected by changes in the
legal and financial environment in which they operate, and by the variety of
legislative and other governmental actions that may be taken in response to such
changes.
Finally, the Board of Directors believes that, because the Wisconsin
Business Corporation Law ("WBCL") offers corporate law advantages comparable to
those that the DGCL offers, the extra tax burden that results from maintaining a
Delaware domicile is unwarranted.
TERMS AND EFFECT OF THE MERGER AND REINCORPORATION
In February 2000, the Board of Directors approved the Merger Agreement and
the resulting reincorporation. If approved by stockholders, the reincorporation
will be accomplished by merging School Specialty into its recently incorporated
Wisconsin subsidiary, New School, Inc. ("New School"), with New School as the
surviving corporation. The surviving Wisconsin corporation will continue to be
named "School Specialty, Inc."
The reincorporation will not result in any change in the business,
management, benefit plans, assets, liabilities or net worth of School Specialty,
and School Specialty's current corporate headquarters will remain
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<PAGE> 16
in Wisconsin. All of the assets, liabilities, subsidiaries (other than New
School) and other properties of School Specialty, will, pursuant to the Merger
Agreement, become the assets, liabilities, subsidiaries and other properties of
New School to the full extent provided by law. The directors and officers of
School Specialty will hold the same positions with New School. New School's
authorized capital stock will be identical to School Specialty with 151 million
authorized shares consisting of 150 million authorized Common Shares and one
million authorized Preferred Shares.
At the effective time of the reincorporation, which is expected to occur
starting after the Annual Meeting, each outstanding share of Common Stock of
School Specialty will be converted automatically into one share of New School
stock. As a result, stockholders will continue to own the same pro rata interest
in New School after the merger as they did in School Specialty before the
merger. Stockholders of School Specialty do not need to exchange their existing
share certificates for share certificates of New School Stock and outstanding
certificates of School Specialty should not be destroyed or sent to School
Specialty. Outstanding stock options will be automatically converted into
identical options of New School. School Specialty's Stock will continue to be
listed on the Nasdaq National Market under the same symbol (SCHS).
It is expected that, following stockholder approval, the reincorporation
will be consummated as soon as practicable by the filing of a Certificate of
Merger with the Delaware Secretary of State and filing of Articles of Merger
with the Wisconsin Department of Financial Institutions. No other federal or
state regulatory approval is required in order to consummate the
reincorporation.
The Board of Directors of School Specialty may amend, modify and supplement
the Merger Agreement before or after stockholder approval; provided, however,
that no such amendment, modification or supplement may be made or become
effective after stockholder approval which, in the judgment of the Board of
Directors, would have a materially adverse effect upon the rights of School
Specialty's stockholders in any manner not permitted under applicable law. The
Merger Agreement may be terminated and the reincorporation may be abandoned,
notwithstanding stockholder approval, by the Board of Directors of School
Specialty at any time before consummation of the reincorporation in the unlikely
event that the Board should determine that in its judgment, the reincorporation
is no longer in the best interests of School Specialty and its stockholders.
COMPARISON OF MATERIAL DIFFERENCES BETWEEN THE DGCL AND THE WBCL
If the reincorporation is approved, a shareholder's rights will be governed
by the WBCL and School Specialty's Wisconsin Articles of Incorporation and
By-Laws ("Wisconsin Articles" and "Wisconsin By-Laws"). Currently, stockholder
rights are governed by School Specialty's Delaware Restated Certificate of
Incorporation and Amended and Restated By-Laws ("Delaware Articles" and
"Delaware By-Laws"). The Wisconsin Articles are attached as Appendix B to this
Proxy Statement. Copies of School Specialty's Delaware Articles and By-Laws and
Wisconsin By-Laws may be obtained at no cost by writing to Ms. Karen A. Riching,
Assistant Secretary, School Specialty, Inc., 1000 N. Bluemound Drive, Appleton,
Wisconsin 54914, or by calling (920) 734-2756.
The WBCL and DGCL differ in some ways. Although it is impractical to note
all of the differences between the DGCL and WBCL, summarized below are certain
material differences between the DGCL as it currently applies to School
Specialty and the WBCL as it will apply to School Specialty after the
reincorporation.
Potential Statutory Shareholder Liability for Debts to Employees. The WBCL
provides that shareholders of Wisconsin corporations are personally liable, up
to the par value of the shares ($0.001 per share in the case of the New School
stock), for all debts owed by the corporation to employees for services
performed, but not exceeding six months' service in any one case. While the WBCL
specifies that such liability is limited to the par value of the shares, "par
value" has been interpreted by a Wisconsin trial court to mean the consideration
paid to the corporation for its shares. This decision was affirmed by a split
decision of the Wisconsin Supreme Court. Although there is no similar provision
under Delaware law, Wisconsin courts have applied this rule to foreign
corporations with a principal place of business in Wisconsin. As a result, this
provision may already be applicable to School Specialty.
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<PAGE> 17
Corporate Franchise Tax. Under Delaware law, corporations are assessed an
annual franchise tax, which for School Specialty in 1999 amounted to the maximum
of $150,000. Wisconsin has no comparable annual tax for domestic corporations.
Since School Specialty is headquartered in Wisconsin and has substantial
operations in Wisconsin, changing the state of incorporation is expected to have
no effect on its income and other corporate taxes, other than relieving School
Specialty of any liability for Delaware franchise taxes.
Special Meetings of Shareholders. Under Delaware law, special meetings of
stockholders may be called by the board of directors or by such persons as may
be authorized by the certificate of incorporation or by-laws. The Delaware
Articles provide that special meetings of stockholders may be called by the
Chairman of the Board, the Chief Executive Officer, the Board of Directors or
the holders of at least 33 1/3% of Common Stock. Under Wisconsin law, special
meetings of shareholders may be called by the Board of Directors or by any
person authorized by the articles of incorporation or by-laws to call a special
meeting, and must be called upon written demand of at least 10% of the total
outstanding voting shares. The Wisconsin Articles and By-Laws are the same as
the Delaware Articles, except that the Wisconsin 10% threshold is used.
Inspection of Corporate Records. The DGCL permits any record stockholder to
inspect corporate records for a proper purpose and to inspect a stockholder list
at least 10 days before a stockholders' meeting. Under the WBCL, in order to
inspect and copy corporate records, including the shareholder list, a
shareholder must make a demand five days in advance, have a proper purpose, have
owned shares for at least six months or own at least 5% of the Corporation's
outstanding stock. Under the WBCL, any shareholder may inspect the shareholder
list from two business days after notice of the meeting is given until
conclusion of the meeting.
Dividends. Under the DGCL, a corporation may pay dividends out of its
surplus or, if none, any net profits for the current and preceding fiscal year
provided that no payment may reduce capital below the amount of capital
represented by any shares with a preference upon the distribution of assets.
Under the WBCL, a corporation may pay dividends if its board of directors
determines that the corporation will be able to pay its debts in the ordinary
course of business as they became due and that the total assets of the
corporation after the dividend would not be less than the sum of the
corporation's liabilities, plus the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution. Historically School Specialty
has retained earnings to finance the growth and expansion of the business and,
accordingly, does not expect to pay cash dividends for the foreseeable future.
Dissenters' Rights. Under the DGCL, stockholders are entitled to dissent
from certain corporate transactions requiring a stockholder vote by demanding
payment in cash for the fair value of their shares. The transactions which
trigger dissenters' rights are mergers and consolidations, unless the shares are
listed on a national securities exchange or designated as a national market
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2000 holders. However,
dissenters' rights will still apply if the holders of shares are required to
accept anything other than shares of stock of the surviving public or private
corporation, shares of stock of another public or widely held corporation, cash
in lieu of fractional shares or any combination of these types of consideration.
Under the WBCL, dissenters' rights apply to mergers, share exchanges or
sales of all or substantially all of the assets of a Wisconsin corporation.
Except for business combinations with a 10% or greater shareholder, or unless
the articles of incorporation provide otherwise, dissenters' rights are not
available to holders if on the record date for a proposed transaction the shares
are registered on a national securities exchange or quoted on the National
Association of Securities Dealers, Inc. automated quotations system. Since
School Specialty's Common Stock will continue to be listed on the Nasdaq
National Market, shareholders of New School are not expected to be entitled to
dissenters' rights for any future merger, share exchange or sale of all or
substantially all of the assets of New School which might occur following the
reincorporation.
Director and Officer Discretion. Under the WBCL, in discharging fiduciary
duties to the corporation, a director or officer may, in addition to considering
the effects of any action on shareholders, consider the effects of the action on
employees, suppliers, customers, the communities in which the corporation
operates and any other factors that the director or officer considers pertinent.
The DGCL does not contain a comparable
15
<PAGE> 18
provision and under Delaware law, the consideration that may be given to
non-stockholder constituencies is less clear.
Indemnification. Under the DGCL, indemnification of directors and officers
is permitted. The Delaware Articles and By-Laws, however, mandate
indemnification of directors and officers to the fullest extent permitted under
the DGCL and allow for indemnification of employees and agents in certain
circumstances. Unless the Board of Directors determines otherwise in a specific
case, expenses incurred by a director or officer in defending an action must be
paid by School Specialty in advance of the final disposition of the action upon
receipt of an undertaking by such person to repay such amount if it is
ultimately determined that he or she is not entitled to be indemnified. Under
the Delaware Articles, the indemnification provisions cannot be amended without
an affirmative vote of 66 2/3 of the outstanding shares of School Specialty's
Common Stock.
Under the WBCL, indemnification is mandatory unless limited by the articles
of incorporation. The Wisconsin By-Laws provide for indemnification of
directors, officers, designated employees and designated agents to the fullest
extent permitted under the WBCL. The Wisconsin By-Laws provide that upon the
written request of a director, officer, designated employee or designated agent
who is a party to an action, the corporation must pay or reimburse such person's
expenses as incurred if such person provides a written affirmation of his or her
good faith belief that he or she is entitled to indemnification and a written
undertaking to repay all amounts advanced if it is ultimately determined that
indemnification is prohibited.
By-Laws. Under the DGCL, the corporation's by-laws may be amended by the
stockholders and, if authorized in the certificate of incorporation, by the
board of directors. The Delaware Articles and By-Laws authorize the Board of
Directors to amend By-Laws by a majority vote. In addition, the Delaware
Articles and By-Laws provide that the By-Laws may be altered, amended and
repealed by the holders of at least 66 2/3% of the voting stock of the
corporation. Under the WBCL, the board of directors may amend by-laws, unless
the articles of incorporation or the WBCL reserve the power to the shareholders
or the shareholders, in adopting, amending or repealing a particular by-law,
expressly provide that the board of directors may not amend, repeal or readopt
that by-law. The WBCL also provides that a corporation's shareholders may also
amend or repeal the corporation's by-laws. The Wisconsin Articles and By-Laws
substantially mirror the Delaware Articles and By-Laws (including the 66 2/3
shareholder vote requirement for amendments), except to the extent necessary to
comply with the WBCL.
Under both the DGCL and the WBCL, a corporation has the authority to adopt
emergency by-laws which become operative only in an emergency. The emergency
by-laws may contain any provisions necessary for the operation of the
corporation during the emergency, including provisions that permit the convening
of emergency meetings of the board of directors, the establishment of a quorum
of directors in attendance at such an emergency meeting and the designation of
additional or substitute directors. While the Delaware Articles and By-Laws do
not contain emergency by-law provisions, the Wisconsin By-Laws do.
Anti-Takeover Statutes. Section 203 of the DGCL (the "Delaware Business
Combination Statute") prevents a corporation from entering into certain business
combinations (including sale of assets, mergers and related party transactions)
with an "interested stockholder" (generally a person holding 15% or more of the
corporation's voting stock) for three years following the date such person
became an interested stockholder. A corporation may opt out of the Delaware
Business Combination Statute in the Certificate of Incorporation and it will not
apply to transactions if:
- Before a person became an interested stockholder, the board of directors
approved the transaction which caused the person to become an interested
stockholder or approved the business combination,
- Upon consummation of the transaction which resulted in the interested
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held
by directors who are also officers of the corporation and certain
employee stock ownership plans), or
- Following the transaction in which such person became an interested
stockholder, the business combination is approved by the board of
directors of the corporation and authorized at a meeting of
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<PAGE> 19
stockholders by the affirmative vote of the holders of two-thirds of the
outstanding voting stock of the corporation not owned by the interested
stockholder.
The Delaware Business Combination Statute currently applies to School
Specialty.
Sections 180.1141 to 180.1144 of the WBCL (the "Wisconsin Business
Combination Statute") prohibit a Wisconsin corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the board of directors approved the business combination or
the transaction in which the person became an interested stockholder in advance.
Under certain circumstances, a Wisconsin corporation may engage in a business
combination with an interested stockholder more than three years after the stock
acquisition date. For purposes of the Wisconsin Business Combination Statutes, a
"business combination" includes a merger or share exchange, or a sale, lease,
exchange or other disposition of assets equal to at least 5% of the market value
of the stock or assets of the corporation or 10% of its earning power or income,
or the issuance of stock or rights to purchase stock with a market value equal
to at least 5% of the outstanding stock, the adoption of a plan of liquidation
or dissolution, and certain other transactions involving an interested
stockholder. An "interested stockholder" is a person who beneficially owns 10%
of the voting power of the outstanding voting stock of the corporation or who is
an affiliate or associate of the corporation and beneficially owned 10% of the
voting power of the then outstanding voting stock within the last three years.
Unlike the Delaware Business Combination Statute, the Wisconsin Business
Combination Statute's prohibition on business combinations applies for three
years after the acquisition of at least 10% of the outstanding shares regardless
of the percentage of shares owned by the interested shareholder and cannot be
avoided during such period by subsequent action of the board of directors or
shareholders. In addition, the Wisconsin Business Combination Statute is
triggered by a lower threshold of outstanding shares (10% rather than 15%).
Sections 180.1130 to 180.1133 of the WBCL (the "Wisconsin Fair Price
Statute") require that business combinations involving a "significant
shareholder" and a Wisconsin corporation must be approved by a supermajority
vote of shareholders, in addition to any approval otherwise required, unless
certain fair price standards have been met. For purposes of the Wisconsin Fair
Price Statute, a "significant shareholder" is a person who beneficially owns,
directly or indirectly, 10% or more of the voting stock of the corporation, or
an affiliate of the corporation which beneficially owned, directly or
indirectly, 10% or more of the voting stock of the corporation within the last
two years. The Wisconsin Fair Price Statute may discourage any attempt by a
shareholder to squeeze out other shareholders without offering a fair purchase
price. Delaware does not have a similar statute.
Subject to certain exceptions, Section 180.1150 of the WBCL limits the
voting power of shares of a Wisconsin corporation held by any person or persons
acting as a group, including shares issuable upon the exercise of options, in
excess of 20% of the voting power in the election of directors, to 10% of the
full voting power of those excess shares. This may deter any shareholder from
acquiring in excess of 10% of our outstanding voting stock. Delaware does not
have a similar statute.
Section 180.1134 of the WBCL (the "Wisconsin Defensive Action
Restrictions") provides that, in addition to the vote otherwise required by law
or the articles of incorporation, a Wisconsin corporation must receive approval
of the holders of a majority of the shares entitled to vote before the
corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Under the Wisconsin Defensive Action Restrictions, shareholder approval is
required for the corporation to acquire more than 5% of the outstanding voting
shares at a price above the market price from any individual who or organization
which owns more than 3% of the outstanding voting shares and has held those
shares for less than two years, unless a similar offer is made to acquire all
voting shares. This restriction may deter a shareholder from acquiring shares of
New School's Common Stock if the shareholder's goal is to have New School
repurchase the shareholder's shares at a premium over the market price.
Shareholder approval is also required under the Wisconsin Defensive Action
Restrictions for the corporation to sell or option assets of the corporation
which amount to at least 10% of the market value of the corporation, unless the
corporation has at least three independent directors and a majority of the
independent directors vote
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not to be governed by this restriction. School Specialty currently has three
independent directors, as will New School after the reincorporation. Delaware
does not have a similar statute.
ACCOUNTING TREATMENT OF THE MERGER AND REINCORPORATION
Under generally accepted accounting principles, the merger and the
reincorporation will not result in any gain or loss to School Specialty or New
School. The assets, liabilities and stockholders' equity of School Specialty
will become the assets, liabilities and shareholders' equity of New School,
without any changes in amounts or classifications.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND REINCORPORATION
This is a summary of certain federal income tax considerations relevant to
holders of School Specialty Common Stock. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations,
Internal Revenue Service rulings and judicial decisions now in effect, all of
which are subject to change. This summary assumes the Common Stock is held as a
capital asset within the meaning of Section 1221 of the Code. It does not
purport to deal with all aspects of federal income taxation that may be relevant
to a holder. Also, it is not intended to be wholly applicable to all categories
of holders, such as foreign corporations and individuals who are citizens or
residents of the United States, some of which may be subject to special rules or
tax regimes. This summary also does not discuss the tax consequences arising
under the laws of any state, local or foreign jurisdiction. EACH STOCKHOLDER IS
ADVISED TO CONSULT HIS OR HER PERSONAL ATTORNEY OR TAX ADVISOR AS TO THE
FEDERAL, STATE OR LOCAL TAX CONSEQUENCES OF THE PROPOSED REINCORPORATION AND THE
REPORTING THEREOF IN VIEW OF THE STOCKHOLDER'S INDIVIDUAL CIRCUMSTANCES.
The merger and reincorporation will constitute a reorganization within the
meaning of Section 368(a) of the Code. Accordingly, for federal income tax
purposes, no gain or loss will be recognized by a holder of School Specialty
Common Stock upon the automatic conversion of School Specialty Common Stock into
New School Stock in the merger. Each holder whose shares are converted from
School Specialty Common Stock into New School Stock will have the same basis in
his or her New School Stock as he or she had in his or her School Specialty
Common Stock, and his or her holding period of New School Stock will include the
period during which he or she held the corresponding shares of the School
Specialty Common Stock. No gain or loss will be recognized by School Specialty
or New School as a result of the reincorporation.
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PROPOSAL THREE: PROPOSAL TO AMEND AND RESTATE
1998 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors adopted School Specialty's 1998 Stock Incentive Plan
(the "Plan") on June 5, 1998. The Plan provides that the maximum number of
shares issuable under the Plan will not exceed 20% of the outstanding shares of
School Specialty Common Stock. However, to comply with the Code, the Plan
provides that the number of shares which may cumulatively be available for
issuance upon the exercise of incentive stock options, or ISOs, within the
meaning of Section 422 of the Code, may not exceed 600,000 shares. Because the
use of ISOs is an important factor in attracting and retaining qualified
employees, the Board of Directors amended and restated the Plan (the "Restated
Plan"), subject to stockholder approval, to increase the ISO issuance limit by
2,887,600 shares, to 3,487,600. The Board of Directors also made certain
ministerial changes in connection with this amendment. THE INCREASE IN THE ISO
ISSUANCE LIMIT WILL NOT INCREASE THE TOTAL NUMBER OF SHARES AVAILABLE FOR
ISSUANCE UNDER THE PLAN.
Stockholders are requested to approve the Restated Plan in the form
attached to this proxy as Appendix C. The Restated Plan is being submitted to
stockholders for approval in order to meet the requirements of Section 162(m) of
the Code, which governs the deductibility of compensation paid to certain
executive officers and Section 422 of the Code, which requires stockholder
approval of a plan pursuant to which ISOs are to be granted. If the stockholders
fail to approve this Proposal, we will not increase the number of ISOs and
grants to 162(m) officers will be subject to the 162(m) deductibility
limitations.
The affirmative vote of a majority of the shares of Common Stock present,
either in person or by proxy and entitled to vote, is required to approve the
proposal to amend and restate School Specialty's 1998 Stock Incentive Plan. The
Board of Directors recommends a vote FOR approval of the Restated Plan. Proxies
solicited by the Board of Directors will, unless otherwise directed, be voted in
favor of the proposal to amend and restate the Plan.
PURPOSE
The purpose of the Restated Plan is to promote our long-term growth and
profitability. The Restated Plan does this by providing key personnel with
incentives to improve stockholder value and contribute to our growth and
financial success, and by enabling us to recruit, reward and retain employees,
consultants, officers and non-employee directors.
ELIGIBILITY
All employees, consultants, advisors and independent contractors of School
Specialty and its subsidiaries, as well as non-employee directors and officers
of School Specialty, are eligible to receive awards under the Restated Plan. As
of April 29, 2000, School Specialty and its subsidiaries had approximately 2,200
employees, one non-employee officer and three non-employee directors. As of July
1, 2000, Mr. Ledecky became a non-employee director. The Plan also permits
grants to consultants, advisors and independent contractors. Currently, one
consultant is a participant in the Plan.
ADMINISTRATION
The Restated Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"). The Committee, in its sole discretion,
determines which individuals may participate in the Restated Plan and the prices
(which may not be less than the fair market value on the date of award), vesting
schedules, expiration dates and other material conditions under which the awards
may be granted.
In addition, when required under the Code, the Executive Performance
Compensation Committee will also approve awards under the Restated Plan.
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AWARDS
The Restated Plan authorizes the Committee to make awards of stock options
("Options") or direct grants of restricted stock ("Stock Grants" and, together
with the Options, "Awards") to eligible individuals. The terms and conditions of
Awards granted under the Restated Plan are set out from time to time in an
agreement between School Specialty and the individuals receiving such Awards.
School Specialty may grant nonqualified stock options ("NQSOs") to any eligible
person; however, only employees of School Specialty and its subsidiaries may
receive ISOs within the meaning of Section 422 of the Code. Options will vest
and become exercisable within such period or periods (not to exceed 10 years) as
determined by the Committee and set forth in the participant's Option agreement.
Awards may be exercised by delivery of notice of exercise to School Specialty
accompanied by full payment of the exercise price.
AWARDS GRANTED
The Awards that will be granted in the future under the Restated Plan are
not currently determinable. During fiscal 2000, under the Plan, School Specialty
granted the following:
- options to purchase 457,000 shares at exercise prices ranging from $12.81
to $17.69 per share to all current executive officers, as a group;
- options to purchase 25,000 shares at exercise price of $15.00 per share
to current directors who are not officers; and
- options to purchase 320,500 shares at exercise prices ranging from $12.00
to $18.00 per share to all other persons eligible to participate in the
Plan, as a group.
For information regarding stock option grants to the Named Officers, see
"Executive Compensation -- Option/SAR Grants in Last Fiscal Year."
ADJUSTMENTS
The Restated Plan and any outstanding Awards shall be subject to
adjustment, as determined by the Committee, in the event of certain changes due
to recapitalization, reclassification, stock splits or other increase or
decrease. In the event of such changes, the Committee may make a proportionate
adjustment in the number of shares of Common Stock underlying each Award.
In the event of a sale, reorganization, consolidation or merger of School
Specialty or other Substantial Corporate Change (as defined in the Restated
Plan), the Restated Plan and any unexercised Awards will terminate unless
written provision is made for the assumption or continuation of outstanding
Awards. All Awards shall become immediately exercisable with respect to 100
percent of the shares subject to such Award, unless the Committee determines
otherwise.
AMENDMENT AND TERMINATION
The Board may from time to time, to the extent permitted by applicable law,
amend, suspend or terminate the Restated Plan without the consent of
participants. However, the Board may not make an amendment that has a material
adverse effect on outstanding Awards without the consent of the affected
participants. In addition, the Board may not amend the Restated Plan so as to
deprive any participant of a previously granted Award.
SHARES SUBJECT TO THE RESTATED PLAN
The aggregate number of shares of Common Stock that may be issued under the
Awards (whether ISOs, NQSOs or Stock Grants) may not exceed 20% of School
Specialty's shares of Common Stock outstanding. As noted above, the Restated
Plan increased the maximum number of shares that may be subject to ISOs from
600,000 to 3,487,600. The maximum number of shares that may be issued with
respect to awards granted under the Restated Plan to any one person in a
calendar year may not exceed 1.2 million shares. On the Record Date, the closing
price of School Specialty's Common Stock was $16.75 per share.
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FEDERAL INCOME TAX CONSEQUENCES
Our counsel has advised us that the federal income tax consequences of
NQSOs, ISOs and restricted stock granted under the Restated Plan are generally
as follows:
NQSOs. The grant of a NQSO will have no federal income tax consequences to
School Specialty or to a participant. A participant will recognize taxable
ordinary income at the time of exercise of the option in an amount equal to the
excess of the fair market value of the stock acquired at the time of exercise
over the option price, and School Specialty will ordinarily be entitled to a
deduction for such amount.
The holder of stock acquired upon exercise of a NQSO will, upon a
subsequent disposition of such stock, generally recognize a short-term or
long-term capital gain or loss, depending upon the holding period of the stock,
equal to the difference between the amount realized on the sale and the basis in
such stock (the sum of the option price and the amount taxed as ordinary income
at the time of exercise).
ISOs. Neither the grant nor exercise of an ISO will generally have any
federal income tax consequences for a participant. The amount by which the fair
market value of the stock acquired upon the exercise of any ISO exceeds the
option price as of the date of exercise, however, is an item of "tax preference"
for purposes of computing the alternative minimum tax on individuals. If a
participant has held the stock acquired on the exercise of an ISO for at least
two years from the date of the grant of the option and at least one year from
the date of exercise, the participant will recognize taxable long-term capital
gain or loss upon a subsequent disposition of the stock. In such circumstances,
no deduction would be allowed to School Specialty for federal income tax
purposes in connection with the grant or exercise of the option or the transfer
of stock acquired upon such exercise.
If, however, the participant disposes of his or her stock within the
holding periods described above, (i) the participant will recognize ordinary
income in an amount equal to the difference between the fair market value of
such stock on the date of exercise and the option price, provided that, if the
disposition is a sale or exchange with respect to which a loss (if sustained)
would be recognized by the participant and the amount realized from such sale or
exchange is less than the fair market value on the exercise date, then the
ordinary income will be limited to the excess of the amount realized upon the
sale or exchange of the stock over the option price; (ii) School Specialty will
be entitled to a deduction for such year in the amount of the ordinary income so
recognized; and (iii) the participant will recognize capital gain or loss, as
the case may be, in an amount equal to the difference between the amount
realized upon such sale or exchange of the stock and the sum of the option price
plus the amount of ordinary income, if any, recognized upon such disposition.
Restricted Stock. The grant of restricted stock is not a taxable event to a
participant, absent an election under Section 83(b) of the Code. If no election
is made, the participant will recognize income, taxable for income tax purposes
at ordinary rates, upon the lapse of the restrictions governing the stock. The
amount of the income will equal the fair market value of the stock when the
restrictions lapse. If the participant makes a Section 83(b) election within 30
days of the date of grant, he or she will be deemed to have received ordinary
income at the time of the grant of the restricted stock equal to their fair
market value at the date of grant less any amount paid by the participant for
the stock, determined without regard to the restrictions imposed thereon. If the
restricted stock is subsequently forfeited after a Section 83(b) election and
before the restrictions lapse, the participant is not entitled to claim the loss
for income tax purposes.
School Specialty or a subsidiary will be entitled to a deduction for income
tax purposes when the participant recognizes ordinary income, either as a result
of a Section 83(b) election or because of the lapse of the restrictions. The
amount of the deduction will equal the amount of ordinary income recognized by
the participant.
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PROPOSAL FOUR: 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 28, 2001. 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.
PROPOSAL FIVE: 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 enclosed proxy card intend to vote in accordance with their best
judgment.
SUBMISSION OF STOCKHOLDER PROPOSALS
Nominations, other than by or at the direction of the Board of Directors,
of candidates for election as directors at the 2001 Annual Meeting of
Stockholders and any other stockholder proposed business to be brought before
the 2001 Annual Meeting of Stockholders must be submitted to us no later than
June 30, 2001. Stockholder proposed nominations and other stockholder proposed
business must be made in accordance with our 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
nomination, and that stockholder proposed business must be accompanied by
certain information concerning the proposal and the stockholder submitting the
proposal. These By-Law provisions will continue in substantially the current
form if the reincorporation is approved. To be considered for inclusion in the
Proxy Statement solicited by the Board of Directors, stockholder proposals for
consideration at the 2001 Annual Meeting of Stockholders of School Specialty
must be received by us at our principal executive offices, 1000 N. Bluemound
Drive, Appleton, Wisconsin, 54914 on or before March 26, 2001. Proposals should
be directed to Ms. Karen A. Riching, Assistant Secretary. To avoid disputes as
to the date of receipt, it is suggested that any stockholder proposal be
submitted by certified mail, return receipt requested.
Stockholders may obtain a copy of our Annual Report to Stockholders for
fiscal 2000, which includes our Annual Report on Form 10-K, at no cost by
writing to Ms. Karen A. Riching, Assistant Secretary, School Specialty, Inc.,
1000 N. Bluemound Drive, Appleton, Wisconsin, 54914.
By Order of the Board of Directors,
Joseph F. Franzoi IV, Secretary
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 24, 2000, by and between
School Specialty, Inc., a Delaware corporation ("SSI"), and New School, Inc., a
Wisconsin corporation and a wholly-owned subsidiary of SSI (the "Surviving
Corporation"). SSI and the Surviving Corporation are sometimes hereinafter
referred to as the "Constituent Corporations."
WHEREAS, SSI, as of the date hereof, has authority to issue 151,000,000
shares of capital stock, of which 150,000,000 are designated as Common Stock,
$.001 par value (the "SSI Common Stock"), and 1,000,000 shares are designated as
Preferred Stock, $.001 par value (the "SSI Preferred") and, as of the date
hereof, 17,464,505 shares of SSI Common Stock are issued and outstanding, and no
shares of SSI Preferred are issued and outstanding; and
WHEREAS, the Surviving Corporation has authority to issue 151,000,000
shares of capital stock, of which 150,000,000 are designated as Common Stock,
$.001 par value (the "Surviving Corporation Common Stock"), and 1,000,000 shares
are designated as Preferred Stock, $.001 par value (the "Surviving Corporation
Preferred"); and
WHEREAS, as of the date hereof, 100 shares of Surviving Corporation Common
Stock are issued and outstanding, all of which are held by SSI, and no shares of
Surviving Corporation Preferred are issued and outstanding; and
WHEREAS, SSI and the Surviving Corporation desire that SSI merge with and
into the Surviving Corporation and that the Surviving Corporation shall continue
as the surviving corporation in such merger, upon the terms and subject to the
conditions set forth herein and in accordance with the laws of the State of
Wisconsin and the laws of the State of Delaware; and
WHEREAS, the respective Boards of Directors of SSI and the Surviving
Corporation have approved this Agreement and directed that it be submitted to a
vote of their shareholders.
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, the parties hereto agree to merge as follows:
ARTICLE 1
MERGER
1.1. Merger. Subject to the terms and conditions of this Agreement, SSI
shall be merged with and into the Surviving Corporation (the "Merger") in
accordance with the Wisconsin Business Corporation Law ("WBCL") and the Delaware
General Corporation Law (the "DGCL"), the separate existence of SSI shall cease,
and the Surviving Corporation shall be the surviving corporation and continue
its corporate existence under the laws of the State of Wisconsin.
1.2. Effect of the Merger. At the Effective Time of the Merger (as
hereinafter defined), the Surviving Corporation shall possess all the rights,
privileges, powers and franchises, of a public as well as of a private nature,
and shall be subject to all the restrictions, disabilities and duties, of each
of SSI and the Surviving Corporation; all property, real, personal and mixed,
and all debts due on any account, including subscriptions for shares, and all
other choses in action, and every other interest of or belonging to or due to
each of SSI and the Surviving Corporation shall vest in the Surviving
Corporation without any further act or deed; the title to any real estate or any
interest therein vested by deed or otherwise in SSI shall not revert nor in any
way become impaired by reason of the Merger; the Surviving Corporation shall be
responsible and liable for all the debts, liabilities and duties of each of SSI
and the Surviving Corporation; a claim of or against or a pending proceeding by
or against SSI or the Surviving Corporation may be prosecuted as if the Merger
had not taken place, or the Surviving Corporation may be substituted in the
place of SSI; and neither the rights of creditors nor any liens upon the
property of SSI or the Surviving Corporation shall be impaired by the Merger.
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1.3. Effective Time of the Merger. The Merger shall become effective as of
the date and time (the "Effective Time of the Merger") the following actions are
completed: (a) appropriate duly executed articles of merger are filed in
accordance with Section 180.1105 of the WBCL; and (b) an appropriate duly
executed certificate of merger is filed in accordance with Section 252 of the
DGCL.
ARTICLE 2
NAME, ARTICLES OF INCORPORATION, BY-LAWS,
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
2.1. Name of Surviving Corporation. At the Effective Time of the Merger,
Article I of the Surviving Corporation's Articles of Incorporation shall be
amended to read as follows:
"The name of the corporation is School Specialty, Inc. (hereinafter
"Corporation")."
2.2. Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation, as amended pursuant to Section 2.1 hereof, shall be the
Articles of Incorporation of the Surviving Corporation from and after the
Effective Time of the Merger by virtue of the Merger and without any further
action by the Constituent Corporations, until amended thereafter as provided
therein or by law.
2.3. By-Laws. The By-Laws of the Surviving Corporation shall be the By-Laws
of the Surviving Corporation from and after the Effective Time of the Merger by
virtue of the Merger and without any further action by the Constituent
Corporations, until amended thereafter as provided therein, in the Surviving
Corporation's Articles of Incorporation or By-Laws.
2.4. Directors and Officers. The directors and officers of SSI immediately
prior to the Effective Time of the Merger shall be the directors and officers,
respectively, of the Surviving Corporation from and after the Effective Time of
the Merger and shall hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation until the expiration of
the terms to which they were elected to serve as directors and officers of SSI
and until their successors are duly elected and qualified. With respect to the
directors of the Surviving Corporation, they shall be assigned to the same Class
(either Class I, II or III) in which they were assigned while serving as
directors of SSI.
ARTICLE 3
CONVERSION OF SECURITIES
3.1. Conversion. At the Effective Time of the Merger, each of the following
transactions shall be deemed to occur simultaneously and this Section 3.1 shall
constitute the manner and basis of converting the capital stock of the
Constituent Corporations into capital stock of the Surviving Corporation and of
consummating the other transactions referred to in this Section 3.1:
(a) Each share of SSI Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into
and become one validly issued, fully paid and nonassessable share of
Surviving Corporation Common Stock (except to the extent provided in
Section 180.0622(2)(b) of the WBCL).
(b) Each stock option to purchase shares of SSI Common Stock granted
by SSI under any of the stock option plans of SSI and outstanding
immediately prior to the Effective Time of the Merger shall, by virtue of
the terms of the stock option plans, the actions of the Boards of Directors
of the Constituent Corporations and the Merger and without any action on
the part of the holder thereof, be converted into and become a stock option
to purchase, upon the same terms and conditions, the number of shares of
Surviving Corporation Common Stock which is equal to the number of shares
of SSI Common Stock which the optionee would have received had he or she
exercised his or her option in full immediately prior to the Effective Time
of the Merger (whether or not such option was then exercisable). The
exercise price per share of the Surviving Corporation Common Stock under
each of such options shall be equal to the exercise price per share of SSI
Common Stock thereunder immediately prior to the Effective Time of
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the Merger. A number of shares of Surviving Corporation Common Stock shall
be reserved for issuance upon the exercise of options equal to the number
of shares of SSI Common Stock so reserved immediately prior to the
Effective Time of the Merger.
(c) Each share of Surviving Corporation Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger (each of
which is presently held by SSI), without any action on the part of the
holder thereof, shall be canceled and cease to exist, and no shares of the
Surviving Corporation or other securities of the Surviving Corporation
shall be issued or other consideration paid in respect thereof.
3.2. Conversion of Certificates.
(a) Each stock certificate which, immediately prior to the Effective
Time of the Merger, represented issued and outstanding shares of SSI Common
Stock shall not represent shares of SSI Common Stock (which shares shall
cease to exist) after the Effective Time of the Merger but instead shall be
and become at the Effective Time of the Merger a certificate representing
an identical number of shares of Surviving Corporation Common Stock,
automatically by virtue of the Merger and without any action on the part of
the holder thereof. Upon the surrender or transfer following the Effective
Time of the Merger of a stock certificate that represented SSI Common Stock
immediately prior to the Effective Time of the Merger, but subject to
Section 3.2(b) hereof, a stock certificate representing the same number of
shares of Surviving Corporation Common Stock shall be reissued to the
holder or transferee, as the case may be, thereof, provided that no holder
of a stock certificate that represented SSI Common Stock immediately prior
to the Effective Time of the Merger shall be required to surrender such
stock certificate in connection with the Merger and such stock certificate
shall represent the same number of shares of Surviving Corporation Common
Stock until so surrendered.
(b) If, after the Effective Time of the Merger, any certificate for
shares of Surviving Corporation Common Stock is to be issued in a name
other than that in which the certificate which immediately prior to the
Effective Time of the Merger represented shares of SSI Common Stock
surrendered in exchange therefor is registered, it shall be a condition of
such exchange that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and the person
requesting such exchange shall pay any transfer and other taxes required by
reason of the issuance of certificates for such shares of the Surviving
Corporation capital stock in a name other than that of the registered
holder of the certificate surrendered, or shall establish to the
satisfaction of the Surviving Corporation or its agent that such tax has
been paid or is not applicable. Notwithstanding the foregoing, no party
hereto shall be liable to a holder of shares of SSI capital stock for any
shares of Surviving Corporation capital stock or dividends or distributions
thereon delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
ARTICLE 4
EMPLOYEE BENEFIT AND COMPENSATION PLANS
At the Effective Time of the Merger, any employee benefit plan or incentive
compensation plan, including any stock option plan, to which SSI is then a party
shall be assumed by, and continue to be the plan of, the Surviving Corporation.
To the extent any employee benefit plan or incentive compensation plan of SSI
provides for the issuance or purchase of, or otherwise relates to, SSI capital
stock, from and after the Effective Time of the Merger, such plan shall be
deemed to provide for the issuance or purchase of, or otherwise to relate to,
the Surviving Corporation capital stock.
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ARTICLE 5
CONDITIONS
Consummation of the Merger is subject to the satisfaction at or prior to
the Effective Time of the Merger of the following conditions:
5.1. SSI Stockholder Approval. This Agreement and the Merger shall have
been adopted and approved by the stockholders of SSI in accordance with the
Articles of Incorporation of SSI and the applicable provisions of the DGCL.
5.2. Surviving Corporation Shareholder Approval. This Agreement and the
Merger shall have been adopted and approved by SSI as the holder of all the
outstanding shares of Surviving Corporation capital stock prior to the Effective
Time of the Merger.
5.3. Consents, etc. Any and all consents, permits, authorizations,
approvals and orders deemed in the sole discretion of SSI to be material to the
consummation of the Merger shall have been obtained.
ARTICLE 6
AGREEMENTS
6.1. No Preferred Stock. Prior to the Effective Time of the Merger, the
Surviving Corporation shall not issue Surviving Corporation Preferred.
6.2. Taking of Necessary Action; Further Action. Subject to Section 7.1,
each of SSI and the Surviving Corporation will take all such reasonable and
lawful action as may be necessary or appropriate in order to effectuate the
Merger as promptly as possible. If, at any time after the Effective Time of the
Merger, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Constituent Corporations, the officers and directors of
the Constituent Corporations are fully authorized in the name of their
corporation or otherwise to take, and will take, all such lawful and necessary
action.
6.3. Other Agreements. The Surviving Corporation, from and after the
Effective Time of the Merger, agrees that it may be served with process in the
State of Delaware in any proceeding for the enforcement of any obligation of
either Constituent Corporation and in any proceeding for the enforcement of any
obligation of the Surviving Corporation arising from the Merger. The Surviving
Corporation irrevocably appoints the Secretary of State of the State of Delaware
as its agent to accept service of process in any such proceeding. A copy of any
such service of process may be sent by the Secretary of State of the State of
Delaware to the chief executive officer of the Surviving Corporation at the
following address: 1000 N. Bluemound Drive, Appleton, Wisconsin 54914 (or such
other address as specified by the Surviving Corporation in a notice to the
Secretary of State of the State of Delaware).
ARTICLE 7
GENERAL
7.1. Termination and Abandonment. This Agreement may be terminated and the
Merger and other transactions herein provided for abandoned at any time prior to
the Effective Time of the Merger, whether before or after adoption and approval
of this Agreement by the stockholders of SSI, by action of the Board of
Directors of SSI, if the Board of Directors of SSI determines that the
consummation of the transactions provided for herein would not, for any reason,
be in the best interests of SSI and its stockholders. In the event of
termination of this Agreement, this Agreement shall become void and of no effect
and there shall be no liability on the part of either SSI or the Surviving
Corporation or their respective Boards of Directors or shareholders, except that
SSI shall pay all expenses incurred in connection with the Merger or in respect
of this Agreement or relating thereto.
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<PAGE> 29
7.2. Amendment. This Agreement may be amended at any time prior to the
Effective Time of the Merger with the mutual consent of the Boards of Directors
of SSI and the Surviving Corporation; provided, however, that after it has been
adopted by the stockholders of SSI, this Agreement may not be amended in any
manner which, in the judgment of the Board of Directors of SSI, would have a
material adverse effect on the rights of such stockholders or in any manner not
permitted under applicable law; provided further, however, that any amendment of
this Agreement after its adoption by the sole shareholder of the Surviving
Corporation shall require the prior approval of such shareholder.
7.3. Headings. The headings set forth herein are inserted for convenience
or reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
7.4. Counterparts. This Agreement may be executed in two counterparts, each
of which shall constitute an original, and all of which, when taken together,
shall constitute one and the same instrument.
7.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin without giving effect to the
principles of conflicts of law thereof, except to the extent the laws of the
State of Delaware are applicable to SSI in respect of the Merger, in which case
the laws of the State of Delaware shall apply without giving effect to the
principles of conflicts of law thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf and attested by its officers hereunto duly authorized,
all as of the day and year first above written.
SCHOOL SPECIALTY, INC.
A Delaware Corporation
By: /s/ DANIEL P. SPALDING
------------------------------------
Daniel P. Spalding,
Chairman of the Board and Chief
Executive Officer
Attest: /s/ JOSEPH F. FRANZOI
------------------------------------------
Joseph F. Franzoi, IV, Secretary
NEW SCHOOL, INC.
A Wisconsin Corporation
By: /s/ DANIEL P. SPALDING
------------------------------------
Daniel P. Spalding,
Chairman of the Board and Chief
Executive Officer
Attest: /s/ JOSEPH F. FRANZOI
------------------------------------------
Joseph F. Franzoi, IV, Secretary
A-5
<PAGE> 30
APPENDIX B
ARTICLES OF INCORPORATION
OF
NEW SCHOOL, INC.
These Articles of Incorporation are executed by the undersigned for the
purpose of forming a Wisconsin corporation under Chapter 180 of the Wisconsin
Statutes.
ARTICLE I
NAME
The name of the corporation is New School, Inc. (hereinafter
"Corporation").
ARTICLE II
PERIOD OF EXISTENCE
The period of existence of the Corporation shall be perpetual.
ARTICLE III
PURPOSES
The Corporation is authorized to engage in any lawful activity for which
corporations may be organized under Chapter 180 of the Wisconsin Statutes and
any successor provisions.
ARTICLE IV
CAPITAL STOCK
The aggregate number of shares which the Corporation shall have the
authority to issue, the designation of each class of shares, the authorized
number of shares of each class and the par value thereof per share shall be as
follows:
<TABLE>
<CAPTION>
DESIGNATION PAR VALUE AUTHORIZED
OF CLASS PER SHARE NUMBER OF SHARES
----------- --------- ----------------
<S> <C> <C>
Common Stock......................................... $.001 150,000,000
Preferred Stock...................................... $.001 1,000,000
</TABLE>
The preferences, limitations and relative rights of shares of each class
and series thereof, if any, and the authority of the Board of Directors of the
Corporation to create and designate series of Preferred Stock and to determine
the preferences, limitations and relative rights as between series shall be as
follows:
A. Common Stock.
1. Voting. Except as otherwise provided by law and except as may be
determined by the Board of Directors of the Corporation with respect to shares
of Preferred Stock as provided in Section B, below, only the holders of shares
of Common Stock shall be entitled to vote for the election of directors of the
Corporation and for all other corporate purposes. Except as otherwise provided
by law, upon any such vote, each holder of Common Stock shall be entitled to one
vote for each share of Common Stock held of record by such shareholder.
2. Dividends. Subject to the provisions of paragraph (2) of Section B,
below, the holders of Common Stock shall be entitled to receive such dividends
as may be declared thereon from time to time by the Board of
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<PAGE> 31
Directors of the Corporation, in its discretion, out of any funds of the
Corporation at the time legally available for payment of dividends.
3. Liquidation. In the event of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation, after there have been paid to or
set aside for the holders of shares of Preferred Stock the full preferential
amounts, if any, to which they are entitled as provided in paragraph (3) of
Section B, below, the holders of outstanding shares of Common Stock shall be
entitled to share ratably, according to the number of shares held by each, in
the remaining assets of the Corporation available for distribution.
B. Preferred Stock.
1. Series and Variations Between Series. The Board of Directors of the
Corporation is authorized, to the full extent permitted under the Wisconsin
Business Corporation Law and the provisions of this Section B, to adopt
resolutions which provide for the issuance of the Preferred Stock in one or more
series, each of such series to be distinctively designated, and to have such
voting rights, redemption or conversion rights, dividend or distribution rights,
preferences with respect to dividends or distributions, or other preferences,
limitations or relative rights as shall be provided by the Board of Directors of
the Corporation consistent with the provisions of the Wisconsin Business
Corporation Law and this Article IV. The Board of Directors of the Corporation,
unless otherwise provided when the series is established, may increase or
decrease the number of shares of any series, provided that the number of shares
of any series shall not be reduced below the number of shares then outstanding.
2. Dividends. Before any dividends (other than a dividend payable solely in
Common Stock) shall be paid or set apart for payment upon shares of Common
Stock, the holders of each series of Preferred Stock shall be entitled to
receive dividends at the rate (which may be fixed or variable) and at such times
as specified in the particular series, if any. The holders of shares of
Preferred Stock shall have no rights to participate with the holders of shares
of Common Stock in any dividends in excess of the preferential dividends, if
any, fixed for such Preferred Stock.
3. Liquidation. In the event of liquidation, dissolution or winding up
(whether voluntary or involuntary) of the Corporation, the holders of shares of
Preferred Stock shall be entitled to be paid the full amount payable on such
shares upon the liquidation, dissolution or winding up of the Corporation fixed
by the Board of Directors with respect to such shares, if any, before any amount
shall be paid to the holders of the Common Stock.
ARTICLE V
PREEMPTIVE RIGHTS
No holder of any shares of the Corporation shall have any preemptive or
subscription rights nor be entitled, as of right, to purchase or subscribe for
any part of the unissued shares of the Corporation or of any additional shares
issued by reason of any increase of authorized shares of the Corporation or
other securities whether or not convertible into shares of the Corporation.
ARTICLE VI
SHARE DIVIDENDS
A dividend payable in shares of any class or series of stock of the
Corporation may be paid in shares of any other class or series.
B-2
<PAGE> 32
ARTICLE VII
BOARD OF DIRECTORS
A. Number. The number of directors of the Corporation shall not be less
than one (1), the exact number of directors to be determined from time to time
by resolution adopted by the affirmative vote of a majority of the entire Board
of Directors then in office.
B. Classification of the Board. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Class I directors shall be
elected initially for a two-year term, Class II directors for a three-year term
and Class III directors for a one-year term. At each annual meeting of
shareholders beginning in 2001, the directors of the class whose term expires at
such annual meeting shall be elected for a three-year term. Each class shall
consist, as nearly as possible, of one-third (1/3) of the total number of
directors constituting the entire Board of Directors. If the number of directors
is changed by resolution of the Board of Directors pursuant to this Article VII,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, but
in no case shall a decrease in the number of directors shorten the term of any
incumbent director.
C. Tenure and Vacancies. A director shall hold office until the annual
meeting for the year in which his or her term expires and until his or her
successor shall be duly elected and qualified or until his or her earlier death,
resignation or removal. Any newly created directorship resulting from an
increase in the number of directors and any other vacancy on the Board of
Directors, however caused, shall be filled by the vote of a majority of the
directors then in office, although less than a quorum, or by the sole remaining
director; provided that any vacancy resulting from removal from office by a vote
of the shareholders may be filled by a vote of the shareholders at the same
meeting at which such removal occurs. Any director so elected to fill any
vacancy on the Board of Directors shall hold office for the remaining term of
directors of the class to which he or she has been elected and until his or her
successor shall be duly elected and qualified or until his or her earlier death,
resignation or removal.
D. Removal of Directors. No director of the Corporation may be removed from
office by a vote of the shareholders at any time, except for Cause. As used in
this Article VII, the term "Cause" shall mean solely malfeasance arising from
the performance of a director's duties which has a material adverse effect on
the business of the Corporation.
E. Rights of Preferred Shareholders. Notwithstanding the foregoing,
whenever the holders of one or more series of Preferred Stock shall have the
right, voting separately, as a class or series, to elect directors, the
election, term of office, filling of vacancies, removal and other features of
such directorships shall be governed by the terms of the resolution or
resolutions adopted by the Board of Directors pursuant to Article IV of these
Articles of Incorporation, and each director so elected shall not be subject to
the provisions of this Article VII unless otherwise provided therein.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Notwithstanding any other provision of these Articles of Incorporation or
the Corporation's By-Laws, the Corporation's By-Laws may be amended, altered or
repealed, and new By-Laws may be enacted, only by the affirmative vote of the
holders of not less than sixty-six and two-thirds percent (66 2/3%) of the total
outstanding shares of capital stock of the Corporation entitled to vote at a
meeting of shareholders duly called for such purpose, or by a vote of not less
than a majority of the entire Board of Directors then in office.
This Article VIII may be amended, altered or repealed only by the
affirmative vote of the holders of not less than sixty-six and two-thirds
percent (66 2/3%) of the total outstanding shares of capital stock of the
Corporation entitled to vote at a meeting of shareholders duly called for such
purpose.
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<PAGE> 33
ARTICLE IX
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of shareholders may be called, for any purpose or
purposes, by (a) the Chairman of the Board of Directors, (b) the Chief Executive
Officer, (c) the President, (d) the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether or
not there exist any vacancies in previously authorized directorships at the time
any such resolution is presented to the Board of Directors for adoption) or (e)
the holders of at least ten percent (10%) of the total outstanding shares of
capital stock of the Corporation entitled to vote on any issue proposed to be
considered at the special meeting, on such date and at such time as the Board of
Directors shall set.
ARTICLE X
REGISTERED OFFICE AND AGENT
The address of the registered office of the Corporation is 1000 North
Bluemound Drive, Appleton, Wisconsin 54914. The name of its registered agent at
such address is Karen Riching.
ARTICLE XI
INCORPORATOR
The name and address of the incorporator of the Corporation is Scott A.
Moehrke, 780 North Water Street, Milwaukee, Wisconsin 53202.
Executed this 20th day of July, 2000.
/s/ SCOTT A. MOEHRKE
--------------------------------------
Scott A. Moehrke
This instrument was drafted by:
Scott A. Moehrke
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, Wisconsin 53202
B-4
<PAGE> 34
APPENDIX C
AMENDED AND RESTATED
SCHOOL SPECIALTY, INC.
1998 STOCK INCENTIVE PLAN
AS OF JUNE 20, 2000
PURPOSE SCHOOL SPECIALTY, INC., a Delaware corporation (the
"Company"), wishes to recruit, reward, and retain
employees, consultants, independent contractors,
advisors, officers and outside directors. To further
these objectives, the Company hereby sets forth the
School Specialty, Inc. 1998 Stock Incentive Plan (the
"Plan") to provide options ("Options") or direct grants
("Stock Grants" and, together with the Options,
"Awards") to employees, consultants, independent
contractors, advisors, officers and outside directors
with respect to shares of the Company's common stock
(the "Common Stock"). The Plan was originally effective
as of the effective date (the "Effective Date") of the
Company's registration under Section 12 of the
Securities Exchange Act of 1934 (the "Exchange Act")
with respect to its initial public offering ("IPO"), and
this amendment and restatement is effective as of June
20, 2000.
PARTICIPANTS The following persons are eligible to receive Options
and Stock Grants under the Plan: (1) current and
prospective Employees (as defined below) of the Company
and any Eligible Subsidiary (as defined in the ELIGIBLE
SUBSIDIARY section below), (2) consultants, advisors and
independent contractors of the Company and any Eligible
Subsidiary and (3) officers and directors of the Company
and any Eligible Subsidiary who are not Employees
("Eligible Officers and Eligible Directors"). Eligible
persons become "Optionees" when the Administrator grants
them an option under this Plan or "Recipients" when they
receive a direct grant of Common Stock. (Optionees and
Recipients are referred to collectively as
"Participants." The term Participant also includes,
where appropriate, a person authorized to exercise an
Award in place of the original Optionee.)
Employee means any person employed as a common law
employee of the Company or an Eligible Subsidiary.
ADMINISTRATOR The Administrator will be the Compensation Committee of
the Board of Directors of the Company (the "Compensation
Committee"), unless the Board specifies another
committee. The Board may also act under the Plan as
though it were the Compensation Committee.
The Administrator is responsible for the general
operation and administration of the Plan and for
carrying out its provisions and has full discretion in
interpreting and administering the provisions of the
Plan. Subject to the express provisions of the Plan, the
Administrator may exercise such powers and authority of
the Board as the Administrator may find necessary or
appropriate to carry out its functions. The
Administrator may delegate its functions (other than
those described in the GRANTING OF AWARDS section) to
Employees of the Company.
The Administrator's powers will include, but not be
limited to, the power to amend, waive, or extend any
provision or limitation of any Award. The Administrator
may act through meetings of a majority of its members or
by unanimous consent.
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<PAGE> 35
GRANTING OF AWARDS Subject to the terms of the Plan, the Administrator
will, in its sole discretion, determine:
the Participants who receive Awards,
the terms of such Awards,
the schedule for exercisability or
nonforfeitability (including any requirements that
the Participant or the Company satisfy performance
criteria),
the time and conditions for expiration of the
Award, and
the form of payment due upon exercise, if any.
The Administrator's determinations under the Plan need
not be uniform and need not consider whether possible
Participants are similarly situated.
Options granted to Employees may be nonqualified stock
options ("NQSOs") or "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended from time to time (the
"Code"), or the corresponding provision of any
subsequently enacted tax statute. Options granted to
consultants, independent contractors, advisors, Eligible
Officers and Eligible Directors, including Formula
Options (as defined below), must be NQSOs. The
Administrator will not grant ISOs unless the
stockholders either have already approved the granting
of ISOs or give such approval within 12 months after the
grant.
The Administrator may impose such conditions on or
charge such price for the Stock Grants as it deems
appropriate.
Substitutions The Administrator may also grant Awards in substitution
for options or other equity interests held by
individuals who become Employees of the Company or of an
Eligible Subsidiary as a result of the Company's
acquiring or merging with the individual's employer or
acquiring its assets. In addition, the Administrator may
provide for the Plan's assumption of Awards granted
outside the Plan (including those granted by an Eligible
Subsidiary) to persons who would have been eligible
under the terms of the Plan to receive an Award,
including both persons who provided services to any
acquired company or business and persons who provided
services to the Company or any Eligible Subsidiary. If
appropriate to conform the Awards to the interests for
which they are substitutes, the Administrator may grant
substitute Awards under terms and conditions (including
Exercise Price) that vary from those the Plan otherwise
requires. Awards in substitution for U.S. Office
Products' options in connection with the distribution by
U.S. Office Products of the Company's Common Stock will
retain their pre-distribution exercise schedule and
terms (including Change of Control provisions) and
expiration date.
JuneBox Options Awards in substitution for options issued by
JuneBox.com, Inc. ("JuneBox") will, unless the
Administrator determines otherwise, retain their
pre-distribution exercise schedule and expiration dates,
but any Change of Control provisions will thereafter
refer to the Company under the rules set forth in this
Plan for any such awards that have not become fully
exercisable on or before their assumption under this
Plan, unless the Administrator provides otherwise. In
replacing JuneBox options, the Administrator may adjust
the Exercise Price and number of shares covered by
JuneBox options in its discretion to reflect the
relative value of JuneBox as an Eligible Subsidiary of
the Company. It may determine the relative value in any
manner it considers appropriate.
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<PAGE> 36
DIRECTOR FORMULA OPTIONS Each Eligible Director will receive a formula
stock option ("Formula Option") with respect to
15,000 shares of Common Stock upon the first to
occur of their initial appointment or election to
the Board (with the grant made as of the date of
such appointment or election). Thereafter, each
Eligible Director serving on the Board will
receive a Formula Option annually with respect to
5,000 shares of Common Stock on a date determined
by the Administrator. The Exercise Price for
Formula Options will be the Fair Market Value on
the Date of Grant.
Exercise Schedule Unless the Administrator specifies otherwise, each
Formula Option will become exercisable as to 20%
of the covered shares on the first anniversary of
its DATE OF GRANT (as defined in the Date of Grant
section below), an additional 30% on the second
anniversary, and the remaining 50% on or after the
third anniversary. A Formula Option will become
exercisable in its entirety upon the Eligible
Director's death, Disability, or attainment of age
70. Options will be forfeited to the extent they
are not then exercisable if an Eligible Director
resigns or fails to be reelected as a director.
Exercisable options will expire as provided under
AWARD EXPIRATION.
DATE OF GRANT The Date of Grant will be the date as of which
this Plan or the Administrator grants an Award to
a Participant, as specified in the Plan or in the
Administrator's minutes or other written evidence
of action.
EXERCISE PRICE The Exercise Price is the value of the
consideration that a Participant must provide in
exchange for one share of Common Stock. The
Administrator will determine the Exercise Price
under each Award and may set the Exercise Price
without regard to the Exercise Price of any other
Awards granted at the same or any other time. The
Company may use the consideration it receives from
the Participant for general corporate purposes.
The Exercise Price per share for NQSOs may not be
less than 100% of the Fair Market Value (as
defined below) of a share on the Date of Grant. If
an Option is intended to be an ISO, the Exercise
Price per share may not be less than 100% of the
Fair Market Value (on the Date of Grant) of a
share of Common Stock covered by the Option;
provided, however, that if the Administrator
decides to grant an ISO to someone covered by
Sections 422(b)(6) and 424(d) (as a
more-than-10%-stockholder), the Exercise Price of
the Option must be at least 110% of the Fair
Market Value (on the Date of Grant).
The Administrator may satisfy any state law
requirements regarding adequate consideration for
Stock Grants by (i) issuing Common Stock held as
treasury stock or (ii) charging the Recipients at
least the par value for the shares covered by the
Stock Grant. The Administrator may designate that
a Recipient may satisfy (ii) above either by
direct payments or by the Administrator's
withholding from other payments due to the
Recipient.
Fair Market Value Fair Market Value of a share of Common Stock for
purposes of the Plan will be determined as
follows:
If the Common Stock trades on a national
securities exchange, the closing sale price
on the Date of Grant;
If the Common Stock does not trade on any
such exchange, the closing sale price as
reported by the National Association of
Securities Dealers, Inc. Automated Quotation
System ("Nasdaq") for such date;
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<PAGE> 37
If no such closing sale price information is
available, the average of the closing bid and asked
prices that Nasdaq reports for such date;
If there are no such closing bid and asked prices,
the average of the closing bid and asked prices as
reported by any other commercial service for such
date; or
If the Company has no publicly-traded stock, the
Administrator will determine the Fair Market Value
for purposes of the Plan using any measure of value
it determines in good faith to be appropriate.
For any date that is not a trading day, the Fair Market
Value of a share of Common Stock for such date shall be
determined by using the closing sale price or the
average of the closing bid and asked prices, as
appropriate, for the immediately preceding trading day.
The Administrator can substitute a particular time of
day or other measure of "closing sale price" if
appropriate because of changes in exchange or market
procedures.
The Fair Market Value will be deemed equal to the IPO
price for any Options granted as of the date on which
the IPO's underwriters price the IPO or granted on the
following day before trading opens in the Common Stock.
The Administrator has sole discretion to determine the
Fair Market Value for purposes of this Plan, and all
Awards are conditioned on the recipient's agreement that
the Administrator's determination is conclusive and
binding even though others might make a different and
also reasonable determination.
EXERCISABILITY The Administrator will determine the times and
conditions for exercise of or purchase under each Award
but may not extend the period for exercise beyond the
tenth anniversary of its Date of Grant (or five years
for ISOs granted to 10% owners covered by Code Sections
422(b)(6) and 424(d)).
Awards will become exercisable at such times and in such
manner as the Administrator determines and the Award
Agreement, if any, indicates; provided, however, that
the Administrator may, on such terms and conditions as
it determines appropriate, accelerate the time at which
the Participant may exercise any portion of an Award or
at which restrictions on Stock Grants lapse. For Stock
Grants, "exercise" refers to acceptance of the Award or
lapse of restrictions, as appropriate in context.
If the Administrator does not specify otherwise, Options
will become exercisable and restrictions on Stock Grants
will lapse as to one-fourth of the covered shares on
each of the first four anniversaries of the Date of
Grant, so long as the recipient remains employed or
continues his relationship as a service provider to the
Company or any Eligible Subsidiary, and will expire as
of the tenth anniversary of the Date of Grant (unless
they expire earlier under the Plan or the Award
Agreement). The Administrator has the sole discretion to
determine that a change in service-providing
relationship eliminates any further service credit on
the exercise schedule.
No portion of an Award that is unexercisable at a
recipient's termination of service-providing
relationship (for any reason) will thereafter become
exercisable (and the recipient will immediately forfeit
any unexercisable portions at his termination of
service-providing relationship), unless the Award
Agreement or the Plan provides otherwise, either
initially or by amendment.
Termination of service-providing relationship will not
occur for recipients who are Employees, officers, or
directors of JuneBox until the earlier of (i) the date
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<PAGE> 38
they leave all service-providing relationships with both
JuneBox and the Company or (ii) the first day of the
13th month beginning after the date JuneBox ceases to be
an Eligible Subsidiary, unless the Administrator agrees
to other treatment.
Change of Control Upon a Change of Control (as defined below), all Options
held by current Employees, consultants, advisors,
independent contractors, Eligible Officers and Eligible
Directors will become fully exercisable and all
restrictions on Stock Grants will lapse. A Change of
Control for this purpose means the occurrence of any one
or more of the following events:
a person, entity, or group (other than the Company,
any Company subsidiary, any Company benefit plan,
or any underwriter temporarily holding securities
for an offering of such securities) acquires
ownership of more than 50% of the undiluted total
voting power of the Company's then-outstanding
securities eligible to vote to elect members of the
Board ("Company Voting Securities");
completion of a merger or consolidation of the
Company with or into any other entity -- unless the
holders of the Company Voting Securities
outstanding immediately before such completion,
together with any trustee or other fiduciary
holding securities under a Company benefit plan,
hold securities that represent immediately after
such merger or consolidation at least 50% of the
combined voting power of the then outstanding
voting securities of either the Company or the
other surviving entity or its parent; or
the stockholders of the Company approve (i) a plan
of complete liquidation or dissolution of the
Company or (ii) an agreement for the Company's sale
or disposition of all or substantially all the
Company's assets, and such liquidation,
dissolution, sale, or disposition is completed.
Even if other tests are met, a Change of Control
has not occurred under any circumstance in which
the Company files for bankruptcy protection or is
reorganized following a bankruptcy filing.
The Administrator may allow conditional exercises
in advance of the completion of a Change of Control
that are then rescinded if no Change of Control
occurs.
The ADJUSTMENTS UPON CHANGES IN CAPITAL STOCK provisions
will also apply if the Change of Control is a
SUBSTANTIAL CORPORATE CHANGE (as defined in those
sections).
LIMITATION ON ISOS An Option granted to an Employee will be an ISO only to
the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the stock with
respect to which ISOs are exercisable for the first time
by the Optionee during any calendar year (under the Plan
and all other plans of the Company and its subsidiary
corporations, within the meaning of Code Section
422(d)), does not exceed $100,000. This limitation
applies to Options in the order in which such Options
were granted. If, by design or operation, the Option
exceeds this limit, the excess will be treated as an
NQSO.
METHOD OF EXERCISE To exercise any exercisable portion of an Award, the
Participant must:
Deliver a notice of exercise to the Assistant
Secretary of the Company designated by the Board
(or to whomever the Administrator designates), in a
form complying with any rules the Administrator may
issue, signed
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<PAGE> 39
or otherwise authenticated by the
Participant, and specifying the number of
shares of Common Stock underlying the portion
of the Award the Participant is exercising;
Pay the full Exercise Price, if any, by
cashier's or certified check for the shares
of Common Stock with respect to which the
Award is being exercised, unless the
Administrator consents to another form of
payment (which could include the use of
Common Stock); and
Deliver to the Administrator such
representations and documents as the
Administrator, in its sole discretion, may
consider necessary or advisable.
Payment in full of the Exercise Price need not
accompany the written notice of exercise if the
exercise complies with a previously-approved
cashless exercise method, including, for example,
that the notice directs that the stock
certificates (or other indicia of ownership) for
the shares issued upon the exercise be delivered
to a licensed broker acceptable to the Company as
the agent for the individual exercising the Option
and at the time the stock certificates (or other
indicia) are delivered to the broker, the broker
will tender to the Company cash or cash
equivalents acceptable to the Company and equal to
the Exercise Price and any required withholding
taxes.
If the Administrator agrees to allow an Optionee
to pay through tendering Common Stock to the
Company, the individual can only tender stock he
or she has held for at least six months at the
time of surrender. Shares of stock offered as
payment will be valued, for purposes of
determining the extent to which the Participant
has paid the Exercise Price, at their Fair Market
Value on the date of exercise. The Administrator
may also, in its discretion, accept attestation of
ownership of Common Stock and issue a net number
of shares upon Option exercise or by having a
broker tender to the Company cash equal to the
Exercise Price and any withholding taxes.
AWARD EXPIRATION No one may exercise an Award more than ten years
after its Date of Grant (or five years, for an ISO
granted to a more-than-10% stockholder). A
recipient will immediately forfeit and can never
exercise any portion of an Award that is
unexercisable at his termination of
service-providing relationship (for any reason),
unless the Award Agreement or the Plan provides
otherwise, either initially or by amendment.
Unless the Award Agreement or the Plan provides
otherwise, either initially or by amendment, no
one may exercise otherwise exercisable portions of
an Award after the first to occur of:
Employment Termination The 90th day after the date of termination of
service-providing relationship (other than for
death or Disability), where termination of
employment means the time when the
employer-employee or other service providing
relationship between the Employee, consultant,
independent contractor, advisor or Eligible
Officer and the Company (and the Eligible
Subsidiaries) ends for any reason, including
retirement. For grants after June 20, 2000, the
Administrator may provide that Awards terminate
immediately upon termination of employment for
"cause" under an Employee's employment or
consultant's services agreement or under another
definition specified in the Award Agreement.
Unless the Award Agreement provides otherwise,
termination of employment does not include
instances in which the Company immediately rehires
an Employee as a consultant, independent
contractor or advisor. The Administrator, in its
sole discretion, will determine all questions of
whether particular terminations or leaves of
absence are terminations of employment and may
decide to suspend the exercise schedule during a
leave rather than to terminate the Award.
C-6
<PAGE> 40
Unless the Award Agreement or the EXERCISABILITY section
provides otherwise, terminations of employment include
situations in which the Participant's employer ceases to
be related to the Company closely enough to be an
Eligible Subsidiary for new grants;
Gross Misconduct For the Company's termination of the Participant's
service-providing relationship as a result of the
Participant's Gross Misconduct, the time of such
termination. For purposes of this Plan, "Gross
Misconduct" means the Participant has
committed fraud, misappropriation, embezzlement, or
willful misconduct that has resulted or is likely
to result in material harm to the Company or an
Eligible Subsidiary;
committed or been indicted for or convicted of, or
pled guilty or no contest to, any misdemeanor
(other than for minor infractions or traffic
violations) involving fraud, breach of trust,
misappropriation, or other similar activity or
otherwise relating to the Company or an Eligible
Subsidiary, or any felony; or
committed an act of gross negligence or otherwise
acted with willful disregard for the Company's or
an Eligible Subsidiary's best interests in a manner
that has resulted or is likely to result in
material harm to the Company or an Eligible
Subsidiary.
If the Participant has a written employment or
other agreement in effect at the time of his
termination that specifies "cause" for termination,
"Gross Misconduct" for purposes of his termination
will refer to "cause" under the employment or other
agreement, rather than to the foregoing definition.
Disability For Disability, the earlier of (i) the first anniversary
of the Participant's termination of employment for
Disability and (ii) 30 days after the Participant no
longer has a Disability, where "Disability" means the
inability to engage in any substantial gainful activity
by reason of any medically determinable physical or
mental impairment that can be expected to result in
death or that has lasted or can be expected to last for
a continuous period of not less than twelve months; or
Death The date 24 months after the Participant's death.
If exercise is permitted after termination of
service-providing relationship, the Award will
nevertheless expire as of the date that the former
service provider violates any covenant not to compete in
effect between the Company or any Eligible Subsidiary
and such person. In addition, an Optionee who exercises
an Option more than 90 days after termination of
employment with the Company and/or an Eligible
Subsidiary will only receive ISO treatment to the extent
permitted by law, and becoming or remaining an employee
of another related company (that is not an Eligible
Subsidiary) or an independent contractor to the Company
and the Eligible Subsidiaries will not prevent loss of
ISO status because of the formal termination of
employment.
Nothing in this Plan extends the term of an Award beyond
the tenth anniversary of its Date of Grant, nor does
anything in this AWARD EXPIRATION section make an Award
exercisable that has not otherwise become exercisable.
AWARD AGREEMENT Award Agreements will set forth the terms of each Award
and will include such terms and conditions, consistent
with the Plan, as the Administrator may
C-7
<PAGE> 41
determine are necessary or advisable. To the extent the
agreement is inconsistent with the Plan, the Plan will
govern. The Award Agreements may contain special rules.
The Administrator may, but is not required to, issue
agreements for Stock Grants.
STOCK SUBJECT TO PLAN Except as adjusted below under ADJUSTMENTS UPON CHANGES
IN CAPITAL STOCK,
the aggregate number of shares of Common Stock that
may be issued under the Awards (whether ISOs,
NQSOs, or Stock Grants) may not exceed 20% percent
of the total number of shares of Common Stock
outstanding, determined immediately after the grant
of the Award;
the maximum number of shares that may be subject to
ISOs may not exceed 3,487,600; and
the maximum number of shares that may be granted
under Awards for a single individual in a calendar
year may not exceed 1,200,000. (The individual
maximum applies only to Awards first made under
this Plan and not to Awards made in substitution of
a prior employer's options or other incentives,
except as Code Section 162(m) otherwise requires.)
The Common Stock will come from either authorized but
unissued shares or from previously issued shares that
the Company reacquires, including shares it purchases on
the open market. If any Award expires, is canceled, or
terminates for any other reason, the shares of Common
Stock available under that Award will again be available
for the granting of new Awards (but will be counted
against that calendar year's limit for a given
individual).
No adjustment will be made for a dividend or other right
(except a stock dividend) for which the record date
precedes the date of exercise.
The Participant will have no rights of a stockholder
with respect to the shares of stock subject to an Award
except to the extent that the Company has issued
certificates for, or otherwise confirmed ownership of,
such shares upon the exercise of the Award.
The Company will not issue fractional shares pursuant to
the exercise of an Award, but the Administrator may, in
its discretion, direct the Company to make a cash
payment in lieu of fractional shares.
PERSON WHO MAY EXERCISE During the Participant's lifetime, only the Participant
or his duly appointed guardian or personal
representative may exercise the Awards. After his death,
his personal representative or any other person
authorized under a will or under the laws of descent and
distribution may exercise any then exercisable portion
of an Award. If someone other than the original
recipient seeks to exercise any portion of an Award, the
Administrator may request such proof as it may consider
necessary or appropriate of the person's right to
exercise the Award.
ADJUSTMENTS UPON CHANGES
IN CAPITAL STOCK Subject to any required action by the Company (which it
shall promptly take) or its stockholders, and subject to
the provisions of applicable corporate law, if, after
the Date of Grant of an Award,
the outstanding shares of Common Stock increase or
decrease or change into or are exchanged for a
different number or kind of security because of any
recapitalization, reclassification, stock split,
reverse stock split, combination of shares,
exchange of shares, stock dividend, or other
distribution payable in capital stock, or
C-8
<PAGE> 42
some other increase or decrease in such Common
Stock occurs without the Company's receiving
consideration
the Administrator may make a proportionate and
appropriate adjustment in the number of shares of Common
Stock underlying each Award, so that the proportionate
interest of the Participant immediately following such
event will, to the extent practicable, be the same as
immediately before such event. (This adjustment does not
apply to Common Stock that the Optionee has already
purchased nor to Stock Grants that are already
nonforfeitable, except to the extent of similar
treatment for most stockholders.) Unless the
Administrator determines another method would be
appropriate, any such adjustment to an Award will not
change the total price with respect to shares of Common
Stock underlying the unexercised portion of the Award
but will include a corresponding proportionate
adjustment in the Award's Exercise Price. The
Administrator will make a commensurate change to the
maximum number and kind of shares provided in the STOCK
SUBJECT TO PLAN section.
Any issue by the Company of any class of preferred
stock, or securities convertible into shares of common
or preferred stock of any class, will not affect, and no
adjustment by reason thereof will be made with respect
to, the number of shares of Common Stock subject to any
Award or the Exercise Price except as this ADJUSTMENTS
section specifically provides. The grant of an Award
under the Plan will not affect in any way the right or
power of the Company to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structure, or to merge or to
consolidate, or to dissolve, liquidate, sell, or
transfer all or any part of its business or assets.
Substantial
Corporate
Change Upon a Substantial Corporate Change, the Plan and any
unexercised Awards will terminate unless provision is
made in writing in connection with such transaction for
the assumption or continuation of outstanding Awards, or
the substitution for such options or grants of any
options or grants covering the stock or securities of a
successor employer corporation, or a parent or
subsidiary of such successor, with appropriate
adjustments as to the number and kind of shares of stock
and prices, in which event the Awards will continue in
the manner and under the terms so provided.
Unless the Administrator determines otherwise, if an
Award would otherwise terminate under the preceding
sentence, Participants who are then Employees,
consultants, advisors, independent contractors, Eligible
Officers and Eligible Directors will have the right, at
such time before the consummation of the transaction
causing such termination as the Administrator reasonably
designates, upon such reasonable notice as determined by
the Administrator, to exercise any unexercised portions
of the Award, whether or not they had previously become
exercisable. However, unless the Administrator
determines otherwise, the acceleration will not occur if
it would render unavailable "pooling of interest"
accounting for any reorganization, merger, or
consolidation of the Company.
A Substantial Corporate Change means:
the dissolution or liquidation of the Company,
merger, consolidation, or reorganization of the
Company with one or more corporations in which the
Company is not the surviving corporation,
C-9
<PAGE> 43
the sale of substantially all of the assets of the
Company to another corporation, or
any transaction (including a merger or
reorganization in which the Company survives)
approved by the Board that results in any person or
entity (other than any affiliate of the Company as
defined in Rule 144(a)(1) under the Securities Act,
any Company subsidiary, any Company benefit plan,
or any underwriter temporarily holding securities
for an offering of such securities) owning 100% of
the combined voting power of all classes of stock
of the Company.
ELIGIBLE
SUBSIDIARY Eligible Subsidiary means each of the Company's
Subsidiaries, except as the Administrator otherwise
specifies. For ISO grants, Subsidiary means any
corporation (other than the Company) in an unbroken
chain of corporations including the Company if, at the
time an ISO is granted to a Participant under the Plan,
each corporation (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in
another corporation in such chain. For ISO purposes,
Subsidiary also includes a single-member limited
liability company included within the chain described in
the preceding sentence. For NQSOs, the Administrator may
use a different definition of Subsidiary in its
discretion and may include other forms of entity at the
same level of equity relationship (or such other level
as the Board or the Administrator specifies).
LEGAL COMPLIANCE The Company will not issue any shares of Common Stock
under an Award until all applicable requirements imposed
by Federal and state securities and other laws, rules,
and regulations, and by any applicable regulatory
agencies or stock exchanges, have been fully met. To
that end, the Company may require the Participant to
take any reasonable action to comply with such
requirements before issuing such shares, including
compliance with any Company black-out periods or trading
restrictions. No provision in the Plan or action taken
under it authorizes any action that is otherwise
prohibited by Federal or state laws.
The Plan is intended to conform to the extent necessary
with all provisions of the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
and all regulations and rules the Securities and
Exchange Commission issues under those laws.
Notwithstanding anything in the Plan to the contrary,
the Administrator must administer the Plan, and Awards
may be granted and exercised, only in a way that
conforms to such laws, rules, and regulations. To the
extent permitted by applicable law, the Plan and any
Awards will be deemed amended to the extent necessary to
conform to such laws, rules, and regulations.
PURCHASE FOR INVESTMENT
AND OTHER RESTRICTIONS Unless a registration statement under the Securities Act
covers the shares of Common Stock a Participant receives
upon exercise of his Award, the Administrator may
require, at the time of such exercise or receipt of a
grant, that the Participant agree in writing to acquire
such shares for investment and not for public resale or
distribution, unless and until the shares subject to the
Award are registered under the Securities Act. Unless
the shares are registered under the Securities Act, the
Participant must acknowledge:
that the shares purchased on exercise of the Award
are not so registered,
C-10
<PAGE> 44
that the Participant may not sell or otherwise
transfer the shares unless:
the shares have been registered under the
Securities Act in connection with the sale or
transfer thereof, or
counsel satisfactory to the Company has issued
an opinion satisfactory to the Company that the
sale or other transfer of such shares is exempt
from registration under the Securities Act, and
such sale or transfer complies with all other
applicable laws, rules, and regulations,
including all applicable Federal and state
securities laws, rules, and regulations.
Additionally, the Common Stock, when issued upon the
exercise of an Award, will be subject to any other
transfer restrictions, rights of first refusal, and
rights of repurchase set forth in or incorporated by
reference into other applicable documents, including the
Company's articles or certificate of incorporation,
by-laws, or generally applicable stockholders'
agreements.
The Administrator may, in its sole discretion, take
whatever additional actions it deems appropriate to
comply with such restrictions and applicable laws,
including placing legends on certificates and issuing
stop-transfer orders to transfer agents and registrars.
TAX WITHHOLDING The Participant must satisfy all applicable Federal,
state, and local income and employment tax withholding
requirements before the Company will deliver stock
certificates or otherwise recognize ownership upon the
exercise of an Award. The Company may decide to satisfy
the withholding obligations through additional
withholding on salary or wages. If the Company does not
or cannot withhold from other compensation, the
Participant must pay the Company, with a cashier's check
or certified check, the full amounts required by
withholding. Payment of withholding obligations is due
before the Company issues shares with respect to the
Award. If the Administrator so determines, the
Participant may instead satisfy the withholding
obligations by directing the Company to retain shares
from the Award exercise, by tendering previously owned
shares, or by attesting to his ownership of shares (with
the distribution of net shares).
TRANSFERS, ASSIGNMENTS,
AND PLEDGES Unless the Administrator otherwise approves in advance
in writing for estate planning or other purposes, an
Award may not be assigned, pledged, or otherwise
transferred in any way, whether by operation of law or
otherwise or through any legal or equitable proceedings
(including bankruptcy), by the Participant to any
person, except by will or by operation of applicable
laws of descent and distribution. If necessary to comply
with Rule 16b-3 of the Exchange Act, the Participant may
not transfer or pledge shares of Common Stock acquired
under a Stock Grant or upon exercise of an Option until
at least six months have elapsed from (but excluding)
the Date of Grant, unless the Administrator approves
otherwise in advance in writing. The Administrator may,
in its discretion, expressly provide that a Participant
may transfer his Award without receiving consideration
to (i) members of his immediate family (children,
grandchildren, or spouse); (ii) trusts for the benefit
of such family members; or (iii) partnerships where the
only partners are such family members.
C-11
<PAGE> 45
AMENDMENT OR TERMINATION
OF PLAN AND AWARDS The Board may amend, suspend, or terminate the
Plan at any time, without the consent of the
Participants or their beneficiaries; provided
however, that no amendment will deprive any
Participant or beneficiary of any previously
declared Award. Except as required by law or by
the ADJUSTMENTS UPON CHANGES IN CAPITAL STOCK
section, the Board may not, without the
Participant's or beneficiary's consent, modify the
terms and conditions of an Award so as to
adversely affect the Participant. No amendment,
suspension, or termination of the Plan will,
without the Participant's or beneficiary's
consent, terminate or adversely affect any right
or obligations under any outstanding Awards.
PRIVILEGES OF STOCK
OWNERSHIP No Participant and no beneficiary or other person
claiming under or through such Participant will
have any right, title, or interest in or to any
shares of Common Stock allocated or reserved under
the Plan or subject to any award except as to such
shares of Common Stock if any, already issued to
such Participant.
EFFECT ON OTHER PLANS Whether exercising or receiving an Award causes
the Participant to accrue or receive additional
benefits under any pension or other plan is
governed solely by the terms of such other plan.
LIMITATIONS ON LIABILITY Notwithstanding any other provisions of the Plan,
no individual acting as an agent of the Company
shall be liable to any Participant, former
Participant, spouse, beneficiary, or any other
person for any claim, loss, liability, or expense
incurred in connection with the Plan, nor shall
such individual be personally liable because of
any contract or other instrument he executes in
such other capacity. The Company will indemnify
and hold harmless each agent of the Company to
whom any duty or power relating to the
administration or interpretation of the Plan has
been or will be delegated, against any cost or
expense (including attorneys' fees) or liability
(including any sum paid in settlement of a claim
with the Administrator's approval) arising out of
any act or omission to act concerning this Plan
unless arising out of such person's own fraud or
bad faith.
NO EMPLOYMENT CONTRACT Nothing contained in this Plan constitutes an
employment contract between the Company and the
Participants. The Plan does not give any
Participant any right to be retained in the
Company's employ, nor does it enlarge or diminish
the Company's right to end the Participant's
employment or other relationship with the Company.
APPLICABLE LAW The laws of the State of Delaware (other than its
choice of law provisions) govern this Plan and its
interpretation.
DURATION OF PLAN Unless the Board extends the Plan's term, the
Administrator may not grant Awards after June 8,
2008. The Plan will then terminate but will
continue to govern unexercised and unexpired
Awards.
C-12
<PAGE> 46
PROXY CARD
SCHOOL SPECIALTY, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned appoints Daniel P. Spalding and Mary M. Kabacinski, and
each of them, as proxies, each with the power to appoint his or her 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 held of record by
the undersigned on July 10, 2000 at the 2000 Annual Meeting of Stockholders of
School Specialty to be held on August 29, 2000 and 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 INDICATED, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF EACH OF THE INDIVIDUALS NOMINATED TO SERVE
AS CLASS II DIRECTORS, "FOR" APPROVAL OF THE PROPOSAL TO CHANGE SCHOOL
SPECIALTY'S STATE OF INCORPORATION FROM DELAWARE TO WISCONSIN, "FOR" APPROVAL OF
THE PROPOSAL TO AMEND AND RESTATE SCHOOL SPECIALTY'S 1998 STOCK INCENTIVE PLAN
AND "FOR" THE RATIFICATION OF THE INDEPENDENT AUDITORS.
(Continued and to be signed on reverse side.)
<PAGE> 47
PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD BACK AS SOON AS POSSIBLE.
ANNUAL MEETING OF STOCKHOLDERS
SCHOOL SPECIALTY, INC.
AUGUST 29, 2000
<TABLE>
<S> <C> <C> <C>
1. ELECT DIRECTORS:
(To serve until the 2003 1-David J. Vander Zanden |_| FOR all nominees |_| WITHHOLD AUTHORITY
Annual Meeting and until 2-Rochelle Lamm 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. CHANGE STATE OF INCORPORATION FROM DELAWARE TO WISCONSIN.
|_| FOR
|_| AGAINST
|_| ABSTAIN
3. AMEND AND RESTATE SCHOOL SPECIALTY'S 1998 STOCK INCENTIVE PLAN.
|_| FOR
|_| AGAINST
|_| ABSTAIN
4. RATIFY PRICEWATERHOUSECOOPERS LLP AS SCHOOL SPECIALTY'S INDEPENDENT
AUDITORS FOR FISCAL 2001.
|_| FOR
|_| AGAINST
|_| ABSTAIN
5. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING (AND ANY ADJOURNMENT
THEREOF).
<TABLE>
<S> <C>
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.
</TABLE>
