<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:
<TABLE>
<S> <C>
[ ] 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 Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
American Pad & Paper Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than 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)(4) and 0-12.
(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:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
AMERICAN PAD & PAPER COMPANY
17304 PRESTON ROAD, SUITE 700
DALLAS, TEXAS 75252
TELEPHONE: (972) 733-6200
March 25, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of American Pad & Paper Company ("AP&P"), which is scheduled to be held on
Tuesday, April 28, 1998, at 10:00 a.m. at the Westin Hotel Galleria Dallas,
13340 Dallas Parkway, Dallas, Texas 75240.
At the meeting, we will report to you on current business conditions and
recent developments at AP&P. Members of the Board of Directors and our executive
officers will be present to discuss the affairs of AP&P with you.
The Company has enclosed a copy of its 1997 Annual Report for the fiscal
year ended December 31, 1997 with this letter, notice of annual meeting of
stockholders and proxy statement. If you would like another copy of the 1997
Annual Report, please contact William W. Solomon, Jr., Vice
President-Controller, and you will be sent one.
It is important that your shares be represented and voted at the Annual
Meeting, regardless of the size of your holdings. Accordingly, please complete,
sign and date the enclosed proxy card and return it promptly in the enclosed
envelope to ensure your shares will be represented. If you do attend the Annual
Meeting, you may, of course, withdraw your proxy should you wish to vote in
person.
Sincerely,
Charles G. Hanson III
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
AMERICAN PAD & PAPER COMPANY
17304 PRESTON ROAD, SUITE 700
DALLAS, TEXAS 75252
TELEPHONE: (972) 733-6200
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MARCH 25, 1998
The Annual Meeting of Stockholders of American Pad & Paper Company, a
Delaware corporation (the "Company"), is scheduled to be held on Tuesday, April
28, 1998, at 10:00 a.m. (the "Annual Meeting"), at the Westin Hotel Galleria
Dallas, 13340 Dallas Parkway, Dallas, Texas 75240, for the purpose of:
(1) Electing three (3) Class II Directors to serve until the annual meeting
of stockholders in 2001 and until their successors are duly elected and
qualified (the Board of Directors of the Company recommends a vote FOR
the nominees named in the Company's Proxy Statement);
(2) Approving the appointment of the independent accountants of the Company
for the fiscal year ending December 31, 1998 (the Board of Directors of
the Company recommends a vote FOR this proposal); and
(3) Transacting such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 10, 1998,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the Annual Meeting or any adjournment or postponement thereof.
By Order of the Board of Directors
William W. Solomon, Jr.
Vice President
March 25, 1998
The Company's 1997 Annual Report for the fiscal year ended December 31,
1997 is enclosed. The 1997 Annual Report contains financial and other
information about the Company, but is not incorporated into the Proxy Statement
and is not deemed to be a part of the proxy soliciting material.
- --------------------------------------------------------------------------------
EVEN IF YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, SIGN,
DATE AND MAIL THE ENCLOSED PROXY CARD. A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
STOCKHOLDERS WHO ATTEND THE ANNUAL MEETING MAY REVOKE THEIR PROXIES AND VOTE IN
PERSON IF THEY SO DESIRE.
- --------------------------------------------------------------------------------
<PAGE> 4
AMERICAN PAD & PAPER COMPANY
17304 PRESTON ROAD, SUITE 700
DALLAS, TEXAS 75252
TELEPHONE: (972) 733-6200
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON APRIL 28, 1998
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of American Pad & Paper Company, a Delaware corporation
(the "Company"), of proxies to be used at the annual meeting of stockholders of
the Company scheduled to be held on April 28, 1998 (the "Annual Meeting"). This
Proxy Statement and the related proxy card are being mailed to holders of the
Company's common stock, par value $.01 per share (the "Common Stock"),
commencing on or about March 25, 1998.
If the enclosed proxy card is executed and returned, the shares represented
by it will be voted as directed on all matters properly coming before the Annual
Meeting for a vote. Returning your completed proxy will not prevent you from
voting in person at the Annual Meeting should you be present and desire to do
so. In addition, the proxy may be revoked at any time prior to its exercise
either by giving written notice to the Company or by submission of a later-dated
proxy.
Stockholders of record of the Company's Common Stock at the close of
business on March 10, 1998 will be entitled to vote at the Annual Meeting. On
that date, the Company had outstanding 27,724,045 shares of Common Stock. A list
of the Company's stockholders will be open to the examination of any
stockholders, for any purpose germane to the meeting, at the Company's
headquarters for a period of ten days prior to the meeting. Each share of Common
Stock entitles the holder thereof to one vote on all matters submitted to
stockholders. At the Annual Meeting, inspectors of election shall determine the
presence of a quorum and shall tabulate the results of the stockholders' voting.
The holders of a majority of the total number of outstanding shares of Common
Stock entitled to vote must be present in person or by proxy to constitute the
necessary quorum for any business to be transacted at the Annual Meeting. In
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), properly executed proxies marked "abstain" as well as proxies held in
street name by brokers that are not voted on all proposals to come before the
Annual Meeting ("broker non-votes"), will be considered "present" for the
purposes of determining whether a quorum has been achieved at the Annual
Meeting. The Board of Directors recommends that the stockholders vote FOR
Proposals 1 and 2.
The three nominees for Director receiving the greatest number of votes cast
at the Annual Meeting in person or by proxy shall be elected. Consequently, any
shares of Common Stock present in person or by proxy at the Annual Meeting but
not voted for any reason have no impact in the election of Directors, except to
the extent that the failure to vote for an individual may result in another
individual receiving a larger number of votes. All other matters to be
considered at the Annual Meeting require for approval the favorable vote of a
majority of the shares entitled to vote at the meeting either in person or by
proxy. Stockholders have no right to cumulative voting as to any matter,
including the election of Directors. If any proposal at the Annual Meeting must
receive a specific percentage of favorable votes for approval, abstentions in
respect of such proposal are treated as present and entitled to vote under the
DGCL and therefore have the effect of a vote against such proposal. Broker
non-votes in respect of any proposal are not counted for purposes of determining
whether such proposal has received the requisite approval under the DGCL.
The shares represented by all valid proxies received will be voted in the
manner specified on the proxies. Where specific choices are not indicated on a
valid proxy, the shares represented by such proxies received will be voted: (i)
for the nominees for Director named in this Proxy Statement; (ii) for approval
of the appointment of Price Waterhouse LLP as independent certified public
accountants; and (iii) in accordance with the best judgment of the persons named
in the enclosed proxy, or their substitutes, for any other matters which
properly come before the Annual Meeting or any adjournment or postponement
thereof.
<PAGE> 5
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
The Board of Directors is currently comprised of eight Directors divided
into three classes. The term of each class expires in different years. The Board
of Directors has nominated and recommends a vote FOR the election of the three
nominees set forth below. Each nominee currently serves as Director of the
Company. If any nominee becomes unavailable for any reason or should a vacancy
occur before the election (which events are not anticipated), the persons named
on the enclosed proxy card may substitute another person as a nominee or may add
or reduce the number of nominees to such extent as they shall deem advisable. At
the Annual Meeting, three Directors are to be elected as members of Class II to
serve until the annual meeting in 2001 and until their successors are elected
and qualified or until their earlier removal or resignation.
Subject to rights of holders of any series of preferred stock to fill such
newly created directorships or vacancies, any newly created directorships
resulting from an increase in the authorized number of Directors or any
vacancies on the Board of Directors resulting from death, resignation,
disqualification or removal for cause may be filled by a vote of 50% of the
total number of the remaining Directors then in office.
Messrs. Herbert M. Kohn and Scott R. Watterson were appointed to the Board
of Directors on November 11, 1996 and December 10, 1996, respectively, to fill
two vacancies on the Board resulting from an increase in the authorized number
of Directors pursuant to the terms of the Company's Restated Certificate of
Incorporation and Amended and Restated By-Laws.
Information regarding the nominees for Director of the Company is set forth
below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Russell M. Gard(1).............. 50 Chief Operating Officer, Vice-Chairman and Director
Herbert M. Kohn(3).............. 59 Director
Marc B. Wolpow(1)(2)............ 39 Director
</TABLE>
Information regarding Directors of the Company not subject to reelection at
the Annual Meeting is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles G. Hanson III(1)........ 57 Chief Executive Officer, Chairman and Director
Gregory M. Benson............... 43 Director
Robert C. Gay(1)(2)............. 46 Director
Jonathan S. Lavine.............. 31 Director
Scott R. Watterson(3)........... 42 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
There are no family relationships between or among any Directors or
executive officers of the Company.
DIRECTOR NOMINEES (CLASS II DIRECTORS)
RUSSELL M. GARD has served as the Chief Operating Officer, Vice Chairman of
the Board and a Director of the Company since 1992. From 1992 to 1995, Mr. Gard
also served as President, Chief Operating Officer and Director of Ampad
Corporation. From 1990 to 1992, Mr. Gard was the Executive Vice President of
Pen-Tab Industries, Inc. From 1988 to 1990, Mr. Gard served as the Chief
Executive Officer of Herlitz International.
HERBERT M. KOHN has served as a Director of the Company since November
1996. Mr. Kohn has been a partner in the law firm of Bryan Cave LLP since 1991.
Prior thereto, Mr. Kohn was a partner of the law firm of Linde Thomson
Langworthy Kohn & Van Dyke, P.C. Mr. Kohn also serves as a director of Harmon
Industries, Inc. as well as on the board of several charitable institutions and
private companies.
2
<PAGE> 6
MARC B. WOLPOW has served as a Director of the Company since 1995. Mr.
Wolpow has been a Managing Director of Bain Capital, Inc. ("Bain Capital") since
1993 and was a Principal of Bain Venture Capital from 1990 through 1992. Mr.
Wolpow is also a director of Physicians Quality Care, Inc.
CLASS I DIRECTORS (TERM EXPIRING AT THE 2000 ANNUAL MEETING)
GREGORY M. BENSON has served as a Director of the Company since 1992. Mr.
Benson currently serves as an Executive Vice President of Bain Capital. Since
December 1997, Mr. Benson has served as acting Chief Financial Officer of the
Company. Mr. Benson served as Chief Financial Officer and Secretary of the
Company from 1992 to August 1996 and served as an Executive Vice President and
Director of Strategic Planning and Acquisitions from May 1996 through November
1996. From 1992 to 1995, Mr. Benson also served as Chief Financial Officer,
Chief Administrative Officer and Director of Ampad Corporation (the principal
operating subsidiary of the Company during that period). Mr. Benson was at GE
Capital Corporation from 1977 to 1992.
JONATHAN S. LAVINE has served as a Director of the Company since 1995. Mr.
Lavine has been a Managing Director at Bain Capital since 1997, and was a
Principal at Bain Capital from 1995 to 1997 and an associate at Bain Capital
from 1993 to 1995. In 1992, Mr. Lavine was a consultant at McKinsey & Co. Mr.
Lavine is also a director of Clarity Telecom, Inc.
CLASS III DIRECTORS (TERM EXPIRING AT THE 1999 ANNUAL MEETING)
CHARLES G. HANSON III has served as Chief Executive Officer, Chairman of
the Board and Director of the Company since 1992. From 1992 to 1995, Mr. Hanson
also served as Chairman of the Board, Chief Executive Officer and Director of
Ampad Corporation. Mr. Hanson was formerly the President and Chief Operating
Officer of Stuart Hall Co. Inc. and Group Vice President of Pen-Tab Industries,
Inc.
ROBERT C. GAY has served as a Director of the Company since 1992. Mr. Gay
has been a Managing Director of Bain Capital since 1993 and has been a General
Partner of Bain Venture Capital since 1989. From 1988 through 1989, Mr. Gay was
a Principal of Bain Venture Capital. Mr. Gay is also Vice Chairman of the Board
of Directors of IHF Capital, Inc., the parent of ICON Health & Fitness Inc. In
addition, Mr. Gay is a director of Cambridge Industries, Inc., GT Bicycles,
Inc., GS Industries, Inc. and its subsidiary GS Technologies Operating Co.,
Inc., Nutraceutical International Corporation and Physio-Control International
Corporation.
SCOTT R. WATTERSON has served as a Director of the Company since December
1996. Mr. Watterson has served as Chairman of the Board and Chief Executive
Officer of IHF Capital, Inc., the parent of ICON Health & Fitness Inc., since
November 1994. Mr. Watterson has served as President and Chief Executive Officer
of Weslo, Inc. since 1977 and has served as President and Chief Executive
Officer of ProForm Fitness Products, Inc. since 1988.
COMPENSATION OF DIRECTORS
At present, no separate compensation or fees are payable to employee
Directors of the Company. The Company pays non-employee Directors an annual
retainer of $20,000. In addition, Directors are reimbursed by the Company for
reasonable travel expenses incurred in attending Board of Directors' meetings.
Pursuant to the Company's Non-Employee Director Stock Option Plan (the "Director
Option Plan"), non-employee Directors are granted options to purchase 25,000
shares of Common Stock upon their initial election or appointment to the Board
(or upon the adoption of the Director Option Plan for those Directors in office
on the date of such adoption) and will be granted options to purchase an
additional 2,000 shares of Common Stock on an annual basis beginning on the
later of the fourth anniversary of the adoption of the Director Option Plan
(July 8, 2000) or a Director's fourth anniversary of being elected to the Board.
The Directors do not receive any additional compensation for committee
participation.
3
<PAGE> 7
COMMITTEES AND DIRECTORS' MEETINGS
The Board of Directors has three standing committees: the Executive
Committee, the Audit Committee and the Compensation Committee.
The Executive Committee is authorized to review the Company's strategic
planning process and has the power to exercise the authority of the Board on
specific matters assigned to it by the Board from time to time. The Executive
Committee is currently comprised of Messrs. Hanson, Gard, Gay and Wolpow. The
Executive Committee did not meet in 1997.
The Compensation Committee is authorized to provide a general review of the
Company's compensation and benefit plans to ensure that they meet corporate
objectives. In addition, the Compensation Committee reviews the Chief Executive
Officer's recommendations on (i) compensation of all officers of the Company and
(ii) adopting and changing major Company compensation policies and practices,
and reports its recommendations to the whole Board of Directors for approval and
authorization. The Compensation Committee is currently comprised of Messrs. Gay
and Wolpow. The Compensation Committee met once in 1997 and all members were in
attendance.
The Audit Committee is authorized to make recommendations to the Board of
Directors regarding the independent auditors to be nominated for election by the
stockholders and to review the independence of such auditors, approve the scope
of the annual audit activities of the independent auditors, approve the audit
fee payable to the independent auditors and review such audit results. Price
Waterhouse LLP presently serves as the independent accountants of the Company.
The Audit Committee is currently comprised of Messrs. Kohn and Watterson. The
Audit Committee met three times in 1997 and all members were in attendance.
The Board of Directors held seven meetings and took action by written
consent on one occasion during the Company's preceding fiscal year. All of the
Directors attended 75% or more of the total number of meetings of the Board of
Directors.
The Company does not have a nominating committee. The entire Board of
Directors currently is responsible for filling vacancies on the Board as they
occur and recommending candidates for election as Directors at the annual
meetings of stockholders. The Board will consider individuals recommended for
nominations by stockholders of the Company. Such recommendations should be
submitted in writing to the Chairman of the Board, who will submit them to the
entire Board for its consideration. The recommendation must be accompanied by
the consent of the individual nominated to be elected and to serve.
In addition, the Amended and Restated By-Laws of the Company (the
"By-Laws") require that advance notice of nominations for the election of
Directors to be made by a stockholder (as distinguished from a stockholder's
recommendation to the Board) be given to the Secretary of the Company (i) in the
case of an annual meeting, no later than 60 days and no more than 90 days before
an annual meeting of stockholders, provided, that in the event that the date of
the annual meeting is changed by more than 30 days from the first anniversary
date of the preceding year's annual meeting, notice by stockholders must be
received no later than the close of business on the tenth (10th) day following
the earlier of the date on which this notice was mailed or public announcement
of the meeting was made, and (ii) in the case of a special meeting at which
Directors are to be elected, not later than the close of business on the 10th
day following the earlier of the day on which notice of the date of the meeting
was mailed or public announcement of the meeting was made. Such notice must
include (i) as to each person whom the stockholder proposes to nominate for
election as a Director at such meeting all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (ii) as to the
stockholder giving the notice (A) the name and address, as they appear on the
Company's books, of such stockholder and (B) the class and number of shares of
the Company which are beneficially owned by such stockholder and also which are
owned of record by such stockholder; and (iii) as to the beneficial owner, if
any, on whose behalf the nomination is made, (A) the name and address of such
person and (B) the class and number of shares of the Company which are
beneficially owned by such person.
4
<PAGE> 8
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is currently comprised
of Messrs. Gay and Wolpow, each of whom formerly served as an officer of the
Company. Messrs. Gay and Wolpow are both Managing Directors of Bain Capital,
which is a party to the Management Advisory Agreement with the Company. No
officers or employees of the Company serve on the Compensation Committee. The
Compensation Committee was established in May 1996 in connection with the
Company's initial public offering ("IPO"). Previous compensation levels for the
Company's executive officers were approved by the full Board of Directors upon
the recommendation of Charles G. Hanson III, Chief Executive Officer of the
Company. Executive officers who are also Directors of the Company did not
participate in discussions relating to their individual compensation
arrangements. See "Compensation Committee Report on Executive Compensation."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Advisory Agreement
In October 1995, the Company entered into a ten-year Management Advisory
Agreement (the "Advisory Agreement") with Bain Capital to replace Bain Capital's
prior agreement with the Company. In connection with the Company's IPO, the
Company and Bain Capital amended and restated the Advisory Agreement to provide
for an initial term of four years, subject to automatic one-year extensions
beyond the initial term (not to exceed an aggregate of eight years) on each
anniversary of the effective date of such agreement so long as Bain Capital
continues to own at least 5% of the outstanding Common Stock. Under the amended
Advisory Agreement, the Company will pay Bain Capital an annual cash advisory
fee of $2.0 million, plus out-of-pocket expenses, payable by the Company on a
quarterly basis in arrears and a transaction fee in connection with the
consummation of each acquisition, divestiture or financing by the Company or its
subsidiaries in an amount equal to 1% of the aggregate value of such
transaction. For the year ended December 31, 1997, the Company paid Bain Capital
fees of $2,605,000, plus expenses of $275,000, under the Advisory Agreement. The
Company believes that the fees received for the professional services rendered
are at least as favorable to the Company as those which could be negotiated with
an independent third party.
Registration Agreement
The Company, its executive officers and certain other existing
stockholders, including investment funds controlled by Bain Capital (the "Bain
Capital Funds"), are parties to a registration agreement (the "Registration
Agreement"). Under the Registration Agreement, the holders of a majority of the
registrable securities owned by the Bain Capital Funds and related investors
have the right at any time, subject to certain conditions, to require the
Company to register any or all of their shares of Common Stock under the
Securities Act on Form S-1 on three occasions at the Company's expense and on
Form S-2 or Form S-3 on an unlimited number of occasions at the Company's
expense. In addition, all holders of registrable securities are entitled to
request the inclusion of any shares of Common Stock subject to the Registration
Agreement in any registration statement at the Company's expense whenever the
Company proposes to register any of its securities under the Securities Act,
subject to certain conditions. As of December 31, 1997, the holders of an
aggregate of 12,626,666 shares of Common Stock (including 1,938,718 shares which
could be acquired through exercisable options) had demand registration rights
pursuant to the Registration Agreement.
Indebtedness of Management
On July 2, 1996, the Company lent Mr. Needham, the Company's Executive Vice
President, an aggregate of $324,537 in order to permit him to purchase shares of
Common Stock in the Company's IPO. The loan bears interest at 8% per annum and
will be due on July 2, 2000. Mr. Needham will be required to prepay the loan
with 40% of any bonus received by him during the first four years of his
employment agreement with the Company or with any proceeds he receives from the
sale of any of his shares of Common Stock. The amounts due under the loan are
with full recourse and are secured by a pledge of all such shares of Common
Stock purchased by Mr. Needham. On December 31, 1997, $270,156 in aggregate
principal amount remained outstanding under the loan.
5
<PAGE> 9
In October 1997, the Board of Directors approved the extension of a loan of
$1.0 million to Mr. Benson. The loan will bear interest at a rate equal to 5.89%
and will mature in three years from the borrowing date. Mr. Benson has informed
the Company that he intends to borrow such amount on or about March 31, 1998.
Other
Mr. Herbert M. Kohn is a partner in the law firm of Bryan Cave LLP, which
provided legal services to the Company during the Company's last fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers,
Directors and persons who beneficially own more than ten percent of the
Company's Common Stock to file reports of securities ownership and changes in
such ownership with the Securities and Exchange Commission ("SEC"). Officers,
Directors and greater than ten percent beneficial owners also are required by
rules promulgated by the SEC to furnish the Company with copies of all Section
16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that during the period from January 1, 1997 through December
31, 1997, all Section 16(a) filing requirements applicable to its officers,
Directors and greater than ten percent beneficial owners were complied with
other than by Mr. Kohn, who reported his purchase of Common Stock for the month
of October 1997 one day late.
PROPOSAL NO. 2 -- RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends a vote FOR approval of the appointment of
Price Waterhouse LLP as the independent accountants of the Company and its
subsidiaries to audit the books and accounts for the Company and its
subsidiaries for the year ending December 31, 1998. Price Waterhouse LLP audited
the financial statements of the Company and its subsidiaries for the year ended
December 31, 1997. It is expected that representatives of Price Waterhouse LLP
will attend the Annual Meeting, with the opportunity to make a statement if they
so desire, and will be available to answer appropriate questions.
6
<PAGE> 10
BENEFICIAL OWNERSHIP OF COMMON STOCK
Except as otherwise noted, the following table sets forth certain
information as of February 27, 1998 as to the security ownership of equity
securities of the Company by (i) each of the executive officers named in the
Summary Compensation Table, (ii) each of the Directors and Director nominees of
the Company, (iii) all Directors and executive officers as a group and (iv)
those persons owning of record or known to the Company to be the beneficial
owner of more than five percent of the voting securities of the Company. All
information with respect to beneficial ownership has been furnished by the
respective Director, Director nominee, executive officer or five percent
beneficial owner, as the case may be. Unless otherwise indicated, the persons
named below have sole voting and investment power with respect to the number of
shares set forth opposite their names. Beneficial ownership of the Common Stock
has been determined for this purpose in accordance with the applicable rules and
regulations promulgated under the Exchange Act.
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
EXECUTIVE OFFICERS, NUMBER OF PERCENT
DIRECTORS AND 5% STOCKHOLDERS SHARES OF CLASS
----------------------------- ---------- --------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Charles G. Hanson III(1).................................... 1,067,528 3.7%
Russell M. Gard(2).......................................... 1,021,309 3.6
Timothy E. Needham(3)....................................... 92,898 *
Kevin W. McAleer............................................ 2,270 *
Gregory M. Benson(4)........................................ 845,842 3.0
Robert C. Gay(5)............................................ 9,942,141 35.9
Herbert M. Kohn(6).......................................... 14,500 *
Jonathan S. Lavine(7)....................................... 747,646 2.7
Scott R. Watterson(6)....................................... 12,500 *
Marc B. Wolpow(8)........................................... 750,646 2.7
All Directors and executive officers as a group (9 12,971,718 43.6
persons)(9)...............................................
5% STOCKHOLDERS:
Bain Capital Funds(10)...................................... 9,942,141 35.9%
c/o Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 0211
EnTrust Capital Inc.(11).................................... 2,140,900 7.7
650 Madison Avenue
New York, New York 10022
J.P. Morgan & Co. Incorporated(12).......................... 2,134,700 7.7
60 Wall Street
New York, New York 10260
FMR Corp.(13)............................................... 2,009,400 7.3
82 Devonshire Street
Boston, Massachusetts 02109
J.&W. Seligman & Co. Incorporated(14)....................... 1,493,740 5.4
William C. Morris
100 Park Avenue
New York, New York 10017
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 866,280 shares of Common Stock that can be acquired through
currently exercisable options.
(2) Includes 818,748 shares of Common Stock that can be acquired through
currently exercisable options.
(3) Includes 23,333 shares of Common Stock that can be acquired through
currently exercisable options.
(4) Includes 299,457 shares of Common Stock that can be acquired through
currently exercisable options.
7
<PAGE> 11
(5) Mr. Gay is a Director of the Company. Mr. Gay is also a general partner of
Bain Venture Capital, a California limited partnership ("BVC"), which is
the general partner of the Tyler Capital Fund, L.P. ("TCF"), Tyler
Massachusetts L.P. ("TM") and Tyler International L.P.-II ("TI").
Accordingly, Mr. Gay may be deemed to beneficially own shares held by such
investment funds. In addition, Mr. Gay is a general partner of BCIP Trust
Associates L.P. ("BCIP Trust") and BCIP Associates ("BCIP") and, as a
result, may be deemed to beneficially own shares held by such partnerships.
Mr. Gay disclaims beneficial ownership of such shares in which he does not
have a pecuniary interest. The address of Mr. Gay is c/o Bain Capital,
Inc., Two Copley Place, Boston, Massachusetts 02116.
(6) Includes 12,500 shares of Common Stock that can be acquired through
currently exercisable options.
(7) Includes: (i) 2,000 shares held by Mr. Lavine as custodian for his two
minor children; (ii) 620,562 shares held by BCIP; and (iii) 125,084 shares
held by BCIP Trust. Mr. Lavine is a general partner of BCIP and BCIP Trust
and, as a result, may be deemed to beneficially own shares held by such
partnerships. Mr. Lavine disclaims beneficial ownership of such shares in
which he does not have a pecuniary interest.
(8) Includes (i) 5,000 shares held by Mr. Wolpow as custodian for his two minor
children; (ii) 620,562 shares held by BCIP; and (iii) 125,084 shares held
by BCIP Trust. Mr. Wolpow is a general partner of BCIP and BCIP Trust and,
as a result, may be deemed to beneficially own shares held by such
partnerships. Mr. Wolpow disclaims beneficial ownership of such shares in
which he does not have a pecuniary interest.
(9) Includes shares which may be deemed to be beneficially owned by Messrs.
Gay, Lavine and Wolpow as a result of their relationship with the Bain
Capital Funds and shares that Messrs. Hanson, Gard, Needham and Benson can
acquire through currently exercisable options.
(10) Includes: (i) 7,270,836 shares held by TCF; (ii) 1,489,744 shares held by
TM; (iii) 435,915 shares held by TI; (iv) 620,562 shares held by BCIP; and
(v) 125,084 shares held by BCIP Trust (BCIP Trust, TCF, TM, TI and BCIP are
collectively referred to herein as the "Bain Capital Funds"). BVC, as the
sole general partner of TCF, TM and TI, may be deemed to be the beneficial
owner of the shares of Common Stock held by such investment funds. In
addition to Mr. Gay, the other general partners of BVC include: Joshua
Bekenstein, Paul B. Edgerley, Adam W. Kirsch, Geoffrey S. Rehnert, W. Mitt
Romney and Robert F. White. All such persons disclaim beneficial ownership
of all such shares in which they do not have a pecuniary interest.
(11) EnTrust Capital Inc. reported on a Schedule 13G filed with the SEC, as of
December 31, 1997, shared voting power of 1,412,480 shares of Common Stock
and shared dispositive power of 2,140,900 shares of Common Stock.
(12) J.P. Morgan & Co. Incorporated reported on a Schedule 13G filed with the
SEC, as of December 31, 1997, sole power to vote 1,758,000 shares of Common
Stock and the sole power to dispose 2,134,700 shares of Common Stock.
(13) Fidelity Management & Research Company, a wholly owned subsidiary of FMR
Corp. ("Fidelity"), reported on a Schedule 13G filed with the SEC, as of
December 31, 1997, beneficial ownership of 1,884,000 shares of Common Stock
as a result of acting as investment advisor to several investment funds
that hold such shares of Common Stock (the "Funds"). Edward C. Johnson 3d,
FMR Corp. and the Funds each reported the sole power to dispose of such
1,884,000 shares of Common Stock. In addition, Fidelity Management Trust
Company, a wholly owned subsidiary of FMR Corp. ("FMTC"), reported
beneficial ownership of 125,400 shares of Common Stock. Edward C. Johnson
3d and FMR Corp. each reported sole power to vote and to dispose of such
125,400 shares of Common Stock.
(14) J. & W. Seligman & Co. Incorporated ("JWS") reported on a Schedule 13G
filed with the SEC, as of December 31, 1997, shared voting power of
1,160,600 shares of Common Stock and shared dispositive power of 1,493,740
shares of Common Stock. William C. Morris, as the owner of a majority of
the outstanding voting securities of JWS, also reported beneficial
ownership of the shares held by JWS.
8
<PAGE> 12
COMPENSATION OF EXECUTIVE OFFICERS
GENERAL
In addition to Messrs. Benson, Hanson and Gard, the following person serves
as an executive officer of the Company:
TIMOTHY E. NEEDHAM has served as Executive Vice President since November
1995. Mr. Needham served as Chairman of the Board of Williamhouse-Regency of
Delaware, Inc. ("Williamhouse") prior to its acquisition by the Company in
October 1995 and as a director from 1993 to 1995. From 1987 to 1995, Mr. Needham
served as President of Williamhouse and from 1992 to 1995, as Chief Operating
Officer of Williamhouse. Mr. Needham is 49 years old.
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors.
SUMMARY COMPENSATION TABLE
The table below provides information relating to compensation for the
Company's last three fiscal years for the Company's Chief Executive Officer, its
two other current executive officers and a former employee of the Company who
served as an executive officer during the Company's last completed fiscal year
(collectively, the "Named Executive Officers"). The amounts shown include
compensation for services in all capacities that were provided to the Company
and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------------- ------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) OPTIONS COMPENSATION(4)
- --------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles G. Hanson III..... 1997 $450,000 $ 0 $22,469(5) 0 $ 7,945
Chief Executive Officer 1996 407,239 386,500 -- 153,400 7,765
1995 250,000 809,859 -- 58,029 4,595
Russell M. Gard........... 1997 $400,000 $ 0 $19,972(5) 0 $ 4,486
Chief Operating Officer 1996 360,905 343,000 -- 121,200 2,423
1995 225,000 723,837 -- 57,628 1,553
Timothy E. Needham(6)..... 1997 $300,000 $ 0 $14,983(5) 0 $ 127,556
Executive Vice 1996 300,000 180,000 -- 70,000 1,179,811
President 1995 300,000 75,000 -- 62(7) 2,012
Kevin W. McAleer(8)....... 1997 $195,833 $ 0 $11,665(5) 0 $ 121,293
1996 131,167 141,000 -- 60,000 900
</TABLE>
- ---------------
(1) In June 1996, Messrs. Hanson, Gard and Needham each entered into an
employment agreement with the Company. The annual salary for each officer
was determined based upon a survey of compensation paid to similar officers
at comparably-sized companies and a recognition of their importance to the
Company. See "Employment Agreements." The increase in annual salary in 1997
as compared to 1996 for Messrs. Hanson and Gard is due exclusively to the
effect of their employment agreements being in effect for the full year.
(2) Bonus levels were established by the Board based on the Company exceeding
operating targets established at the beginning of such year.
(3) The aggregate amount of perquisites and other personal benefits given to
each of the Named Executive Officers, valued on the basis of the aggregate
incremental cost to the Company, was less than either $50,000 or 10% of the
total of annual salary and bonus for that Named Executive Officer during
each of the periods presented. Such benefits included automobile allowances.
9
<PAGE> 13
(4) The amounts shown for "All Other Compensation" for Messrs. Hanson, Gard and
McAleer (for 1996) represent life insurance premiums paid by the Company for
such individuals. The amounts shown for Mr. McAleer in 1997 includes life
insurance premiums paid by the Company ($1,293) and severance payments made
by the Company to McAleer ($125,000). The amounts shown for Mr. Needham in
1997 reflect relocation expenses paid by the Company of $79,461 and the
gross up for taxes on imputed income from such payment ($48,095). The
amounts shown for Mr. Needham in 1996 reflect a change in control payment
made by the Company of $1,156,500, as a result of Mr. Needham's relocation
to Dallas and certain other changes in his terms of employment, and
relocation expenses paid by the Company of $14,220 and the gross up for
taxes on imputed income from such payment ($9,091). The amounts shown for
Mr. Needham for 1995 includes $1,662, representing the taxable portion of
group life insurance premiums paid by Williamhouse for Mr. Needham, and
$350, which represents a matching contribution made by Williamhouse on the
behalf of Mr. Needham to Williamhouse's 401(k) Plan.
(5) Represents the difference between the price paid by such Named Executive
Officers for shares of Common Stock under the Company's Management Stock
Purchase Plan (the "Purchase Plan") and the fair market value of the Common
Stock at the date of such purchase.
(6) For the first ten months of 1995, Mr. Needham served as the Chairman of the
Board of Williamhouse. On October 31, 1995, the Company acquired
Williamhouse.
(7) Options were for common stock of WR Acquisition, Inc., the former parent
corporation of Williamhouse.
(8) Mr. McAleer became an executive officer of the Company in June 1996 and held
the office of Chief Financial Officer from August 1996 through October 1997.
Mr. McAleer resigned from the Company on November 1, 1997.
STOCK OPTION GRANTS
The Company did not grant any stock options to any of the Named Executive
Officers during the Company's last fiscal year.
STOCK OPTION HOLDINGS
The following table sets forth information with respect to the Named
Executive Officers concerning stock options outstanding as of December 31, 1997.
There were no options exercised by the Named Executive Officers in the last
fiscal year for securities of the Company.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FY-END
AT FY-END(#) ($)(1)
------------------- --------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ---------------- ----------- ------------------- --------------------
<S> <C> <C> <C> <C>
Charles G. Hanson III(2)....... -- -- 866,280/127,833 $7,813,846/$--
Russell M. Gard(3)............. -- -- 818,280/101,000 7,479,079/ --
Timothy E. Needham............. -- -- 23,333/ 46,667 --/ --
Kevin W. McAleer(4)............ -- -- 0/ 0 0/ 0
</TABLE>
- ---------------
(1) The closing sale price of the Common Stock on December 31, 1997 was $9.63
per share, as reported by the New York Stock Exchange. The value of such
options at fiscal year end is calculated on the basis of the difference
between the option exercise price and $9.63 multiplied by the number of
shares of Common Stock underlying the option.
(2) Represents options to purchase an aggregate of 866,280 shares of Common
Stock at a weighted average exercise price of approximately $0.61 per share.
10
<PAGE> 14
(3) Represents options to purchase an aggregate of 818,748 shares of Common
Stock at a weighted average exercise price of approximately $0.49 per share.
(4) All of the options held by Mr. McAleer expired in accordance with their
terms 30 days after his resignation from the Company.
EMPLOYMENT AGREEMENTS
In June 1996, the Company and Mr. Hanson entered into an employment
agreement (the "Employment Agreement"), pursuant to which Mr. Hanson agreed to
serve as the Chief Executive Officer of the Company for a period of three years.
Under the Employment Agreement, Mr. Hanson will receive (i) an annual base
salary equal to at least $450,000, (ii) an annual bonus up to 100% of his annual
base salary (upon the Company achieving certain operating targets) and (iii)
certain fringe benefits. Mr. Hanson will be entitled to a payment of $2.5
million upon a "change of control" of the Company (defined to include a person
or group (other than Bain Capital) becoming an owner of more than 50% of the
outstanding Common Stock or nominating a majority of the Directors who are then
elected to the Board). If Mr. Hanson's employment is terminated for any reason
prior to the termination of such agreement other than for Cause (as defined
therein) or his resignation, he will be entitled to receive his base salary and
fringe benefits for 24 months following such termination in addition to 50% of
his bonus for the year in which his employment was terminated if the termination
is during the first six months of the year or 100% if such termination was
during the last six months of the year. Mr. Hanson has agreed not to compete
with the Company for a period of two years following his termination of
employment with the Company and not to disclose any confidential information at
any time without the prior written consent of the Company.
In June 1996, Mr. Gard entered into an employment agreement with the
Company containing substantially similar terms. Under such agreement, Mr. Gard
has agreed to serve as the Chief Operating Officer of the Company for (i) an
annual base salary equal to at least $400,000, (ii) an annual bonus up to 100%
of his annual base salary (upon the Company achieving certain operating targets)
and (iii) certain fringe benefits. Mr. Hanson will be entitled to a payment of
$2.5 million upon a "change of control" of the Company (defined to include a
person or group (other than Bain Capital) becoming an owner of more than 50% of
the outstanding Common Stock or nominating a majority of the Directors who are
then elected to the Board). If Mr. Gard's employment is terminated for any
reason prior to the termination of such agreement other than for Cause (as
defined therein) or his resignation, he will be entitled to receive his base
salary and fringe benefits for 24 months following such termination in addition
to 50% of his bonus for the year in which his employment was terminated if the
termination is during the first six months of the year or 100% if such
termination was during the last six months of the year. Mr. Gard has agreed not
to compete with the Company for a period of two years following his termination
of employment with the Company and not to disclose any confidential information
at any time without the prior written consent of the Company.
In June 1996, Mr. Needham entered into an employment agreement with the
Company, pursuant to Mr. Needham agreed to serve as an Executive Vice President
to the Company in exchange for (i) an annual base salary during the first three
years of the agreement of at least $300,000, (ii) an annual bonus up to 100% of
his annual base salary (upon the Company achieving certain operating targets)
and (iii) certain fringe benefits, including reimbursement for expenses
resulting from Mr. Needham's relocation from New York to Dallas. The employment
agreement will remain in effect until Mr. Needham resigns or until the Board
determines in its good faith that the termination of Mr. Needham is in the best
interests of the Company. If Mr. Needham's employment is terminated for any
reason other than for Cause (as defined therein) or his resignation, he will be
entitled to receive his base salary and fringe benefits for 12 months following
such termination in addition to 50% of his bonus for the year in which his
employment was terminated if the termination is during the first six months of
the year or 100% if such termination was during the last six months of the year.
In June 1996, Mr. Benson and the Company entered into an agreement which
amended Mr. Benson's existing management agreement. Specifically, restrictions
relating to the transferability of shares of Common Stock held by Mr. Benson and
provisions granting certain investors and the Company the option to repurchase
11
<PAGE> 15
Mr. Benson's Common Stock in certain circumstances were deleted. Mr. Benson
served as the Company's Chief Financial Officer through August 1996 and as
Director of Strategic Planning and Acquisitions through November 1996. Under Mr.
Benson's management agreement, Mr. Benson agreed not to compete with the Company
for a period of two years following the termination of his employment with the
Company. In addition, in January 1998, Mr. Benson and the Company amended
certain of his existing option agreements to extend their exercise period to up
to 18 months after he ceases to be a director of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This Compensation Committee report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act or under the Exchange Act,
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
The following report has been submitted by the Compensation Committee of
the Board of Directors:
The Compensation Committee was established by the Board of Directors in
June 1996 in connection with the Company's IPO. At such time, Messrs. Robert C.
Gay and Marc B. Wolpow were appointed to the Committee. Messrs. Gay and Wolpow
were Managing Directors of Bain Capital. The Bain Capital Funds collectively own
approximately 35.9% of the outstanding Common Stock. The Board selected Messrs.
Gay and Wolpow to help ensure that the compensation policies of the Company
serve to align the interests of the Company's management with those of its
stockholders.
The Compensation Committee is responsible for: (i) determining the
compensation of the Company's executive officers; (ii) reviewing the
recommendations of the Company's Chief Executive Officer on compensation levels
of all other officers of the Company; and (iii) adopting and changing
compensation policies and practices of the Company and to report its
recommendations to the full Board of Directors. In making its recommendations to
the full Board of Directors concerning adjustments to compensation levels, the
Compensation Committee considers the financial condition and operational
performance of the Company during the prior year. The Company's executive
compensation program consists of three principal components: (i) base salary;
(ii) annual bonus; and (iii) long-term equity incentives.
Base Salary. The base salary for each of the Company's executive officers
was determined in 1997 pursuant to the terms of their respective employment
agreement with the Company. Messrs. Hanson and Gard, each of whom participated
in acquisition of Ampad Corporation from Mead Corporation in 1992 (the "Ampad
Acquisition"), entered into new employment agreements with the Company in June
1996. See "Compensation of Executive Officers -- Employment Agreements." At that
time, both Mr. Hanson and Mr. Gard received significant increases in base salary
as a result of the significant growth of the Company and improved operating
results. The Company's net sales have increased from approximately $104 million
in 1993 (the first complete year after the Ampad Acquisition) to $584 million in
1996 (the year in which the agreements were executed). The base salaries of
Messrs. Hanson and Gard were determined based upon a survey of compensation paid
to similar officers at comparably-sized companies and a recognition of their
importance to the Company. Mr. Needham joined the Company in November 1995 in
connection with the Company's acquisition of Williamhouse. In June 1996, Mr.
Needham entered into an employment agreement with the Company. Mr. Needham's
base salary was determined based on his expected level of responsibility and
competitive market conditions.
Under the terms of each executive officer's employment agreement, the Board
is permitted to make upward adjustments in such executive officer's base salary
if the Board believes that the circumstances warrant such an adjustment. No
increases in base salary were made in 1997 for any of the executive officers of
the Company.
Annual Bonus. Each of the executive officers of the Company is entitled
under the terms of his employment agreement to receive an annual bonus up to
100% of his base salary upon the Company achieving certain operating targets. In
general, such operating targets relate to the Company achieving certain minimum
levels of EBITDA, which are set by the Board of Directors at the beginning of
such year. In 1997, the
12
<PAGE> 16
Company did not achieve the EBITDA levels required for the executive officers to
be eligible to receive a bonus award. As a result, no bonuses were awarded for
1997.
Long-Term Equity Incentives. Both Mr. Hanson and Mr. Gard participated in
the acquisition of the Company from Mead Corporation. As a result of such
participation, such executive officers own on an aggregate basis approximately
2.0% of the outstanding Common Stock of the Company. Therefore, to a large
extent, the interests of the Company's senior management are already aligned
with those of its stockholders since the value of management's holdings is tied
directly to the market price of the Company's Common Stock. Similarly, under the
Company's stock option plan adopted at the time of the Ampad Acquisition,
options exercisable for an aggregate of 1,639,256 shares of Common Stock were
granted to management. The exercise price for such options was established at
the fair market value of the Common Stock on the date of grant. All such options
are currently exercisable. The Company's senior management currently owns
approximately 7% of the outstanding Common Stock on a fully-diluted basis.
Prior to the completion of the IPO, the Company adopted the Company's 1996
Key Employee Stock Incentive Plan (the "Incentive Plan") and the Purchase Plan.
Under the Incentive Plan, the Committee was granted broad authority to award
equity-based compensation arrangements to any eligible employee of the Company.
An aggregate of 1,500,000 shares of Common Stock were reserved for issuance upon
the exercise of awards granted to eligible participants under the Incentive
Plan. Under the Purchase Plan, eligible management employees of the Company are
entitled to purchase shares of Common Stock at a purchase price equal to 75% of
its fair market value using up to 25% of their annual incentive bonuses. The
Purchase Plan is designed to encourage management employees of the Company to
acquire an ownership interest in the Company and thereby permitting such
employees to share in the growth in value of the Company. An aggregate of 36,030
shares of Common Stock were purchased under the Purchase Plan in 1997.
The Compensation Committee did not grant any options in 1997.
Policy with respect to qualifying compensation for deductibility and other
matters. Section 162(m) of the IRC generally limits to $1,000,000 the annual tax
deductible compensation paid to a covered officer. However, the limitation does
not apply to performance-based compensation, provided certain conditions are
satisfied.
The Company's policy is generally to preserve the federal income tax
deductibility of compensation paid. Accordingly, the Company has taken, to the
extent it believes feasible, appropriate actions to preserve the deductibility
of annual incentive, long-term performance, and stock option awards. However,
notwithstanding the Company's general policy, the Committee retains the
authority to authorize payments that may not be deductible if it believes that
is in the best interests of the Company and its stockholders.
The foregoing report has been approved by all members of the Compensation
Committee.
Robert C. Gay, Chairman
Marc B. Wolpow
13
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return since the Common Stock became publicly traded on July 2, 1996 with the
Standard & Poor's Mid-Cap Stock Index and an index of certain companies selected
by the Company as comparative to the Company in that each is either a
manufacturer, distributor or retailer of office products. The graph assumes that
the value of the investment in the Company's Common Stock at its initial public
offering price of $15.00 per share and each index was $100.00 on July 2, 1996.
COMPARISON OF THE COMPANY'S COMMON STOCK,
STANDARD & POOR'S MID-CAP STOCK INDEX AND A PEER GROUP INDEX(1)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
JULY 2, DECEMBER 31, DECEMBER 31,
1996 1996 1997
------- ------------ ------------
<S> <C> <C> <C>
American Pad & Paper Company.............................. $100 $150 $ 93
Standard & Poor's Mid-Cap Stock Index..................... $100 $108 $140
Peer Group Index.......................................... $100 $ 97 $ 99
</TABLE>
- ---------------
(1) The companies selected to form the Company's peer group index are A.T. Cross
Company, American Business Products, Inc., Avery Dennison Corporation, CSS
Industries, Inc., Day Runner, Inc., Hunt Manufacturing Co., Newell Co.,
Nu-Kote Holdings, Inc., Rubbermaid Incorporated and The Coleman Company,
Inc. Total returns are based on market capitalization.
14
<PAGE> 18
SUBMISSION OF STOCKHOLDERS' PROPOSALS AND ADDITIONAL INFORMATION
Proposals of stockholders intended to be eligible for inclusion in the
Company's proxy statement and proxy card relating to the 1999 annual meeting of
stockholders of the Company must be received by the Company on or before the
close of business December 30, 1998. Such proposals should be submitted by
certified mail, return receipt requested.
The Company's By-Laws provide that a stockholder wishing to present a
nomination for election of a director or to bring any other matter before an
annual meeting of stockholders must give written notice to the Company's
Secretary not less than 60 days nor more than 90 days prior to the meeting and
that such notice must meet certain other requirements. Any stockholder
interested in making such a nomination or proposal should request a copy of the
By-Laws provisions from the Secretary of the Company.
The Company will furnish without charge to each person whose proxy is being
solicited, upon written request of any such person, a copy of the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1997, as
filed with the SEC, including the financial statements and schedules thereto.
Requests for copies of such Annual Report on Form 10-K should be directed to the
Controller, American Pad & Paper Company, 17304 Preston Road, Suite 700, Dallas
Texas 75252.
OTHER MATTERS
The Company will bear the costs of soliciting proxies from its
stockholders. In addition to the use of the mails, proxies may be solicited by
the Directors, officers and employees of the Company by personal interview,
telephone or telegram. Such Directors, officers and employees will not be
additionally compensated for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. Arrangements will also
be made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation materials to the beneficial owners of Common
Stock held of record by such persons, and the Company will reimburse such
brokerage houses, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred in connection therewith.
The Directors know of no other matters which are likely to be brought
before the Annual Meeting, but if any such matters property come before the
meeting the persons named in the enclosed proxy, or their substitutes, will vote
the proxy in accordance with their best judgment.
By Order of the Board of Directors
William W. Solomon, Jr.
Vice President
March 25, 1998
IT IS IMPORTANT THAT THE PROXIES BE RETURNED PROMPTLY. EVEN IF YOU EXPECT
TO ATTEND THE ANNUAL MEETING, PLEASE PROMPTLY COMPLETE, SIGN, DATE AND MAIL THE
ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
15
<PAGE> 19
AMERICAN PAD & PAPER COMPANY
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Charles G. Hanson III, Gregory
M. Benson and William W. Solomon, Jr., and each or any of them, proxies of the
undersigned, with full power of substitution, to vote all of the shares of
American Pad & Paper Company, a Delaware corporation (the "Company") which the
undersigned may be entitled to vote at the Annual Meeting of Stockholders of the
Company to be held at the Westin Hotel Galleria Dallas, 13340 Dallas Parkway,
Dallas, Texas 75240, on Tuesday, April 28, 1998 at 10:00 a.m. or at any
adjournment or postponement thereof, as shown on the voting side of this card.
----------------
See Reverse Side
----------------
<PAGE> 20
[X] Please mark your votes as in this example.
This proxy will be voted as specified. If a choice is not specified, this
proxy will be voted FOR the nominees for Class II Directors and FOR
Proposal 2.
<TABLE>
<CAPTION>
1. Election of All Nominees for Class II Directors Listed Hereon. FOR Withheld
<S> <C> <C> <C>
Nominees: Russell M. Gard
Herbert M. Kohn [ ] [ ]
Marc B. Wolpow
</TABLE>
For all nominees listed hereon, except vote withheld from the following
nominee(s):
------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
2. Approval of the appointment of Price Waterhouse LLP as the independent FOR AGAINST ABSTAIN
accountants for the Company's 1998 fiscal year.
[ ] [ ] [ ]
</TABLE>
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Annual Meeting or any
adjournment or postponement thereof.
This proxy should be dated, signed by the stockholder exactly as the
stockholder's name appears hereon and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate.
Please sign exactly as name(s) appear hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
- -----------------------------------------
- -----------------------------------------
Signature(s) Date
