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:
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---
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Staples, Inc.
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(Name of Registrant as Specified in Its Charter)
Staples, Inc.
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--- and 0-11.
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<PAGE>
STAPLES, INC.
One Research Drive
Westborough, Massachusetts 01581
Notice of Annual Meeting of Stockholders to be Held
on Thursday, June 4, 1998
The Annual Meeting of Stockholders of Staples, Inc. will be held at Fleet
Bank, 8th Floor Conference Center, 75 State Street, Boston, Massachusetts, on
Thursday, June 4, 1998 at 2:00 p.m., local time, to consider and act upon the
following matters:
(1) To elect four Class 1 Directors to serve for a three-year term
expiring at the 2001 Annual Meeting of Stockholders.
(2) To approve Staples' 1998 Employee Stock Purchase Plan.
(3) To approve Staples' Executive Officer Incentive 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 6, 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,
Peter M. Schwarzenbach,
Secretary
Westborough, Massachusetts
April 20, 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 Annual Meeting of Stockholders
on June 4, 1998
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 June 4, 1998 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 6, 1998, 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 255,769,574 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 July 24,
1995, March 25, 1996, and January 30, 1998.
Staples' Annual Report for the fiscal year ended January 31, 1998 was
mailed to stockholders, along with these proxy materials, on or about April 20,
1998.
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
voting on the matter is required for the approval of the 1998 Employee Stock
Purchase Plan, the Executive Officer Incentive Plan and the ratification of the
selection of Ernst & Young LLP 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 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, approval of the 1998 Employee Stock
Purchase Plan, approval of the Executive Officer Incentive Plan, or ratification
of the selection of Ernst & Young LLP as Staples' independent auditors.
<PAGE>
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 W. Lawrence Heisey, James L. Moody, Jr., Martin Trust and Paul F. Walsh as
Class 1 Directors for a term expiring at the 2001 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. Each of Messrs. Heisey, Moody, Trust and Walsh
is currently a Class 1 Director of Staples. 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.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF ALL NOMINEES AS
DIRECTORS.
APPROVAL OF 1998 EMPLOYEE STOCK PURCHASE PLAN
The Board of Directors believes that the continued growth and profitability
of Staples depends, in large part, upon the ability of Staples to maintain a
competitive position in attracting and retaining quality personnel. Staples has
had an employee stock purchase plan since 1990, and it has been an integral
component of the benefit package for all associates. The current 1994 Employee
Stock Purchase Plan will expire on October 31, 1998. Accordingly, on March 6,
1998, the Board of Directors adopted, subject to stockholder approval, the 1998
Employee Stock Purchase Plan (the "1998 Stock Purchase Plan").
The following is a brief summary of the provisions of the 1998 Stock
Purchase Plan.
An aggregate of 4,000,000 shares of Common Stock may be issued pursuant to
the 1998 Stock Purchase Plan. The 1998 Stock Purchase Plan, which is implemented
through offerings, each approximately six months in length (the Board may
specify a shorter period, or a longer period of twelve months or less), provides
eligible associates with the opportunity to purchase shares of Staples' Common
Stock at a discounted price. The first offering will commence on November 2,
1998 and will terminate on June 30, 1999, and it is anticipated that subsequent
offerings will be six months in duration.
Each associate of Staples and its eligible subsidiaries, including an
officer or director who is also an employee, is eligible to participate in the
1998 Stock Purchase Plan, provided he or she (i) is employed by Staples or any
eligible subsidiary on the applicable offering commencement date, (ii) is
customarily employed by Staples or any eligible subsidiary for more than 20
hours per week and for more than five months in a calendar year, and (iii) has
been employed by Staples or any eligible subsidiary for at least three months
prior to enrolling in the 1998 Stock Purchase Plan. An employee may elect to
have up to a maximum of 10% withheld from his or her base pay for purposes of
purchasing shares under the 1998 Stock Purchase Plan, subject to certain
limitations on the maximum number of shares that may be purchased. The price at
which shares may be purchased during each offering will be the lower of (i) 85%
of the fair market value of the Common Stock on the date that the offering
commences or (ii) 85% of the fair market value of the Common Stock on the date
that the offering terminates.
The 1998 Stock Purchase Plan is administered by the Board of Directors of
the Company and the Compensation Committee of the Board of Directors. The Board
and the Compensation Committee have the authority to make rules and regulations
for the administration of the 1998 Stock Purchase Plan. Pursuant to the terms of
the 1998 Stock Purchase Plan, the Board has appointed the Compensation Committee
to administer certain aspect of the 1998 Stock Purchase Plan. The Board may at
any time terminate or amend the 1998 Stock Purchase Plan, except that (a) if the
approval of any such amendment by the stockholders of Staples is required by
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), such
amendment shall not be effected without such approval, and (b) in no event may
any amendment be made which would cause the 1998 Stock Purchase Plan to fail to
comply with
2
<PAGE>
Section 423 of the Code. The 1998 Stock Purchase Plan contains provisions
relating to the disposition of options in the event of certain mergers,
acquisitions and other extraordinary corporate transactions involving Staples.
As of March 1, 1998, approximately 25,909 associates would have been
eligible to participate in the 1998 Stock Purchase Plan.
The purchase of shares under the 1998 Stock Purchase Plan is discretionary,
and Staples cannot now determine the number of shares to be purchased in the
future by any particular person or group.
Tax Consequences to Participants. In general, a participant will not
recognize taxable income upon enrolling in the 1998 Stock Purchase Plan or upon
purchasing shares of Common Stock at the end of an offering. Instead, if a
participant sells Common Stock acquired under the 1998 Stock Purchase Plan at a
sale price that exceeds the price at which the participant purchased the Common
Stock, then the participant will recognize taxable income in an amount equal to
the excess of the sale price of the Common Stock over the price at which the
participant purchased the Common Stock. A portion of that taxable income will be
ordinary income, and a portion may be capital gain.
If the participant sells the Common Stock more than one year after
acquiring it and more than two years after the date on which the offering
commenced (the "Grant Date"), then the participant will be taxed as follows. If
the sale price of the Common Stock is higher than the price at which the
participant purchased the Common Stock, then the participant will recognize
ordinary compensation income in an amount equal to the lesser of: (i) fifteen
percent of the fair market value of the Common Stock on the Grant Date; and (ii)
the excess of the sale price of the Common Stock over the price at which the
participant purchased the Common Stock. Any further income will be long-term
capital gain. If the sale price of the Common Stock is less than the price at
which the participant purchased the Common Stock, then the participant will
recognize long-term capital loss in an amount equal to the excess of the price
at which the participant purchased the Common Stock over the sale price of the
Common Stock.
If the participant sells the Common Stock within one year after acquiring
it or within two years after the Grant Date (a "Disqualifying Disposition"),
then the participant will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock on the date
that it was purchased over the price at which the participant purchased the
Common Stock. The participant will also recognize capital gain in an amount
equal to the excess of the sale price of the Common Stock over the fair market
value of the Common Stock on the date that it was purchased, or capital loss in
an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the participant
has held the Common 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
Common Stock for a shorter period. Long-term capital gain will be taxable at a
maximum rate of 20% if attributable to Common Stock held for more than 18 months
and at a maximum rate of 28% if held more than one year but less than 18 months.
Tax Consequences to the Company. The offering of Common Stock under the
1998 Stock Purchase Plan will have no tax consequences to Staples. Moreover, in
general, neither the purchase nor the sale of Common Stock acquired under the
1998 Stock Purchase Plan will have any tax consequences to Staples except that
Staples will be entitled to a business-expense deduction with respect to any
ordinary compensation income recognized by a participant upon making a
Disqualifying Disposition. Any such deduction will be subject to the limitations
of Section 162(m) of the Code.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1998 EMPLOYEE
STOCK PURCHASE PLAN.
3
<PAGE>
APPROVAL OF EXECUTIVE OFFICER INCENTIVE PLAN
In March 1998, the Board of Directors adopted, subject to approval of the
stockholders of Staples, the Executive Officer Incentive Plan (the "Incentive
Plan"). The Incentive Plan, which is similar to executive bonus plans adopted by
the Staples' Board of Directors in recent years, provides for the payment of
annual cash bonus awards to executive officers of Staples based on the
performance of Staples or its business units against specific performance
criteria established for that year. The Board of Directors believes that the
Incentive Plan is in the best interests of Staples and its stockholders because
it will help align the interests of Staples' executive officers with those of
Staples' stockholders, motivate high levels of performance by Staples' executive
officers, recognize and reward efforts and contributions made by Staples'
executive officers to the Company's success, and help Staples to attract and
retain talented executive officers.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), certain executive compensation in excess of $1 million per year paid to
the Chief Executive Officer or any of the other four most highly compensated
executive officers of a public company is generally not deductible for federal
income tax purposes unless such compensation is paid under a performance-based
plan that is approved by the company's stockholders and satisfies certain other
criteria. The Board of Directors is submitting the Incentive Plan for
stockholder approval, and has specifically conditioned implementation of the
Incentive Plan on such stockholder approval, in order to permit Staples to avail
itself of the performance-based compensation exception to the provisions of
Section 162(m) of the Code.
Summary of the Incentive Plan
Set forth below is a summary of the principal terms of the Incentive Plan.
This summary is qualified in all respects by reference to the full text of the
Incentive Plan, a copy of which is available upon request from the Secretary of
Staples and is on file with the Securities and Exchange Commission as an exhibit
to Staples' Annual Report on Form 10-K for fiscal 1997.
Term of Plan
- ------------
The Incentive Plan will cover five fiscal years, beginning with the fiscal
year ending January 30, 1999 and ending with the fiscal year ending February 1,
2003. Each such fiscal year is referred to herein as a "Plan Year".
Administration
- --------------
The Incentive Plan will be administered by the Compensation Committee of
the Board of Directors. The Compensation Committee will have broad authority for
determining target bonuses and selecting performance criteria, as described
below, for adopting rules and regulations relating to the Incentive Plan, and
for making decisions and interpretations regarding the provisions of the
Incentive Plan and the satisfaction of performance criteria and the payment of
bonuses under the Incentive Plan.
Eligibility
- -----------
Each executive officer of Staples, within the meaning of the rules and
regulations promulgated by the SEC, will be eligible to participate in the
Incentive Plan. Unless specifically determined otherwise by the Compensation
Committee, an executive officer whose employment terminates prior to the end of
a Plan Year, other than as a result of permanent disability, death or
retirement, will not be eligible to receive a bonus award under the Incentive
Plan for that Plan Year.
4
<PAGE>
Determination of Bonus Awards
- -----------------------------
Each executive officer will have a target bonus award (a "Target
Award") for each Plan Year. Target Awards will be expressed as a percentage of
the actual base salary paid to the executive officer during that Plan Year. The
percentages will be determined by the Compensation Committee based upon the
executive officer's job level and responsibilities and may vary for different
officers and/or business units.
Within 90 days after the beginning of each Plan Year, the Compensation
Committee will establish specific performance criteria for the payment of bonus
awards for that Plan Year. The performance criteria for each Plan Year will be
based on one or more of the following measures: sales, earnings per share,
return on net assets, return on equity, and customer service levels. The
Committee may determine that special one-time or extraordinary gains and/or
losses should or should not be included in the calculation of such measures. In
addition, customer service target levels will be based on pre-determined tests
of customer service levels such as scores on blind test ("mystery") shopping,
customer comment card statistics, customer relations statistics (e.g., number of
customer complaints), and delivery response levels. The Compensation Committee
believes that disclosure of further detail concerning the performance criteria
for each Plan Year may be confidential commercial or business information, the
disclosure of which would adversely affect the Company.
For each Plan Year, a specified percentage of each bonus award will be
based upon each of the performance criteria selected by the Compensation
Committee for that Plan Year. For each of the performance criteria, a specified
percentage of the portion of the bonus award that is based on that particular
performance criteria will be paid, dependent upon the performance of the Company
as measured against such performance criteria.
The maximum bonus award payable to an executive officer for any Plan Year
will be $2 million. In addition, the Committee presently intends to limit bonus
awards to 200% of an executive's Target Award.
Example Calculation
-------------------
The following example illustrates how bonus awards under the Incentive Plan
might be determined for a particular Plan Year for a hypothetical Executive
Officer with a base salary of $150,000:
Target Award - Executive Officer is eligible for a Target Award of 50% of
his/her base salary for that Plan Year. As the actual base salary of Executive
Officer for that Plan Year is $150,000, his/her Target Award is $75,000.
Performance Criteria - The Compensation Committee establishes the following
performance criteria for that Plan Year:
o the performance criteria shall be customer service and earnings per
share;
o 10% of the bonus award shall be based upon customer service and 90%
shall be based upon earnings per share;
o the percentage of the portion of the bonus award attributable to
customer service performance shall range from 25% of such portion of
the Target Award if 90% of the customer service target is achieved to
200% of such portion of the Target Award if 110% or more of the
customer service target is achieved (with no payment of such portion
of the Target Award if less than 90% of the customer service target is
achieved); and
5
<PAGE>
o the percentage of the portion of the bonus award attributable to
earnings per share performance shall range from 25% of such portion of
the Target Award if 90% of the earnings per share target is achieved
to 200% of such portion of the Target Award if 110% or more of the
earnings per share target is achieved (with no payment of such portion
of the Target Award if less than 90% of the earnings per share target
is achieved).
Results - For that Plan Year, Staples achieves 110% of its customer service
target and 100% of its earnings per share target.
Calculation of Bonus Award - Based on customer service performance,
Executive Officer receives a bonus award of $15,000, calculated by multiplying
$7,500 (10% of his Target Award) by 200% (the percentage payment corresponding
to achievement of 110% of target customer service). Based on earnings per share
performance, Executive Officer receives a bonus award of $67,500, calculated by
multiplying $67,500 (90% of his Target Award) by 100% (the percentage payment
corresponding to achievement of 100% of target earnings per share), for a total
bonus award of $82,500.
No bonus awards have been paid under the Incentive Plan to date. The amount
of the bonus awards payable to Incentive Plan participants in the future for any
Plan Year is not currently determinable because Staples' performance against the
performance criteria for any Plan Year is not now determinable.
Amendments and Termination
- --------------------------
The Incentive Plan may be amended or terminated by either the Board of
Directors or the Compensation Committee, provided that (i) no amendment or
termination of the Incentive Plan after the end of a Plan Year may adversely
affect the rights of executive officers with respect to their bonus awards for
that Plan Year, and (ii) no amendment which would require stockholder approval
under Section 162(m) of the Code may be effected without such stockholder
approval.
Federal Income Tax Consequences
- -------------------------------
Payments received by executive officers under the Incentive Plan will be
income subject to tax at ordinary income rates when received. Since the
Incentive Plan is intended to comply with the requirements of Section 162(m) of
the Code, if the Plan is approved by stockholders at the Annual Meeting, Staples
will be entitled to deduct all bonus payments made in accordance with the terms
of the Incentive Plan.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE EXECUTIVE OFFICER
INCENTIVE 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 LLP has served as Staples' independent
auditors since Staples' inception. Although stockholder approval of the Board of
Directors' selection of Ernst & Young LLP 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.
6
<PAGE>
Representatives of Ernst & Young LLP 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.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF ERNST & YOUNG LLP
AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE CURRENT FISCAL YEAR.
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. 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 $7,000 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 be received not
later than December 20, 1998 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.
7
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth the beneficial ownership of Staples' Common
Stock as of March 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:
Number of Shares Percentage of
Beneficially Outstanding Common
Beneficial Owner Owned (1) Stock (2)
- ---------------- --------- ---------
5% Stockholders
- ---------------
FMR Corp. (3) 36,418,840 14.3%
82 Devonshire Street
Boston, MA 02109
Directors
- ---------
Thomas G. Stemberg (4) 4,272,624 1.7%
Martin Trust (5) 2,816,129 1.1%
Robert C. Nakasone (6) 474,315 *
Rowland T. Moriarty (7) 392,810 *
W. Mitt Romney (8) 295,718 *
Paul F. Walsh (9) 208,730 *
Mary Elizabeth Burton (10) 110,552 *
W. Lawrence Heisey (11) 42,509 *
James L. Moody, Jr. (12) 30,562 *
Basil L. Anderson 9,000 *
Other Senior Executives
- -----------------------
John C. Bingleman (13) 505,127 *
John J. Mahoney 109,815 *
Ronald L. Sargent (14) 414,215 *
Joseph S. Vassalluzzo (15) 892,268 *
All current Directors and Executive 10,941,685 4.2%
Officers as a group (22 persons) (16)
- -----------------
* 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 March 15, 1998 ("Presently Exercisable Options").
(2) Number of shares deemed outstanding includes 254,759,494 shares outstanding
as of March 15, 1998 and any shares subject to Presently Exercisable
Options held by the person or entity in question.
(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. Also includes 2,166,405
shares subject to Presently Exercisable Options.
8
<PAGE>
(5) Includes 2,626,396 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 140,387 shares subject to Presently Exercisable Options.
(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 127,731 shares subject to Presently Exercisable Options. Also
includes 140,482 shares subject to Presently Exercisable Options granted to
Bain & Co., Inc., of which Mr. Romney is a director.
(9) Includes 197,341 shares subject to Presently Exercisable Options.
(10) Comprised of 110,552 shares subject to Presently Exercisable Options.
(11) Includes 34,916 shares subject to Presently Exercisable Options.
(12) Includes 15,375 shares subject to Presently Exercisable Options.
(13) Includes 450,562 shares subject to Presently Exercisable Options.
(14) Includes 293,329 shares subject to Presently Exercisable Options.
(15) Includes 751,278 shares subject to Presently Exercisable Options.
(16) Includes 4,831,923 shares subject to Presently Exercisable Options.
DIRECTORS AND EXECUTIVE OFFICERS OF STAPLES
Set forth below are the names and certain information with respect to each
current Director and executive officer of Staples.
Nominees To Serve As Directors For A Three-Year Term Expiring At The 2001 Annual
Meeting (Class 1 Directors)
<TABLE>
<CAPTION>
Served as
Director
Name, Age, Principal Occupation or Employment and Other Directorships Since
- --------------------------------------------------------------------- ---------
<S> <C>
W. Lawrence Heisey, age 67 ........................................... 1994
Chairman Emeritus of Harlequin Enterprises Ltd. of Toronto, Canada,
a publishing company, since July 1990. Mr. Heisey was a Director
of The Business Depot, Ltd. prior to its acquisition by Staples
in August 1994.
James L. Moody, Jr., age 66 ............................................. 1995
Chairman of the Board of Hannaford Bros. Co., a food retailer, from
May 1984 until his retirement in May 1997. Mr. Moody is a Director
of UNUM Corporation, IDEXX Laboratories, Inc., Penobscot Shoe Co.,
and Empire Company Limited, a publicly traded Canadian company.
He is also a Trustee of Colonial Group mutual funds.
Martin Trust, age 63 ................................................... 1987
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 also a Director of The Limited, Inc.
Paul F. Walsh, age 48 .................................................. 1990
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
Investors Services Corporation, a financial services company. He is also a
Director of Intelligent Controls, Inc.
</TABLE>
9
<PAGE>
Directors Serving A Term Expiring At The 1999 Annual Meeting
(Class 2 Directors)
<TABLE>
<CAPTION>
Served as
Director
Name, Age, Principal Occupation or Employment and Other Directorships Since
- --------------------------------------------------------------------- ---------
<S> <C>
Mary Elizabeth Burton, age 46 ........................................... 1993
Chairman and Chief Executive Officer of BB Capital, Inc., an investment
company, since January 1994. From July 1992 to January 1994, Ms. Burton was
Chairman and Chief Executive Officer of Supertans, Inc., a chain of tanning
salons. She is also a Director of Gantos, Inc.
Rowland T. Moriarty, age 51 .............................................. 1986
Chairman and Chief Executive Officer of Cubex Corporation, a consulting
company, since 1981. Mr. Moriarty was a professor at Harvard Business
School from September 1982 to September 1992. He is also a Director of
Trammel Crow Company.
W. Mitt Romney, age 51 ................................................... 1986
Chief Executive Officer of Bain Capital, Inc., a firm that manages certain
venture capital funds, since May 1992. Mr. Romney has been a general
partner and the managing partner of each of Bain Capital Partners and Bain
Venture Capital, both general partners of venture capital limited
partnerships, since September 1984 and October 1987, respectively. He
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 also a Director of Marriott International, Inc. and
The Sports Authority, Inc.
Directors Serving A Term Expiring At The 2000 Annual Meeting (Class 3 Directors)
<CAPTION>
Served as
Director
Name, Age, Principal Occupation or Employment and Other Directorships Since
- --------------------------------------------------------------------- ---------
<S> <C>
Basil L. Anderson, age 53 ................................................ 1997
Executive Vice President - Finance and Chief Financial Officer of Campbell
Soup Company, a food products manufacturer, since April 1996. Prior to
joining Campbell Soup, Mr. Anderson was with Scott Paper Company where he
served in a variety of capacities beginning in 1975, including Vice
President and Chief Financial Officer from February 1993 to December 1995.
Robert C. Nakasone, age 50 ............................................... 1986
Chief Executive Officer of Toys "R" Us, Inc., a retail store chain, since
February 1998. Previously, Mr. Nakasone served in other positions with that
company including President and Chief Operating Officer from January 1994
to February 1998 and Vice Chairman and President of Worldwide Toy Stores
from January 1989 to January 1994. Mr. Nakasone is also a Director of
Toys "R" Us.
Thomas G. Stemberg, age 49 ............................................... 1986
Chairman of the Board of Directors and Chief Executive Officer of Staples
since February 1988. Mr. Stemberg is also a Director of PETsMART, Inc.
</TABLE>
10
<PAGE>
Executive Officers
In addition to Mr. Stemberg, the following are the executive officers of
Staples:
John C. Bingleman, age 55
Mr. Bingleman has served as President - Staples International since
February 1997. Prior to that he was President - North American Superstores
from August 1994 to February 1997. Mr. Bingleman was President of The
Business Depot, Ltd. from its founding in 1990 until its acquisition by
Staples in August 1994.
Richard R. Gentry, age 48
Mr. Gentry has served as Executive Vice President - Merchandising since
February 1996. Prior to joining Staples, Mr. Gentry was with Lechmere, Inc.
from 1987 to January 1996 where he served as Executive Vice President
Merchandising from 1993 to January 1996.
Edward C. Harsant, age 53
Mr. Harsant has served as President - Business Depot since January 1995.
Prior to joining Staples, Mr. Harsant was with K-Mart Corp. where he served
as Vice President Merchandise from October 1991 to December 1994.
Susan S. Hoyt, age 54
Ms. Hoyt has served as Executive Vice President - Human Resources since
July 1996. Prior to joining Staples, Ms. Hoyt was with Dayton Hudson
Department Stores, a clothing retailer in Minneapolis, Minnesota, where she
served as Executive Vice President of Store Operations from 1993 to 1996.
Jeffrey L. Levitan, age 43
Mr. Levitan has served as Senior Vice President - Strategic Planning and
Business Development since August 1996. From 1988 to 1996, he was with The
Boston Consulting Group where he served as a strategic management
consultant.
Jeanne B. Lewis, age 34
Ms. Lewis has served as Senior Vice President - Marketing since February
1998. Prior to that she served in various capacities since joining Staples
in April 1993, including Senior Vice President - Marketing and Small
Business from April 1997 to February 1998, Vice President/Divisional
Merchandise Manager from 1996 to April 1997, Director of Operations and
Director of Sales and Marketing from 1994 to 1996, and Marketing Manager
from 1993 to 1994.
Brian T. Light, age 34
Mr. Light has served as Senior Vice President and Chief Information Officer
since February 1998. From 1986 to January 1998, he was an associate partner
at Andersen Consulting where he served as a business and technology
consultant.
John J. Mahoney, age 46
Mr. Mahoney has served as Executive Vice President, Chief Administrative
Officer and Chief Financial Officer since October 1997. Prior to that he
was Executive Vice President and Chief Financial Officer from September
1996 to October 1997. From June 1996 to August 1996, Mr. Mahoney was
Executive Vice President and Chief Financial Officer at Hill, Holliday,
Connors, Cosmopulos, an advertising agency. Prior to joining Hill,
Holliday, Mr. Mahoney was a partner with Ernst & Young LLP, where he served
in various capacities in its accounting and auditing groups from 1975 to
June 1996.
11
<PAGE>
Robert K. Mayerson, age 41
Mr. Mayerson has served as Senior Vice President and Corporate Controller
since September 1997. He joined Staples in August 1993, and from that time
until April 1997 he served as Vice President and Treasurer. Thereafter,
from April 1997 to September 1997, he served as Senior Vice President and
Treasurer.
James C. Peters, age 36
Mr. Peters has served as President - U.S. Stores since March 1998.
Previously he served as Executive Vice President - U.S. Stores from
September 1997 to March 1998. Prior to joining Staples, Mr. Peters was with
Office Depot, Inc. where he served as Senior Vice President, Western
Division from 1993 to September 1997.
Ronald L. Sargent, age 42
Mr. Sargent has served as President, North American Operations since
October 1997. Prior to that he served in various capacities since joining
Staples in 1989, including President - Staples Contract & Commercial from
June 1994 to October 1997, and Vice President - Staples Direct and
Executive Vice President - Contract & Commercial from September 1991 until
June 1994.
Joseph S. Vassalluzzo, age 50
Mr. Vassalluzzo has served as President, Realty and Development since
October 1997. Prior to that he served in various capacities since joining
Staples in September 1989, including President - Staples Realty from
September 1996 to October 1997, Executive Vice President - Growth and
Development from November 1993 to September 1996, and Executive Vice
President - Growth and Support Services April 1993 until November 1993.
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 annually 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 Board of Directors has four standing committees: the Audit Committee,
the Compensation Committee, the Corporate Governance Committee and the Executive
Committee. Committee membership as of the record date was as follows:
Audit Committee Compensation Committee
--------------- ----------------------
Paul F. Walsh, Chairman Robert C. Nakasone, Chairman
Basil L. Anderson W. Lawrence Heisey
Mary Elizabeth Burton Martin Trust
Corporate Governance Committee Executive Committee
------------------------------ -------------------
Rowland T. Moriarty, Chairman Robert C. Nakasone
James L. Moody, Jr. W. Mitt Romney
W. Mitt Romney Thomas G. Stemberg
The Audit Committee provides the opportunity for direct contact between
Staples' independent auditors and the Board. This 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 five times during the fiscal year
ended January 31, 1998. Mr. Moody was a member of the Audit Committee until
August 1997. Mr. Anderson joined the Audit Committee in August 1997.
12
<PAGE>
The Compensation Committee 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 and
restricted stock grants under the 1992 Equity Incentive Plan and option grants
under the 1997 United Kingdom Company Share Option Scheme. The Compensation
Committee met four times during the fiscal year ended January 31, 1998.
The Corporate Governance Committee provides recommendations to the Board
regarding nominees for Director, membership on the Board committees, and
succession matters for the Chief Executive Officer. This 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 Corporate Governance Committee for consideration. The
Corporate Governance Committee met three times during the fiscal year ended
January 31, 1998. Leo Kahn, Chairman Emeritus, was a member of the Corporate
Governance Committee until August 1997. Mr. Moody joined the Corporate
Governance Committee in August 1997.
The Executive Committee of the Board of Directors is authorized, with
certain exceptions, to exercise all of the powers of the Board in the management
and affairs of Staples. It is intended that the Executive Committee shall take
action only when reasonably necessary to expedite Staples' interests between
regularly scheduled Board meetings. The Executive Committee met once during the
fiscal year ended January 31, 1998.
The Board of Directors met ten times during the fiscal year ended January
31, 1998. 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 a 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.
Accordingly, on August 26, 1997, Mr. Anderson was granted an option to purchase
15,000 shares of Common Stock at an exercise price of $16.13 per share (10,000
shares at an exercise price of $24.19 before adjustment for the January 30, 1998
stock split).
The Director Plan also provides for the annual grant of an option to
purchase 5,000 shares of Common Stock 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 January 31, 1998, on March 6, 1998 each of Ms.
Burton and Messrs. Heisey, Moody, Moriarty, Nakasone, Romney, Trust and Walsh
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 Director Plan are 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
13
<PAGE>
"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 Director of 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>
- -----------------------------------------------------------------------------------------------------------------
Long Term
Annual Compensation (1) Compensation
- -----------------------------------------------------------------------------------------------------------------
Common
Name and Fiscal Restricted Stock All Other
Principal Position Year Salary Bonus (2) Stock Awards Options Compensation
(#) (3) (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>
(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.
14
<PAGE>
(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, that is expected
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.
(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 next two to
five fiscal years. Staples' PARS that were issued in fiscal 1996 will vest as of
May 1, 1998 as a result of Staples exceeding such PARS's target EPS 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.
15
<PAGE>
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.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Individual Grants
- ----------------------------------------------------------------------------------------------------------------------
Percent of
Total Potential Realizable Value at
Options Assumed Annual Rates of Stock Price
Granted to Appreciation for Option Term (3)
Number Of Employees Exercise --------------------------------------
Options in Fiscal Price per Expiration
Name Granted (1) 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 8/28/07 $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 8/28/07 $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) All amounts reflect the three-for-two stock split effected on January 30,
1998. 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, that is expected
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.
(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.
16
<PAGE>
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 No. of Shares of Common
Shares of Stock Underlying Value of Unexercised
Common 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 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 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.
17
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Based solely on its review of copies of reports filed by persons
("Reporting Persons") required to file such reports pursuant to Section 16(a)
under the Exchange Act, Staples believes that all filings required to be made by
Reporting Persons of the Company were timely made in accordance with the
requirements of the Exchange Act.
Compensation Committee Interlocks and Insider Participation
Messrs. Heisey, Nakasone and Trust, all non-employee Directors of Staples,
served on the Compensation Committee for the entire fiscal year ended January
31, 1998.
Certain Transactions
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.
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 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
fiscal 1997 and forward 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.
The Committee's executive compensation philosophy is that a significant
portion of executive compensation should be tied directly to the performance of
Staples as a whole. The base salaries paid to executives are targeted by the
Committee to fall at or below the 40th percentile of the pay practices of
publicly traded companies in the retail industry (including companies in the
Standard & Poor's Retail Composite Index contained in the stock performance
graph on page 21), as determined by The Hay Group ("Hay"), an international
compensation and human resource consulting firm. The Committee seeks, however,
to provide its executives with opportunities for compensation substantially
higher than base salary through performance-based bonuses, stock options and
Performance Accelerated Restricted Stock ("PARS"). The Committee also believes
that bonus awards tied to achievement of pre-approved performance 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
continues to believe that a substantial portion of the compensation of Staples'
executives should be linked through Staples' stock
18
<PAGE>
option and PARS program to the success of Staples' stock in the marketplace.
Stock options and PARS further align the interests of management and
stockholders and assist in the retention of valued executives.
Status of the Executive Compensation Program
Based on information provided by Hay and consistent with Staples'
objectives and philosophy, the Committee targeted total annual compensation
(salary, cash bonus and stock) to fall above the median for total annual
compensation for similar positions in the group of retail companies used in the
Hay study.
o Salaries: The Compensation Committee targets base annual salary for
executive officers including the Senior Executives to be at the 40th
percentile of the annual base salary for comparable positions in the Hay
study group.
o Bonus: Each of Staples' executive officers, including the Senior
Executives, was eligible to participate in Staples' executive bonus plan in
fiscal 1997 (the "Bonus Plan"). The Bonus Plan provided for the payment of
a range of cash bonuses to executive officers based on "stretch" objectives
relating to company-wide earnings per share and customer service goals.
The earnings per share 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 1997. 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 Hay
comparison group.
For fiscal 1997, Staples met its earnings per share and customer service
budget amounts and exceeded stretch objectives for earnings per share.
o 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 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. In general, 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. In
addition, certain Senior Executives were granted special options in October
1997, vesting at the end of five years, in recognition of increased
responsibilities due to management restructuring.
o Performance Accelerated Restricted Stock (PARS): In order to maintain
Staples' high risk-high reward philosophy, to help retain key executives,
maintain a focus on stockholder returns and deliver the possibility of
total direct compensation above the median of the Hay comparison group, the
Committee has adopted the use of PARS for certain key management, including
its executive officers. 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
if Staples achieves certain pre-determined compound EPS growth over the
next two to five fiscal years. EPS growth targets are determined by the
Committee and approved by the Board of Directors each year for grants of
PARS in that year. Once the PARS have vested, they become "unrestricted"
and may be sold or transferred.
19
<PAGE>
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, that is expected to be
implemented during fiscal 1998.
Mr. Stemberg, Staples' Chief Executive Officer, is eligible to participate
in the same executive compensation program available to other Staples
executives, and his total annual compensation, including compensation derived
from Staples' bonus program and stock option/PARS program, was set by the
Committee in accordance with the same criteria. Mr. Stemberg's annual salary was
increased in fiscal 1997 from $450,000 to $600,000. Mr. Stemberg's annual salary
remained below the low end of the base salary range recommended by Hay for
Staples' Chief Executive Officer position and at the low end of the range of the
Hay comparison group. Under the Bonus Plan, Mr. Stemberg was paid a bonus of
$446,172 placing his total cash compensation below the median of the Hay
comparison group. In fiscal 1997, the Committee granted Mr. Stemberg 55,000 PARS
(82,500 after adjustment for the January 30, 1998 stock split) and options to
purchase 160,000 shares (240,000 after adjustment for the January 30, 1998 stock
split) of Common Stock. These grants were valued and based on the same factors
the Committee considered in fixing the size of other executive PARS and stock
option grants. Using the Hay valuation for options, total annual compensation to
Mr. Stemberg in fiscal 1997 placed him above the median of the Hay comparison
group.
Tax Considerations
Under Section 162(m) of 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 for fiscal 1998 and
thereafter. The Committee intends to structure its bonus plan for executive
officers to comply with Section 162(m) and has adopted such a performance based
plan - the Executive Officer Incentive Plan - which is being submitted for
stockholder approval (see page 4). The Company's stock option plans are
performance based, and accordingly, comply with Section 162(m). Finally, while
the Company's PARS program has a significant performance component, it cannot be
qualified under 162(m) without compromising valuable executive incentives which
the Committee believes outweigh any tax benefit to the Company.
Compensation Committee: Robert C. Nakasone, Chairman
W. Lawrence Heisey
Martin Trust
20
<PAGE>
Stock Performance Graph
The following graph compares the cumulative total stockholder return on the
Common Stock of Staples between January 30, 1993 and January 31, 1998 (the end
of fiscal 1997) 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 30, 1993 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 January 29, 1994, January 28, 1995, February 3, 1996,
February 1, 1997 and January 31, 1998 (Staples' last five fiscal year ends).
[LINE CHART]
TOTAL RETURN TO STOCKHOLDERS
Dividends Reinvested
<TABLE>
<CAPTION>
30-Jan-93 29-Jan-94 28-Jan-95 3-Feb-96 1-Feb-97 31-Jan-98
--------- --------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
SPLS 100.00 107.12 141.74 223.56 269.59 358.36
S&P Retail Composite 100.00 93.05 86.25 92.20 106.88 118.19
S&P 500 100.00 109.10 107.20 144.91 179.17 182.32
</TABLE>
[/LINE CHART]
21
<PAGE>
STAPLES, INC.
P P
R Proxy for the Annual Meeting of Stockholders to be held R
O on June 4, 1998 O
X X
Y THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS Y
OF THE COMPANY
The undersigned, revoking all prior proxies, hereby appoint(s) Thomas G.
Stemberg, John J. Mahoney 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 Fleet Bank, 8th Floor
Conference Center, 75 State Street, Boston, Massachusetts, on Thursday, June 4,
1998 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, 2, 3 and 4. 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, 2, 3 and 4.
1. To elect W. Lawrence Heisey, James L. Moody, Jr., Martin Trust and Paul F.
Walsh as Class 1 Directors (except as marked below).
FOR WITHHELD
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| | | |
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For all nominees except as noted above
2. To approve the Company's 1998 Employee Stock Purchase Plan.
FOR AGAINST ABSTAIN
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| | | | | |
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3. To approve the Company's Executive Officer Incentive 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
|-----| |-----| |-----|
| | | | | |
|-----| |-----| |-----|
MARK HERE IF YOU PLAN TO ATTEND THE MEETING |-----|
| |
|-----|
<PAGE>
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: __________________________
STAPLES, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
MARCH 6, 1998
The purpose of this Plan is to provide eligible employees of Staples, Inc.
(the "Company") and certain of its subsidiaries with opportunities to purchase
shares of the Company's common stock, $.0006 par value (the "Common Stock"),
commencing on November 1, 1998. Four Million (4,000,000) shares of Common Stock
in the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
a. they are customarily employed by the Company or a Designated Subsidiary
for more than 20 hours a week and for more than five months in a
calendar year; and
b. they have been employed by the Company or a Designated Subsidiary for at
least three (3) months prior to enrolling in the Plan; and
c. they are employees of the Company or a Designated Subsidiary on the
first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the employee has a contractual right to purchase shall be treated as
stock owned by the employee.
<PAGE>
3. Offerings. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. The first Offering will begin on
November 1, 1998, or the first business day thereafter (the "Offering
Commencement Dates") and end on June 30, 1999. Thereafter, each July 1 and
January 1 or the first business day thereafter will be an Offering Commencement
Date. Each Offering Commencement Date will begin a period (a "Plan Period")
during which payroll deductions will be made and held for the purchase of Common
Stock at the end of the Plan Period. The first Plan Period will be eight (8)
months and thereafter each Plan Period will be six (6) months. The Board or the
Committee may, at its discretion, choose a different Plan Period of twelve (12)
months or less for subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement Date of
any Offering may participate in such Offering by enrolling at least fourteen
(14) days prior to the applicable Offering Commencement Date in said Offering in
such manner and at such time as the Committee shall approve. The enrollment will
authorize a regular payroll deduction from the Compensation received by the
employee during the Plan Period. Unless an employee changes his enrollment in a
manner prescribed by the Committee from time to time or withdraws from the Plan,
his deductions and purchases will continue at the same rate for future Offerings
under the Plan as long as the Plan remains in effect. The term "Compensation"
shall mean regular earnings and sales rewards or other sales-related payments
made to sales associates in lieu of commissions, and excluding payments for
overtime, incentive compensation, shift premiums, bonuses, contributions to all
employee fringe benefits plans (except employee contributions in lieu of cash
earnings pursuant to any "cash or deferred plan" or "cafeteria plan"),
allowances and reimbursements, income or gains on the exercise of Company stock
options or stock appreciation rights, and other special payments except to the
extent that the inclusion of any such item is specifically approved by the
Board.
5. Deductions. The Company will maintain payroll deduction accounts for all
participating employees. With respect to any Offering made under this Plan, an
employee may authorize a payroll deduction in any dollar amount up to a maximum
of ten percent (10%) of the Compensation he or she receives during the Plan
Period or such shorter period during which deductions from payroll are made.
Payroll deductions may be made in any whole percentage up to ten percent (10%).
Any change in compensation during the Plan Period will result in an automatic
corresponding change in the dollar amount withheld.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such
2
<PAGE>
Common Stock (determined at the Offering Commencement Date of the Plan Period)
for each calendar year in which the Option is outstanding at any time.
6. Deduction Changes. An employee may discontinue his payroll deduction
once during any Plan Period, up to fifteen (15) days prior to the close of
business on the last business day, in such manner permitted by the Board or
Committee. However, an employee may not increase or decrease his payroll
deduction during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, amounts previously withheld will be refunded to
the employee without interest.
7. Interest. Interest will not be paid on any employee accounts.
8. Withdrawal of Funds. An employee may at any time up to fifteen (15) days
prior to the close of business on the last business day in a Plan Period and for
any reason permanently draw out the balance accumulated in the employee's
account and thereby withdraw from participation in an Offering. Partial
withdrawals are not permitted. The employee may not begin participation again
during the remainder of the Plan Period. The employee may participate in any
subsequent Offering in accordance with terms and conditions established by the
Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of shares of Common Stock of the Company as
does not exceed the number of shares determined by dividing $12,500 by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period.
The purchase price for each share purchased will be 85% of the Fair Market
Value of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever Fair Market Value shall be less. Such Fair
Market Value shall be (a) the mean between the highest and lowest selling price
on any national securities exchange on which the Common Stock is listed, (b) the
mean between the highest and lowest selling price of the Common Stock on the
Nasdaq National Market or (c) the average of the mean between the highest
reported bid price and the lowest reported asked price in the
over-the-counter-market, whichever is applicable, as published in The Wall
Street Journal. If no sales of Common Stock were made on such a day, the Fair
Market Value of the Common Stock for purposes of clauses (a) and (b) above shall
be based on the reported prices for the next preceding day on which sales were
made.
Each employee who continues to be a participant in the Plan on the Exercise
Date shall be deemed to have exercised his Option at the Option Price on such
date and shall be deemed to have purchased from the Company the number of shares
of Common
3
<PAGE>
Stock (including fractional shares calculated up to 4 decimal places) reserved
for the purpose of the Plan that his accumulated payroll deductions on such date
will pay for, but not in excess of the maximum number determined in the manner
set forth above.
Any balance remaining in an employee's payroll deduction account at the end
of a Plan Period will be automatically refunded to the employee.
10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the employee or
in the name of the Plan with appropriate allocation to the participating
employee. The Company may, in its sole discretion and in compliance with
applicable laws, authorize the use of book entry registration of shares in lieu
of issuing stock certificates.
11. Rights on Retirement, Death or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him or to an account for
his benefit.
13. Rights Not Transferable. Rights under this Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
4
<PAGE>
15. Adjustment in Case of Changes Affecting Common Stock. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for this Plan, and the share
limitation set forth in Section 9, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
16. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of such shares of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, (a) subject to the provisions of
clauses (b) and (c), after the effective date of such transaction, each holder
of an outstanding Option shall be entitled, upon exercise of such Option, to
receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of such transaction; or (b) all outstanding Options may be cancelled by
the Board or the Committee as of a date prior to the effective date of any such
transaction and all payroll deductions shall be paid out to the participating
employees; or (c) all outstanding Options may be cancelled by the Board or the
Committee as of the effective date of any such transaction, provided that notice
of such cancellation shall be given to each holder of an Option, and each holder
of an Option shall have the right to exercise such Option in full based on
payroll deductions then credited to his account as of a date determined by the
Board or the Committee, which date shall not be less than ten (10) days
preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code,
5
<PAGE>
such amendment shall not be effected without such approval, and (b) in no event
may any amendment be made which would cause the Plan to fail to comply with
Section 423 of the Code.
18. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by the
Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
21. Governing Law. The Plan shall be governed by Massachusetts law except
to the extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering the
Plan, to promptly give the Company notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
24. Effective Date and Approval of Shareholders. The Plan shall take effect
on November 1, 1998 subject to approval by the shareholders of the Company as
required
6
<PAGE>
by Section 423 of the Code, which approval must occur within twelve months of
the adoption of the Plan by the Board.
Adopted by the Board of Directors
on March 6, 1998
Approved by the stockholders on ______________, 199_
7
STAPLES, INC.
EXECUTIVE OFFICER INCENTIVE PLAN
PURPOSE:
Staples believes in providing incentives to attract, retain and reward Executive
Officers who are responsible for providing leadership to the company in
attaining established business objectives.
The purpose of the Executive Officer Incentive Plan is to:
o Align the interests of Executive Officers with those of our shareholders.
o Maintain a total compensation program which motivates and rewards high
levels of performance.
o Recognize and reward efforts and contributions made to the company's
success.
ELIGIBILITY:
The Chief Executive Officer and Executive Officers are eligible for
participation based on the following criteria:
o Active employment in an eligible position during the Plan Year;
o Officers who transfer into or out of an eligible position during the Plan
Year will receive a prorated incentive award based on the number of weeks
employed in an incentive eligible position in the Plan Year;
o Officers who retire or leave employment due to death or permanent
disability will receive a prorated incentive award based on the number of
weeks of active employment in the Plan Year;
o Officers who are on sick leave in excess of four weeks are not eligible
for an incentive award for the duration of the illness unless otherwise
approved by the Compensation Committee;
o Officers who terminate for any reason other than permanent disability,
death or retirement prior to the end of the Plan Year are not eligible to
receive an award for that Plan Year, unless deemed otherwise by the
Compensation Committee.
PROVISIONS:
Participants will have an assigned cash bonus award target equal to a specific
percentage of salary earned during the Plan Year. For this purpose, salary is
defined as the base pay an individual earns during the Plan Year. The percentage
of participation for each position is to be determined based on job level and
position responsibilities. The maximum that may be paid in any single year to
any officer is $2,000,000.
<PAGE>
OPERATION:
All bonus amounts payable shall be based solely upon the achievement of specific
performance targets based on one or more of the following criteria:
o sales
o earnings per share
o return on net assets
o return on equity
o customer service levels
The specifics of the Plan and the specific performance targets within each of
the above criteria will be established within 90 days after the beginning of the
respective Plan Year by the Compensation Committee. It is anticipated that the
Plan Year shall coincide with the Company's fiscal year.
Incentive compensation will be computed on the results of the operation for the
Plan Year. It is the intention that all incentive payments will be paid within
90 days after the respective Plan Year.
"Earnings per share" shall mean earnings per share as set forth in
financial statements as contained in the Company's Form 10-K, adjusted to
eliminate any special, one time or extraordinary charge or item unless
otherwise determined by the Compensation Committee.
"Customer Service" shall be the result of customer service surveys and
criteria as established for the Company's business units or divisions,
weighted based on sales.
GENERAL
Bonus awards are not earned or vested until the end of the Plan Year.
The Compensation Committee of the Board shall be solely responsible for
interpreting the provisions of the Plan, including determining to what extent,
if any, specific items are to be counted in the relevant award for any officer.
Bonus awards shall be paid only after the Compensation Committee certifies in
written minutes that the performance targets have been attained for such award
but will not exceed the maximum specified award.
The Plan is subject to applicable government and economic controls in effect
during its operation and, therefore, payments may be subject to limitations.
The Plan is not considered to be a part of an employment agreement nor an
agreement on the part of management of the Company for such employment.
Any exceptions to the Plan must be approved in writing by the Compensation
Committee. Staples, Inc. reserves the right at any time prior to the end of the
Plan Year to amend, terminate and/or discontinue the Plan in whole or in part
whenever it is considered necessary; provided that no amendment shall increase
the amount of compensation otherwise payable under the terms of a granted award
upon the attainment of a performance goal and that no amendment will be
effective without shareholder approval if such approval is required to comply
with the provisions of ss.162(m) of the Internal Revenue Code.
SPLS-PS-98
