<PAGE> 1
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant X
---
Filed by a party other than the registrant
Check the appropriate line: ---
X Preliminary proxy statement
---
Definitive proxy statement
---
Definitive additional materials
---
Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
---
Staples, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Staples, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate line):
X $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or
--- 14a-6(j)(2).
$500 per each party to the controversy pursuant to Exchange Act
--- Rule 14a-6(i)(3).
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
--- 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------
<PAGE> 2
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11.
---------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------
Check 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 of 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> 3
PRELIMINARY COPY
STAPLES, INC.
ONE RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON THURSDAY, MAY 23, 1996
The Annual Meeting of Stockholders of Staples, Inc. will be held at the
Four Seasons Hotel, 200 Boylston Street, Boston, Massachusetts, on Thursday, May
23, 1996 at 9:00 a.m., local time, to consider and act upon the following
matters:
(1) To elect four Class 2 Directors to serve for a three-year term expiring
at the 1999 Annual Meeting of Stockholders.
(2) To approve an amendment to Staples' Restated Certificate of
Incorporation increasing the number of authorized shares of Common
Stock.
(3) To approve certain amendments to Staples' 1994 Employee Stock Purchase
Plan.
(4) To ratify the selection of Ernst & Young, LLP as Staples' independent
auditors for the current fiscal year.
(5) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Stockholders of record at the close of business on April 3, 1996 will be
entitled to notice of and to vote at the meeting or any adjournment thereof. The
stock transfer books will remain open.
By Order of the Board of Directors,
Peter M. Schwarzenbach,
Secretary
Westborough, Massachusetts
April [15], 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER TO
ENSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED IF THE PROXY IS
MAILED IN THE UNITED STATES.
<PAGE> 4
PRELIMINARY COPY
STAPLES, INC.
ONE RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
ON MAY 23, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Staples, Inc. for use at the Annual Meeting
of Stockholders to be held on May 23, 1996 and at any adjournment of that
meeting. All proxies will be voted in accordance with the stockholders'
instructions, and if no choice is specified, the proxies will be voted in favor
of the matters set forth in the accompanying Notice of Meeting. Any proxy may be
revoked by a stockholder at any time before its exercise by delivery of written
revocation or a subsequently dated proxy to the Secretary or by voting in person
at the Annual Meeting.
At the close of business on April 3, 1996, the record date for the
determination of stockholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding and entitled to vote ____________ shares of
Common Stock (constituting all of the voting stock of Staples). Holders of
Common Stock are entitled to one vote per share. All references in this Proxy
Statement to historical transactions in Common Stock reflect the three-for-two
stock splits effected in the form of 50% stock dividends distributed on December
13, 1993, October 28, 1994, July 24, 1995, and March 25, 1996.
Staples' Annual Report for the fiscal year ended February 3, 1996 was
mailed to stockholders, along with these proxy materials, on or about April 15,
1996.
VOTES REQUIRED
The affirmative vote of the holders of a plurality of the shares of
Common Stock voting on the matter is required for the election of Directors. The
affirmative vote of the holders of a majority of the shares of Common Stock
outstanding on the record date is required for the approval of the proposed
amendment to Staples' Restated Certificate of Incorporation. The affirmative
vote of the holders of a majority of the shares of Common Stock voting on the
matter is required for approval of the amendments to Staples' 1994 Employee
Stock Purchase Plan and the ratification of the selection of Ernst & Young as
the Company's independent auditors for the current fiscal year.
The holders of a majority of the shares of Common Stock outstanding and
entitled to vote at the Annual Meeting shall constitute a quorum for the
transaction of business at the Annual Meeting. Shares of Common Stock
represented in person or by proxy will be counted for purposes of determining
whether a quorum is present at the Annual Meeting. Shares which abstain from
voting as to a particular matter will be treated as shares that are present and
entitled to vote for purposes of determining the number of shares present and
entitled to vote with respect to any particular matter, but will not be counted
as a vote cast on such matter. If a broker or nominee holding stock in "street
name" indicates on a proxy that it does not have discretionary authority to vote
as to a particular matter, those shares will not be considered as present and
entitled to vote with respect to such matter and will not be counted as a vote
cast on such matter. Accordingly, abstentions and "broker non-votes" will have
no effect on the voting for election of Directors, the amendments to the 1994
Employee Stock Purchase Plan or the ratification of the selection
<PAGE> 5
PRELIMINARY COPY
of Ernst & Young as Staples' independent auditors, but will have the same
effect as a vote against the proposed amendment to Staples' Restated Certificate
of Incorporation.
ELECTION OF DIRECTORS
Staples' Board of Directors is divided into three classes, with members
of each class holding office for staggered three-year terms (in all cases
subject to the election and qualification of their successors or to their
earlier death, resignation or removal). The persons named in the enclosed proxy
will vote to elect Mary Elizabeth Burton, Rowland T. Moriarty, W. Mitt Romney
and Martin E. Hanaka as Class 2 Directors for a term expiring at the 1999 Annual
Meeting, unless authority to vote for the election of any or all of the nominees
is withheld by marking the proxy to that effect. Ms. Burton and Messrs. Moriarty
and Romney are currently Class 2 Directors of Staples. Mr. Hanaka, Staples'
President and Chief Operating Officer, is also being nominated to serve as a
Class 2 Director. All of the nominees have indicated their willingness to serve,
if elected, but if any should be unable or unwilling to stand for election,
proxies may be voted for a substitute nominee designated by the Board of
Directors.
PROPOSAL TO APPROVE THE AMENDMENT
TO THE RESTATED CERTIFICATE OF INCORPORATION
On February 27, 1996, the Board of Directors voted to recommend to the
stockholders that Staples' Restated Certificate of Incorporation be amended in
order to increase the number of authorized shares of Common Stock to 500,000,000
shares. The Board of Directors believes the approval of this amendment to the
Restated Certificate of Incorporation is in the best interests of Staples and
its stockholders and recommends a vote in favor of this proposal.
The authorized Common Stock of Staples currently consists of
200,000,000 shares, of which [___] shares were outstanding as of April 3, 1996.
An additional [_______] shares were reserved for issuance pursuant to Staples'
stock option, employee stock purchase and 401(k) plans (excluding additional
shares that would be reserved for issuance pursuant to the 1994 Employee Stock
Purchase Plan if amended as described below). An additional 13,636,364 shares
were reserved for issuance upon conversion of Staples' outstanding 4 1/2%
Convertible Subordinated Debentures due October 1, 2000 (the "Debentures"). The
Board of Directors believes that the authorization of additional shares of
Common Stock is desirable to provide Staples with flexibility in connection
with possible future stock splits, equity financings, joint ventures,
acquisitions and other general corporate purposes and necessary to effect the
amendments to the 1994 Employee Stock Purchase Plan described below. This
amendment may also have the effect of discouraging an attempt to obtain control
of Staples by means of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of present management. If this amendment is
approved, the Board of Directors will have additional shares of Common Stock
available to effect a sale of shares (either in public or private transactions,
mergers, consolidations or similar transactions) which would increase the
number of outstanding shares and would thereby dilute the interest of current
stockholders and/or a party attempting to obtain control of Staples. While
Staples anticipates that it may issue a significant number of shares of Common
Stock within the next several years in connection with one or more of the
foregoing transactions, it has no existing understanding or agreement for the
issuance of any shares of Common Stock (other than the shares currently
reserved for issuance, as described above, and the shares to be reserved for
issuance in connection with the amendment to the 1994 Employee Stock Purchase
Plan described below.)
If this amendment is approved by the stockholders, the Board of
Directors will have authority to issue shares of Common Stock without the
necessity of further stockholder action. Holders of the Common Stock have no
preemptive rights with respect to any shares which may be issued in the future.
2
<PAGE> 6
PRELIMINARY COPY
PROPOSAL TO APPROVE AMENDMENTS TO THE 1994 EMPLOYEE STOCK PURCHASE PLAN
In 1994, the Board of Directors adopted and Staples' stockholders
approved the 1994 Employee Stock Purchase Plan (the "Purchase Plan"), which
succeeded and replaced Staples' 1991 Employee Stock Purchase Plan. The Purchase
Plan, as originally adopted, covered 1,687,500 shares of Common Stock, and
encompassed four semi-annual six-month offering periods, the last of which was
scheduled to expire on October 31, 1996. On February 27, 1996, the Board of
Directors amended the Purchase Plan, subject to stockholder approval of the
amendments to the Purchase Plan and the foregoing amendment to Staples' Restated
Certificate of Incorporation to (1) increase the number of shares of Common
Stock covered by the Purchase Plan to 3,937,500 and (2) increase the number of
six-month offerings under the Purchase Plan to eight, the last of which would
expire on October 31, 1998. The Board of Directors believes the 1994 Purchase
Plan, as amended, is in the best interests of Staples and its stockholders, and
recommends a vote in favor of this proposal.
SUMMARY OF THE PLAN
The following summary describes the Purchase Plan as amended to date by
the Board of Directors. This summary is qualified in all respects by reference
to the full text of the Purchase Plan, a copy of which is available upon request
from the Secretary of Staples.
The purpose of the Purchase Plan is to provide an incentive to Staples
employees to acquire and own equity in Staples, and to help attract and retain
competent personnel by allowing Staples employees an opportunity to acquire
Common Stock on favorable terms. The Purchase Plan consists of eight six-month
offerings. The number of shares available in each offering is 492,187 shares,
plus any shares which were made available but not purchased during prior
offerings. Offering periods under the Purchase Plan commence on each May 1 and
November 1, with the first offering having commenced on November 1, 1994 and
terminated on April 30, 1995, and the final offering commencing on May 1, 1998
and terminating on October 31, 1998.
With certain exceptions, all full-time employees, including officers,
who have been employed by Staples or one of its participating subsidiaries for
at least three months, and all part-time employees who have been employed by
Staples or one of its participating subsidiaries for at least five months, and
who ordinarily work more than 20 hours per week and more than five months per
year, are eligible to participate in the Purchase Plan. As of March 31, 1996,
approximately 12,300 employees were eligible to participate.
The price at which the employee may purchase the stock is 85% of the
last reported sale price of the Common Stock on the Nasdaq National Market on
the day the offering commences or on the day that the offering terminates,
whichever is lower. An employee may elect to have up to 10% of his or her base
pay withheld for the purpose of purchasing stock under the Purchase Plan. On the
date an offering commences, each participating employee is deemed to be granted
an option to purchase up to the number of shares determined by dividing 10% of
such employee's annualized base pay by 85% of the fair market value of the
Common Stock on the date the offering commences and multiplying such quotient by
1.25. Unless the participant elects to withdraw from the offering, each
participant who continues to be employed on the date such offering terminates is
deemed to have exercised the option and purchased on such date such number of
shares (subject to the maximum number covered by the option) as may be purchased
with the amount of his or her payroll deductions at the offering price. If
employees subscribe to purchase more than the number of shares of Common Stock
available during any offering, the available shares are allocated on a pro rata
basis to subscribing employees.
In the offering that terminated on April 30, 1995, the Company issued a
total of 293,953 shares of Common Stock to 3,181 participating employees for a
purchase price of $8.59 per share, including 1,599 shares to Mr. Stemberg, 0
shares to Mr. Hanaka, 1,590 shares to Mr. Bingleman, 1,639 shares to Mr. Wilson,
1,163 shares to Mr. Sargent, 616 shares to Mr. Vassalluzzo, and 9,288 shares to
all current
3
<PAGE> 7
PRELIMINARY COPY
executive officers as a group. In the offering that terminated on October 31,
1995, the Company issued a total of 346,197 shares of Common Stock to 3,774
participating employees for a purchase price of $9.00 per share, including 1,180
shares to Mr. Stemberg, 1,249 shares to Mr. Hanaka, 1,180 shares to Mr.
Bingleman, 1,180 shares to Mr. Wilson, 1,294 shares to Mr. Sargent, 648 shares
to Mr. Vassalluzzo, and 9,114 shares to all current executive officers as a
group. Non-employee Directors are not eligible to participate in the Purchase
Plan. On [March 31], 1996, the last reported sale price of the Company's Common
Stock on the Nasdaq National Market was $_____ per share.
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors, which is authorized to make rules and regulations for the
administration and interpretation of the Purchase Plan.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan is intended to be an "employee stock purchase plan" as
defined in Section 423 of the Code, which provides that the employee does not
have to pay federal income tax with respect to shares purchased under the
Purchase Plan until he or she sells such shares. At the time of such sale, the
employee is required to pay federal income tax on the difference, if any,
between the price at which he or she sold the shares and the price he or she
paid for them.
If the employee has owned the shares for more than one year and disposes
of them at least two years after the day the offering commenced, he or she will
be taxed as follows: If the sale price of the shares is less than the price paid
for the shares under the Purchase Plan, the employee will have a long-term
capital loss equal to the price paid over the sale price. If the sale price is
higher than the price paid under the Purchase Plan, the employee will have to
recognize ordinary income in an amount equal to the lesser of (a) the market
price of the shares on the date the offering commenced over the price paid or
(b) the excess of the sale price over the price paid. Any additional gain is
treated as long-term capital gain.
If the employee sells the shares before he or she has owned them for
more than one year or before the expiration of a two-year period commencing on
the day the offering commenced, the employee will have to recognize ordinary
income on the amount of the difference between the purchase price and the fair
market value of the shares on the date of purchase, and Staples will receive an
expense deduction for the same amount. The employee will recognize a capital
gain or loss for the difference between the sale price and the fair market value
on the date of purchase.
Except as provided above, Staples will generally not be entitled to a
tax deduction upon the purchase or sale of shares under the Purchase Plan.
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors, at the recommendation of the Audit Committee,
has selected the firm of Ernst & Young, LLP as Staples' independent auditors for
the current fiscal year. Ernst & Young has served as Staples' independent
auditors since Staples' inception. Although stockholder approval of the Board of
Directors' selection of Ernst & Young is not required by law, the Board of
Directors believes that it is advisable to give stockholders an opportunity to
ratify this selection. If this proposal is not approved at the Annual Meeting,
the Board of Directors may reconsider its selection.
Representatives of Ernst & Young are expected to be present at the
Annual Meeting and will have the opportunity to make a statement if they desire
to do so and will also be available to respond to appropriate questions from
stockholders.
4
<PAGE> 8
PRELIMINARY COPY
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Annual Meeting. However, if any other matters are properly presented
to the Annual Meeting, it is the intention of the persons named in the
accompanying proxy to vote, or otherwise act, in accordance with their judgment
on such matters.
All costs of solicitation of proxies will be borne by Staples. In
addition to solicitations by mail, Staples' Directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names, and Staples will reimburse them for their out-of-pocket expenses in
this connection.
Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by Staples at its principal office in
Westborough, Massachusetts not later than December 16, 1996 for inclusion in the
proxy statement for that meeting.
THE BOARD OF DIRECTORS ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION WILL BE
APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR STOCK PERSONALLY
EVEN THOUGH THEY HAVE SENT IN THEIR PROXIES.
5
<PAGE> 9
PRELIMINARY COPY
<TABLE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth the beneficial ownership of Staples'
Common Stock as of March 15, 1996 (i) by each person who is known by Staples to
beneficially own more than 5% of the outstanding shares of Common Stock, (ii) by
each Director, (iii) by each of the Senior Executives named in the Summary
Compensation Table set forth under the caption "Executive Compensation" below,
and (iv) by all current Directors and executive officers as a group:
<CAPTION>
NUMBER OF
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
BENEFICIAL OWNER OWNED (1) COMMON STOCK (2)
- ---------------- ------------ ----------------
<S> <C> <C>
5% Stockholders
- ---------------
FMR Corp. (3) 13,251,636 8.33%
82 Devonshire Street
Boston, MA 02109
Chancellor Capital Management, Inc. (4) 8,116,200 5.10%
Chancellor Capital Trust Company
1166 Avenue of the Americas
New York, New York 10036
Directors
- ---------
Thomas G. Stemberg (5) 3,167,147 1.96%
Martin Trust (6) 2,058,358 1.29%
Leo Kahn (7) 819,025 *
Robert C. Nakasone 294,766 *
David G. Lubrano (8) 336,481 *
Rowland T. Moriarty (9) 253,641 *
W. Mitt Romney (10) 147,004 *
Paul F. Walsh 113,763 *
Mary Elizabeth Burton 32,943 *
W. Lawrence Heisey 11,155 *
James L. Moody, Jr. 10,125 *
Other Senior Executives
- -----------------------
Martin E. Hanaka 1,249 *
John C. Bingleman 63,520 *
John B. Wilson 251,593 *
Ronald L. Sargent 262,836 *
Joseph S. Vassalluzzo 454,872 *
All Current Directors and Executive Officers as a Group 10,717,289 6.57%
(21 persons)
<FN>
- -----------------
* Less than 1%
(1) Each person has sole investment and voting power with respect to the
shares indicated, except as otherwise noted. The inclusion herein of any
shares as beneficially owned does not constitute an admission of
beneficial ownership. Each of the following persons is deemed to
beneficially own shares issuable upon the exercise of stock options that
are exercisable within 60 days after March 15, 1996 ("Presently
Exercisable Options"): Mr. Stemberg 2,050,314 shares; Mr. Trust 49,216
shares; Mr. Kahn 68,200 shares; Mr. Nakasone 68,200 shares; Mr. Lubrano
68,200 shares; Mr. Moriarty 68,200 shares; Mr. Romney 65,388 shares; Mr.
Walsh 106,170 shares; Ms. Burton 32,943 shares; Mr. Heisey 6,093 shares;
Mr. Moody 0 shares; Mr. Hanaka 0 shares; Mr. Bingleman 56,250 shares;
Mr. Wilson 249,867 shares; Mr. Sargent 255,228, and Mr. Vassalluzzo
448,612 shares; all Directors and executive officers as a group
4,181,357 shares.
</TABLE>
6
<PAGE> 10
PRELIMINARY COPY
(2) Number of shares deemed outstanding includes 159,008,276 shares
outstanding as of March 15, 1996, any shares subject to Presently
Exercisable Options held by the person or entity in question, and any
shares issuable upon conversion of the Debentures held by the person or
entity in question.
(3) Based on a Schedule 13G filed with the Securities and Exchange
Commission on January 10, 1996.
(4) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 1, 1996.
(5) Includes 217,180 shares owned by the Thomas G. Stemberg Family Trust,
555,043 shares owned by the Thomas G. Stemberg 1995 Trust, and 2,530
shares owned by Mr. Stemberg's wife.
(6) Includes 1,950,931 shares owned by Trust Investments, Inc., with which
Mr. Trust is affiliated. Mr. Trust has shared investment and voting
control of these shares. Also includes 7,593 shares held by Mr. Trust's
wife.
(7) Includes 90,000 shares owned by Mr. Kahn's wife.
(8) Includes 30,637 shares held by the Jean Lubrano Trust, of which Mr.
Lubrano is a trustee, 22,250 shares owned by a trust for benefit of Mr.
Lubrano's children, and 9,600 shares owned by a trust for the benefit of
Mr. Lubrano's grandchildren.
(9) Includes 28,021 shares held by trusts for the benefit of Mr. Moriarty's
children and 21,429 shares owned by Cubex Corporation, of which Mr.
Moriarty is Chairman and Chief Executive Officer. Mr. Moriarty is not
a trustee of the trusts for the benefit of his children.
(10) Includes 63,279 shares subject to Presently Exercisable Options granted
to Bain & Co., Inc., of which Mr. Romney is a director.
DIRECTORS AND EXECUTIVE OFFICERS OF STAPLES
Set forth below are the names and certain information with respect to
each Director and executive officer of Staples, including the four nominees for
election as Class 2 Directors.
Class 2 Directors holding office for term expiring at the 1996 Annual Meeting:
MARY ELIZABETH BURTON*, age 44, has been a Director since June 1993. Ms.
Burton has served as Chief Executive Officer at BB Capital, Inc., an investment
company, since June 1994. From June 1992 to June of 1994, she was Chairman and
Chief Executive Officer of Supertans, Inc., a chain of tanning salons. From June
1991 to June 1992, she was Chairman and Chief Executive Officer of Postal
Instant Press, a chain of business printers, and from September 1987 to June
1991, Ms. Burton was Chairman and Chief Executive Officer of Supercuts, Inc., a
chain of haircare salons. She is a Director of Gantos, Inc.
DAVID G. LUBRANO, age 65, has been a Director since February 1987. Mr.
Lubrano has been a private investor and business consultant since January 1990.
ROWLAND T. MORIARTY*, age 49, has been a Director since March 1986. Mr.
Moriarty has been Chairman and Chief Executive Officer of Cubex Corporation, a
consulting company, since September 1992. He was a professor at Harvard Business
School from September 1982 to September 1992. Mr. Moriarty is a Director of
Capital American Financial Corporation.
W. MITT ROMNEY*, age 49, has been a Director since January 1986. Since
May 1992, Mr. Romney has been the Chief Executive Officer of Bain Capital, Inc.,
a firm which manages certain venture capital funds. Mr. Romney has been a
general partner and the managing partner of Bain Capital Partners, and of Bain
Venture Capital, both general partners of venture capital limited partnerships,
since September 1984 and October 1987, respectively. Mr. Romney served as Chief
Executive Officer of Bain & Company, Inc., a management consulting firm, from
1991 to 1993, and now serves as a director of such firm. Mr. Romney is a
Director of Marriott International, Inc., The Sports Authority, Inc., and
Neostar Retail Group, Inc.
- --------
*Candidate for election as Class 2 director for term expiring at 1999 Annual
Meeting.
7
<PAGE> 11
PRELIMINARY COPY
Class 3 Directors holding office for term expiring at the 1997 Annual Meeting:
LEO KAHN, age 79, is a co-founder of Staples and has been a Director
since January 1986. Mr. Kahn has been a partner in United Properties Group, a
real estate partnership, since April 1985. Mr. Kahn is a Director of Cambridge
Sound Works.
ROBERT C. NAKASONE, age 48, has been a Director since January 1986. Mr.
Nakasone has served as President and Chief Operating Officer of Toys "R" Us,
Inc., a retail store chain, since January 1994. From January 1989 to January
1994, Mr. Nakasone served as Vice Chairman and President of Worldwide Toy Stores
of Toys "R" Us. Mr. Nakasone is a Director of Toys "R" Us.
THOMAS G. STEMBERG, age 47, is a co-founder of Staples and has been a
Director since January 1986. Mr. Stemberg has served as Staples' Chairman of the
Board of Directors and Chief Executive Officer since February 1988. Mr. Stemberg
is a Director of PETsMART, Inc.
Class 1 Directors holding office for term expiring at the 1998 Annual Meeting:
W. LAWRENCE HEISEY, age 65, has been a Director since November 1994. Mr.
Heisey has served as Chairman Emeritus of Harlequin Enterprises Limited of
Toronto, Canada since May 1990 and was a Director of The Business Depot, Ltd.
prior to its acquisition by Staples in August 1994.
JAMES L. MOODY, JR., age 64, has been a Director since September 1995.
Mr. Moody has served as Chairman of the Board of Hannaford Bros. Co., a food
retailer, since May 1992. From May 1984 to May 1992, Mr. Moody was the Chairman
and Chief Executive Officer of Hannaford Bros. Mr. Moody is a Director of UNUM
Corporation, IDEXX Laboratories, Inc. and Penobscot Shoe Co. Mr. Moody is also a
Trustee of the Colonial Group mutual funds.
MARTIN TRUST, age 61, has been a Director since June 1987. Mr. Trust has
served as President and Chief Executive Officer of Mast Industries, Inc., a
contract manufacturer, importer and wholesaler of women's apparel, and
wholly-owned subsidiary of The Limited, Inc., since 1970. Mr. Trust is a
Director of The Limited, Inc.
PAUL F. WALSH, age 45, has been a Director since December 1990. Mr.
Walsh has served as President and Chief Executive Officer of Wright Express
Corporation, an information and financial services company, since February 1995.
From January 1990 to February 1995, Mr. Walsh was Chairman of BancOne Investor
Services Corporation, a financial services company.
Executive Officers
In addition to Mr. Stemberg, the following are the executive officers of
Staples:
MARTIN E. HANAKA*, age 46, has served as President and Chief Operating
Officer since August 1994. From October 1992 to August 1994, he was President
and Chief Operating Officer and Executive Vice President of Lechmere, Inc. Prior
to joining Lechmere, Inc., he was with Sears Roebuck & Co. where, commencing
1990, he served in various capacities, including Vice President-Brand Central,
Region Manager - Mid-South and General Manager-Sears Travel.
JOHN C. BINGLEMAN, age 53, has served as President-North American
Superstores since August 1994. He was President of The Business Depot, Ltd. from
its founding in 1991 until its acquisition by Staples in August 1994.
- --------
*Candidate for election as Class 2 director for term expiring at 1999 Annual
Meeting.
8
<PAGE> 12
PRELIMINARY COPY
HENRY P. EPSTEIN, age 60, has served as Vice President - Contract
Development & Operations since April 1994. Mr. Epstein was the Chairman of
Spectrum Office Products Inc. from April 1970 until its acquisition by Staples
in March 1994.
JAMES E. FLAVIN, age 52, has served as Senior Vice President - Finance
and Corporate Controller since in February 1995. Prior to joining Staples, Mr.
Flavin was with Filene's in various capacities, most recently as Senior Vice
President Finance & MIS of the Filene's Division of May Department Stores Co.
RICHARD GENTRY, age 46, has served as Executive Vice President -
Merchandising since February 1996. Prior to joining Staples, Mr. Gentry was with
Lechmere, Inc. where he served as Executive Vice President Merchandising from
1993 to 1995 and Senior Vice President Merchandising from 1990 to 1993.
TODD J. KRASNOW, age 38, has served as Executive Vice President - Sales
& Marketing since April 1994. Previously, he served as Senior Vice President -
Sales & Marketing from November 1993 until April 1994, and from May 1992 until
November 1993, he served as Senior Vice President - Joint Ventures. Prior to
holding that position, Mr. Krasnow was Vice President - Marketing & Systems,
California Operations from April 1990 until May 1992.
RONALD L. SARGENT, age 40, has served as President - Staples Contract &
Commercial since June 1994. From September 1991 until June 1994 he served as
Vice President - Staples Direct and Executive Vice President - Contract &
Commercial. Mr. Sargent joined Staples in March 1989 and served as Regional Vice
President - Operations until June 1990. From June 1990 to September 1991, he
served as Vice President - Administration, Research and Properties of Staples.
EVAN P. STERN, age 54, has served as President of Staples National
Advantage since July 1995. From November 1994 to July 1995, he was President of
National Office Supply Company, Inc. which became a subsidiary of Staples in
February 1994. Prior to that, he served as President and Chief Operating Officer
of National Office Supply Company, Inc.
JOSEPH S. VASSALLUZZO, age 48, has served as Executive Vice President -
Global Growth & Development since November 1993. Mr. Vassalluzzo joined Staples
in September 1989 and served as Executive Vice President - Growth & Development
until April 1993. From April 1993 until November 1993, he served as Executive
Vice President - Growth and Support Services.
JOHN B. WILSON, age 36, has served as Executive Vice President - Finance
& Strategy and Chief Financial Officer since November 1992. He was Senior Vice
President, Corporate Planning of NWA, Inc., the parent company of Northwest
Airlines, Inc., from October 1990 to October 1992. Prior to that Mr. Wilson
served as Vice President of Bain & Company, Inc.
Staples' Chairman of the Board of Directors is elected by the Board of
Directors for a one-year term and serves at the discretion of the Board. All
other executive officers of Staples are appointed by the Board of Directors and
serve at the Board's discretion. No family relationships exist between any of
the executive officers or Directors of Staples.
BOARD AND COMMITTEE MEETINGS
The Audit Committee of the Board of Directors provides the opportunity
for direct contact between Staples' independent auditors and the Board. The
Audit Committee reviews the auditors' performance in the annual audit and in
assignments unrelated to the audit, reviews auditors' fees, discusses Staples'
internal accounting control policies and procedures and considers and recommends
the selection of Staples' independent auditors. The Audit Committee met four
times during the fiscal year ended February 3, 1996. The current Audit Committee
members are Messrs. Walsh (Chairman), Lubrano and Moody and Ms. Burton.
9
<PAGE> 13
PRELIMINARY COPY
The Compensation Committee of the Board of Directors sets the
compensation levels of executive officers (subject to review by the Board of
Directors), provides recommendations to the Board regarding compensation
programs, administers Staples' stock option, stock purchase and other employee
benefit plans and authorizes option grants under the 1987 and 1992 stock option
plans. The Compensation Committee met four times during the fiscal year ended
February 3, 1996. The current members of the Compensation Committee are Messrs.
Nakasone (Chairman), Kahn, and Heisey. Mr. Heisey joined the Compensation
Committee in June 1996. Messrs. Lubrano and Trust were members of the
Compensation Committee until June 1996.
The Nominating Committee of the Board of Directors provides
recommendations to the Board regarding nominees for Director. The Nominating
Committee will consider nominees recommended by stockholders. Stockholders who
wish to recommend nominees for Director should submit recommendations to the
Secretary who will forward them to the Nominating Committee for consideration.
The Nominating Committee met three times during the fiscal year ended February
3, 1996. The current members of the Nominating Committee are Messrs. Moriarty
(Chairman), Romney and Trust.
The Board of Directors met five times during the fiscal year ended
February 3, 1996. Each incumbent Director attended at least 75% of the aggregate
number of Board meetings and meetings of committees on which he or she then
served.
DIRECTOR COMPENSATION
Each non-employee Director receives a fee of $1,000 for each Board of
Directors meeting attended and $300 for each Committee meeting attended. All
Directors are reimbursed for certain company-related travel expenses.
The 1990 Director Stock Option Plan of Staples (the "Director Plan")
provides for the annual grant of an option to purchase 5,000 shares of Common
Stock, at an exercise price equal to the fair market value of the Common Stock
on the date of grant, to each non-employee Director who attends during a fiscal
year at least 75% of the total number of Board of Directors meetings held while
he or she was a Director (excluding meetings held by telephone conference on
less than seven days notice) and meetings of committees of the Board of
Directors on which he or she then served during the fiscal year. The Director
Plan provides for a pro rata reduction in the number of shares subject to the
option granted to a Director for the fiscal year in which he or she was
initially elected to the Board based on the number of Board meetings held during
the fiscal year prior to his or her election to the Board. With respect to the
fiscal year ended February 3, 1996, on February 27, 1996 each of Ms. Burton and
Messrs. Heisey, Kahn, Lubrano, Moriarty, Nakasone, Trust and Walsh, was granted
an option to purchase 7,500 shares of Common Stock, and Mr. Moody was granted an
option to purchase 3,000 shares of Common Stock, each at an exercise price of
$17.58 per share.
In addition, the Director Plan provides for the grant to each
non-employee Director, upon his or her initial election as a Director, of an
option to purchase 10,000 shares of Common Stock at an exercise price equal to
the fair market value of the Common Stock on the date of grant. On September 15,
1995, Mr. Moody was granted an option to purchase 15,000 shares of Common Stock
at an exercise price of $18.59 per share.
All stock options granted under the Director Plan become exercisable on
a cumulative basis in four equal annual installments, commencing on the first
anniversary of the date of grant. In the event of a "Change in Control" of
Staples (as defined in the Director Plan), all options outstanding under the
Director Plan automatically become exercisable in full, unless the Board of
Directors expressly determines that the "Change in Control" provisions of the
Director Plan should not be triggered. An optionee generally may exercise an
option granted under the Director Plan, to the extent exercisable, only while he
or she is a
10
<PAGE> 14
PRELIMINARY COPY
Director of Staples and for up to six months thereafter. Unexercised options
expire ten years after the date of grant.
EXECUTIVE COMPENSATION
<TABLE>
Summary Compensation
The following table sets forth certain information concerning the
compensation for each of the last three fiscal years of Staples' Chief Executive
Officer and certain of Staples' other most highly compensated executive officers
during the fiscal year ended February 3, 1996 (the "Senior Executives").
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION (1) ------------
----------------------- AWARDS
------------
NAME AND FISCAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS (2) OPTIONS COMPENSATION (3)
------------------ ---- ------ --------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Thomas G. Stemberg 1995 $422,916 $280,730 213,750 $ --
Chairman and CEO 1994 349,167 300,888 480,937 1,324
1993 296,000 -- 405,000 19,922
Martin E. Hanaka 1995 372,916 198,162 150,000 --
President and COO 1994 163,333 (4) 241,175 (4) 365,622 --
1993 -- -- -- --
John C. Bingleman 1995 327,892 (5) 120,015 103,500 20,905 (6)
President - North American 1994 99,191 144,846 300,375 --
Superstores 1993 -- -- -- --
John B. Wilson 1995 333,333 162,273 58,500 --
Exec. V.P. - Finance & 1994 282,083 192,053 131,625 76,682 (8)
Strategy and CFO 1993 250,000 125,000 (7) 303,750 113,325 (8)
Ronald L. Sargent 1995 241,250 183,597 74,250 --
President - Staples 1994 184,583 161,582 168,750 --
Contract and Commercial 1993 124,167 -- 111,375 --
Joseph S. Vassalluzzo 1995 283,333 77,352 37,500 --
Exec. V.P. - Global 1994 247,083 186,849 84,375 1,086
Growth & Development 1993 209,792 -- 303,750 12,308
<FN>
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonus for the Senior Executive.
(2) Except as noted below, represents amounts paid under Staples' executive
bonus plan for the relevant fiscal year.
(3) Except as noted below, represents the full dollar amount of insurance
premiums paid by Staples with respect to life insurance for the benefit of
the Senior Executive.
(4) Mr. Hanaka joined Staples in August 1994. Bonus payment for 1994 was
calculated based on the full year results, and Mr. Hanaka's annualized
salary of $350,000 pursuant to his offer of employment.
(5) Includes payments of $25,530 paid to Mr. Bingleman by Staples' Canadian
subsidiary, The Business Depot, Ltd.
(6) Includes $20,905 for reimbursement of relocation expenses.
</TABLE>
11
<PAGE> 15
PRELIMINARY COPY
(7) Mr. Wilson joined Staples in November, 1992. Payment reflects a guaranteed
minimum bonus payment for the first full year of employment pursuant to Mr.
Wilson's offer of employment.
(8) Includes $76,030 and $102,810 for reimbursement of relocation expenses in
fiscal 1994 and 1993, respectively.
<TABLE>
Option Grants
The following table sets forth certain information concerning grants of
stock options during the fiscal year ended February 3, 1996 to each of the
Senior Executives.
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
-----------------
PERCENT OF
TOTAL POTENTIAL REALIZABLE VALUE AT
NUMBER OPTIONS ASSUMED ANNUAL RATE OF STOCK
OF GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION TERM (3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION --------------------------------------
NAME GRANTED(1) IN FISCAL YEAR SHARE (2) DATE 0% 5% 10%
---- ---------- -------------- --------- ---------- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas G. Stemberg 213,750 6.00% $18.67 9/14/05 $0 $2,509,425 $6,361,200
Martin E. Hanaka 150,000 4.21% $18.67 9/14/05 $0 $1,761,000 $4,464,000
John C. Bingleman 103,500 2.91% $18.67 9/14/05 $0 $1,215,090 $3,080,160
John B. Wilson 58,500 1.64% $18.67 9/14/05 $0 $ 686,790 $1,740,960
Ronald L. Sargent 15,750 0.44% $12.05 4/03/05 $0 $ 119,385 $ 302,400
58,500 1.64% $18.67 9/14/05 $0 $ 686,790 $1,740,960
Joseph S. Vassalluzzo 37,500 1.05% $18.67 9/14/05 $0 $ 440,250 $1,116,000
<FN>
- --------------
(1) Each of the options granted becomes exercisable in full on the third anniversary of the date of grant, provided that the
optionee continues to be employed by Staples on such date. The exercisability of the options is accelerated under certain
circumstances. See "Employment Contracts, Termination of Employment and Change-in-Control Agreements with Senior
Executives."
(2) The exercise price is equal to the fair market value per share of Common Stock on the date of grant.
(3) In accordance with the rules of the Securities and Exchange Commission, the amounts shown on this table represent
hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 0%, 5% and 10% compounded annually from the date the respective options
were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for
taxes or other expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future
performance of the Common Stock, the option holders' continued employment through the option period, and the date on which the
options are exercised.
</TABLE>
Option Exercises and Holdings
The following table sets forth certain information concerning each
exercise of stock options during the fiscal year ended February 3, 1996 by each
of the Senior Executives and the number and value of unexercised options held by
each of the Senior Executives on February 3, 1996.
12
<PAGE> 16
PRELIMINARY COPY
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<CAPTION>
NO. OF SHARES NO. OF SHARES OF COMMON
OF COMMON STOCK UNDERLYING VALUE OF UNEXERCISED
STOCK UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE FISCAL YEAR END FISCAL YEAR END (2)
NAME ON EXERCISE REALIZED (1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
Thomas G. Stemberg 0 $ 0 2,050,314/1,403,437 $22,005,351/$11,433,121
Martin E. Hanaka 0 $ 0 0/ 515,622 $ 0/$ 3,188,508
John C. Bingleman 0 $ 0 56,250/ 347,625 $ 506,250/$ 2,094,747
John B. Wilson 71,851 $512,718 383,773/ 443,250 $ 4,011,555/$ 3,855,373
Ronald L. Sargent 54,000 $547,537 234,135/ 290,253 $ 2,825,784/$ 2,108,780
Joseph S. Vassalluzzo 0 $ 0 508,612/ 286,407 $ 6,548,240/$ 2,564,537
<FN>
- -----------------
(1) Represents the difference between the exercise price and the fair market value of the Common Stock on the date of exercise.
(2) Based on the fair market value of the Common Stock on February 2, 1996 ($17.00 per share), less the option exercise price.
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
AGREEMENTS WITH SENIOR EXECUTIVES
In May 1995, Staples entered into Severance Benefit Agreements (the
"Severance Agreements") with each of its executive officers, including the
Senior Executives, which superseded the employment agreements and employee
retention agreements previously in place with certain Senior Executives. Under
the Severance Agreements, which expire May 31, 2000, the Senior Executives would
be entitled to continuation of salary and other benefits for (i) 18 months in
the case of Messrs. Stemberg and Hanaka, and (ii) 12 months in the case of
Messrs. Bingleman, Wilson, Sargent and Vassalluzzo, following termination of
employment by Staples without cause (or "constructive discharge" as provided in
the Severance Agreements). Each Senior Executive would receive such benefits for
an additional period of 6 months if such termination occurred within two years
following a "change in control" of Staples (as defined in the Severance
Agreements). A change in control of Staples also results in an acceleration of
the exercisability of options held by Senior Executives pursuant to the terms of
such options.
Pursuant to offers of employment, the exercisability of certain options
to purchase shares granted to Mr. Hanaka on August 15, 1994 and Mr. Bingleman on
June 30, 1994 accelerates if such Senior Executive's employment is terminated
without cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Kahn and Nakasone, non-employee Directors of Staples, served on
the Compensation Committee for the entire fiscal year ended February 3, 1996.
Messrs. Lubrano and Trust, non-employee Directors, served on the Compensation
Committee until June 30, 1995 at which time Mr. Heisey, also a non-employee
Director, was appointed to the Compensation Committee.
Staples leases its Tysons Corner, Virginia store from Toys "R" Us. Mr.
Nakasone is President and Chief Operating Officer of Toys "R" Us. Under the
terms of the lease, which commenced on February 1, 1988, Staples was required
to pay Toys "R" Us annual rent in the amount of $374,000 for
13
<PAGE> 17
PRELIMINARY COPY
each of the first five years of the lease term and is required to pay the amount
of $430,100 for each of the succeeding five years. The term of the lease is ten
years and Staples may renew the lease for an additional 10-year period at an
increased rent. Staples also leases a site located in Cedar Rapids, Iowa from
Toys "R" Us, Inc. The store is scheduled for an August 1996 opening. The initial
term of this lease is 15 years. Rent for the first five years of the initial
term will be $185,600 annually, rent for the second five years of the initial
term will be $213,400 annually, and rent for the last five years of the initial
term will be $245,456 annually. In addition, in fiscal 1995 Staples purchased
assignments of leases for stores in Escondido, California and West Valley, Utah
from Kids "R" Us, a subsidiary of Toys "R" Us, for $525,717 and $970,000,
respectively.
Mr. Kahn is a Trustee of Atlas-Danvers Realty Trust. In 1991, Staples
entered into a lease with Atlas-Danvers Realty Trust for space in Danvers,
Massachusetts for an initial term of 15 years at a base annual rent of $211,137.
In addition, Mr. Kahn is a partner in United Properties Group. In 1990, Staples
entered into a lease with United Properties Group for space in Seekonk,
Massachusetts for a term of ten years at an initial base annual rent of $154,000
for the first five years and $171,000 thereafter.
CERTAIN TRANSACTIONS
In connection with Staples' acquisition of the stock of National Office
Supply Company, Inc. ("NOS"), Staples acquired leases in Chicago, Illinois and
Hackensack, New Jersey between NOS and certain partnerships of which Evan Stern
is a partner. Annual rental payments in 1995 were $532,432 and $680,000,
respectively. In addition, through Staples' acquisition of Spectrum Office
Products Inc. ("Spectrum"), Staples acquired a lease of its facility in
Rochester, New York with a partnership of which Henry Epstein is partner. Rental
payments in fiscal 1995 amounted to $564,498. As a result of such acquisition,
Staples also holds the mortgage note of such partnership on the property
pursuant to which the partnership paid Staples $80,987 in 1995. Each of the
above transactions was entered into prior to the acquisition of such companies
by Staples.
Staples entered into a Consulting Services Compensation Agreement dated
December 1, 1995 with Cubex Corporation ("Cubex") of which Mr. Moriarty is
Chairman and Chief Executive Officer, pursuant to which Cubex will perform
consulting services for Staples relating to development of certain new business
ventures. In consideration for these services, Cubex was awarded 21,429 shares
of Common Stock. All or part of such shares are subject to forfeiture by Cubex
if certain benchmarks are not achieved in the development of such projects prior
to June 2000. Cash consideration in the amount of $122,000 is also payable to
Cubex in the event performance objectives are met prior to June 2000.
See "Compensation Committee Interlocks and Insider Participation" above
for information relating to certain transactions between Staples and entities
in which either Mr. Kahn, Mr. Moriarty or Mr. Nakasone, Directors of Staples,
have an interest.
Staples has a policy that transactions and loans, if any, between
Staples and its officers, Directors and affiliates will be on terms no less
favorable to Staples than could be obtained from unrelated third parties and
will be approved by a majority of the members of the Board of Directors and by a
majority of the disinterested members of the Board of Directors. In addition,
this policy mandates that Staples may make loans to such officers, Directors and
affiliates for bona fide business purposes only. In accordance with Staples'
policy, each of the above transactions was approved by both the Board of
Directors and the disinterested members of the Board of Directors. Staples
believes that the terms of the above arrangements are no less favorable than
could be obtained from unrelated third parties.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Staples' executive compensation program is administered by the
Compensation Committee composed of the non-employee Directors listed below.
Staples' executive compensation program is
14
<PAGE> 18
PRELIMINARY COPY
designed to retain and reward executives who are responsible for leading Staples
in achieving its business objectives. All decisions by the Compensation
Committee relating to the compensation of Staples' executive officers are
reviewed by the full Board. This report is submitted by the Compensation
Committee and addresses Staples' compensation policies for the fiscal year ended
February 3, 1996 ("fiscal 1995") as they affected the Chief Executive Officer
and the other executive officers of Staples.
Compensation Philosophy
The objectives of the executive compensation program are to (i) align
compensation with business objectives, individual performance and the interests
of Staples' stockholders, (ii) motivate and reward high levels of performance,
(iii) recognize and reward the achievement of Company and/or business unit
goals, and (iv) enable Staples to attract, retain and reward executive officers
who contribute to the long-term success of Staples.
In furtherance of these objectives, the Committee's executive
compensation philosophy is that a significant portion of executive compensation
should be tied to the performance of Staples. The base salaries paid to
executives are targeted by the Committee to fall below the median of the base
salary believed to be paid to comparable executives of comparable companies.
Staples seeks, however, to provide its executives with opportunities for
compensation substantially higher than base salary through performance-based
bonuses and stock options. The Committee believes that bonus awards tied to
achievement of pre-approved earnings, sales and customer service goals serve as
an influential motivator to its executives and help to align the executives'
interests with those of the stockholders of Staples. The Committee also believes
that a substantial portion of the compensation of Staples' executives should be
linked through Staples' stock option program to the success of Staples' stock in
the marketplace. Stock options further align the interests of management and
stockholders and assist in the retention of valued executives.
During fiscal 1994 and 1995, Staples engaged the international
compensation and human resources consulting firm, The Wyatt Company ("Wyatt"),
to review Staples' compensation program, compare it to other relevant companies,
and make recommendations consistent with Staples' objectives and philosophy. In
compiling the comparative information, Wyatt utilized public and proprietary
information regarding executive compensation for retail companies and companies
in other markets believed by Wyatt to be relevant to Staples. Certain of these
companies are included in the Standard and Poor's Retail Composite Index
contained in the stock performance graph on page 17.
Implementation of Compensation Program
Based on the information in the Wyatt study and consistent with Staples'
objectives and philosophy, the Committee targeted total annual compensation --
consisting of the three principal elements of salary, cash bonus and stock
options -- to fall above total annual compensation for similar positions in the
group of companies used in the Wyatt study.
- - SALARIES: The Compensation Committee targeted base annual salary for
executives to be slightly below the average of annual base salary for
comparable positions in the Wyatt study group.
- - BONUS: Each of Staples' executives, including the Senior Executives, was
eligible to participate in Staples' executive bonus plan in fiscal 1995 (the
"Bonus Plan"). The Bonus Plan provided for the payment of a range of cash
bonuses based on "stretch" objectives relating to annual earnings before
taxes, sales, and customer service goals, with equal weight given to
earnings and the aggregate of sales plus customer service. Bonuses for the
Chief Executive Officer, Chief Operating Officer and Chief Financial Officer
were based on company-wide earnings, sales, and customer service goals,
while objectives for certain other executives also contained goals for the
particular business unit over
15
<PAGE> 19
PRELIMINARY COPY
which such executive exercised responsibility. The Bonus Plan also
contained a component providing for an increase or decrease in the bonus
based on certain earnings per share goals.
The earnings, sales, and customer service goals for the Bonus Plan were
determined by the Committee and approved by the Board of Directors at the
beginning of fiscal 1995. In each case, these bonus goals represented
"stretch" objectives, requiring performance in excess of amounts set for
budget purposes to achieve target bonus payouts. The Committee established
target bonus payouts for executives in an attempt to bring the cash portion
of total annual compensation (base salary plus target bonus) to
approximately the median of the cash compensation paid to the Wyatt
comparison group.
For fiscal 1995, Staples surpassed its earnings, sales and customer service
budget amounts. For purposes of the Bonus Plan, earnings and earnings per
share "stretch" objectives were exceeded on a company-wide basis. Attainment
of other "stretch" bonus goals varied among business units. Bonuses paid to
Senior Executives ranged from 54% to 136% of targeted payouts, which
included a 9% increase in earned bonus due to exceeding earnings per share
bonus goals.
- - STOCK OPTIONS: In addition to base salary and bonus, Staples'
executives are also granted annually performance-based long-term incentives
represented by stock options, which have been valued by Wyatt using a
modified Black-Scholes methodology. The exercise price of all options
granted is the fair market value of the Common Stock on the date of grant.
The options granted under the option program since September 1, 1994 vest
in full on the third anniversary of the date of grant to further encourage
retention and promote identity of interest with Staples' stockholders.
Certain executives were granted additional options as an inducement to join
Staples or in recognition of promotions or special achievement.
Mr. Stemberg, Staples' Chief Executive Officer, is eligible to
participate in the same executive compensation program available to Staples
executives, and his total annual compensation, including compensation derived
from Staples' bonus program and stock option program, was set by the Committee
in accordance with the same criteria. Mr. Stemberg's annual salary was increased
in fiscal 1995 from $400,000 to $425,000 which was below the minimum amount of
the base salary range recommended by Wyatt for Staples' Chief Executive Officer
position and at the low end of the range of the Wyatt comparison group. Under
the Bonus Plan, Mr. Stemberg was paid a bonus of $280,730, placing his total
cash compensation below the median of the Wyatt Comparison group. In fiscal
1995, the Committee granted Mr. Stemberg an option to purchase 213,750 shares of
Common Stock. This grant was valued and based on the same factors the Committee
considered in fixing the size of other executive stock option grants. Using the
Wyatt valuation for options, total annual compensation to Mr. Stemberg in fiscal
1995 placed him above the median of the Wyatt comparison group.
Tax Considerations
Under the Internal Revenue Code of 1986, as amended, certain executive
compensation in excess of $1 million paid to a public company's five most
highly-paid executives is not deductible for federal income tax purposes unless
the executive compensation is awarded under a performance-based plan approved by
the stockholders. Although the Committee believes that the ability to claim such
tax deductions is of value to Staples, it has decided not to submit its bonus
plan for fiscal 1996 for stockholder approval at this time because the Committee
has determined that cash compensation to any executive is
16
<PAGE> 20
PRELIMINARY COPY
unlikely to exceed $1 million for fiscal 1996. However, Staples' stock option
plans are structured so that options granted to its executives comply with the
performance-based requirements of the tax law.
COMPENSATION COMMITTEE: Robert C. Nakasone, Chairman
W. Lawrence Heisey
Leo Kahn
David G. Lubrano, Member during part of 1995
Martin Trust, Member during part of 1995
<TABLE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on
the Common Stock of Staples between January 26, 1991 and February 3, 1996 (the
end of fiscal 1995) with the cumulative total return of (i) Standard & Poor's
500 Composite Index and (ii) the Standard & Poor's Retail Store Composite Index.
This graph assumes the investment of $100.00 on January 26, 1991 in Staples'
Common Stock, the Standard & Poor's 500 Composite Index and the Standard &
Poor's Retail Store Composite Index, and assumes dividends are reinvested.
Measurement points are February 1, 1992, January 30, 1993, January 29, 1994,
January 28, 1995 and February 3, 1996 (Staples' last five fiscal year ends).
[GRAPH]
TOTAL RETURN TO SHAREHOLDERS
DIVIDENDS REINVESTED
<CAPTION>
26-Jan-91 1-Feb-92 30-Jan-93 29-Jan-94 28-Jan-95 3-Feb-96
--------- -------- --------- --------- --------- --------
<C> <C> <C> <C> <C> <C> <C>
SPLS 100.00 282.79 324.93 348.07 460.53 726.41
S & P Retail Composite 100.00 147.16 172.54 160.55 148.82 159.08
S & P 500 100.00 121.64 130.56 142.44 139.97 189.20
</TABLE>
17
<PAGE> 21
STAPLES, INC.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Thomas G.
Stemberg, John B. Wilson and Peter M. Schwarzenbach, and each of them, with full
power of substitution, as proxies to represent and vote, as designated herein,
all shares of Common Stock of Staples, Inc. (the "Company") which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Stockholders of the Company to be held at the Four Seasons Hotel, 200
Boylston Street, Boston, Massachusetts, on Thursday, May 23, 1996 at 9:00 a.m.,
local time, and at any adjournment thereof.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
This proxy, when properly executed, will be voted in the manner directed
by the undersigned stockholder(s). IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2, 3 AND 4. Attendance of the undersigned at the meeting
or any adjournment thereof will not be deemed to revoke this proxy unless the
undersigned shall revoke this proxy in writing or affirmatively indicate the
intent to vote in person.
-----------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
<PAGE> 22
Please mark
/ X / votes as in
this example
1. To elect Mary Elizabeth Burton, Rowland T. Moriarty, W. Mitt Romney and
Martin E. Hanaka as Class 2 Directors (except as marked below).
FOR WITHHELD
/ / / /
/ / ---------------------------------------
For all nominees except as noted above
2. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common Stock.
FOR AGAINST ABSTAIN
/ / / / / /
3. To approve amendments to the Company's 1994 Employee Stock Purchase
Plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the current year.
FOR AGAINST ABSTAIN
/ / / / / /
<PAGE> 23
MARK HERE MARK HERE
/ / IF YOU PLAN / / FOR ADDRESS
TO ATTEND CHANGE AND
THE MEETING NOTE AT LEFT
Please sign exactly as name appears hereon. When shares are held by joint
owners, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give title as such. If a corporation or a
partnership, please sign by authorized person.
Signature:_________________________ Date________________________
Signature:_________________________ Date________________________
