<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
OFFICE DEPOT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
OFFICE DEPOT, INC.
2200 OLD GERMANTOWN ROAD
DELRAY BEACH, FLORIDA 33445
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
To Our Stockholders:
The following are the essential facts in the call of the Annual Meeting of
Stockholders of Office Depot, Inc.
<TABLE>
<S> <C>
LOCATION..................................... The Boca Raton Resort and Club
501 East Camino Real
Boca Raton, FL 33431
TIME......................................... 10:00 a.m. E.D.T.
DATE......................................... Wednesday, April 21, 1999
ITEMS OF BUSINESS TO BE
ADDRESSED.................................. 1. To elect twelve directors to hold office until the
next annual meeting of stockholders or until their
successors have been elected and qualified;
2. To consider the adoption of the 1999 Employee
Stock Purchase Plan for the Company.
3. To ratify the appointment of Deloitte & Touche LLP
as independent public accountants for the fiscal
year ending December 25, 1999; and
4. To transact any other business that may properly
come before the meeting.
RECORD DATE.................................. Stockholders of record as of the close of business on
March 5, 1999 are entitled to notice of and to vote at
the annual meeting of stockholders or any adjournment
thereof.
ANNUAL REPORT................................ The Company's 1998 Annual Report, which is not part of
the proxy soliciting material, is enclosed.
</TABLE>
By order of the Board of Directors,
/s/ David C. Fannin
David C. Fannin
Senior Vice President, General Counsel
& Corporate Secretary
March 19, 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING REGARDLESS OF
THE NUMBER YOU OWN. EVEN IF YOU PLAN TO ATTEND THE MEETING, PLEASE PROMPTLY SIGN
AND RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE OR VOTE YOUR SHARES
ELECTRONICALLY BY MEANS OF TOUCH-TONE TELEPHONE OR VIA THE INTERNET AS EXPLAINED
ON THE PROXY CARD.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PROXY STATEMENT & VOTING.................................... 1
Date of Mailing........................................ 1
The Purpose of this Proxy Statement -- Recommendations
by the Board of Directors............................. 1
Voting Your Shares by Proxy............................ 1
If you Decide to Change or Revoke Your Proxy........... 2
How is Office Depot Soliciting Proxies?................ 2
Who is Entitled to Vote?............................... 2
What Constitutes a Quorum?............................. 3
What is the Effect of My Abstaining from Voting on any
Matter?............................................... 3
ELECTION OF DIRECTORS -- ITEM 1............................. 4
1999 EMPLOYEE STOCK PURCHASE PLAN -- ITEM 2................. 5-8
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS -- ITEM
3......................................................... 9
STOCK OWNERSHIP............................................. 10-13
DIRECTORS & MANAGEMENT...................................... 14-19
Directors and Executive Officers....................... 14-17
Board Committees....................................... 18-19
Audit Committee........................................ 18
Compensation Committee................................. 18
Governance & Nominating Committee...................... 18
Compensation of Directors.............................. 19
Section 16 Officers Filing Late........................ 19
EXECUTIVE COMPENSATION...................................... 20-32
Compensation Table..................................... 20-21
Option/SAR Grant and Exercise Tables................... 21-23
Employment Agreement With Mr. Fuente................... 23-27
Employment Agreement and Change in Control Agreement
With Mr. Helford...................................... 27-28
Employment Agreements With Other Named Executive
Officers.............................................. 28-30
Change in Control Agreements........................... 30-31
Change in Control Agreement with Mr. Nelson............ 31-32
DISCUSSION OF 1999 AMENDMENTS TO THE LONG
TERM EQUITY INCENTIVE PLAN................................ 32-35
COMPENSATION COMMITTEE INTERLOCKS........................... 35
COMPENSATION COMMITTEE REPORT ON 1998 COMPENSATION.......... 36-39
PERFORMANCE GRAPH........................................... 40
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 40
OBTAINING COPIES OF 10-K.................................... 41
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING IN 2000............ 41
OTHER MATTERS............................................... 41
</TABLE>
i
<PAGE> 4
PROXY STATEMENT
1999 ANNUAL MEETING OF STOCKHOLDERS
OF
OFFICE DEPOT, INC.
2200 OLD GERMANTOWN ROAD
DELRAY BEACH, FLORIDA 33445
TELEPHONE (561) 438-4800
This Proxy Statement contains important information about the 1999 Annual
Meeting of the Stockholders of Office Depot, Inc. ("Office Depot" or the
"Company"). This meeting (herein the "Annual Meeting" or the "Meeting") will be
held on April 21, 1999, at 10:00 a.m. EDT, at The Boca Raton Resort and Club,
501 East Camino Real, Boca Raton, Florida 33431. If the Annual Meeting should be
adjourned to another time or place, this Proxy Statement will also apply to the
resumption of the Meeting at that new time and place.
DATE OF MAILING
This Proxy Statement and the accompanying proxy card are being sent to the
Company's stockholders on or about March 19, 1999.
THE PURPOSE OF THIS PROXY STATEMENT -- RECOMMENDATIONS BY THE BOARD OF DIRECTORS
This Proxy Statement is a solicitation of proxies by the Board of Directors
(the "Board") of the Company. The Board asks you to authorize the proxies
appointed by the Board to vote in favor of: (1) the election of twelve directors
to the Board; (2) the adoption of the 1999 Employee Stock Purchase Plan for the
Company; (3) ratifying the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending December 25, 1999; and
(4) transacting any other business that may come before the meeting.
VOTING YOUR SHARES BY PROXY
You may vote your shares by signing and returning your proxy card to the
Company. In addition to the traditional proxy card, this year you will be able
to vote your shares electronically over the Internet or by using a touch tone
telephone. Information on this method of voting is set forth on the enclosed
proxy card. If your shares are held in "street name" with a broker or similar
party, you will need to contact your broker to determine whether you will be
able to vote electronically over the Internet or by telephone.
The proxies will vote your shares in accordance with the instructions you
provide on your proxy card or in accordance with your vote by telephone or via
the Internet. If you authorize the proxies to vote your shares but do NOT
specify how your shares should be voted, then your shares will be voted: (1) FOR
the election of all director nominees specified in this Proxy Statement; (2) FOR
the adoption of the 1999 Employee Stock Purchase Plan for the Company and (3)
FOR the ratification of the appointment of Deloitte & Touche LLP as independent
public accountants for the fiscal year ending December 25, 1999.
<PAGE> 5
The Company does not know of any matters other than those discussed in this
Proxy Statement that will be presented at the Annual Meeting. However, if any
other matters are presented at the meeting, the proxy for your shares will be
voted in accordance with the recommendations of the Company's management unless
you withhold authority to vote on any other such matters.
IF YOU DECIDE TO CHANGE YOUR PROXY OR REVOKE IT
After voting by proxy (whether using the proxy card or voting by touch-tone
telephone or via the Internet), you may revoke your proxy at any time prior to
the voting of shares in one of two ways: (1) You may write to the Corporate
Secretary of the Company prior to the Annual Meeting (in time for the written
communication to reach the Secretary) and tell him in writing that you wish to
revoke your proxy, or (2) alternatively, you may revoke your proxy by attending
the Annual Meeting, informing the Secretary or his designee prior to the voting
of shares at the Annual Meeting that you wish to revoke your proxy and then
voting by ballot at the meeting.
HOW IS OFFICE DEPOT SOLICITING PROXIES?
Proxies are being solicited initially by mail. The Company, through its
officers and employees, may also solicit proxies in person or by telephone or by
means of the Internet. No Company employees will receive additional compensation
for their services in soliciting proxies. In addition, certain banking
institutions, brokerage firms, custodians, trustees, nominees and fiduciaries
who hold shares for the benefit of some other party (the "beneficial owner") may
solicit proxies. If so, they will mail proxy information to, or otherwise
communicate with, the beneficial owners of shares of the Company's Common Stock
held by them. The Company has also hired Corporate Investor Communications, Inc.
to assist in communicating with these institutions and forwarding to them
solicitation materials. The Company will pay Corporate Investor Communications,
Inc. a fee of $6,000 plus the reimbursement of that company's reasonable out of
pocket expenses in connection with this service. The Company also will pay all
other expenses of solicitation of proxies.
WHO IS ENTITLED TO VOTE?
Only persons who own shares of Office Depot's Common Stock as of the close
of business on March 5, 1999 (the "Record Date"), as shown on the official stock
ownership records of the Company, will be entitled to vote at the Annual
Meeting. Office Depot's official records of stock ownership will conclusively
determine whether you are a "holder of record" as of such date and time. As of
March 5, 1999, there were 248,983,334 shares of Common Stock issued by Office
Depot and owned by stockholders. This number does not reflect a three for two
share split approved by the Company's Board of Directors on February 24, 1999,
payable April 1, 1999 to holders of record on March 11, 1999. All voting at the
Annual Meeting will be on the basis of shares outstanding on the record date of
March 5, 1999, and all stockholders will be entitled to vote only the number of
shares held by them on March 5, 1999.
2
<PAGE> 6
WHAT CONSTITUTES A QUORUM?
In order to transact business at the Annual Meeting, a "quorum" of the
stockholders must be present. The presence at the Annual Meeting of Stockholders
who own a majority (i.e. more than 50%) of the shares of Common Stock
outstanding will constitute a quorum for the transaction of business.
Stockholders will be counted as "present" at the meeting if they attend in
person, if they have properly voted by means of the Internet or by the
telephonic means described on the proxy card, or if they have sent to the
Company a properly signed proxy card. Each share of Common Stock is entitled to
one vote on each matter to come before the Annual Meeting (i.e., "one share, one
vote").
WHAT IS THE EFFECT OF MY ABSTAINING FROM VOTING ON ANY MATTER?
Office Depot is a Delaware corporation. Delaware corporation law states
that if a stockholder chooses to abstain from voting, such stockholder will
still be treated as present and entitled to vote for purposes of determining
whether a quorum is present. In other words, those shares will be counted in
determining whether a majority -- more than 50% -- of the Company's shares are
considered "present" at the meeting, therefore constituting a quorum. As a
result, if you complete your proxy card but abstain from voting on any matter,
you will be considered present for purposes of determining whether a quorum is
established.
Abstentions will not be counted as a vote "for" or "against" any matter.
However, shares which abstain from voting will have the same effect as voting no
or against any matter voted on at the meeting which requires the affirmative
vote of a majority of the shares present and voting. Delaware corporation law
also provides that broker non-votes will be considered as shares present at the
meeting for purposes of establishing a quorum. A broker non-vote on a matter
will only count in determining whether there is a quorum present at the meeting.
Like abstentions, broker non-votes will not be counted in determining whether a
matter has been approved by a majority of the shares present at the meeting or
whether a plurality of the vote of the shares present and entitled to vote has
been cast.
3
<PAGE> 7
ELECTION OF DIRECTORS -- ITEM 1
The Governance & Nominating Committee of the Board has recommended to the
Board, and the Board has nominated the following twelve persons for election to
the Board at the Annual Meeting. Their names are set out below. Information
about these persons, their business experience and other relevant information
may be found on pages 14 through 16 of this Proxy Statement:
<TABLE>
<S> <C> <C>
David I. Fuente Cynthia R. Cohen Michael J. Myers
Irwin Helford W. Scott Hedrick M. Bruce Nelson
Lee A. Ault III James L. Heskett Frank P. Scruggs, Jr.
Neil R. Austrian John C. Macatee Peter J. Solomon
</TABLE>
WHAT VOTE IS REQUIRED TO ELECT DIRECTORS?
Directors are elected by a plurality of the votes cast at the meeting
either in person or by proxy. The twelve nominees for Directors who receive the
highest number of votes cast at the meeting will be elected to the Board.
TERMS OF OFFICE OF DIRECTORS ELECTED AT THE ANNUAL MEETING
Directors who are elected at the Annual Meeting will serve for a term of
office that continues from the date and time of their election until the next
Annual Meeting of Stockholders or until their successors are elected and
qualified. Generally that term will be approximately twelve months.
WHAT HAPPENS IF A NOMINEE CANNOT SERVE?
The persons who have been nominated for election as Directors have told
Office Depot that they are willing to be elected and to serve as Directors of
the Company. If any of these nominees should become unable to serve, or
otherwise should become unavailable for election (for example, if any of them
should become ill or incapacitated or should die), the current members of the
Board of Directors (by majority vote) may name another person as a substitute
nominee. If a substitute nominee is named by a majority vote of the current
members of the Board, all proxies will be voted for the person so named (unless
you specify on your proxy card to withhold voting for such person). The current
Board is not required to name a substitute nominee. If a substitute nominee is
not named by the current Board, then all proxies will be voted for the election
of the remaining nominees (or as directed on your proxy card). In no event will
more than twelve Directors be elected at the Annual Meeting.
YOUR BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR ELECTION OF ALL NOMINEES AS DIRECTORS
4
<PAGE> 8
ADOPTION OF THE 1999 EMPLOYEE STOCK PURCHASE
PLAN FOR THE COMPANY -- ITEM 2
APPROVAL OF ADOPTION OF A NEW EMPLOYEE STOCK PURCHASE PLAN
On February 24, 1999, the Board adopted the Office Depot, Inc. 1999
Employee Stock Purchase Plan (the "1999 Plan" or the "Plan"), subject to
stockholder approval. The Board determined that adoption of a new plan is
necessary because the authorized shares under the Office Depot, Inc. 1989
Employee Stock Purchase Plan (the "1989 Plan") have been depleted, and it is
desirable to continue to provide the opportunity for employee ownership of the
capital stock of the Company in order to attract, motivate and retain qualified
employees. Furthermore, as a result of simplification of Securities and Exchange
Commission rules, it is now feasible to permit participation by certain officers
of the Company who were excluded from the 1989 Plan, and the Board determined it
to be appropriate to permit such employees to participate in the Plan.
In addition, as a result of the merger with Viking Office Products, Inc.
("Viking") in August 1998, participants in the Viking Office Products, Inc. 1994
Employee Stock Purchase Plan (the "Viking Plan") will participate in the Plan,
and the Board determined that it is appropriate to make modifications to the
Plan to provide a discount to participants that is equivalent to the discount
provided under the Viking Plan. Under the 1989 Plan, stock was purchased at a
10% discount; under the 1999 Plan, purchases receive the maximum 15% discount
permitted under Section 423 of the Internal Revenue Code of 1986, as Amended
(the "Code").
The Board of Directors also determined it desirable to increase the maximum
amount of payroll deductions and to permit the purchase of more shares of Common
Stock of the Company. This increase incorporates both the terms of the Viking
Plan and new participation by Office Depot officers previously excluded from
participation. The Plan will permit payroll deductions of up to $400.00 per
week, as contrasted with $100.00 per week under the 1989 Plan.
Other provisions in the Plan have been adopted to facilitate administration
and compliance under Code Section 423. Under the 1989 Plan, purchases were made
on a monthly basis at an average of the closing price on the first day of the
month and the closing price on the last day of the month. Under the Plan,
purchases will be made on a bi-weekly basis, based on the average of the high
and low price on the purchase date. A total of 1,125,000 shares of Common Stock
of the Company were authorized by the Board for purchase under the Plan. This
number reflects the Board's decision, also made at the February 24, 1999
meeting, to effect a three for two split of the Company's stock by means of a
50% stock dividend payable on April 1, 1999 to stockholders of record on March
11, 1999.
5
<PAGE> 9
The following is a summary of the terms of the Plan, which is qualified in
its entirety by reference to the Plan document, a copy of which is attached as
Appendix A to this Proxy Statement.
GENERAL
The Plan, which will become effective July 1, 1999 (assuming the
stockholders approve the 1999 Plan at the Annual Meeting), provides for the
purchase through payroll deductions of Common Stock by employees of the Company
who elect to participate. The Plan replaces the 1989 Plan and the Viking Plan,
and no further shares will be purchased under the 1989 Plan after July 1, 1999,
or under the Viking Plan after the September 30, 1999 purchase date. Between the
date hereof and July 1, 1999, the Company will continue to allow participants in
the 1989 Plan to purchase shares, utilizing if necessary a portion of the
1,125,000 shares authorized for the 1999 Plan (again, subject to stockholder
approval of the Plan at the 1999 Annual Meeting). The purpose of the Plan is to
benefit the Company and its employees by increasing employee ownership of the
Company through a plan that affords a discounted purchase price and deferral of
income tax to employees. The Plan has the added benefit of aligning the
interests of participating employees with the interests of the Company's
stockholders. The Plan is administered by the Compensation Committee of the
Board of Directors. The recipients, amounts and values of future benefits are
subject to the individual elections of employees and are therefore not
determinable at this time.
The shares of Common Stock reserved for issuance pursuant to the Plan are
subject to adjustment in the event of a reorganization, stock split, stock
dividend or similar change in the corporate structure of the Company or the
outstanding shares of Common Stock. Such shares may be, in whole or in part,
authorized and unissued or reacquired and held as treasury shares. As of March
5, 1999, the closing price of the Common Stock as reported on the New York Stock
Exchange was $34.6875 per share.
TERMS OF THE 1999 PLAN
Eligibility. Employees of the Company and its subsidiaries who have been
employed for at least ninety (90) days, except for any person who owns 5% or
more of the outstanding Common Stock of the Company, are eligible to participate
in the Plan. As of July 1, 1999, approximately 35,000 employees are expected to
be eligible to participate in the Plan. When employees currently in the Viking
Plan become eligible to participate as of October 1, 1999, approximately 1,800
additional employees will be eligible to participate in the Plan.
Election to Participate and Payroll Deductions. Participants can elect to
deduct, on an after tax basis, a minimum of $3.00 per week and a maximum of
$400.00 per week from their paychecks for the purpose of purchasing shares under
the Plan. Elections are made through written election forms which become
effective for the next and all succeeding payroll periods until changed or
revoked by the participant.
Purchase of Common Stock. On the last Friday of each two-week period,
participants are deemed to receive and to exercise an option to purchase shares
of Common Stock of the Company, and the appropriate number of shares are
allocated to the account of each participating employee. The number of
6
<PAGE> 10
shares allocated to each participant is the number of full and fractional shares
that can be purchased with the payroll deductions elected by such participant
for that payroll period. The purchase price for the shares purchased under the
Plan is 85% of the fair market value on the date of purchase, which is the
average of the high and low sale prices on the date of purchase.
Transferability. The right to purchase shares under the Plan may not be
transferred to or exercised by any person other than the participant. Once
shares have been purchased and certificates issued to the participating
employee, they may be transferred in the same manner as other shares of Common
Stock of the Company held by the employee.
Amendment and Termination of the Plan. The Plan may be amended or
terminated by the Board at any time, but no amendment will be made that will
increase the persons authorized to participate in the Plan or increase the
aggregate number of shares available for purchase under the Plan without
approval of the Company's stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a general summary of certain
of the federal income tax consequences arising from the purchase of Common Stock
pursuant to the Plan and the subsequent disposition of such Common Stock.
Federal income tax consequences will vary as a result of individual
circumstances. Moreover, the following summary relates only to U.S. federal
income tax treatment. State, local and foreign tax consequences may be
substantially different than the federal income tax consequences described
herein.
Grant and Purchase. Under applicable provisions of the Code, participants
are taxed on all compensation, including the amount of payroll deductions used
to purchase shares. However, participants will recognize no additional
compensation income upon being granted a right to purchase shares. Furthermore,
assuming that the Plan qualifies under Code Section 423, participants will not
recognize taxable income upon purchase of shares, even though they will pay less
than fair market value for their shares. The Company will not be entitled to a
deduction for tax purposes as a result of granting rights to purchase plan
shares or as a result of participants purchasing shares.
Sale of Common Stock. Assuming the plan qualifies under Code Section 423,
the tax treatment of a participant who sells shares purchased under the Plan
depends on how long the participant holds the shares. If a participant sells
shares in a qualifying disposition (a sale two years or more after the purchase
date), for a price in excess of the purchase price, the participant will
recognize ordinary income equal to the lesser of the excess of (i) the fair
market value of the shares on the date of purchase over the purchase price and
(ii) the amount realized on the sale over the purchase price. Any additional
gain will be taxed as capital gain. In the case of a qualifying disposition, the
Company will not be entitled to any deduction as the result of such sale.
If a participant sells within two years after purchase of the shares, it is
deemed to be a disqualifying disposition. In such a case, a participant will be
taxed on the full value of the 15% discount at ordinary income tax rates, even
if the shares are actually sold for less than the fair market value on the
purchase date. If the shares are sold for less than fair market value on the
purchase date, the participant can claim a capital loss for the decline in
value. In the case of a disqualifying disposition, the Company will be
7
<PAGE> 11
entitled to a deduction equal to the amount the employee reports as ordinary
income, to the extent the Company can ascertain whether participants have made
disqualifying dispositions of shares.
APPROVAL REQUIRED
The affirmative vote of a majority of the votes cast by the holders of
shares of Common Stock represented in person or by proxy at the meeting is
required for approval of the adoption of the 1999 Plan. Approval of the Plan by
the stockholders is required in order for the Plan to be qualified under Section
423 of the Code.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE ADOPTION OF THE 1999 PLAN
8
<PAGE> 12
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC
ACCOUNTANTS -- ITEM 3
INFORMATION ABOUT THE AUDITORS
The Board has appointed the certified public accounting firm of Deloitte &
Touche LLP as independent accountants to audit the Company's consolidated
financial statements for the fiscal year ending December 25, 1999. Deloitte &
Touche LLP has audited the consolidated financial statements of the Company each
year since 1990. Representatives of Deloitte & Touche LLP will be present at the
Annual Meeting with the opportunity to make a statement if they desire to do so,
and they will be available to respond to appropriate questions from
stockholders. The Board of Directors requests that the stockholders ratify
(i.e., approve) the appointment of Deloitte & Touche LLP as the Company's
outside auditors. If the stockholders do not ratify the appointment of Deloitte
& Touche LLP, the Board will select other independent accountants to serve as
the Company's outside auditors.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS
9
<PAGE> 13
STOCK OWNERSHIP
The stock ownership table set forth below contains certain information
about large stockholders of the Company as well as information regarding stock
ownership by the Company's directors and executive officers as of March 5, 1999.
WHO ARE THE COMPANY'S LARGEST STOCKHOLDERS?
The table on page 11 includes information on each stockholder the Company
knows to be the "beneficial" owner of more than five percent (5%) of the
Company's Common Stock outstanding. A beneficial owner is the person or entity
entitled to the rights and benefits associated with ownership of the stock,
whether or not that person actually holds legal title. For example, a person who
holds shares in "street name" with a broker is the beneficial owner, even though
the broker may hold actual legal title.
HOW MUCH STOCK DO THE COMPANY'S DIRECTORS AND SENIOR EXECUTIVES OWN?
The table also includes information on the stock ownership of each director
of the Company, each of the Named Executive Officers of the Company and all
executive officers and directors of the Company as a group.
WHO ARE THE NAMED EXECUTIVE OFFICERS?
The "Named Executive Officers" are the Company's Chief Executive Officer
and the four other most highly compensated executive officers of the Company as
of the end of the Company's 1998 fiscal year.
If a person or entity listed in the table below is the beneficial owner of
less than one percent of the Company's Common Stock outstanding, this fact is
indicated by an asterisk in the table. Except as otherwise noted below, each of
the persons or entities named in the following table has the sole voting and
investment power with respect to all shares of Common Stock of which such person
or entity is the beneficial owner. The address of each of the persons or
entities named in the table below is based on information furnished to the
Company by such person or entity and is such person or entity's business
address. In determining the information to include in this table, the Company
has disregarded, and therefore not listed, shares reserved for issuance under
outstanding stock options except where otherwise indicated.
10
<PAGE> 14
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS
NAME OF INDIVIDUAL OR GROUP BENEFICIALLY OWNED(1) OUTSTANDING(2)
- --------------------------- --------------------- ----------------
<S> <C> <C>
(5% OR GREATER HOLDERS)
Putnam Investments, Inc.(3) 21,257,889 8.8%
One Post Office Square
Boston, Massachusetts 02109
Massachusetts Financial Services Company(4) 20,274,282 8.3%
500 Boylston Street
Boston, Massachusetts 02116
FMR Corp.(5) 16,981,050 6.9%
82 Devonshire Street
Boston, Massachusetts 02109
(DIRECTORS & EXECUTIVE OFFICERS)
Lee A. Ault III(6) 68,800 *
Neil R. Austrian(7) 158,848 *
Cynthia R. Cohen(8) 23,608 *
David I. Fuente(9) 1,681,980 *
Irwin Helford (10) 2,737,614 1.0%
John C. Macatee (11) 110,000 *
M. Bruce Nelson(12) 324,132 *
Barry J. Goldstein(13) 542,365 *
W. Scott Hedrick(14) 68,661 *
James L. Heskett(15) 8,500 *
Michael J. Myers(16) 51,286 *
Frank P. Scruggs, Jr.(17) 4,000 *
Peter J. Solomon(18) 120,814 *
All Executive Officers and Directors as a Group
(18 persons)(19) 6,342,440 2.54%
</TABLE>
- ---------------
(1) Includes shares of Common Stock subject to options which are exercisable
within 60 days of March 5, 1999.
(2) Based on 248,983,334 shares of Common Stock outstanding as of March 5,
1999. Shares subject to options exercisable within 60 days of March 5, 1999
are considered for the purpose of determining the percent of the class held
by the holder of such option, but not for the purpose of computing the
percentage held by others.
(3) Based solely upon on Schedules 13G dated January 26, 1999 filed by Marsh &
McLennan Companies, Inc. ("MMC") and Putnam Investments, Inc. ("Putnam").
Putnam, a wholly-owned subsidiary of ("MMC"), beneficially owns 21,257,890
shares in the Company. Putnam and its wholly owned subsidiaries, Putnam
Investment Management, Inc. ("PIM") and The Putnam Advisory Company, Inc.
("PAC") have shared dispositive power as to 19,431,664 shares (Putnam and
PIM) and as to 1,826,226 shares (Putnam and PAC). Each of PIM and PAC is a
registered investment adviser. PIM is the investment adviser to the Putnam
family of mutual funds and PAC
11
<PAGE> 15
is the investment adviser to Putnam's institutional clients. Both
subsidiaries have dispositive power over the shares as investment managers,
but each of the mutual fund's trustees has voting power over the shares
held by each fund, and PAC has shared voting power over the shares held by
the institutional clients. Share ownership amounts and percentages for PIM
and PAC are included within the amounts and percentages for Putnam. MMC
does not claim beneficial ownership of the shares held by its wholly-owned
subsidiary, Putnam.
(4) Based solely upon a Schedule 13G dated February 11, 1999. Of the 20,274,282
shares shown as beneficially owned by Massachusetts Financial Services
Company ("MFSC"), MFSC has sole voting power and sole dispositive power
with respect to all of such shares.
(5) Based solely upon a Schedule 13G dated February 1, 1999. Of the shares
shown as beneficially owned by FMR Corp.("FMR"), FMR has sole voting power
and sole dispositive power with respect to all of such shares. Members of
the Edward C. Johnson III family and trusts for their benefit are the
predominant owners of Class B shares of common stock of FMR Corp.,
representing approximately 49% of the voting power of FMR Corp. Edward C.
Johnson, III owns 12.0% and Abigail P. Johnson owns 24.5% of the aggregate
outstanding voting stock of FMR Corp. Mr. Johnson is Chairman of FMR Corp.
and Ms. Johnson is a Director of FMR Corp. The Johnson family group and all
other Class B stockholders have entered into a stockholders' voting
agreement under which all Class B shares will be voted in accordance with
the majority vote of Class B shares. Accordingly, through their ownership
of voting common stock and the execution of the stockholders' voting
agreement, members of the Johnson family may be deemed, under the
Investment Company Act of 1940, to form a controlling group with respect to
FMR Corp. Share ownership amounts and percentages for Edward C. Johnson,
III and Abigail P. Johnson are included within the amounts and percentages
for FMR Corp.
(6) Includes options to purchase 60,000 shares issued to Mr. Ault as a director
of the Company pursuant to one or more stock option plans of the Company.
(7) Includes options to purchase 60,000 shares issued to Mr. Austrian as a
director of the Company pursuant to one or more stock option plans of the
Company.
(8) Includes options to purchase 21,554 shares issued to Ms. Cohen as a
director of the Company pursuant to one or more stock option plans of the
Company.
(9) Includes options to purchase 1,335,157 shares issued to Mr. Fuente pursuant
to one or more stock option plans of the Company, 1,890 shares held of
record by his spouse, 3,990 shares held of record by his stepdaughter,
Rebecca Mishkin, and 3,750 shares held of record by an irrevocable trust
for the benefit of his stepdaughter. Mr. Goldstein is the trustee of such
trust. Mr. Fuente disclaims beneficial ownership of the shares held by his
spouse, his stepdaughter and Mr. Goldstein, as trustee.
(10) Includes options to purchase 168,026 shares issued to Mr. Helford pursuant
to one or more stock option plans of the Company.
(11) Includes options to purchase 100,000 shares issued to Mr. Macatee pursuant
to one or more stock option plans of the Company.
(12) Includes options to purchase 321,000 shares issued to Mr. Nelson pursuant
to one or more stock option plans of the Company.
(13) Includes options to purchase 428,367 shares issued to Mr. Goldstein
pursuant to one or more stock option plans of the Company and 3,750 shares
held of record by an irrevocable trust for the benefit
12
<PAGE> 16
of Mr. Fuente's stepdaughter, of which Mr. Goldstein is the trustee. As the
trustee, Mr. Goldstein has investment and voting power with respect to the
shares held by the trust. Mr. Goldstein disclaims beneficial ownership of
the shares held by the trust.
(14) Includes options to purchase 35,894 shares issued to Mr. Hedrick as a
director of the Company pursuant to one or more stock option plans of the
Company.
(15) Includes options to purchase 7,500 shares issued to Mr. Heskett as a
director of the Company pursuant to one or more stock option plans of the
Company.
(16) Includes options to purchase 48,286 shares issued to Mr. Myers as a
director of the Company pursuant to one or more stock option plans of the
Company.
(17) Includes options to purchase 2,500 shares issued to Mr. Scruggs as a
director of the Company pursuant to one or more stock option plans of the
Company.
(18) Includes options to purchase 26,250 shares granted to Mr. Solomon as a
director of the Company pursuant to one or more stock option plans of the
Company.
(19) Includes options to purchase 3,035,983 shares granted pursuant to one or
more stock option plans of the Company.
13
<PAGE> 17
MANAGEMENT OF THE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Directors are elected at the Annual Meeting of Stockholders to serve for a
period of twelve (12) months or until the next Annual Meeting of Stockholders
and the election and qualification of a successor director. Executive officers
are elected annually by the Board and serve at the discretion of the Board. The
following sets forth certain biographical information concerning each of the
Company's directors and certain of its executive officers:
DIRECTORS
DAVID I. FUENTE AGE: 53
Mr. Fuente has been Chairman of the Board and Chief Executive Officer since
he joined the Company in December 1987. Mr. Fuente is also a director of Vista
Eye Care, Inc., a NASDAQ listed company (formerly known as National Vision
Associates, Inc.) and Ryder System, Inc., a New York Stock Exchange listed
company. Mr. Fuente is a member of the Governance & Nominating Committee of the
Board.
IRWIN HELFORD AGE: 64
Mr. Helford has been Vice Chairman of the Board of the Company, Chairman of
the Company's wholly-owned subsidiary, Viking Office Products, Inc. ("Viking")
and a director of the Company since August 1998. From September 1988 until
August 1998, when Viking merged with the Company, he served as Chairman of the
Board and Chief Executive Officer of Viking. Mr. Helford is also a director of
Brady Corp., a NASDAQ listed company.
LEE A. AULT III AGE: 62
Mr. Ault has been a director of the Company since August 1998. He served as
Chief Executive Officer of Telecredit, Inc., a payment services company, from
November 1968 until January 1992. Mr. Ault also was President of Telecredit,
Inc. from 1968 until 1983 and Chairman of the Board from 1983 until January
1992. Telecredit, Inc. was merged into Equifax, Inc., a New York Stock Exchange
listed company, in December 1990. Since 1990, Mr. Ault has served as a director
of Equifax, Inc., the parent company of Telecredit, Inc. Mr. Ault served as a
director of Viking from 1992 until August 1998. He serves as a director of
Bankers Trust New York Corporation and Bankers Trust Company. He also is a
director of Sunrise Medical, Inc., a New York Stock Exchange listed company. Mr.
Ault is a member of the Audit Committee.
NEIL R. AUSTRIAN AGE: 58
Mr. Austrian has been a director of the Company since August 1998. He has
served as President and Chief Operating Officer of the National Football League
since April 1991. He was a Managing Director of Dillon, Read & Co. Inc. ("Dillon
Read") from October 1987 until March 1991. Mr. Austrian served as a director of
Viking from 1988 until August 1998. He also serves as a director of
14
<PAGE> 18
Bankers Trust New York Corporation and REFAC Technology Development Corporation,
a NASDAQ listed company. Mr. Austrian is a member of the Compensation Committee.
CYNTHIA R. COHEN AGE: 46
Ms. Cohen has been a director since July 1994. She is the President of
Strategic Mindshare, a marketing and strategy consulting firm. Prior to founding
this firm in 1990, she was a Partner with Deloitte & Touche LLP. Ms. Cohen is a
director of The Sports Authority, Inc., a New York Stock Exchange listed company
and Loehmann's , Inc., a NASDAQ listed company. Ms. Cohen is a member of the
Governance and Nominating Committee and the Compensation Committee.
W. SCOTT HEDRICK AGE: 53
Mr. Hedrick has been a director since April 1991. From November 1986 until
April 1991, he was a director of The Office Club, Inc., a subsidiary of the
Company since April 1991. He was a founder and has been a general partner of
InterWest Partners, a venture capital fund, since 1979. Mr. Hedrick is also a
director of Golden State Vintners, Inc. and Il Fornaio America Corp., both
NASDAQ listed companies. Mr. Hedrick is Chairman of the Compensation Committee.
JAMES L. HESKETT AGE: 65
Mr. Heskett has been a director since May 1996. Mr. Heskett has served on
the faculty of the Harvard University Graduate School of Business Administration
since 1965 and has taught courses in marketing, business logistics, the
management of service operations, business policy and service management. He is
also a director of First Security Services, Inc., a non-public company located
in Boston. Mr. Heskett is Chairman of the Governance and Nominating Committee
and a member of the Audit Committee.
JOHN C. MACATEE AGE: 48
Mr. Macatee has been President and Chief Operating Officer and a director
since he joined the Company in August 1997. Prior to joining the Company, Mr.
Macatee was President of Sherwin-Williams Paint Stores Group, a Division of The
Sherwin-Williams Company, a New York Stock Exchange listed company, a position
he held from 1992 to 1997. At Sherwin-Williams, Mr. Macatee was responsible for
more than 2,000 stores and commercial branches, as well as a professional sales
force serving corporate and industrial customers.
MICHAEL J. MYERS AGE: 58
Mr. Myers has been a director since July 1987. He is the President and a
director of First Century Partners Management Company, an advisor to private
venture capital equity funds. He is also a director of Smith Barney Venture
Corp., a wholly owned subsidiary of Smith Barney Holdings, Inc., which acts
15
<PAGE> 19
as the managing general partner of two private venture capital equity funds.
Until January 1992, he was a Senior Vice President and Managing Director of
Smith Barney, Harris Upham & Co., Incorporated ("Smith Barney"). Mr. Myers is a
director of Encore Paper Company, Inc., Floral Plant Growers, L.L.C., HASCO
Holdings Corp., RomaCorp, Inc. and Wisconsin Porcelain Company, Inc., all
privately held companies. Mr. Myers is Chairman of the Audit Committee.
M. BRUCE NELSON AGE: 54
Mr. Nelson has been President, International of the Company, President of
the Company's wholly-owned subsidiary, Viking, and a director since he joined
the Company in August 1998. From January 1996 until August 1998 he served as
President and as a director of Viking, prior to its merger with the Company.
From July 1995 until January 1996, Mr. Nelson was Chief Operating Officer of
Viking and from January 1995 until July 1995, he was Executive Vice President of
Viking. From 1990 until July 1994, Mr. Nelson was President and Chief Executive
Officer of BT Office Products USA. He had previously worked for over 22 years at
Boise Cascade Office Products in a number of executive positions.
FRANK P. SCRUGGS, JR. AGE: 47
Mr. Scruggs has been a director since October 1996. Since May 1995, Mr.
Scruggs has been an attorney and shareholder in the law firm of Greenberg
Traurig, PA, Attorneys at Law, Fort Lauderdale, Florida. Greenberg Traurig
provided legal services to the Company during 1998. Mr. Scruggs specializes in
the representation of management in employment and governmental law matters.
From 1984 until April 1995, Mr. Scruggs was a partner in the law firm of Steel,
Hector & Davis, Miami, Florida, other than during the period from January 1991
to July 1992, when he served as Secretary of Labor of the State of Florida. Mr.
Scruggs is a director of Blue Cross and Blue Shield of Florida, a mutual
insurance company. He is a member of the Audit Committee.
PETER J. SOLOMON AGE: 60
Mr. Solomon has been a director since April 1990. He is Chairman and Chief
Executive Officer of Peter J. Solomon Company Limited ("PJSC"), an investment
banking firm, which provided services to the Company in fiscal 1998. See
discussion at page 40 of this Proxy Statement regarding fees paid and expenses
reimbursed to PJSC during fiscal 1998. From 1985 to 1989, Mr. Solomon was a Vice
Chairman and a member of the board of directors of Shearson Lehman Hutton, Inc.
("Shearson"). Mr. Solomon is a director of Monroe Muffler/Brake, Inc., a NASDAQ
listed company; General Cigar Holdings, Inc., a New York Stock Exchange listed
company, and Phillips-VanHeusen Corporation, a New York Stock Exchange listed
company. Mr. Solomon is a member of the Governance and Nominating Committee.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
BARRY J. GOLDSTEIN AGE: 56
Mr. Goldstein has been Chief Financial Officer since he joined the Company
in May 1987. He has served as Executive Vice President, Finance since July 1991
and served as Secretary from January 1988
16
<PAGE> 20
to January 1999. From May 1987 until June 1991, he served as Vice President,
Finance. Prior to joining the Company, Mr. Goldstein spent 22 years in public
accounting, the most recent 18 of which were with Grant Thornton, a national
accounting firm. He became a partner of Grant Thornton in 1976.
THOMAS KROEGER AGE: 50
Mr. Kroeger has been Executive Vice President, Human Resources since he
joined the Company in July 1997. Prior to joining the Company, he was employed
by The Sherwin-Williams Company where he served as Corporate Vice President of
Human Resources from October 1987 to July 1997.
SHAWN P. MCGHEE AGE: 36
Mr. McGhee joined the Company in March 1998 as Executive Vice President,
Merchandising and Marketing. Prior to joining the Company, Mr. McGhee spent ten
years at Autozone, Inc., an auto parts retailer with over 2,600 stores and $2.7
billion in sales. Mr. McGhee served in a number of capacities at Autozone,
eventually rising to the position of Executive Vice President of Merchandising
in 1996.
WILLIAM P. SELTZER AGE: 60
Mr. Seltzer has been Executive Vice President, Information Systems since
joining the Company in August 1992. Prior to joining the Company, he was Senior
Vice President--Distribution and Systems of Revco Drug Stores, Inc. from
November 1987 to July 1992. Mr. Seltzer was Vice President of Systems for the
H.E. Butt Grocery Company from 1977 to 1987, and was Corporate Manager of
Information Processing from 1972 to 1977 with SCM Corporation.
CHARLES E. BROWN AGE: 46
Mr. Brown has been Senior Vice President, Finance and Corporate Controller
since joining the Company in May 1998. Prior to joining the Company, he was
Senior Vice President and Chief Financial Officer of Denny's, Inc., a division
of Advantica Restaurant Group, Inc., from January 1996 until May 1998; from
August 1994 until December 1995, he was Vice President and Chief Financial
Officer of ARAMARK International; and from September 1989 until July 1994, he
was Vice President and Controller of Pizza Hut International, a division of
PepsiCo, Inc..
DAVID C. FANNIN AGE: 53
Mr. Fannin has been Senior Vice President and General Counsel of the
Company since November 1998 and Corporate Secretary since January 1999. Prior to
joining the Company, Mr. Fannin was Executive Vice President, General Counsel
and Corporate Secretary of Sunbeam Corporation, a manufacturer and wholesaler of
durable household and outdoor consumer products, from January 1994 until August
1998. From 1979 until 1993, Mr. Fannin was a partner in the law firm Wyatt,
Tarrant & Combs, Louisville, Kentucky.
17
<PAGE> 21
COMMITTEES OF THE BOARD OF DIRECTORS; MEETINGS
HOW MANY TIMES DID THE BOARD AND ITS COMMITTEES MEET LAST YEAR, AND WHICH
DIRECTORS ATTENDED THE MEETINGS?
The Board met eight (8) times during the 1998 fiscal year and acted one (1)
time by unanimous written consent. The Board has three standing committees: the
Audit Committee, the Compensation Committee and the Governance and Nominating
Committee. Information below on these committees tells the number of meetings
held by each of these committees. All directors attended at least 75%, in the
aggregate, of the total number of meetings of the Board and the total number of
meetings of all committees on which they served.
Audit Committee -- The Audit Committee makes recommendations to the Board
regarding the selection, retention and termination of the Company's independent
accounting firm as the Company's outside auditors. The committee meets with the
independent accountants to discuss the scope of each year's audit of the
Company's financial statements. The committee also confers with the outside
accounting firm regarding any nonaudit related assignments, fees, the
independence of the accountants, the results of the audit and the effectiveness
of the Company's internal accounting controls. The independent accountants have
direct access to the committee, either with or without advising management, to
discuss auditing and any other accounting matters. The Company's internal audit
function also reports to the Committee, either with or without the presence of
other members of management in attendance. The Audit Committee is composed of
Mr. Myers, who is Chairman; Mr. Ault, Mr. Heskett and Mr. Scruggs. The Committee
met four (4) times during the 1998 fiscal year.
Compensation Committee -- The Compensation Committee recommends action to
the Board regarding the salaries and incentive compensation of senior officers
of the Company. The committee also reviews the compensation of certain other
principal management employees and administers the Company's employee benefit
plans, including without limitation the Company's Long Term Equity Incentive
Plan (i.e. the stock option plan). The Compensation Committee is composed of Mr.
Hedrick, who is Chairman; Mr. Austrian and Ms. Cohen. The Committee met three
(3) times during the 1998 fiscal year.
Governance & Nominating Committee -- The Governance Committee reviews and
makes recommendations to the Board concerning the size and composition of the
Board and its committees and the recruitment and selection of directors. The
committee also reviews and makes recommendations to the Board concerning
corporate governance policies and practices. Mr. Heskett is the chairman of this
committee. Ms. Cohen and Messrs. Fuente and Solomon also serve on this
committee. The Governance Committee held two (2) meetings in 1998. While the
Committee will consider recommendations from stockholders as to nominees for the
Board, the Committee generally intends to utilize its own resources in making
nominations to the Board of Directors.
18
<PAGE> 22
COMPENSATION
HOW ARE THE DIRECTORS PAID FOR THEIR SERVICES TO THE COMPANY?
Directors Compensation. Directors who are not employees of the Company
receive $21,000 per year plus $2,000 for each meeting of the Board which they
attend. All Directors are reimbursed for their expenses incurred in attending
meetings. No additional amounts are paid for service on any committee of the
Board or for attending the meetings of any committee, other than reimbursement
of expenses. Under the Company's Long Term Equity Incentive Plan, the amount of
options granted to directors and the terms and provisions of options granted to
directors are at the discretion of the Compensation Committee. It is anticipated
that directors who are not salaried employees will receive options to purchase
7,500 shares of Common Stock in 1999. Directors who are not salaried employees
of the Company are permitted to defer 100% of their cash compensation under the
Officer Deferred Compensation Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
The Company believes that each of its officers, directors and greater than
ten-percent owners complied with all Section 16(a) filing requirements
applicable to them during fiscal 1997, except as set forth in the following
table. The following persons made late filings in 1998:
<TABLE>
<S> <C>
Lee A. Ault III Initial Form 3, filed late following
Viking Merger
Neil R. Austrian Initial Form 3, filed late following
Viking Merger
Irwin Helford Initial Form 3, filed late following
Viking Merger
David I. Fuente Form 4 for gift of stock, filed late
John C. Macatee Form 4 for purchased shares, filed
late
Charles E. Brown Initial Form 3, filed late after
joining the Company
Paul Gaffney Initial Form 3, filed late following
promotion
Robert Keller Initial Form 3, filed late following
promotion
</TABLE>
19
<PAGE> 23
EXECUTIVE COMPENSATION
HOW MUCH ARE THE COMPANY'S SENIOR EXECUTIVES PAID?
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the 1996, 1997, and 1998 fiscal years by:
(i) the Company's Chief Executive Officer and (ii) the Company's four other most
highly compensated executive officers who were serving as executive officers at
the end of the 1998 fiscal year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ---------------------------------
AWARDS PAYOUTS
----------------------- -------
OTHER RESTRICTED
ANNUAL STOCK SECURITIES LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($) OPTIONS ($) ($)(3)
- --------------------------- ---- --------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David I. Fuente 1998 1,000,000 2,033,846 54,695 -0- 1,000,000 -0- 160,485
Chairman & 1997 880,000 1,760,000 53,600 -0- 465,000 -0- 163,691
Chief Executive Officer 1996 800,000 -0- -0- -0- 165,000 -0- 160,801
Irwin Helford 1998 800,020 1,036,000 51,900 -0- -0- -0- 331,887
Vice Chairman(5) 1997 750,010 444,250 52,607 -0- 2,619 -0- 339,303
1996 700,000 330,750 -0- -0- 37,407 -0- 346,698
John C. Macatee 1998 610,000 1,180,010 -0- -0- 100,000 -0- 93,424
President and Chief 1997 205,679 1,092,500 -0- -0- 300,000 -0- 14,067
Operating Officer(4)
M. Bruce Nelson 1998 600,028 1,554,000 -0- -0- 135,000 -0- 11,969
President, 1997 550,014 372,000 -0- -0- 135,000 -0- 12,584
International(5) 1996 450,000 237,500 -0- -0- 160,000 -0- 13,849
Barry J. Goldstein 1998 465,000 852,231 -0- -0- 50,000 -0- 55,442
Executive Vice 1997 440,000 792,000 -0- -0- 140,000 -0- 52,708
President, Finance 1996 400,000 -0- -0- -0- 40,000 -0- 53,878
Chief Financial Officer
</TABLE>
- ---------------
(1) Of the amounts shown for Messrs. Fuente, Macatee and Goldstein for 1997 and
1998, half is subject to vesting and becomes payable on December 31, 2000,
if the executive has been continuously employed by the Company as of such
date. Of the 1998 amount shown for Mr. Nelson, half is subject to vesting on
December 31, 2001, if he has been continuously employed by the Company as of
such date. Bonuses also reflect a fifty-third weekly pay period attributable
to 1998.
(2) Except as otherwise noted, Other Annual Compensation was not reportable. For
1998, the amount shown for Mr. Fuente consisted of $21,420 paid pursuant to
the Company's executive medical insurance program, $17,675 for tax planning
and preparation and $15,600 of automobile allowance. For 1997, the amount
shown for Mr. Fuente consisted of $21,600 paid pursuant to the Company's
executive medical insurance program, $15,400 for tax planning and
preparation, $15,600 of automobile allowance and $1,000 for his annual
physical examination. For 1998, the amount shown for Mr. Helford consisted
of $20,700 paid pursuant to the Company's executive medical insurance
program and $31,200 of automobile allowance. For 1997, the amount shown for
Mr. Helford
20
<PAGE> 24
consisted of $20,157 paid pursuant to the Company's executive medical
insurance program, $31,200 of automobile allowance and $1,250 for his annual
physical examination.
(3) Amounts reported for 1998 include insurance premiums paid by the Company for
the benefit of the Named Executive Officers under a split-dollar life
insurance policy totalling $145,680 for Mr. Fuente, $318,240 for Mr.
Helford, $93,370 for Mr. Macatee and $47,508 for Mr. Goldstein. Amounts
reported for 1998 also include $54 each for Messrs. Fuente, Macatee and
Goldstein representing term life insurance premiums, and $5,068 and $5,640
for Mr. Helford and Mr. Nelson, respectively, for additional life insurance.
Matching contributions for 1998 under the Company's Retirement Savings Plan
and Senior Management Deferred Compensation Plan (both defined contribution
plans) amounted to $13,644 for Mr. Fuente, $2,250 for Mr. Helford and $7,400
for Mr. Goldstein. Discretionary Match amounts paid were $1,107 for Mr.
Fuente and $480 for Mr. Goldstein, and Profit Sharing Plan contributions
amounted to $6,329 each for Mr. Helford and Mr. Nelson.
(4) Mr. Macatee joined the Company as President and Chief Operating Officer on
August 8, 1997. Mr. Macatee received a salary only for the portion of 1997
that he was employed by the Company, but was awarded a full year's bonus as
part of the Company's efforts to recruit Mr. Macatee.
(5) Mr. Helford is also Chairman of the Company's wholly-owned subsidiary,
Viking. Mr. Nelson is President of Viking.
WHAT STOCK OPTIONS HAVE BEEN AWARDED TO THE COMPANY'S SENIOR EXECUTIVES?
The following table sets forth information with respect to all stock options
granted in fiscal 1998 to the Named Executive Officers.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
- ------------------------------------------------------------------------------------------ ----------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/SARs
OPTIONS/ GRANTED TO EXERCISE OR GRANT DATE
SARs EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE(2)
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE ($)
---- ---------- ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
David I. Fuente..................... 1,000,000 16.26 29.5938 5/26/08 10,560,700
Irwin Helford....................... -0- -- -- -- --
John C. Macatee..................... 100,000 1.63 31.1875 8/11/08 1,036,450
M. Bruce Nelson..................... 35,000 2.20 36.2500 7/16/08 435,750
100,000 27.9375 8/26/08 928,450
Barry J. Goldstein.................. 50,000 0.81 31.1875 8/11/08 518,225
</TABLE>
- ---------------
(1) None of the options were awarded with tandem stock appreciation rights
("SARs"). In order to prevent dilution or enlargement of rights under the
options, in the event of a merger or any other reorganization,
recapitalization, stock split, stock dividend, combinations of shares,
merger, consolidation or other change in the Common Stock, the number of
shares available upon exercise and the exercise price will be adjusted
accordingly. The Compensation Committee may, subject to specified
limitations (including those in the 1999 Plan changes described on pages 32
through 35 of this
21
<PAGE> 25
Proxy Statement), advance (i) the date on which an option shall become
exercisable by the grantee and (ii) the grantee's right to designate an
Appreciation Date for any SAR. Number of options shown does not reflect the
three for two stock split approved by the Board of Directors on February 24,
1999, payable April 1, 1999 to holders of record on March 11, 1999. Under
the Company's option plans, the number of shares subject to option and the
exercise prices of those shares shall be automatically adjusted to reflect
the stock split.
(2) The Black-Scholes option pricing model was used to determine the grant date
present value of the stock options granted in 1998 by the Company to the
Named Executive officers listed above. Under the Black-Scholes option
pricing model, the grant date per share present value of the stock options
referred to in the table was approximately $10.56, $12.45 , $10.36, and
$9.28 for options granted on May 26, 1998, July 16, 1998, August 11, 1998,
and August 26, 1998, respectively.
The following facts and assumptions were used in making such calculation:
(i) exercise prices as indicated in the table above; (ii) fair market values
equal to the respective exercise prices of each option on the date of grant;
(iii) a dividend yield of 0%; (iv) an expected stock option term of 5.5 years;
(v) a stock price volatility of 25% based on an analysis of weekly stock closing
prices of Common Stock during the fourth quarter of 1998; and (vi) a risk-free
interest rate of 5.53% for the options granted on May 26, 1998 and a risk-free
interest rate of 4.50% for the options granted on July 16, 1998, August 11, 1998
and August 26,1998, each of which is equivalent to the yield on a ten-year
Treasury note on the date of grant. No other discounts or restrictions related
to vesting or the likelihood of vesting of stock options were applied. The
resulting grant date present values for each stock option were multiplied by the
total number of stock options granted to each of the executive officers listed
above to determine the total grant date present value of such stock options
granted to each of the Named Executive Officers, respectively.
22
<PAGE> 26
The following table sets forth information with respect to all options
exercised in fiscal 1998 and the year-end value of unexercised options held by
the Named Executive Officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARs AT OPTIONS/SAR's AT
FISCAL YEAR-END FISCAL YEAR-END
--------------------- ----------------
SHARES ACQUIRED VALUE (#)EXERCISABLE/ ($)EXERCISABLE/
ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (1)(2) (1)
---- --------------- -------- --------------------- ----------------
<S> <C> <C> <C> <C>
David I. Fuente..................... -0- -0- 1,280,157 30,065,180
1,465,000 16,813,060
Irwin Helford....................... -0- -0- 168,026 3,789,216
-0- -0-
John C. Macatee..................... -0- -0- 100,000 1,981,250
300,000 4,506,250
M. Bruce Nelson..................... -0- -0- 447,000 8,395,248
135,000 881,875
Barry J. Goldstein.................. -0- -0- 415,034 9,993,291
190,001 3,191,268
</TABLE>
- ---------------
(1) The first number shown for each officer represents exercisable options, and
the second number represents unexercisable options.
(2) Numbers do not reflect the three for two stock split approved by the Board
of Directors on February 24, 1999, payable April 1, 1999 to holders of
record on March 11, 1999. Under the Company's stock option plans, numbers of
shares subject to options and exercise prices of those shares shall be
automatically adjusted to reflect the stock split when it becomes effective
on April 1, 1999.
HOW IS THE COMPANY'S CEO COMPENSATED?
EMPLOYMENT AGREEMENT WITH CHAIRMAN AND CHIEF EXECUTIVE OFFICER -- MR. FUENTE
Effective January 1, 1998, the Company entered into a new Employment
Agreement with David I. Fuente (the "Fuente Agreement" or the "Agreement").
Under this Agreement, the Company has agreed to continue to employ Mr. Fuente as
the Chairman of the Company's Board of Directors for a period that ends on
January 3, 2003. The Fuente Agreement also will be automatically extended for
successive periods of one year each beginning January 3, 2003 unless either the
Company or Mr. Fuente notifies the other, in writing, at least six (6) months
prior to the end of the initial five year term, or of the extension term then in
effect, that the party providing such notice does not wish the Fuente Agreement
to
23
<PAGE> 27
be extended. If either Mr. Fuente or the Company provides such a written notice
to the other, the Fuente Agreement will expire at the end of the term then in
effect.
Mr. Fuente and the Company are also parties to another agreement which
governs his employment by the Company in the event of a "Change in Control" of
the Company as defined in that agreement (the "Change in Control Agreement").
The Change in Control Agreement is described in greater detail below.
What is Mr. Fuente's Base Salary? Mr. Fuente is paid a base salary at an
annual rate of One Million Dollars ($1,000,000). Mr. Fuente's base salary is to
be reviewed at least annually by the Compensation Committee of the Board.
What is his Bonus Arrangement? In addition to his base salary, Mr. Fuente
is entitled to participate in the Company's Designated Executive Incentive Plan
(the "Bonus Plan"). Under the Bonus Plan, annual performance targets are
established for Mr. Fuente by the Compensation Committee and ratified by the
Board. It is the intention of the Company that these performance targets will
qualify as incentive compensation under Section 162(m) of the Internal Revenue
Code. The primary factors in determining Mr. Fuente's bonus amount are the
achievement of earnings per share ("EPS") and return on net assets ("RONA")
targets for the Company, which are established by the Compensation Committee for
purposes of determining whether Mr. Fuente is entitled to a bonus and
calculating the amount of that bonus.
For 1998, Mr. Fuente was paid a bonus of 100% of his base salary earnings
because he achieved the maximum bonus level under a formula which provided for
Mr. Fuente to receive 50% of base salary earnings for achieving the "minimum"
level of performance, 70% of base salary earnings for achieving the "target"
level of performance and 100% of base salary earnings for achieving the
"maximum" level of performance. For 1999 and subsequent years, the percentage
levels of payout will increase by 5%, 8.5% and 10% respectively. As a result,
the bonus targets during the initial term of the Fuente Agreement are the
following:
<TABLE>
<CAPTION>
YEAR MINIMUM % TARGET % MAXIMUM %
---- --------- -------- ---------
<S> <C> <C> <C>
1999................. 55% 78.5% 110%
2000................. 60% 87.0% 120%
2001................. 65% 95.5% 130%
2002................. 70% 104.0% 140%
</TABLE>
These percentages will continue to increase at the same rate in the event the
Fuente Agreement is extended beyond the initial term, as discussed above. The
Compensation Committee may adjust the components of Mr. Fuente's compensation in
the event the Section 162(m) limits on the deductibility of base compensation
are changed. For example, if the Section 162(m) limitation on base salary
compensation were to be increased above $1,000,000, the Committee has the option
to increase Mr. Fuente's base salary, in which event, however, the bonus
percentage levels would be decreased proportionately.
24
<PAGE> 28
Deferred Bonus. In addition to the bonus payment described in the
preceding paragraphs, Mr. Fuente is also entitled to a deferred matching bonus
grant equal to the dollar amount of bonus earned by him each year under the
Bonus Plan; provided, however, that such deferred bonus shall only be paid if
the Company meets its earnings per share targets for such year.
What Stock Options does Mr. Fuente Have? Under the terms of the Fuente
Agreement, Mr. Fuente was provided a new grant of stock options in 1998 by the
Compensation Committee (which was approved by the Board) to purchase one million
(1,000,000) shares of the Company's common stock at the market price of $29.59
on the date of grant, which was May 26, 1998 (the "First Grant"). Under the
Agreement, he also was granted on January 4, 1999, an additional option to
purchase another one million (1,000,000) shares of the Company's common stock at
an exercise price of $37.34 (the "Second Grant"). In addition to the First Grant
and the Second Grant, Mr. Fuente is also eligible to receive annual grants of
stock options at the discretion of the Compensation Committee or the Board of
Directors. Mr. Fuente is automatically entitled to receive additional grants of
options each year, beginning in the Year 2000, to acquire at least 165,000
shares.
To What Benefits is Mr. Fuente Entitled? Mr. Fuente receives certain
additional benefits under the Fuente Agreement, including paid vacation in
accordance with the Company's general policies for senior officers of the
Company, reimbursement of business expenses and all other benefits, including
insurance coverages, generally provided to senior officers of the Company.
Health insurance benefits for Mr. Fuente and his family extend beyond the
expiration of the Fuente Agreement for a period ending upon Mr. Fuente's death.
What Obligations Does He Have Regarding Non-Competition? Mr. Fuente has
agreed never to disclose confidential information of the Company and has also
agreed, during the term of the Fuente Agreement and for a period of one year
after he leaves the employment of the Company for any reason (the "Non-Compete
Period"), that he will not compete with the Company or induce or attempt to
induce or hire any Company employee to leave such employment. He also has agreed
not to interfere in any manner with any relationship the Company has with any
customer, supplier, licensee, licensor, franchisee or any other business
relationship.
Under What Circumstances May His Agreement Be Terminated Prior to Normal
Expiration? The Fuente Agreement will be terminated earlier than its normal
expiration on the occurrence of one of the following events:
(a) Mr. Fuente's death, permanent disability or incapacity (as determined
by the Board in the exercise of good faith judgment);
(b) By mutual agreement of Mr. Fuente and the Company;
(c) By the Company's termination of the Fuente Agreement for "Cause" (as
defined below) or without Cause; or
(d) By Mr. Fuente either with or without "Good Reason" (as defined below).
25
<PAGE> 29
For purposes of the Fuente Agreement, the term "Cause" means: (i) the
willful and continued failure of Mr. Fuente to perform substantially his duties
with the Company or one of its affiliates, or (ii) the willful engaging by Mr.
Fuente in illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
For purposes of the Fuente Agreement, the term "Good Reason" means:
(i) the assignment to Mr. Fuente of any duties inconsistent with his
position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated on the date of the
Fuente Agreement;
(ii) any failure by the Company to comply with any of its obligations
relating to the payments or the grants of stock options to Mr. Fuente as
described in the Fuente Agreement;
(iii) the Company's requiring Mr. Fuente to be based at any location
other than the vicinity of the Company's current corporate headquarters in
Delray Beach, Florida; or
(iv) any purported termination by the Company of Mr. Fuente's
employment other than as expressly permitted by the Fuente Agreement.
Effect of Termination. In the event of Mr. Fuente's death, permanent
disability or incapacity, Mr. Fuente or his estate (and his family with respect
to insurance coverages) shall receive the following:
(i) Mr. Fuente's base salary through the date of his death or
termination;
(ii) a prorata portion of Mr. Fuente's bonuses for the year in which
death or such termination occurs (determined in accordance with the
Agreement);
(iii) vested and earned (in accordance with the applicable provisions
of the Company's benefit plans) but unpaid amounts under Company incentive
plans, health and welfare plans, deferred compensation plans and other
plans in which Mr. Fuente participates; and
(iv) health insurance benefits (other than in the case of Mr. Fuente's
death, in which event these benefits shall terminate).
If Mr. Fuente's employment is terminated by the Company without Cause or by
Mr. Fuente for Good Reason, as defined above, then the Company shall pay Mr.
Fuente the following:
(i) his base salary through the second anniversary of such
termination;
(ii) a prorata portion of Mr. Fuente's bonuses calculated in
accordance with the Agreement;
(iii) vested and earned but unpaid amounts under incentive plans,
deferred compensation plans and other benefit plans of the Company; and
(iv) insurance benefits through the second anniversary of such
termination to the extent Mr. Fuente (and his family) participated in such
benefits prior to the date of such termination.
26
<PAGE> 30
If Mr. Fuente's employment is terminated by the Company for Cause or by Mr.
Fuente without Good Reason (subject to certain due process provisions in the
Fuente Agreement), then Mr. Fuente shall receive his base salary through the
date of termination; vested and accrued (but unpaid) amounts under incentive
plans, health and welfare plans, deferred compensation plans and other programs
in which he participates, but no prorata bonus.
WHAT IS THE COMPANY'S ARRANGEMENT WITH ITS VICE CHAIRMAN -- IRWIN HELFORD?
EMPLOYMENT AGREEMENT WITH MR. HELFORD
On July 1, 1997, the Company's predecessor company, Viking Office Products,
Inc. ("Viking") entered into an Employment Agreement (the "Helford Agreement")
with Mr. Helford as its then Chairman and Chief Executive Officer. The Helford
Agreement was assumed by the Company in connection with the merger with Viking.
Under the Helford Agreement, Mr. Helford is employed for a term (the "Term")
expiring June 30, 2002, subject to automatic renewal for successive one-year
periods unless either party provides at least sixty (60) days' written notice
prior to the expiration of the then-current term.
Salary. Mr. Helford receives a salary of $800,020 per annum, and his
salary may be increased but may not be decreased during the Term.
Bonus. Under the Helford Agreement, Mr. Helford is entitled to participate
in a bonus plan as determined by the Board of Directors from time to time. He is
currently eligible to participate in the Company's Designated Executive
Incentive Plan for its executive officers.
Benefits. Mr. Helford is entitled to certain other benefits under the
Helford Agreement, including the right to participate in any benefit plans to
which other executives are entitled, a monthly car allowance and certain life
insurance benefits.
Termination. Unless terminated for Cause, as defined in the Helford
Agreement, Mr. Helford's Agreement is not terminable other than for certain
periods of disability.
Non-Competition. Mr. Helford is subject to a two-year non-compete
agreement, which includes an agreement not to work for any competing business.
He is also prohibited, directly or indirectly, from inducing or attempting to
induce any employee of the Company to terminate their relationship with the
Company or to do anything contrary to the best interests of the Company.
Use of Mr. Helford's Likeness. Under the terms of a separate letter
agreement and related license agreement, Mr. Helford has granted to the Company
the perpetual right to the use of his name and likeness in connection with
advertising, catalogs, corporate publications and other print and electronic
media applications. In consideration of his grant of this perpetual license, the
Company provides certain additional benefits to Mr. Helford relating to security
of Mr. Helford's person, family, residences and property.
Change in Control. Mr. Helford is also a party to an Agreement (the "CIC
Agreement") with the Company, originally entered into with Viking in May 1997,
which provides certain benefits to
27
<PAGE> 31
Mr. Helford in the event of a Change in Control ("CIC") of the Company. The
basic terms of this Agreement provide, in the event of a Termination without
Cause by the Company or Mr. Helford's Resignation for Good Reason following a
CIC, for a payment equal to three times the aggregate of: (1) Mr. Helford's Base
Salary, (2) the average bonuses paid to him for the two fiscal years preceding
the fiscal year in which the CIC occurred and (3) the total cost to the Company
of the fringe benefits to which Mr. Helford is entitled for the fiscal year
immediately preceding the fiscal year in which his termination occurs. The
definitions of "Cause" and "Resignation for Good Reason" under the CIC Agreement
are substantially similar to those contained in the Fuente Agreement discussed
above. Mr. Helford has 24 months following a CIC event within which to exercise
his rights under the CIC Agreement.
In the event Mr. Helford elects to do so, he also may voluntarily terminate
his employment with the Company within a 30 day period which begins one year
following the CIC event, even without Good Reason, and thereupon receive 50% of
the benefits to which he otherwise is entitled under the CIC Agreement.
Mr. Helford is entitled to certain other benefits under the CIC Agreement,
including reimbursement of his legal fees associated with the Agreement and
realization of his rights thereunder, and a gross up for excise taxes which may
be due and payable if the benefits provided to him under the CIC Agreement
should be determined to be excess parachute payments under Section 280G of the
Code.
EMPLOYMENT AGREEMENTS WITH OTHER NAMED EXECUTIVE OFFICERS
In addition to Mr. Fuente and Mr. Helford, the Company has entered into
Employment Agreements with each of its other Named Executive Officers. These are
herein individually referred to as an "Executive Employment Agreement" and
collectively as the "Executive Employment Agreements". Except as specifically
set forth herein, each of the Executive Employment Agreements is substantially
similar to the others. The Executive Employment Agreements provide that, during
the terms of such agreements, the executive shall devote his full business time
and attention to the business and affairs of the Company and its subsidiaries.
Salary. Each Executive Employment Agreement sets forth the executive's
title and provides that the executive shall be paid a specified base salary
which may be increased, but not reduced, and further provides that the executive
will be entitled to participate in the Company's Designated Executive Incentive
Plan and other fringe benefit plans. The 1998 base salaries of these executives
were:
<TABLE>
<S> <C>
Mr. Macatee................................................. $610,000
Mr. Nelson.................................................. $600,028
Mr. Goldstein............................................... $465,000
</TABLE>
Term. The term of the Executive Employment Agreements is three years for
each of Messrs. Macatee and Goldstein and two years for Mr. Nelson. In each
case, the agreements are automatically extended for one year if neither party
provides written notice of termination at least six months prior to the end of
the employment term. Mr. Macatee's Agreement expires by its terms on
28
<PAGE> 32
August 8, 2000; Mr. Nelson's Agreement expires by its terms on August 26, 2000;
and Mr. Goldstein's Agreement expires by its terms on October 21, 2000.
Termination. If an Executive Employment Agreement is terminated prior to
the end of the contract term (i) either by the Company "without Cause'(as
defined in the agreement ) or (ii) by the executive with "Good Reason" (as
defined in the agreement), the executive is entitled to receive the following:
(a) his base salary and insurance benefits through the second
anniversary of termination,
(b) his pro rata bonus for the year in which the termination occurs,
and
(c) vested but unpaid amounts under the Company's other incentive
plans, deferred compensation plans and other programs.
If an Executive Employment Agreement is terminated prior to its stated term
either by the Company WITH Cause or by the executive WITHOUT Good Reason, the
executive is entitled to his base salary through the date of such termination.
He also will receive the vested but unpaid amounts under incentive plans,
deferred compensation plans and any other Company compensation programs in which
he is a participant. He will not, however, be entitled to any bonus payment for
the year in which such termination occurs.
If an Executive Employment Agreement is terminated upon an executive's
death or permanent disability or incapacity, the executive (or his estate) is
entitled to receive the following:
(a) his base salary through the date of such termination,
(b) his pro rata bonus for the year in which the disability or death
occurs, and
(c) vested but unpaid amounts under the Company's other incentive
plans, deferred compensation plans and other programs.
The amounts payable upon termination of an Executive Employment Agreement
may, at the Company's option, be paid in a single installment within 30 days
following termination of employment or in any other manner consistent with the
Company's normal payment policies.
The terms "Cause" and "Good Reason" are used in both the Executive
Employment Agreements and in the Change of Control Employment Agreements
(discussed below). These terms are defined for purposes of those agreements as
follows:
"Cause" means the willful and continued failure of the executive to
perform substantially his duties with the Company or one of its
affiliates after a written demand for substantial performance is
delivered to the executive, or willful illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company.
"Good Reason" means the assignment to the executive of duties
inconsistent with his position or other diminution in responsibilities,
failure by the Company to comply with its obligation to
29
<PAGE> 33
pay the executive or provide benefits to him as provided in the
agreement, a requirement that the executive be based at any location
other than the Company's current headquarters or any purported
termination by the Company of the executive's employment other than
expressly permitted by the agreement.
Non-Competition and Confidentiality Agreements. The Executive Employment
Agreements also contain confidentiality, non-compete and non-solicitation
provisions. These provisions prohibit each executive from: (i) disclosing
confidential information to unauthorized persons or using such information for
his own purposes, (ii) either during the employment term or for a period of one
year after the end of his employment, engaging in any business competing with
the Company's business or (iii) during the employment term and for one year
thereafter, soliciting or hiring a Company employee or inducing any customer,
supplier or other business relation of the Company to cease doing business with
it.
CHANGE IN CONTROL AGREEMENTS
The Company's Chairman and Chief Executive Officer and its other Named
Executive Officers are parties to Change in Control Employment Agreements, in
addition to any other employment agreements to which they may be parties. The
names of the persons who are parties to such agreements (each individually a
"CIC Agreement" and collectively the "CIC Agreements") and the dates of such CIC
Agreements are set forth below:
<TABLE>
<CAPTION>
DATE OF CHANGE IN
NAME TITLE CONTROL AGREEMENT
- ---- ----- -----------------
<S> <C> <C>
David I. Fuente............................. Chairman & CEO September 1996
Irwin Helford............................... Vice Chairman May 1997
John C. Macatee............................. President & COO October 1997
Barry J. Goldstein.......................... EVP & Chief Financial Officer September 1996
M. Bruce Nelson*............................ President, International May 1997
</TABLE>
- ---------------
*See discussion below regarding Mr. Nelson's CIC Agreement
Each CIC Agreement (except for Mr. Helford's Agreement, discussed above,
and Mr. Nelson's Agreement, discussed below) provides for a number of things to
occur if the Company undergoes a Change in Control (as defined in the employment
agreements) (a "CIC"). The CIC provisions are summarized in the next paragraph.
If these provisions take effect, each of these executives will be entitled to
certain employment rights, including the following, upon a termination of
employment:
(i) a specified annual base salary and bonus;
(ii) participation rights in the Company's incentive, savings,
retirement and welfare benefit plans; and
(iii) certain specified payments and other benefits upon termination
of employment.
They would be entitled to these benefits for a period of years following
the original date of the employment agreements. However, the contracts also
provide for automatic extension of the period
30
<PAGE> 34
covered so that there is always a minimum number of years of coverage available
to these individuals. The purpose of the CIC Agreements is to assure the
continued dedication of the executives who are parties to these agreements,
notwithstanding the possibility, threat or occurrence of a CIC.
The CIC Employment Agreements also require the Company to employ the
executives who are parties to these agreements for the twelve-month period
following a CIC (the "Employment Period") on terms comparable to the terms of
the executive's employment immediately prior to the CIC. If, during this
Employment Period, (i) the Company terminates such an executive's employment
other than for cause, (ii) the executive terminates his own employment for good
reason or (iii) the executive's employment is terminated due to his death or
disability, the executive (or his estate) will be entitled to a lump sum cash
payment calculated in the following manner:
(a) the sum of (i) the executive's accrued but unpaid salary through
the termination date and (ii) a pro rata portion of the higher of the
executive's highest bonus under any of the Company's annual incentive bonus
plans during the last three full fiscal years prior to the CIC and the
annualized annual bonus paid or payable for the most recently completed
fiscal year (such higher amount being referred to as the "Highest Annual
Bonus") PLUS
(b) three times the sum of such executive's annual base salary and
Highest Annual Bonus, PLUS
(c) the equivalent of the amount the executive would have received
under the Company's retirement plans had he continued to be employed by the
Company for three years following his termination.
In addition, under the CIC Agreements if the Company terminates an
executive's employment other than for cause or the executive terminates his own
employment for good reason, the executive and his family will continue to
receive the Company's welfare benefits for three years following such
termination date. Each executive will receive a smaller payment and benefit
rights (as described in the CIC Employment Agreements) if he is terminated for
cause or if the executive resigns for other than good reason. The CIC Employment
Agreements further provide for a "gross up" payment in the event that the
payments set forth above are subject to the excise tax imposed by Section 4999
of the Code. This means that the Company is obligated to reimburse the executive
on a grossed-up basis for any excise tax imposed because the payments made to
the executive are determined to be excess parachute payments under Section 280G
of the Code.
MR. NELSON'S CHANGE IN CONTROL AGREEMENT
Mr. Nelson's Change in Control Agreement ("CIC Agreement") was entered into
between Mr. Nelson and Viking in May 1997, and the Company has succeeded to the
obligations and rights of Viking under the CIC Agreement. Mr. Nelson's CIC
Agreement is substantially similar to the CIC Agreement between Mr. Helford and
the Company (see the discussion of Mr. Helford's CIC Agreement at page 27 of
this Proxy Statement). In addition to the terms of the original CIC Agreement,
Mr. Nelson has separately agreed that he will not resign from the Company by
reason of the change in his duties and responsibilities following the merger of
Viking into the Company (the "Merger") for a period of two
31
<PAGE> 35
years following the effective date of the Merger (August 26, 1998). Further, the
Company has agreed that Mr. Nelson shall have the right for a 30 day period
beginning on the second anniversary of the Merger to resign for any reason, and
upon such resignation to receive the benefits which he would have received if he
had resigned for Good Reason immediately prior to such second anniversary of the
Merger.
EMPLOYMENT AGREEMENTS WITH OTHER EXECUTIVE OFFICERS
Certain other executive officers of the Company are parties to standard
form Employment Agreements, which contain provisions similar to those contained
in the Executive Employment Agreements and providing for various terms of
employment.
AMENDMENTS TO THE COMPANY'S LONG TERM EQUITY INCENTIVE PLAN
In April 1998, the Board amended, and at the Annual Meeting held on May 26,
1998, the stockholders ratified amendments to, the Company's Long Term Equity
Incentive Plan (the "Plan"). A complete copy of the Plan was included with the
Company's 1998 Proxy Statement. The following is a brief summary of the terms of
the Plan. This summary does not purport to be a complete description of the Plan
and is qualified in its entirety by reference to the Plan document. Following
this discussion is a description of certain amendments to the Plan which were
adopted by the Company's Board of Directors on February 24, 1999. These
amendments do not require stockholder approval, and the description herein is
provided to stockholders as a matter of information.
TERMS OF THE LONG-TERM EQUITY INCENTIVE PLAN
General. The Plan provides for grants of stock options, stock appreciation
rights ("SARs") in tandem with options, restricted stock, performance awards and
any combination of the foregoing to certain directors, officers, key employees
of, and certain other key individuals who perform services for the Company and
its subsidiaries.
Eligibility. Directors (whether or not employees), officers and key
employees of the Company and its subsidiaries and certain third parties
providing services to the Company who are selected by the Compensation Committee
are eligible to receive grants pursuant to the Plan.
Stock Options. Pursuant to the Plan, the Compensation Committee may award
grants of incentive stock options conforming to the provisions of Section 422 of
the Code ("incentive options"), and other stock options ("non-qualified
options"). The term of each option is established by the Compensation Committee,
subject to certain limitations contained in the Plan.
SARs. The Compensation Committee may grant SARs in tandem with stock
options to any optionee pursuant to the Plan. SARs become exercisable only when,
to the extent and on the conditions that the related options are exercisable,
and they expire at the same time the related options expire. The exercise of an
option results in the immediate forfeiture of any related SAR to the extent the
option is exercised, and the exercise of an SAR results in the immediate
forfeiture of any related option to the extent the SAR is exercised. Upon
exercise of an SAR, the grantee will receive an amount in cash
32
<PAGE> 36
and/or shares of Common Stock equal to the difference between the fair market
value of a share of Common Stock on the date of exercise and the exercise price
of the option to which it relates, multiplied by the number of shares as to
which the SAR is exercised.
Restricted Stock. Under the Plan, the Compensation Committee may award
restricted stock subject to such conditions and restrictions, and for such
duration (subject to certain limitations contained in the Plan), as it
determines in its discretion.
Performance Awards. Pursuant to the Plan, the Compensation Committee may
grant performance awards contingent upon achievement of set goals and objectives
with respect to specified performance criteria, such as return on equity, over a
specified performance cycle, all as designated by the Compensation Committee.
Performance awards may include specific dollar-value target awards, performance
units, the value of which are established by the Compensation Committee at the
time of grant, and/or performance shares, the value of which are equal to the
fair market value of a share of Common Stock on the date of grant.
Vesting. The terms and conditions of each award made under the Plan,
including vesting requirements, will be set forth, consistent with the Plan, in
a written agreement with the grantee. No award under the Plan may vest and
become exercisable within twelve months of the date of grant; provided, except
as may be otherwise provided by the Compensation Committee, that all awards will
vest immediately prior to a change in control of the Company and in certain
other circumstances upon a participant's termination of employment or
performance of services for the Company as described above.
AMENDMENTS ADOPTED BY THE BOARD OF DIRECTORS IN FEBRUARY 1999
On February 24, 1999, the Board of Directors of the Company adopted certain
amendments to the Plan, which amendments became effective immediately upon
adoption by the Board of Directors.
These Amendments make the following changes in the Plan:
Changed Section 2(i) of the Plan to provide guidelines for measuring
"Fair Market Value" of the Common Stock for purposes of the Plan. So long
as the Common Stock is listed for trading on the New York Stock Exchange
("NYSE"), "Fair Market Value" will be measured by the mean of the highest
and lowest sales prices of the Common Stock, as reported on the New York
Stock Exchange Composite Tape, on the measurement date, or if no reported
sale of the Common Stock has occurred on that date, then on the last day
prior to such date on which there was a reported sale. If the Common Stock
is not listed on the NYSE but is listed on another national securities
exchange or is authorized for quotation on the NASDAQ National Market
System, "Fair Market Value" generally will be measured by the mean of the
highest and lowest reported sale prices of the Common Stock on the
measurement date, or, if no sale prices are reported for that date, then on
the last day prior to such date on which there was a reported sale.
Changed Section 3(iii) of the Plan to clarify that the Compensation
Committee's authority to modify the terms of a grant under the Plan can be
exercised only in the event of a change in control,
33
<PAGE> 37
death, disability or retirement of the participant, or some other situation
which the Compensation Committee deems to be a special circumstance.
Changed Section 6(a) of the Plan to establish that the exercise price
set by the Compensation Committee on the date of Grant for any option under
the Plan, not just incentive stock options, must be not less than the Fair
Market Value on the date of grant.
Changed Section 6(b) of the Plan to prevent a participant from
exercising an option if the participant is not in compliance with any
provision of the Plan or has failed to provide the Company with written
acknowledgement of the grant and entered into certain other agreements as
prescribed by the Company.
Changed Section 8 of the Plan to increase the duration of restrictions
on restricted stock awards from 1 year to 3 years, subject to partial
vesting at the end of year one and any time thereafter. The prior language
had permitted full vesting after one year.
Changed Section 9 of the Plan so that, when a performance award is
granted, the minimum period for measuring performance will be at least
twelve months.
Changed Section 17 of the Plan to make clear that the discretionary
authority of the Compensation Committee to amend awards under the Plan can
be exercised only in the event of a change in control, death, disability or
retirement of a participant, or some other situation which the Compensation
Committee deems to be a special circumstance.
The full text of the Amendments follows:
Amended Section 2(i) of the Plan to provide for a definition of "Fair
Market Value" as follows:
1. if the Common Stock is listed for trading on the New York Stock
Exchange, the mean of the highest and lowest sale prices of the Common
Stock on such date, as reported on the New York Stock Exchange Composite
Tape, or if no such reported sale of the Common Stock shall have
occurred on such date, on the last day prior to such date on which there
was such a reported sale; or
2. if the Common Stock is not so listed but is listed on another
national securities exchange or authorized for quotation on the National
Association of Securities Dealers Inc.'s NASDAQ National Market System
("NASDAQ/NMS"), the mean of the highest and lowest sale prices of the
Common Stock on such date as reported on such exchange or NASDAQ/NMS, as
the case may be, or, if no such reported sale of the Common Stock shall
have occurred on such date on such exchange or NASDAQ/NMS, as the case
may be, on the last day prior to such date on which there was such a
reported sale; or
3. if the Common Stock is not listed for trading on a national
securities exchange or authorized for quotation on NASDAQ/NMS, the mean
of the highest and lowest sale prices of the Common Stock on such date
as reported by the National Association of Securities Dealers
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<PAGE> 38
Automated Quotation System ("NASDAQ") or, if no such prices shall have
been so reported for such date, on the last day prior to such on which
there was such a reported sale.
Amended Section 3(iii) of the Plan to add the following language at the end
of such section: ". . . in the event of a change in control, or death,
disability, retirement of the participant, or other situation which the
Committee deems as a special circumstance."
Amended Section 6(a) of the Plan to delete the following language beginning
in the second line of such section: ". . . in the case of the grant of any
Incentive Stock Option."
Amended Section 6(b) of the Plan to add the following language at the end
of the first sentence thereof:
". . . ; provided, however, that no participant shall be eligible to
exercise any Stock Option (i) if the participant is at the time of
purported exercise not in compliance with any provision of the Plan or
(ii) with respect to which the participant has not signed and returned
to the Company a letter in the form prescribed by the Company,
acknowledging receipt of such Stock Option, agreeing to abide by the
provisions of the Plan and otherwise containing such provisions as the
Company shall prescribe."
Amended Section 8 of the Plan to substitute for the term "1 year" in the
parenthetical in the first paragraph of Section 8, the following: "3 years,
subject to partial vesting at the end of year 1 and any time thereafter, and
. . ."
Amended Section 9 of the Plan to add the following language at the end of
the second sentence of Section 9: ". . . , except that no performance cycle
shall be less than 12 months in duration."
Amended Section 17 of the Plan to add the following language at the end of
the parenthetical phrase therein: ". . . in the event of a change in control or
death, disability, retirement of the participant, or other situation which the
Committee deems as a special circumstance."
The Board of Directors considers all of the foregoing amendments to be
routine in nature and for the purpose of clarifying the Plan, assisting in the
orderly administration of the Plan or otherwise in the interests of the Company,
its stockholders and Plan participants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board is comprised of three directors,
currently Mr. Hedrick, Chairman; Mr. Austrian and Ms. Cohen. No such director is
or was an officer of the Company or any of its subsidiaries at any time now or
in the past. No executive officer of the Company serves or has served on the
compensation committee of another corporation or entity (i) one of whose
executive officers served on the Compensation Committee of the Company or (ii)
one of whose executive officers served as a director of the Company. No
executive officer of the Company serves or has served as a director of another
corporation or entity who has or had an executive officer serving on the
Compensation Committee of the Company.
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COMPENSATION COMMITTEE REPORT ON 1998 EXECUTIVE COMPENSATION
The following report of the Compensation Committee and the Performance
Graph shall not be deemed to be incorporated by reference by any general
statement incorporating this Proxy Statement into any filing under the
Securities Act of 1933 or under the Securities Exchange Act of 1934, except to
the extent the Company shall specifically incorporate this information by
reference, and shall not otherwise be deemed to be filed under such Acts.
WHAT IS THE COMPANY'S PHILOSOPHY OF EXECUTIVE COMPENSATION?
The Company's compensation philosophy is to design and implement
compensation practices that motivate employees to enhance stockholder value. The
Company's compensation practices are designed to attract, motivate and retain
key personnel by recognizing individual contributions as well as the achievement
of specific pre-determined goals and objectives, primarily through the use of
"at risk" compensation strategies.
The Company's compensation program for executive officers consists of three
main components:
(i) competitive base salaries,
(ii) annual cash incentives based on overall Company performance under
the Company's bonus plans and
(iii) stock option awards intended to encourage the achievement of
superior results over time and to align executive officer and stockholder
interests.
The second and third components constitute "at risk" elements of each
executive's total compensation.
Base Salary. The Compensation Committee determines base salaries for
executive officers utilizing market survey data which focuses on other high
performance and specialty retail companies. The most recent market survey data
focused on companies with annual revenues in the over-six billion dollar range.
A number of the companies included in the comparison base for establishing
executive pay levels were included in the S&P Retail Stores Composite and in the
S&P 500. The Committee targets the median level of the executive market for
comparably sized companies within these surveys in determining executive base
pay levels.
Salary Adjustments in 1998. The 1998 base salary for Mr. Fuente, Chairman
and Chief Executive Officer, increased by 13.6% over his 1997 base salary.
Salaries for the four other Named Executive Officers (as defined) as a group
rose by $160,024, or 6.9%, over their 1997 base pay. These increases in salaries
for the Chief Executive Officer and the four other Named Executive Officers
position these executives competitively with their respective peer groups and
reflect the increase in responsibilities consistent with the Company's growth.
Mr. Fuente and the Company entered into a new Employment Agreement, effective
January 1, 1998. This Agreement is discussed in detail at pages 23 through 27 of
this Proxy Statement.
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<PAGE> 40
Annual Bonus. The bonus compensation of the Company's executive officers
is determined pursuant to the Company's bonus plans, which provide for cash
awards to eligible participants, based upon objectives determined each year. In
the past, executive officers have been eligible to participate in either the
Company's Management Incentive Plan (the "Management Plan") or the Company's
Designated Executive Incentive Plan (the "Designated Executive Plan" and,
together with the Management Plan, the "Bonus Plans"). Eligible participants
under the Management Plan have generally been salaried employees, including
executive officers, who have been employed by the Company through the end of the
related fiscal year. Under the Designated Executive Plan, eligible participants
are defined to include those key employees of the Company who have been
identified by the Board. Executive officers who participate in the Designated
Executive Plan cannot participate in the Management Plan. The objective of both
plans is to enhance stockholder value by rewarding employees for the attainment
of the Company's financial objectives and, in the case of the Management Plan,
for the attainment of specific individual goals linked to specified strategic
elements of the business. By extending annual bonuses deep into the
organization, the Company seeks to motivate all managerial employees to help
achieve the Company's profit objectives and other key strategic initiatives. All
bonuses for executive officers are made under the Designated Executive Plan.
Awards under the Bonus Plans are expressed as a percentage of base salary
earnings. These awards to executive officers are a function of the participant's
level of responsibility and the Company's financial performance for the year.
Awards to other management employees under the Management Plan are also based on
achievement of individual performance objectives. The Company has reserved the
discretionary power under the Bonus Plans to defer payment to prevent a
participant's includible compensation from exceeding the $1 million limit under
Section 162(m) of the Code for any given year. Under the Management Plan,
performance is measured in connection with attainment of specific earnings per
share objectives and may also be based on individual goals where appropriate
that are established by the participant and his or her immediate supervisor.
Under the Designated Executive Plan, performance is measured only in connection
with attainment of specific objectives based on one or more of the following
five measurements of the Company's performance, as determined by the
Compensation Committee in the first quarter of each year, and as such
measurements may be adjusted for merger and other costs included in the
Company's audited financial statements: pre-tax earnings, net earnings, earnings
per share, return on net assets and return on equity. The Compensation Committee
approves the goals of and awards to the Chief Executive Officer, the President,
and the executive officers of the Company under the Bonus Plans.
Incentive Awards in 1998. For 1998, potential incentive awards to the
executive officers were based on earnings per share and return on net assets
objectives as approved by the Compensation Committee. The incentive
opportunities for the executive officers pursuant to the Bonus Plans were
calculated as a percentage of base salary earnings, with a minimum award if
earnings per share equaled $1.18 (exclusive of merger and restructuring related
costs) and a maximum award otherwise payable if the Company's earnings per share
equaled or exceeded $1.27 (exclusive of merger and restructuring related costs).
Incentive opportunities are equal to twice the maximum award if the Company's
earnings per share meet the goals established by the Compensation Committee.
Actual 1998 earnings per share (on a diluted basis) were $1.24 exclusive of
merger and restructuring related costs ($0.91 inclusive of merger and
restructuring related costs) compared to $0.97 in 1997, or an increase of 28%
exclusive of merger and
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<PAGE> 41
restructuring related costs. In determining the 1998 achievement of goals
qualifying for maximum bonus incentive awards, the Committee and the Board
adjusted their calculations to exclude the effects of the Viking merger on the
Company's results for the year and arrived at the results which would have been
achieved absent such merger, which is consistent with the basis used to
establish the goals.
This emphasis on "at risk" compensation is consistent with the Company's
compensation philosophy and supports continued creation of stockholder value.
Stock Based Incentive Program -- Stock Options. The objective of stock
option awards is to motivate grantees to maximize long-term growth and
profitability of the Company. Grantees can recognize value from options granted
only if the Company's stock price increases after the date on which such options
are granted, since the exercise price of options granted must at least equal the
fair market value of the Company's stock on the date of grant. The award of
options thus aligns the long-range interests of the grantees with those of
stockholders.
Grants of options are generally made annually. The Compensation Committee
determined the grant levels for grants to the Chief Executive Officer and the
executive officers of the Company after taking into consideration prior year's
grants, the organizational impact of the participant and the level of emphasis
the Company placed on participant retention. Stock option awards below the
executive officer level are a function of position within the organization.
Based on the Black-Scholes option pricing model, the present value at the
date of grant of Mr. Fuente's 1998 stock options represented 76.47% of his total
1998 compensation. The total "at risk" portion, stock options plus the portion
of annual bonus requiring vesting, represented 91.20% of his total 1998
compensation.
Stock option awards granted to the other Named Executive Officers for 1998
represented 27.64% of the total 1998 compensation for such officers. The total
"at risk" portion, stock options plus portion of annual bonus requiring vesting,
for the other Named Executive Officers represented 71.41% of the total 1998
compensation for such officers.
Deferred Compensation Plan. The Company's executive officers and other key
employees are permitted to defer up to 25% of their base salaries and up to 100%
of their bonuses under the Office Depot, Inc. Officer Deferred Compensation
Plan. Deferrals may generally be made for any period of time selected by the
executive, but the Company has the right to further defer payouts under the plan
in order to avoid exceeding the $1 million limit under Section 162(m) of the
Code on executive compensation. Although the plan allows the Company to make
additional matching deferrals and incentive contributions at its discretion, no
such contributions were made under the plan for 1998 and no such contributions
are contemplated for 1999.
Split Dollar Life Insurance. Effective April 1995, the Corporation made
available to its executive officers the opportunity to purchase whole life
insurance policies, with the premiums payable by the Company. If the Company's
assumptions regarding mortality, dividends and other factors occur, the Company
will recover all of its payments for premiums either from death benefits or from
the executive, if the policy is transferred to the executive.
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<PAGE> 42
Senior Management Deferred Compensation Plan. The Company has implemented
the Senior Management Deferred Compensation Plan (a non-qualified retirement
savings plan) to provide its executive officers and other management and sales
executives the opportunity to defer retirement savings in addition to those
amounts which may be deferred under the Office Depot Retirement Savings Plan
(401(k)). The Senior Management Deferred Compensation Plan allows the Company to
make the Company's matching contributions, which are limited under the Office
Depot Retirement Savings Plan (401(k)) pursuant to provisions of the Code.
Philosophy of Compensation of the Chief Executive Officer. In 1998, the
Company entered into a new Employment Agreement with Mr. Fuente. Among other
matters, this Agreement is indicative of Mr. Fuente's willingness to remain as
Chairman of the Company for the five year period beginning January 1, 1998. The
Agreement raises Mr. Fuente's base salary to the maximum deductible amount under
Section 162(m) of the Internal Revenue Code. Salary survey work performed for
the Company by a reputable outside consultant serves to indicate that Mr.
Fuente's base salary is competitive with the salaries paid to similarly situated
executives at other similarly sized companies and is not excessive. In lieu of a
larger, and non-deductible, base salary payment to Mr. Fuente, the Compensation
Committee and Board of Directors elected to award Mr. Fuente a substantial grant
of stock options, thereby closely aligning his interests with those of the
stockholders. The Committee feels that Mr. Fuente's compensation, including base
salary, bonus payments and substantial stock option grants, is appropriately
oriented toward risk-based, incentive compensation and that the total
combination of base salary and incentive compensation is competitive for
similarly situated executives.
HOW IS THE COMPANY ADDRESSING DEDUCTIBILITY ISSUES UNDER THE INTERNAL REVENUE
CODE?
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to any of the Named Executive
Officers. As discussed in detail, the Company has structured components of the
performance-based portion of the compensation of its executive officers (which
currently consists of stock option grants and annual bonus) in a manner intended
to comply with Section 162(m). The Compensation Committee intends to continue to
take actions, including seeking stockholder approval, to ensure that the
Company's executive compensation programs meet such requirements, except in
those cases where the Compensation Committee believes stockholder interests are
best served by retaining flexibility of approach.
Report of Compensation Committee
W. Scott Hedrick, Chairman
Cynthia R. Cohen, Member
Neil R. Austrian, Member
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<PAGE> 43
COMMON STOCK PERFORMANCE
The graph shown below compares the cumulative total stockholder return on
the Company's Common Stock since December 31, 1992 with the S&P 500 Index and
the S&P Retail Stores Composite Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
S&P Retail
Stores
Measurement Period Office S&P 500 Composite
(Fiscal Year Covered) Depot, Inc. Index Index
<S> <C> <C> <C>
1993 100 100 100
1994 105 101 91
1995 88 139 102
1996 80 171 121
1997 107 229 174
1998 165 294 281
</TABLE>
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
During 1998, the Company employed the law firm of Greenberg Traurig, PA of
which Director Frank Scruggs, Jr. is a shareholder. The fees paid by the Company
to Greenberg Traurig, PA during 1998 did not exceed 5% of the gross revenues of
that law firm for its last fiscal year.
During 1998, the Company also employed the investment banking firm of Peter
J. Solomon Company Limited, of which Director Peter J. Solomon is Chairman and
Chief Executive Officer. The Company paid fees of $11,757,570 to Peter J.
Solomon Company, Limited, in connection with the Company's merger with Viking
Officer Products, Inc. Such fees exceeded 5% of the gross revenues of Peter J.
Solomon Company, Limited for its 1998 fiscal year.
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COPIES OF FORM 10-K
THE COMPANY WILL PROVIDE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM
10-K, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CONTAINED OR INCORPORATED BY REFERENCE THEREIN TO ANY STOCKHOLDER UPON WRITTEN
REQUEST. REQUESTS SHOULD BE SENT TO THE VICE PRESIDENT, INVESTOR RELATIONS AT
THE COMPANY'S ADDRESS, 2200 OLD GERMANTOWN ROAD, DELRAY BEACH, FL 33445.
2000 STOCKHOLDER PROPOSALS
Any stockholder proposal intended to be presented for consideration at the
2000 Annual Meeting of Stockholders and to be included in the Company's Proxy
Statement for that meeting must be received by the Secretary at the Company's
corporate offices, 2200 Old Germantown Road, Delray Beach, FL 33445, on or
before November 22, 1999. Only proposals deemed to be for a proper purpose will
be included in the Company's Proxy Statement. Stockholder proposals received
after November 22, 1999 and before February 2, 2000 will be considered timely,
but will not be included in the Company's Proxy Statement. Stockholder proposals
received after February 2, 2000 will be considered untimely, and the proxies
solicited by the Company for next year's Annual Meeting may confer discretionary
authority to vote on any such matters without a description of them in the proxy
statement for that meeting.
OTHER MATTERS
It is not presently expected that any matters other than those discussed
herein will be brought before the Annual Meeting. If, however, other matters do
come before the meeting, it is the intention of the persons named as
representatives in the accompanying Proxy to vote in accordance with the
recommendation of the Company's management.
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APPENDIX A
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE OF PLAN.
The purpose of the Office Depot, Inc. 1999 Employee Stock Purchase Plan
(this "Plan") is to benefit Office Depot, Inc., a Delaware corporation (the
"Company"), and its eligible employees by increasing employee ownership of the
capital stock of the Company. This Plan is intended to comply with the
provisions of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"), and this Plan shall be administered, interpreted and construed in
accordance with such provisions.
2. SHARES RESERVED FOR THE PLAN.
There shall be reserved for issuance and purchase by employees of the
Company under this Plan an aggregate of 1,125,000 shares ("Shares") of the
Company's Common Stock, par value $0.01 per share ("Common Stock"), subject to
adjustment as provided in Section 13 hereof; provided, that the number of Shares
authorized for issuance under this Plan shall be reduced by the number of shares
of Common Stock issued prior to the effective date of this Plan under the Office
Depot, Inc. 1989 Employee Stock Purchase Plan (the "1989 Plan") in excess of the
number of shares of Common Stock previously authorized for issuance under the
1989 Plan. Shares subject to this Plan may be shares now or hereafter authorized
and unissued or shares already authorized, issued and owned by the Company. The
right to purchase Shares pursuant to this Plan shall be made available by a
series of bi-weekly offerings (the "Offerings") to employees eligible to
participate in this Plan pursuant to Section 4 hereof. If and to the extent that
any right to purchase reserved Shares shall not be exercised by any employee for
any reason or if such right to purchase shall terminate as provided herein,
Shares that have not been so purchased under this Plan shall again become
available for the purposes of this Plan unless this Plan shall have terminated.
3. ADMINISTRATION.
This Plan shall be administered by the Compensation Committee of the Board
of Directors (the "Committee"). The Committee shall consist of three or more
directors designated by the Board of Directors. The Committee shall have full
power to:
(a) prescribe, amend and rescind rule and procedures governing the
administration of the Plan;
(b) to interpret the provisions of the Plan and to establish and
interpret rules and procedures with respect to the Plan;
(c) to determine the requirements imposed by or rights of any person
under the Plan and the rules and procedures established by the Committee
relating to such rights;
(d) to determine the eligibility of employees to participate in the
Plan in accordance with the standards set forth in Section 4 hereof; and
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(e) to delegate certain of the duties of the Committee to officers or
other committees of the Company or to one or more outside agents to
facilitate the purchase and transfer of Shares and to otherwise assist in
the administration of the Plan.
Each action of the Committee which is within the scope of the authority
delegated to the Committee by the Plan or by the Board shall be binding on all
persons.
4. ELIGIBLE EMPLOYEES.
All present and future regular full-time and part-time employees of the
Company and subsidiaries of the Company that are permitted by the Company to
participate in the Plan shall be eligible to participate in the Plan, provided
that each of such employees: (a) has been employed by the Company or a
participating subsidiary for at least ninety (90) days, (b) has attained the age
of majority in the Participant's state of residence, and (c) does not own,
immediately after the right is granted, stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of capital stock
of the Company. In determining stock ownership under this Section 4, the rules
of Section 424(d) of the Code shall apply and stock that an employee may
purchase under outstanding rights shall be treated as stock owned by the
employee. The Committee shall determine which employees are eligible to
participate in the Plan in accordance with the standards set forth in this
Section 4. Employees eligible to participate in this Plan pursuant to this
Section 4 are hereinafter referred to as "Eligible Employees."
5. ELECTION TO PARTICIPATE AND PAYROLL DEDUCTIONS.
An Eligible Employee may elect to participate in the Plan at any time by
correctly completing and returning to the Company an enrollment form authorizing
a specified payroll deduction to be made from each subsequent paycheck for the
purchase of Common Stock under this Plan (the "Payroll Deduction"). The minimum
allowable Payroll Deduction is $3.00 per week and the maximum allowable Payroll
Deduction is $400.00 per week. All Payroll Deductions shall be made regularly
and in equal amounts and shall be credited on the records of the Company in the
name of the Eligible Employee. Such credit shall constitute only a convenient
bookkeeping entry by the Company and no interest will be paid or due on any
money paid into this Plan or credited to such Eligible Employee. Employees who
elect to participate in the Plan are referred to herein as "Participating
Employees."
A Participating Employee will be deemed to have elected to participate and
to have authorized the same Payroll Deduction for each subsequent Offering
provided that he or she is eligible to participate during each such subsequent
Offering. A Participating Employee may at any time increase or decrease his or
her Payroll Deduction by filing the required form with the Company, which
increase or decrease shall become effective as soon as practicable. A
Participating Employee may at any time terminate his or her Payroll Deduction
and thereby cease to be a Participating Employee by notifying the Benefits
Services Department of the Company in writing subject to such notice and timing
requirements as may be reasonably required to effect such termination.
"Investment Date" shall mean the last Friday of each bi-weekly payroll period
or, if such Friday is a legal holiday, the next preceding day that is not a
legal holiday. Any employee who has terminated his or her Payroll Deduction and
thereby ceased to be a Participating Employee may, if then eligible, elect to
participate in a subsequent offering. Employees on
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leave of absence who are eligible to participate in this Plan pursuant to
Section 4 hereof shall be permitted to enroll and participate in this Plan in
accordance with this Section 5 and payroll deductions with respect to such
employees shall commence as of the first pay period that commences coincident
with or after the recommencement of employment.
6. LIMITATION OF NUMBER OF SHARES THAT AN EMPLOYEE MAY PURCHASE.
No right to purchase Shares under this Plan shall permit an employee to
purchase stock under all employee stock purchase plans (as defined in Section
423 of the Code) of the Company at a rate which in aggregate exceeds $25,000 of
fair market value of such stock (determined at the time the right is granted)
for each calendar year in which the right is outstanding at any time.
7. PURCHASE PRICE.
The purchase price for each Share for each Investment Date shall be
eighty-five percent (85%) of the fair market value of such share on the
Investment Date. "Fair market value" for each share of Common Stock shall be (a)
the average of the high and low sale price reported on any domestic stock
exchange on which the Common Stock is listed on the determining date, or if the
Common Stock is not traded on such an exchange on such date, (b) the average of
the high and low sale price as quoted on the National Association of Securities
Dealers Automated Quotation System on the determining date, or if the Common
Stock is not traded on such system on such date, (c) such other amount as may be
determined by the Committee by any fair and reasonable means.
8. METHOD OF PURCHASE AND INVESTMENT ACCOUNTS.
Each Participating Employee shall be granted the right to purchase on each
Investment Date the number of whole and fractional shares of Common Stock
determined by dividing the amount of his or her aggregate Payroll Deductions not
theretofore invested by the purchase price determined in accordance with Section
7 hereof. Each Participating Employee having aggregate Payroll Deductions not
theretofore invested on an Investment Date shall be deemed, without any further
action, to have elected to purchase with such Payroll Deductions the number of
whole and fractional Shares that he or she has the right to purchase at the
purchase price on that Investment Date. A Participating Employee who has
purchased the maximum number of Shares to which he or she is entitled pursuant
to Section 4, Section 6 or Section 17 hereof shall be refunded any excess
amount. All whole and fractional Shares purchased shall be allocated to separate
investment accounts ("Investment Accounts") maintained by such brokerage house,
investment banking firm, commercial bank or other such similar institution as
may be selected by the Board of Directors for the Participating Employees. All
dividends paid with respect to the whole and fractional Shares in a
Participating Employee's Investment Account shall be credited to his or her
Investment Account.
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9. ISSUANCE OF SHARE CERTIFICATES.
Stock certificates for any of the whole Shares in a Participant's
Investment Account will be issued to such Participant only upon receipt by the
Committee (or its agent) of such Participant's written request, which request
shall indicate the number of Shares (up to a maximum of the number of full
Shares in such Participant's Investment Account) for which the Participant
wishes to receive stock certificates. Such request shall be made on a form at
the time prescribed by the Committee (or its agent) and shall be accompanied by
payment of any fee that may be charged by the Committee's agent for such
issuance. The appropriate Share certificates shall be issued to such Participant
as soon as practicable.
10. VOTING RIGHTS.
Holders of Shares under the Plan shall have the same rights to vote on
matters affecting the Company as do other stockholders of the Company. If any
such matter is submitted to the stockholders for a vote, then following the
record date for any stockholders meeting at which such vote is to occur the
Committee (or its agent) shall advise the Company's transfer agent of the number
of Participants for whom Shares are held in Investment Accounts on such record
date, and the Company's transfer agent shall furnish the Committee (or its
agent) with sufficient sets of proxy soliciting materials for one set to be
delivered to each such Participant. The Committee (or its agent) shall forward
one such set to each Participant for whom allocated Shares are being held, and
shall request voting instructions from each such Participant. Upon receipt of
such voting instructions, the Committee (or its agent) shall vote each
Participant's Shares as instructed. If no voting instructions are received from
a Participant, the Committee shall not vote any Share allocated to such
Participant's Investment Account.
11. RIGHTS NOT TRANSFERABLE.
Rights granted under the Plan may not be transferred by a Participating
Employee other than by will or the laws of descent and distribution and may be
exercised during the lifetime of the person to whom they are granted only by
such person. Until certificates for Shares are issued, no person shall have any
right to sell, assign, mortgage, pledge, hypothecate or otherwise encumber any
of such Shares.
12. EXPENSES.
The Company or the participating subsidiary, as applicable, shall bear all
costs associated with the administration of the Plan and the purchase of Shares
(other than costs for issuance of share certificates). No expenses attributable
to a Participant's sale of Shares, however, shall be borne by the Company or the
participating subsidiary.
13. ADJUSTMENT FOR CHANGES IN COMMON STOCK.
In order to prevent the dilution or enlargement of rights granted under
this Plan, in the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation or other change in
the Common Stock, the Committee shall make appropriate changes in the number
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and type of Shares authorized by this Plan, the number and type of Shares
covered by, or with respect to which payments are measured under, outstanding
rights and the prices specified therein, subject to the limitations of Section
424 of the Code.
14. DEATH, RETIREMENT, AND TERMINATION
In the event of a Participating Employee's death, retirement or termination
of employment, participation in the Plan shall cease and the amount of his or
her aggregate Payroll Deductions not theretofore invested shall be invested on
the next subsequent Investment Date.
15. RECORDS AND REPORTS TO PARTICIPANTS.
(a) The Committee shall cause to be maintained true and accurate books
of account and records of all transactions under the Plan. On or before the
last day of February of each year, the Committee shall file with the
Treasurer of the Company a written report setting forth all receipts,
disbursements and other transactions effected on behalf of the Plan during
the preceding Plan year, including a description of all Shares purchased
and the cost of all such Shares.
(b) An annual report shall be provided to each Participant within 90
days after the close of each Plan Year, showing for the Plan Year just
ended:
(i) the aggregate amount of Payroll Deductions for such
Participant;
(ii) the aggregate amount of cash dividends credited to the
investment account of such Participant;
(iii) the number of Shares acquired for the Investment Account of
such Participant (including the amounts of Share distributions or Share
splits so allocated or credited);
(iv) the average cost per Share of Shares purchased for such
Participant;
(v) the number of Shares, if any, for which certificates were
delivered to such Participant; and
(vi) the beginning and ending balances in the Investment Account of
such Participant.
16. AMENDMENT OF THE PLAN.
The Committee may at any time or from time to time amend this Plan in any
respect, provided, that this Plan may not be amended in any way that will cause
rights issued under it to fail to meet the requirements for employee stock
purchase plans as defined in Section 423 of the Code.
17. TERMINATION OF THE PLAN.
This Plan and all rights of employees hereunder may be suspended or
terminated at any time at the discretion of the Board of Directors and shall
terminate on the Investment Date that Participating
A-5
<PAGE> 50
Employees become entitled to purchase a number of Shares greater than the number
of reserved Shares available for purchase pursuant to Section 2 hereof. In the
event that the Plan terminates because there are an insufficient number of
Shares available for purchase, reserved Shares remaining as of the termination
date shall be issued to Participating Employees on a pro rata basis.
18. EFFECTIVE DATE, PLAN YEAR AND APPROVAL OF STOCKHOLDERS.
This Plan shall be effective as of July 1, 1999. The Plan Year shall be
the calendar year; provided that the first Plan Year shall begin July 1, 1999
and end on December 31, 1999. This Plan is subject to the approval of the
Company's stockholders at the next annual meeting of stockholders or at any
special meeting of stockholders for which one of the purposes shall be to act
upon this Plan.
19. INDEMNIFICATION.
No member of the Committee is liable, in the absence of bad faith, for any
act or omission with respect to his or her service on the Committee under the
Plan. Service on the Committee constitutes service as a director of the Company
and members of the Committee are entitled to indemnification and reimbursement
as directors of the Company for any action or any failure to act in connection
with service on the Committee to the fullest extent provided for at any time in
the Company's Certificate of Incorporation and By-Laws, or in any insurance
policy or other agreement intended for the benefit of the Company's directors.
20. COMPLIANCE WITH LAWS AND OTHER REGULATIONS.
Each right under this Plan shall be subject to the requirement that if at
any time the Committee determines that the listing, registration or
qualification of the shares of Common Stock subject to this Plan upon any
securities exchange or under any federal or state securities or other law or
regulation, or that the consent or approval of any governmental regulatory body,
is necessary or desirable as a condition to, or in connection with, the granting
of such right or the issuance or purchase of shares thereunder, no such right
may be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee and, the holder of the right will
supply the Company with such certificates, representations and information as
the Company shall request and shall otherwise cooperate with the Company in
obtaining such listing, registration, qualification, consent or approval.
A-6
<PAGE> 51
APPENDIX B
PROXY
OFFICE DEPOT, INC.
2200 OLD GERMANTOWN ROAD
DELRAY BEACH, FL 33445
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David I. Fuente, Barry J. Goldstein and
Thomas Kroeger as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote as designated below all the
shares of common stock of Office Depot, Inc. held of record by the undersigned
on March 5, 1999 (the Record Date) Change Date, at the Annual Meeting of
Stockholders to be held on April 21, 1999 or any adjournment thereof.
1. Election of Directors
( ) FOR all of the nominees listed below ( ) WITHHOLD AUTHORITY
(except as marked in the space provided below)
to vote for all of the nominees listed below
Lee A. Ault III, Neil R. Austrian, Cynthia R. Cohen, David I. Fuente,
W. Scott Hedrick, Irwin Helford, James L. Heskett, John C. Macatee, Michael J.
Myers, M. Bruce Nelson, Peter J. Solomon and Frank P. Scruggs, Jr.
(INSTRUCTION: To withhold authority to vote for any individual
nominee(s) strike a line through that nominee's name in the list above.)
2. ADOPTION OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN FOR THE COMPANY.
( ) FOR ( ) AGAINST ( ) ABSTAIN
3. PROPOSAL TO RATIFY APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT
PUBLIC ACCOUNTANTS
( ) FOR ( ) AGAINST ( ) ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING UNLESS YOU INDICATE THAT YOU
WITHHOLD SUCH AUTHORITY BY SO INDICATING BELOW.
( ) WITHHOLD AUTHORITY
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1, 2 and 3.
Please sign exactly as name appears below. When
shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give
full title as such. If a corporation, please
sign in full corporate name by President or
other authorized officer. If a partnership,
please sign in partnership name by authorized
person.
-----------------------------------------------
Signature
-----------------------------------------------
Signature if held jointly
DATED: , 1999
-----------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING
THE ENCLOSED ENVELOPE.
VOTE BY TELEPHONE OR INTERNET
QUICK * * * EASY * * * IMMEDIATE
Your telephone or Internet vote authorizes the named proxies to vote your
shares in the same manner as if you marked, signed and returned your proxy vard.
VOTE BY PHONE: CALL TOLL-FREE ON A TOUCH-TONE TELEPHONE
1-800-840-1208 ANYTIME
THERE IS NO CHARGE TO YOU FOR THIS CALL.
You will be asked to enter the Control Number located in
the lower right of this form.
OPTION A: If you choose to vote as the Board of Directors
recommends on ALL items, press 1.
OPTION B: If you choose to vote on each item separately, press 0.
You will hear these instructions:
ITEM 1: To vote FOR ALL nominees, press 1; to
WITHHOLD FOR ALL nominees, press 9.
To WITHHOLD FOR AN INDIVIDUAL nominee,
press 0 and listen to the instructions.
ITEM 2: To vote FOR, press 1; AGAINST, press 9;
ABSTAIN, press 0.
ITEM 3: To vote FOR, press 1; AGAINST, press 9;
ABSTAIN, press 0.
WHEN ASKED, YOU MUST CONFIRM YOUR VOTE BY PRESSING 1.
VOTE BY INTERNET: THE WEB ADDRESS IS http://www.eproxy.com/odp/
THANK YOU FOR VOTING.
CALL * * TOLL-FREE * * ON A TOUCH-TONE TELEPHONE
1-800-840-1208 -- ANYTIME
There is NO CHARGE to you for this call.
