<PAGE>
STAPLES, INC.
ONE RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON JANUARY 21, 1999
The Special Meeting of Stockholders of Staples, Inc. (the "Company") will
be held at the offices of Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts, on January 21, 1999 at 2:00 p.m., local time, to consider and act
upon the following matters:
(1) To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares of Common
Stock from 500,000,000 to 1,000,000,000 shares.
(2) To approve the amendment and restatement of the Company's 1990
Director Stock Option Plan.
(3) 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 December 3, 1998 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,
Joseph S. Vassalluzzo,
Secretary
Westborough, Massachusetts
December 21, 1998
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.
"STREET NAME" HOLDERS WHO PLAN TO ATTEND THE MEETING WILL NEED TO BRING A COPY
OF A BROKERAGE STATEMENT REFLECTING STOCK OWNERSHIP AS OF THE RECORD DATE.
<PAGE>
STAPLES, INC.
ONE RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01581
PROXY STATEMENT
FOR THE SPECIAL MEETING OF STOCKHOLDERS
ON JANUARY 21, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Staples, Inc. ("Staples" or the "Company")
for use at the Special Meeting of Stockholders to be held on January 21, 1999
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 Special Meeting.
At the close of business on December 3, 1998, the record date for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting, there were outstanding and entitled to vote 306,738,497 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 of the Common Stock effected in the
form of 50% stock dividends distributed on July 24, 1995, March 25, 1996, and
January 30, 1998. Unless otherwise indicated, such references do not reflect
the three-for-two stock split of the Common Stock in the form a 50% stock
dividend declared on November 12, 1998 and to be distributed on January 28,
1999, subject to stockholder approval of the increase in authorized Common Stock
to be considered at the Special Meeting.
VOTES REQUIRED
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
amendment to the Company's 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 the approval of the amendment and
restatement of the 1990 Director Stock Option Plan.
<PAGE>
The holders of a majority of the shares of Common Stock outstanding and
entitled to vote at the Special Meeting shall constitute a quorum for the
transaction of business at the Special 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 Special 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 counted as a vote cast on
such matter. Accordingly, abstentions and "broker non-votes" will have the
effect of a vote against the proposed amendment to the Company's Restated
Certificate of Incorporation, but will have no effect on the voting as to the
approval of the amendment and restatement of the 1990 Director Stock Option
Plan.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth the beneficial ownership of Staples' Common
Stock as of November 15, 1998 (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:
<TABLE>
<CAPTION>
Number of Shares Percentage of
Beneficial Outstanding Common
Beneficial Owner Owned (1) Stock (2)
- ---------------------------------------- ---------------- ------------------
<S> <C> <C>
5% Stockholders
- ---------------
FMR Corp. (3) .......................... 36,418,840 12.7%
82 Devonshire Street
Boston, MA 02109
Directors
- ---------
Thomas G. Stemberg (4) ................. 4,292,712 1.5%
Martin Trust (5) ....................... 2,666,129 *
Robert C. Nakasone (6) ................. 316,366 *
Rowland T. Moriarty (7) ................ 372,810 *
W. Mitt Romney (8) ..................... 28,584 *
Paul F. Walsh (9) ...................... 94,971 *
</TABLE>
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<TABLE>
<S> <C> <C>
Mary Elizabeth Burton (10) ............. 110,552 *
W. Lawrence Heisey (11) ................ 31,834 *
James L. Moody, Jr. (12) ............... 36,187 *
Basil L. Anderson (13) ................. 12,750 *
George J. Mitchell ..................... 0 *
Other Senior Executives
- -----------------------
John C. Bingleman (14) ................. 796,564 *
John J. Mahoney ........................ 102,502 *
Ronald L. Sargent (15) ................. 353,115 *
Joseph S. Vassalluzzo (16) ............. 877,205 *
All current Directors and Executive 10,621,645 3.6%
Officers as a group (24 persons) (17)
</TABLE>
________________________
* 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 person or entity listed is deemed to beneficially own
shares issuable upon the exercise of stock options that are exercisable
within 60 days after November 15, 1998 ("Presently Exercisable Options").
(2) Number of shares deemed outstanding includes 287,011,206 shares outstanding
as of November 15, 1998 and any shares subject to Presently Exercisable
Options held by the person or entity in question, but does not include
shares that may be issued upon conversion of the Company's 4 1/2%
Convertible Subordinated Debentures after November 15, 1998.
(3) Based on a Schedule 13G filed with the Securities and Exchange Commission
as of February 11, 1998.
(4) Includes 3,795 shares owned by Mr. Stemberg's wife; includes 250,000 owned
by Thomas G. Stemberg 1998 Trust; includes 114,537 owned by The Stemberg
Family Charitable Trust. Also includes 2,287,030 shares subject to
Presently Exercisable Options.
(5) Includes 2,476,396 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 11,389 shares held by Mr. Trust's wife. Also
includes 102,419 shares subject to Presently Exercisable Options.
(6) Includes 45,782 shares subject to Presently Exercisable Options.
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(7) Includes 42,014 shares held by trusts for the benefit of Mr. Moriarty's
children and 32,143 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 . Also includes
140,387 shares subject to Presently Exercisable Options.
(8) Includes 1,079 shares subject to Presently Exercisable Options.
(9) Includes 83,582 shares subject to Presently Exercisable Options.
(10) Comprised of 110,552 shares subject to Presently Exercisable Options.
(11) Includes 24,241 shares subject to Presently Exercisable Options.
(12) Includes 21,000 shares subject to Presently Exercisable Options.
(13) Includes 3,750 shares subject to Presently Exercisable Options.
(14) Includes 605,812 shares subject to Presently Exercisable Options.
(15) Includes 238,542 shares subject to Presently Exercisable Options.
(16) Includes 731,915 shares subject to Presently Exercisable Options.
(17) Includes 4,675,114 shares subject to Presently Exercisable Options.
PROPOSAL 1 -- APPROVAL OF AMENDMENT TO THE COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
On September 10, 1998, the Board of Directors adopted, subject to
stockholder approval, an amendment to the Company's Restated Certificate of
Incorporation, providing for an increase from 500,000,000 to 1,000,000,000 in
the number of authorized shares of Common Stock (the "Charter Amendment"). On
November 12, 1998, the Company declared a three-for-two stock split of the
Common Stock in the form of a 50% stock dividend (the "Stock Split"), subject to
stockholder approval of the Charter Amendment. After giving effect to the Stock
Split, as of December 3, 1998, the Company had a total of approximately
460,107,745 shares of Common Stock outstanding, and 74,700,292 shares of Common
Stock reserved for issuance upon exercise of stock options outstanding under its
stock option, stock purchase and other plans.
If the Charter Amendment is approved, the additional authorized shares of
Common Stock would be available for issuance in the future for corporate
purposes, including without limitation, financings, acquisitions, stock splits,
stock dividends and management incentive and employee benefit plans, as the
Board of Directors may deem advisable, without the necessity of further
stockholder action. The issuance of additional shares of Common Stock, other
than in connection with stock
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splits and stock dividends, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, would have the effect
of diluting the Company's current stockholders and could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Other than in
connection with the Stock Split, the Company's existing stock option, 401(k),
and Supplemental Executive Retirement plans, and upon sale of shares purchased
pursuant to employee stock purchase plans, the Company has no present intention
or plans to issue any shares of Common Stock.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE CHARTER
AMENDMENT.
PROPOSAL 2 - APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 1990 DIRECTOR
STOCK OPTION PLAN
On September 10, 1998, the Board of Directors adopted, subject to
stockholder approval, the amendment and restatement of the 1990 Director Stock
Option Plan (the "1990 Director Plan" and as amended and restated, the "Amended
and Restated 1990 Director Plan"). The purpose of the Amended and Restated 1990
Director Plan is to encourage equity ownership in the Company by non-employee
Directors of the Company ("Outside Directors") whose continued services are
considered essential to the Company's future progress, to provide them with
further incentive to remain as Directors and to compensate them for their
services as Directors.
The Company believes that, in order to align most effectively the
compensation of its Directors with the interests of its stockholders, Directors
should be compensated through equity rather than cash payments. Accordingly,
commencing in fiscal 1999, Outside Directors will not receive any fees or other
cash compensation for their services as Directors, other than reimbursement for
expenses incurred in attending meetings of the Directors.
The following is a brief summary of the provisions of the Amended and
Restated 1990 Director Plan. This summary is qualified in all respects by
reference to the full text of the Amended and Restated 1990 Director Plan,
copies of which are available upon request to the Secretary of Staples. All
references to options and shares issuable under the Amended and Restated 1990
Director Plan have been adjusted to give effect to the Stock Split.
SUMMARY OF THE AMENDED AND RESTATED DIRECTOR PLAN
The Amended and Restated 1990 Director Plan authorizes Staples to grant
non-qualified stock options and make awards of performance accelerated
restricted stock ("PARS") to Outside Directors. Under the Amended and Restated
1990 Director Plan, each Outside Director who is initially elected to the Board
of Directors of the
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Company after the date on which the Amended and Restated 1990 Director Plan is
approved by the stockholders of the Company will automatically be granted a non-
qualified stock option to purchase 15,000 (giving effect to the Stock Split)
shares of Common Stock on the date of such Director's initial election to the
Board. In addition, on the date of the first regularly scheduled Board of
Directors meeting following the end of each fiscal year of the Company, a non-
qualified stock option shall be granted automatically to each Outside Director
to purchase a number of shares of Common Stock equal to 3,000 (giving effect to
the Stock Split) multiplied by the number of regularly scheduled meeting days of
the Board of Directors attended by such Director in the previous 12 months (up
to a maximum of 15,000 (giving effect to the Stock Split) shares). In addition,
at the first regularly scheduled Board of Directors meeting following the end of
each fiscal year of the Company, in which performance targets are established
relating to PARS awarded to executive officers of the Company, (x) the Company
shall grant to each Outside Director 400 (giving effect to the Stock Split) PARS
for each regularly scheduled meeting day of the Board of Directors attended by
such Director in the previous 12 months (up to a maximum of 2,000 (giving effect
to the Stock Split) PARS) and (y) in addition, the Company shall grant to the
Lead Director and the Chairman of each of the Audit, Compensation, and
Governance Committees of the Board of Directors 200 (giving effect to the Stock
Split shares) PARS for each regularly scheduled meeting day of the Board of
Directors attended by such Director in the previous 12 months (up to a maximum
of 1,000 (giving effect to the Stock Split) PARS).
The option exercise price per share for each option granted under the
Amended and Restated 1990 Director Plan shall be equal to the last reported sale
price per share of the Company's Common Stock on the Nasdaq National Market on
the date of grant (or, if no such price is reported on such date, such price as
reported on the nearest preceding date). Options granted under the Amended and
Restated 1990 Director Plan generally become exercisable, on a cumulative basis,
in four equal annual installments on each of the first, second, third and fourth
anniversary dates of its date of grant, provided the optionee continues to serve
as a Director of the Company on such dates. Options issuable under the Amended
and Restated 1990 Director Plan expire no later than ten years from the date of
grant.
PARS entitle the recipient to acquire shares of Common Stock under terms
that provide for vesting over a period of time and a right of repurchase in
favor of Staples with respect to unvested stock, at a price equal to their
original purchase price (if any), when the recipient ceases to be a Director of
the Company. Except as otherwise determined by the Board of Directors, all PARS
issued under the Amended and Restated 1990 Director Plan shall be issued without
the payment of any cash purchase price by the recipient. The recipient may not
sell, transfer or otherwise dispose of PARS until such PARS are vested.
Unvested PARS shall be deemed repurchased and forfeited if the recipient ceases
to be a Director of the Company for any reason prior to the applicable vesting
date. The restrictions on transfer and
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<PAGE>
forfeiture provisions of PARS granted under the Amended and Restated 1990
Director Plan shall lapse on the same basis as PARS that have been awarded to
the Company's executive officers for the fiscal year in which such PARS are
granted to the Outside Directors. If no PARS have been awarded to any executive
officer of the Company during the six months preceding the award of PARS to the
Outside Directors, such restrictions on transfer and forfeiture provisions shall
lapse on such terms as shall be determined by the Board of Directors. See
"Executive Compensation--Performance Accelerated Restricted Stock Awards" for
information relating to the terms of PARS awarded to executive officers in
fiscal 1997.
Except as otherwise determined by the Board of Directors, an appropriate
and proportionate adjustment shall be made in the number and kind of shares of
Common Stock subject to options and PARS to be granted or outstanding under the
Amended and Restated 1990 Director Plan and in the price per share subject to
any outstanding options, upon the occurrence of any stock split, stock dividend
or other events specified in the Amended and Restated 1990 Director Plan.
Outstanding options and PARS become exercisable and vested in full in the
event (A) a Change in Control (as defined in the Amended and Restated 1990
Director Plan) of the Company occurs or (B) the Outside Director ceases to serve
as a Director of the Company due to his or her death, disability (within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended
(the "Code") or any successor provision) or retires pursuant to a retirement
policy adopted by the Company.
The Board of Directors may suspend or discontinue the Amended and Restated
1990 Director Plan or amend it in any respect whatsoever; provided, however,
that without approval of the stockholders of the Company, no amendment may (i)
materially modify the requirements as to eligibility to receive options or PARS
under the Plan, or (ii) materially increase the benefits accruing to
participants in the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to options and awards of
PARS granted under the Amended and Restated 1990 Director Plan and with respect
to the sale of Common Stock acquired upon exercise of options or awards of PARS
under the Amended and Restated 1990 Director Plan.
OPTIONS. A participant will not recognize taxable income upon the grant of
an option under the Amended and Restated 1990 Director Plan. Nevertheless, a
participant generally will recognize ordinary compensation income upon the
exercise of the option in an amount equal to the excess of the fair market value
of the
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<PAGE>
Common Stock acquired through the exercise of the option (the "Option
Stock") on the exercise date over the exercise price.
A participant will have a tax basis for any Option Stock equal to the
exercise price plus any income recognized with respect to the option. Upon
selling Option Stock, a participant generally will recognize capital gain or
loss in an amount equal to the difference between the sale price of the Option
Stock and the participant's tax basis in the Option Stock. This capital gain or
loss will be a long-term capital gain or loss if the participant has held the
Option Stock for more than one year prior to the date of the sale and will be a
short-term capital gain or loss if the participant has held the Option Stock for
a shorter period.
PARS. A participant will not recognize taxable income upon the grant of
PARS, unless the participant makes an election under Section 83(b) of the Code
(a "Section 83(b) Election"). If the participant makes a Section 83(b) Election
within 30 days of the date of the grant, then the participant will recognize
ordinary compensation income, for the year in which the PARS is granted, in an
amount equal to the difference between the fair market value of the Common Stock
at the time the PARS is granted and the purchase price paid for the Common
Stock. If a Section 83(b) Election is not made, then the participant will
recognize ordinary compensation income, at the time that the forfeiture
provisions or restrictions on transfer lapse, in an amount equal to the
difference between the fair market value of the Common Stock at the time of such
lapse and the original purchase price paid for the Common Stock. The participant
will have a tax basis in the Common Stock acquired equal to the sum of the price
paid and the amount of ordinary compensation income recognized.
Upon the disposition of the Common Stock acquired pursuant to a PARS award,
the participant will recognize a capital gain or loss equal to the difference
between the sale price of the Common Stock and the participant's tax basis in
the Common Stock. The gain or loss will be a long-term capital gain or loss if
the shares are held for more than one year. For this purpose, the holding
period shall begin just after the date on which the forfeiture provisions or
restrictions lapse if a Section 83(b) Election is not made, or just after PARS
is granted if a Section 83(b) Election is made.
This tax summary is general and does not apply to gifts or any dispositions
other than sales. Also, under certain circumstances, a person may be entitled to
a credit for alternative minimum tax already paid. In addition, in some
individual cases, it will be important to consider the state, federal and
international tax consequences of participation in the Amended and Restated 1990
Director Plan and the effect, if any, of gift, estate and inheritance taxes.
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<PAGE>
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE 1990 DIRECTOR STOCK OPTION PLAN.
DIRECTOR COMPENSATION
In fiscal 1997, each Outside Director received a fee of $1,000 for each
Board of Directors meeting attended and $300 for each Committee meeting
attended. Commencing in fiscal 1999, Directors will not receive any cash
compensation for serving as Directors. All Directors are reimbursed for certain
company-related travel expenses. Pursuant to an agreement with the Company,
Senator Mitchell provides consulting services to the Company in return for a
total annual fee of $75,000.
Prior to its amendment and restatement as described above, the 1990
Director Plan provided for a grant to each Outside Director, upon his or her
initial election as a Director, of an option to purchase 10,000 shares of Common
Stock.
Prior to its amendment and restatement, the 1990 Director Plan also
provided for the annual grant of an option to purchase 5,000 shares of Common
Stock to each Outside 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. Prior to its amendment and restatement,
the 1990 Director Plan provided 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 January 31, 1998, on March 6, 1998 each of Mary
Elizabeth Burton, W. Lawrence Heisey, James L. Moody, Jr., Rowland T. Moriarty,
Robert C. Nakasone, W. Mitt Romney, Martin Trust and Paul F. Walsh, Directors of
the Company during the fiscal year ended January 31, 1998, was granted an option
to purchase 5,000 shares of Common Stock, and Mr. Anderson was granted an option
to purchase 3,000 shares of Common Stock, each at an exercise price of $23.25
per share.
All stock options under the 1990 Director Plan prior to its amendment and
restatement were granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant, and 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, all
options outstanding under the 1990 Director Plan prior to its amendment and
restatement automatically become exercisable in full, unless the Board of
Directors expressly determines that the "Change in Control" provisions should
not be triggered. An optionee generally may exercise an option, to the extent
exercisable, only while he or she is a Director of
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Staples and for up to six months thereafter. Unexercised options expire ten
years after the date of grant.
EXECUTIVE COMPENSATION
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 Staples' four other most highly compensated executive officers
during the fiscal year ended January 31, 1998 (the "Senior Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation(1) Long Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Common
Restricted Stock
Name and Fiscal Stock Options All Other
Principal Position Year Salary Bonus (2) Awards (#)(3) Compensation(4)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Stemberg 1997 $587,500 $446,172 $1,543,434(5) 240,000 $ 3,620
Chairman and CEO 1996 447,917 414,315 1,216,875(6) 240,000 --
1995 422,916 280,730 -- 320,625 --
- ------------------------------------------------------------------------------------------------------------------------------------
John C. Bingleman 1997 $385,883(7) $215,555 --(8) --(8) $ 2,756
President-Staples 1996 356,609(9) 243,065 $ 774,375(10) 172,500 --
International 1995 327,892(11) 120,015 -- 155,250 20,905(12)
- ------------------------------------------------------------------------------------------------------------------------------------
John J. Mahoney 1997 $395,834 $220,160 1,033,614(13) 220,000 --
Exec. Vice President 1996 171,243 251,210(14) 774,375(15) 232,500 --
& Chief Administrative 1995 -- -- -- -- --
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Ronald L. Sargent 1997 $392,084 $218,235 $1,005,552(16) 250,000 $ 1,107
President, North 1996 302,775 208,257 774,375(17) 172,500 --
American Operations 1995 241,250 183,597 -- 111,375 --
- ------------------------------------------------------------------------------------------------------------------------------------
Joseph S. Vassalluzzo 1997 $391,250 $198,007 $ 776,394(18) 146,875 $ 1,484
President, Realty 1996 312,500 193,347 553,125(19) 105,000 --
and Development 1995 283,333 125,503 -- 56,250 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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(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 for each year shown.
(2) Except as noted below, represents amounts paid under Staples' executive
bonus plan for the relevant fiscal year.
(3) Amounts reflect the three-for-two stock splits effected on March 25, 1996
and January 30, 1998, as applicable.
(4) 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.
(5) On October 1, 1997, Mr. Stemberg was awarded 82,500 shares of Performance
Accelerated Restricted Stock ("PARS") with a per share value of $18.7083.
As of January 31, 1998, these restricted shares owned by Mr. Stemberg had a
total value of $1,499,025. See "Performance Accelerated Restricted Stock
Awards."
(6) On October 1, 1996, Mr. Stemberg was awarded 82,500 shares of PARS with a
per share value of $14.75. As of January 31, 1998, these restricted shares
owned by Mr. Stemberg had a total value of $1,499,025. See "Performance
Accelerated Restricted Stock Awards."
(7) Includes payment of $25,420 paid to Mr. Bingleman by Staples' Canadian
subsidiary, The Business Depot, Ltd.
(8) Mr. Bingleman was not granted options or PARS during fiscal 1997 as a
result of his assumption of new responsibilities for international
operations. Staples is developing a long-term compensation strategy for
certain international executives, including Mr. Bingleman, to be
implemented during fiscal 1998.
(9) Includes payment of $25,993 paid to Mr. Bingleman by Staples' Canadian
subsidiary, The Business Depot, Ltd.
(10) On October 1, 1996, Mr. Bingleman was awarded 52,500 PARS shares with a per
share value of $14.75. As of January 31, 1998, these restricted shares
owned by Mr. Bingleman had a total value of $953,925. See "Performance
Accelerated Restricted Stock Awards."
(11) Includes payment of $25,530 paid to Mr. Bingleman by Staples' Canadian
subsidiary, The Business Depot, Ltd.
(12) Reimbursement of relocation expenses.
(13) On October 1, 1997, Mr. Mahoney was awarded 55,249 shares of PARS with a
per share value of $18.7083. As of January 31, 1998, these restricted
shares owned by Mr. Mahoney had a total value of $1,003,874. See
"Performance Accelerated Restricted Stock Awards."
(14) Mr. Mahoney joined Staples in September 1996. Bonus payment for 1996
included a payment of $134,517 pursuant to Mr. Mahoney's offer of
employment.
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(15) On October 1, 1996, Mr. Mahoney was awarded 52,500 shares of PARS with a
per share value of $14.75. As of January 31, 1998, these restricted shares
owned by Mr. Mahoney had a total value of $953,925. See "Performance
Accelerated Restricted Stock Awards."
(16) On October 1, 1997, Mr. Sargent was awarded 53,749 shares of PARS with a
per share value of $18.7083. As of January 31, 1998, these restricted
shares owned by Mr. Sargent had a total value of $976,619. See
"Performance Accelerated Restricted Stock Awards."
(17) On October 1, 1996, Mr. Sargent was awarded 52,500 PARS shares with a per
share value of $14.75. As of January 31, 1998, the restricted shares owned
by Mr. Sargent had a total value of $953,925. See "Performance Accelerated
Restricted Stock Awards."
(18) On October 1, 1997, Mr. Vassalluzzo was awarded 41,500 shares of PARS with
a per share value of $18.7083. As of January 31, 1998, these restricted
shares owned by Mr. Vassalluzzo had a total value of $754,055. See
"Performance Accelerated Restricted Stock Awards."
(19) On October 1, 1996, Mr. Vassalluzzo was awarded 37,500 PARS shares with a
per share value of $14.75. As of January 31, 1998, the restricted shares
owned by Mr. Vassalluzzo had a total value of $681,375. See "Performance
Accelerated Restricted Stock Awards."
Performance Accelerated Restricted Stock ("PARS") Awards
In order to maintain Staples' high risk-high reward philosophy, the
Compensation Committee has adopted, as part of the 1992 Equity Incentive Plan, a
PARS plan (the "Plan") for certain key executives. Under the Plan, shares of
Staples Common Stock are granted to executives in consideration for services.
The shares are "restricted" in that they may not be sold or transferred by the
executive until they "vest." Staples PARS issued in fiscal 1997 will vest on
February 1, 2002 subject to acceleration upon achievement of certain pre-
determined earnings per share ("EPS") growth targets over the two to five fiscal
years following the award date. Staples' PARS that were issued in fiscal 1996
will vest as of May 1, 1998 as a result of Staples exceeding such PARS EPS
target for fiscal 1997. EPS growth targets are determined by the Compensation
Committee and approved by the Board of Directors each year for grants under the
Plan in that year. Once the PARS have vested, they become "unrestricted" and
may be freely sold or transferred. Generally, the PARS are forfeited if the
executive's employment with Staples terminates prior to vesting.
Option Grants
The following table sets forth certain information concerning grants of
stock options during the fiscal year ended January 31, 1998 for each of the
Senior Executives.
-12-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at
Assumed Annual Rates of Stock
Percent of Price Appreciation for Options
Total Options Term(3)
Number of Granted to Exercise ----------------------------------
Options Granted Employees in Price Per Expiration
Name (1) Fiscal Year Share(2) Date 0% 5% 10%
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas G. Stemberg 240,000 3.81% $15.42 8/28/07 $0 $2,328,000 $5,899,200
- -----------------------------------------------------------------------------------------------------------------------------------
John C. Bingleman(4) -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
John J. Mahoney 82,500 1.31% $15.42 8/28/07 $0 $ 800,250 $2,027,850
137,500(5) 2.18% $17.29 10/30/07 $0 $1,496,000 $3,789,500
- -----------------------------------------------------------------------------------------------------------------------------------
Ronald L. Sargent 82,500 1.31% $15.42 08/28/07 $0 $ 800,250 $2,027,850
167,500(6) 2.66% $17.29 10/30/07 $0 $1,822,400 $4,616,300
- -----------------------------------------------------------------------------------------------------------------------------------
Joseph S. Vassalluzzo 52,500 0.83% $15.42 08/28/07 $0 $ 509,250 $1,290,450
94,375(7) 1.50% $17.29 10/30/07 $0 $1,026,800 $2,600,975
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Except as otherwise noted, 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.
(4) Mr. Bingleman was not granted options or PARS during fiscal 1997 as a
result of his assumption of new responsibilities for Staples' international
operations. Staples is developing a long-term compensation strategy for
certain international executives, including Mr. Bingleman, to be
implemented during fiscal 1998.
(5) Of this number, options for 120,000 shares become exercisable in full on
the fifth anniversary of the date of grant, provided that the optionee
continues to be employed by Staples on such date.
-13-
<PAGE>
(6) Of this number, options for 150,000 shares become exercisable in full on
the fifth anniversary of the date of grant, provided that the optionee
continues to be employed by Staples on such date.
(7) Of this number, options for 90,000 shares become exercisable in full on the
fifth anniversary of the date of grant, provided that the optionee
continues to be employed by Staples on such date.
Option Exercises and Holdings
The following table sets forth certain information concerning each exercise
of stock options during the fiscal year ended January 31, 1998 by each of the
Senior Executives and the number and value of unexercised options held by each
of the Senior Executives on January 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR END
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
No. of Shares of Common
No. of Shares of Stock Underlying Value of Unexercised In-the-
Common Stock Unexercised Options at Money Options at Fiscal Year
Acquired On Value Fiscal Year End End(2)
Name Exercise Realized(1) Exercisable/Unexercisable Exercisable/Unexercisable
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas G. Stemberg 900,000 $10,306,109 3,466,405/800,625 $46,298,491/$3,558,852
- ----------------------------------------------------------------------------------------------------------------------
John C. Bingleman 0 $ 0 450,562/327,750 $ 5,682,194/$1,844,458
- ----------------------------------------------------------------------------------------------------------------------
John J. Mahoney 0 $ 0 0/452,500 $ 0/$1,538,918
- ----------------------------------------------------------------------------------------------------------------------
Ronald L. Sargent 149,999 $ 2,022,833 438,063/565,516 $ 5,872,589/$2,478,259
- ----------------------------------------------------------------------------------------------------------------------
Joseph S. Vassalluzzo 0 $ 0 1,001,278/308,125 $14,655,594/$1,014,183
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 January 31, 1998
($18.17 per share), less the option exercise price.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL AGREEMENTS
WITH SENIOR EXECUTIVES
Staples has entered into Severance Benefit Agreements (the "Severance
Agreements") with the 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 Mr. Stemberg, and
(ii) 12 months in
-14-
<PAGE>
the case of Messrs. Bingleman, Mahoney, 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 six 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 a
partial acceleration of the exercisability of outstanding options held by the
Senior Executives (and all Staples associates) and a discharge without cause (or
resignation for good reason) within one year after a change in control results
in the acceleration in full of all options and PARS. In the event Mr. Mahoney is
terminated without cause within one year after a change of control, Staples
would also guarantee to him that the sum of all severance payments plus the
total gain realized and realizable upon the sale and/or exercise of his PARS
and/or options would equal at least $2,000,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Heisey, Nakasone and Trust, all Outside Directors of Staples,
served on the Compensation Committee for the entire fiscal year ended January
31, 1998.
OTHER MATTERS
The Board of Directors does not know of any other matters which may come
before the Special Meeting. However, if any other matters are properly
presented to the Special 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. Staples has also engaged Corporate Investor
Communications, Inc. ("CIC") to solicit proxies on behalf of Staples. For these
services, Staples will pay CIC a fee of $5,000 plus reimbursement of its
reasonable out-of-pocket expenses. 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 1999 Annual
Meeting of Stockholders should be directed to the Corporate Secretary at One
Research Drive, Westborough, Massachusetts, 01581, and must have been received
not later than December 20, 1998 for inclusion in the proxy statement for that
meeting.
-15-
<PAGE>
Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange Act
of 1934, as amended, if a stockholder who intends to present a proposal at the
1999 Annual Meeting of Stockholders does not notify the Company of such proposal
on or prior to March 5, 1999, then management proxies would be allowed to use
their discretionary voting authority to vote on the proposal when the proposal
is raised at the Annual Meeting, even though there is no discussion of the
proposal in the proxy statement relating to the 1999 Annual 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.
-16-
<PAGE>
Appendix A
----------
STAPLES, INC.
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD
ON JANUARY 21, 1999
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 J. Mahoney and Charles C. Freeman, 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 Special
Meeting of Stockholders of the Company to be held at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts, on Thursday, January 21, 1999
at 2:00 p.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 and 2. Attendance of the undersigned at the meeting or
any adjournments 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.
- --------------------------------------------------------------------------------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- --------------------------------------------------------------------------------
<PAGE>
[X]
Please mark
votes as in
this example
MANAGEMENT RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
1. To approve an amendment to the Company's Restated Certificate of
Incorporation increasing the number of authorized shares from 500,000,000
to 1,000,000,000 shares.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To approve the amendment and restatement of the Company's 1990 Director
Stock Option Plan.
FOR AGAINST ABSTAIN
[_] [_] [_]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [_]
MARK HERE FOR ADDRESS CHANGE AND 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:
-------------------------------- --------------------
<PAGE>
Appendix B
----------
STAPLES, INC.
AMENDED AND RESTATED 1990 DIRECTOR STOCK OPTION PLAN
----------------------------------------------------
1. PURPOSE.
The purpose of this Amended and Restated 1990 Director Stock Option Plan
(the "Plan") of Staples, Inc. (the "Company") is to encourage ownership in the
Company by the Company's outside directors, whose continued services the Company
considers essential to its future progress, and to provide these individuals
with a further incentive to remain as directors of the Company.
2. ADMINISTRATION.
The Board of Directors shall supervise and administer the Plan. Grants of
stock options ("Options") and awards of performance accelerated restricted stock
("PARS") under the Plan and the amount and nature of the Options and PARS to be
granted shall be made in accordance with Section 4. All questions concerning
interpretation of the Plan or any Options or PARS issued under it shall be
resolved by the Board of Directors and such resolution shall be final and
binding upon all persons having an interest in the Plan.
3. PARTICIPATION IN THE PLAN.
Directors of the Company who are not employees of the Company or any
subsidiary of the Company ("outside directors") shall be eligible to receive
Options and PARS under the Plan.
4. TERMS, CONDITIONS AND FORM OF OPTIONS AND PARS.
All Options and PARS granted under the Plan shall be evidenced by a written
agreement in such form as the Board of Directors shall from time to time
approve, which agreements shall comply with and be subject to the following
terms and conditions:
(a) Grants of Options and PARS.
--------------------------
(i) Initial Option Grant. An Option to purchase 15,000 shares of
--------------------
common stock, par value $.0006 per share (the "Common Stock"), shall be granted
automatically to outside directors who are initially elected to the Board of
Directors subsequent to the approval of the Plan by the Company's stockholders
at the close of business on the date of such director's initial election to the
Board of Directors.
(ii) Annual Option Grants. On the date of the first regularly
--------------------
scheduled Board of Directors meeting following the end of each fiscal year of
the
<PAGE>
Company, commencing with the fiscal year ending January 30, 1999, an Option
shall be granted automatically to each outside director to purchase a number of
shares of Common Stock equal to 3,000 multiplied by the number of regularly
scheduled meeting days of the Board of Directors attended by such director in
the previous 12 months (up to a maximum of 15,000 shares).
(iii) Annual Awards of PARS. At the first regularly scheduled Board
---------------------
of Directors meeting following the end of each fiscal year of the Company, at
which performance targets are established for PARS awarded to executive officers
of the Company, but no later than July 31 of each year, (each, an "Award Date),
(x) the Company shall grant to each outside director 400 PARS for each regularly
scheduled meeting day of the Board of Directors attended by such director in the
previous 12 months (up to a maximum of 2,000 PARS) and (y) in addition, the
Company shall grant to the Lead Director and the Chairman of each of the Audit,
Compensation, and Governance Committee of the Board of Directors 200 PARS for
each regularly scheduled meeting day of the Board of Directors attended by such
director in the previous 12 months (up to a maximum of 1,000 PARS).
(b) Terms of Options.
----------------
(i) Option Exercise Price. The option exercise price per share for
---------------------
each Option granted under the Plan shall be equal to the last reported sale
price per share of the Company's Common Stock on the Nasdaq National Market on
the date of grant (or, if no such price is reported on such date, such price as
reported on the nearest preceding date).
(ii) Nature of Options. All Options granted under the Plan shall be
-----------------
nonstatutory options not entitled to special tax treatment under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
(iii) Vesting. Except as otherwise provided in the Plan, each Option
-------
shall become exercisable, on a cumulative basis, in four equal annual
installments on each of the first, second, third and fourth anniversary dates of
its date of grant, provided the optionee continues to serve as a director of the
Company on such dates. Notwithstanding the foregoing, each outstanding Option
shall immediately become exercisable in full in the event (A) a Change in
Control (as defined in Section 8) of the Company occurs or (B) the optionee
ceases to serve as a director of the Company due to his or her death, disability
(within the meaning of Section 22(e)(3) of the Code or any successor provision)
or retires pursuant to a retirement policy adopted by the Company.
(iv) Option Exercise Procedure. An Option may be exercised only by
-------------------------
written notice to the Company at its principal office accompanied by payment in
cash of the full consideration for the shares as to which the Option is
exercised.
-2-
<PAGE>
(v) Termination. Each Option shall terminate, and may no longer be
-----------
exercised, on the date six months after the optionee ceases to serve as a
director of the Company; provided that, in the event (A) an optionee ceases to
serve as a director due to his or her death or disability (within the meaning of
Section 22(e)(3) of the Code or any successor provision)\\, \\or (B) an optionee
dies within six months after he or she ceases to serve as a director of the
Company, then the exercisable portion of the Option may be exercised, within the
period of one year following the date the optionee ceases to serve as a
director, by the optionee or by the person to whom the Option is transferred by
will, by the laws of descent and distribution, or by written notice pursuant to
Section 4(h). Notwithstanding the foregoing, each Option shall terminate, and
may no longer be exercised, on the date 10 years after the date of grant.
(vi) Options Nontransferable. Except as otherwise provided by the
-----------------------
Board of Directors, each Option granted under the Plan by its terms shall not be
transferable by the optionee otherwise than by will or the laws of descent and
distribution, and shall be exercised during the lifetime of the optionee only by
the optionee or his or her legal representative. No Option or interest therein
may be transferred, assigned, pledged or hypothecated by the optionee during his
or her lifetime, whether by operation of law or otherwise, or be made subject to
execution, attachment or similar process.
(vii) Option Exercise by Representative Following Death of Director.
-------------------------------------------------------------
An optionee, by written notice to the Company, may designate one or more persons
(and from time to time change such designation), including his or her legal
representative, who, by reason of the optionee's death, shall acquire the right
to exercise all or a portion of the Option. If the person or persons so
designated wish to exercise any portion of the Option, they must do so within
the term of the Option as provided herein. Any exercise by a representative
shall be subject to the provisions of the Plan.
(c) Terms of PARS.
-------------
(i) Nature of PARS. All PARS hereunder shall consist of the
--------------
issuance by the Company of shares of Common Stock, and the purchase by the
recipient thereof of such shares, subject to the terms, conditions and
restrictions described in the document evidencing the PARS and in this Plan.
(ii) Execution of PARS Agreement. The Company shall, upon the date
---------------------------
of the PARS grant, issue the shares of Common Stock subject to the PARS by
registering such shares in book entry form with the Company's transfer agent in
the name of the recipient. No certificate(s) representing all or a part of such
shares shall be issued until the conclusion of the vesting period described in
paragraph (iv) below.
-3-
<PAGE>
(iii) Price. Except as otherwise determined by the Board of
-----
Directors, all PARS issued hereunder shall be issued without the payment of any
cash purchase price by the recipients (in which case the "price per share
originally paid" for purposes of clause (2) of paragraph (v) below shall be
zero).
(iv) Vesting. Except as otherwise provided in the Plan, the
-------
restrictions on transfer and the forfeiture provisions of each PARS shall lapse
on the same basis as PARS that have been awarded to the Company's executive
officers for the fiscal year in which the Award Date relating to such PARS
occurs. If no PARS have been awarded to any executive officer of the Company
during the six months preceding an Award Date, then the restrictions on transfer
and the forfeiture provisions of all PARS granted pursuant to this Plan on such
Award Date shall lapse on such terms as shall be determined by the Board of
Directors. Notwithstanding the foregoing, the restrictions on transfer and the
forfeiture provisions of all PARS granted under this Plan shall immediately
lapse in the event (A) a Change in Control of the Company occurs, or (B) the
recipient ceases to serve as a director of the Company due to his or her death,
disability (within the meaning of Section 22(e)(3) of the Code or any successor
provision) or retires pursuant to a retirement policy adopted by the Company.
(v) Restrictions on Transfer. In addition to such other terms,
------------------------
conditions and restrictions on PARS contained in the Plan or the applicable PARS
Agreement, all PARS shall be subject to the following restrictions:
(1) No PARS shall be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of until they become
vested pursuant to paragraph (iv) above. The period during
which such restrictions are applicable is referred to as
the "Restricted Period."
(2) Except as set forth in the last sentence of paragraph (iv)
above, if a recipient ceases to be a director of the
Company within the Restricted Period for any reason, the
Company shall have the right and option for a period of
three months following the date of such cessation to buy
for cash that number of PARS as to which the restrictions
on transfer and the forfeiture provisions contained in the
PARS have not then lapsed, at a price equal to the price
per share originally paid by the recipient. If such
cessation occurs within the last three months of the
applicable Restricted Period, the restrictions and
repurchase rights of the Company shall continue to apply
until the expiration of the Company's three month option
period.
-4-
<PAGE>
(3) Notwithstanding subparagraphs (1) and (2) above, the Board
of Directors may, in its discretion, either at the time
that PARS are awarded or at any time thereafter, waive the
Company's right to repurchase shares of Common Stock upon
the occurrence of any of the events described in this
paragraph (iv) or remove or modify any part or all of the
restrictions. In addition, the Board of Directors may, in
its discretion, impose upon the recipient of PARS at the
time that such PARS are granted such other restrictions on
any PARS as the Board of Directors may deem advisable.
(vi) Additional Shares. Any shares received by a recipient of PARS
-----------------
as a stock dividend on, or as a result of stock splits, combinations, exchanges
of shares, reorganizations, mergers, consolidations or otherwise with respect to
such PARS shall have the same status and shall bear the same restrictions, all
on a proportionate basis, as the shares initially subject to such PARS.
(vii) Transfers in Breach of PARS. If any transfer of PARS is made
---------------------------
or attempted contrary to the terms of the Plan and of such PARS, the Board of
Directors shall have the right to purchase for the account of the Company those
shares from the owner thereof or his or her transferee at any time before or
after the transfer at the price paid for such shares by the person to whom they
were awarded under the Plan. In addition to any other legal or equitable
remedies which it may have, the Company may enforce its rights by specific
performance to the extent permitted by law. The Company may refuse for any
purpose to recognize as a shareholder of the Company any transferee who receives
any shares contrary to the provisions of the Plan and the applicable PARS or any
recipient of PARS who breaches his or her obligation to resell shares as
required by the provisions of the Plan and the applicable PARS, and the Company
may retain and/or recover all dividends on such shares which were paid or
payable subsequent to the date on which the prohibited transfer or breach was
made or attempted.
(viii) Additional PARS Provisions. The Board of Directors may, in
--------------------------
its sole discretion, include additional provisions in any PARS granted under the
Plan.
5. LIMITATION OF RIGHTS.
(a) No Right to Continue as a Director. Neither the Plan, nor the
----------------------------------
granting of an Option or PARS nor any other action taken pursuant to the Plan,
shall constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain the optionee or recipient of PARS as a
director for any period of time.
-5-
<PAGE>
(b) Rights as a Stockholder.
-----------------------
(i) Options. An optionee shall have no rights as a stockholder
-------
with respect to the shares covered by his or her Option until the date of the
issuance to him or her of a stock certificate therefor, and no adjustment will
be made for dividends or other rights (except as provided in Section 6) for
which the record date is prior to the date such certificate is issued.
(ii) PARS. Subject to the limitations set forth in Section 4(c) and
----
except as otherwise provided herein, a recipient of PARS shall have all rights
as a shareholder with respect to the shares subject to such PARS including,
without limitation, any rights to receive dividends or non-cash distributions
with respect to such shares and to vote such shares and act in respect of such
shares at any meeting of shareholders.
6. ADJUSTMENT PROVISIONS FOR RECAPITALIZATIONS AND RELATED TRANSACTIONS.
(a) If, through or as a result of any merger, consolidation, sale of
all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split, or other similar transaction, (i) the outstanding shares of Common Stock
are increased or decreased or are exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets are
distributed with respect to such shares of Common Stock or other securities,
except as otherwise determined by the Board of Directors, an appropriate and
proportionate adjustment shall be made in (x) the number and kind of shares of
Common Stock subject to Options and PARS to be granted to outside directors
after such event pursuant to Section 4(a), (y) the number and kind of shares
subject to then outstanding Options and PARS under the Plan, and (z) the price
for each share subject to any then outstanding Options under the Plan, without
changing the aggregate purchase price as to which such Options remain
exercisable. No fractional shares will be issued under the Plan on account of
any such adjustments.
(b) All share numbers herein have been adjusted to reflect the three-for-
two stock split declared on November 12, 1998.
-6-
<PAGE>
7. MERGERS, CONSOLIDATIONS, ASSET SALES, LIQUIDATIONS, ETC.
Subject to the provisions of Section 4(b)(iii) and 4(c)(iv), in the event
of a merger or consolidation or sale of all or substantially all of the assets
of the Company in which outstanding shares of Common Stock are exchanged for
securities, cash or other property of any other corporation or business entity
or in the event of a liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company, shall take one or more of the following actions, as to
outstanding Options: (i) provide that such Options shall be assumed, or
equivalent Options shall be substituted, by the acquiring or succeeding
corporation (or an affiliate thereof); (ii) upon written notice to the
optionees, provide that all unexercised Options shall (A) immediately become
exercisable in full and (B) terminate immediately prior to the consummation of
such transaction unless exercised by the optionee within a specified period
following the date of such notice; or (iii) in the event of a merger under the
terms of which holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in the merger
(the "Merger Price"), make or provide for a cash payment to the optionees equal
to the difference between (A) the Merger Price times the number of shares of
Common Stock subject to such outstanding Options (to the extent then
exercisable) with exercise prices not in excess of the Merger Price and (B) the
aggregate exercise price of all such Options, in exchange for the termination of
such Options.
8. CHANGE IN CONTROL.
For purposes of the Plan, a "Change in Control" shall be deemed to have
occurred if (i) any "person", as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or
indirectly by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities (other than
pursuant to a merger or consolidation described in clause (A) or (B) of
subsection (iii) below); (ii) during any period of two consecutive years ending
during the term of the Plan (not including any period prior to the adoption of
the Plan), individuals who at the beginning of such period constitute the Board
of Directors of the Company, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect any transaction described in clause (i), (iii) or (iv) of this Section 8)
whose election by the Board of Directors or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still
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in office who were either directors at the beginning of the period or whose
election or nomination for election was previously so approved (collectively,
the "Disinterested Directors"), cease for any reason to constitute a majority of
the Board of Directors; (iii) the closing of a merger or consolidation of the
Company or any subsidiary of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as defined above) acquires more than 30% of the combined voting power
of the Company's then outstanding securities; or (iv) a complete liquidation of
the Company or a sale by the Company of all or substantially all of the
Company's assets.
9. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS AND PARS.
The Board of Directors shall have the power to modify or amend outstanding
Options and PARS; provided, however, that no modification or amendment may (i)
have the effect of altering or impairing any rights or obligations of any Option
or PARS previously granted without the consent of the optionee or holder
thereof, as the case may be, or (ii) modify the number of shares of Common Stock
subject to the Option or PARS (except as provided in Section 6).
10. AMENDMENT OF THE PLAN.
The Board of Directors may suspend or discontinue the Plan or amend it in
any respect whatsoever; provided, however, that without approval of the
stockholders of the Company, no amendment may (i) materially modify the
requirements as to eligibility to receive Options or PARS under the Plan, or
(ii) materially increase the benefits accruing to participants in the Plan.
11. WITHHOLDING.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee or recipient of PARS any federal, state or local
taxes of any kind required by law to be withheld with respect to any shares
issued upon exercise of Options under the Plan or upon the expiration or
termination of the Restricted Period relating to the PARS. Subject to the prior
approval of the Company, the optionee or recipient of PARS may elect to satisfy
such obligations, in whole or in part, (i) by causing the Company to withhold
shares of Common Stock otherwise issuable pursuant to the exercise of an Option
or upon the expiration or termination of the Restricted Period relating to the
PARS or (ii) by delivering to the
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Company shares of Common Stock already owned by the optionee or PARS recipient.
The shares so delivered or withheld shall have a fair market value equal to such
withholding obligation. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Company as of the date that
the amount of tax to be withheld is to be determined. An optionee or PARS
recipient who has made an election pursuant to this Section 11(a) may only
satisfy his or her withholding obligation with shares of Common Stock which are
not subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
(b) If the recipient of PARS under the Plan elects, in accordance with
Section 83(b) of the Code, to recognize ordinary income in the year of
acquisition of any shares awarded under the Plan, the Company will require at
the time of such election an additional payment for withholding tax purposes
based on the difference, if any, between the purchase price of such shares and
the fair market value of such shares as of the date immediately preceding the
date on which the PARS are awarded.
12. NOTICE.
Any written notice to the Company required by any of the provisions of the
Plan shall be addressed to the Treasurer of the Company and shall become
effective when it is received.
13. GOVERNING LAW.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
14. STOCKHOLDER APPROVAL.
The Plan is conditional upon stockholder approval of the Plan, and the Plan
shall be null and void if the Plan is not so approved by the Company's
stockholders.
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