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:
[ ] 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 (S) 240.14a-12
SCHOOL SPECIALTY, INC.
(Name of Registrant as Specified In Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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:
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(5) Total fee paid:
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[ ] 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:
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SCHOOL SPECIALTY, INC.
W6316 Design Drive
Greenville, WI 54942
-----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
August 27, 2002
To the Shareholders of School Specialty, Inc.:
The 2002 Annual Meeting of Shareholders of School Specialty, Inc. will be
held at the Radisson Paper Valley Hotel, 333 West College Avenue, Appleton,
Wisconsin, on Tuesday, August 27, 2002 at 10:00 a.m. Central Time for the
following purposes:
(1) To elect two directors to serve until the 2005 Annual Meeting of
Shareholders as Class I directors;
(2) To approve School Specialty's 2002 Stock Incentive Plan;
(3) To ratify the appointment of Deloitte & Touche LLP as School Specialty's
independent auditors for fiscal 2003; and
(4) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement.
Shareholders of record at the close of business on July 8, 2002 are entitled
to receive notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to vote by completing and returning the enclosed proxy
card, or by telephone vote. Your prompt voting by proxy will help ensure a
quorum. If you vote by proxy and then decide to attend the Annual Meeting to
vote your shares in person, you may still do so. Your proxy is revocable in
accordance with the procedures set forth in the Proxy Statement.
By Order of the Board of Directors
Joseph F. Franzoi IV, Secretary
July 26, 2002
SCHOOL SPECIALTY, INC.
W6316 Design Drive
Greenville, Wisconsin 54942
July 26, 2002
Proxy Statement
Unless the context requires otherwise, all references to "School Specialty,"
"we" or "our" refers to School Specialty, Inc. and its subsidiaries. Our fiscal
year ends on the last Saturday in April in each year. In this proxy statement,
we refer to fiscal years by reference to the calendar year in which they end
(e.g., the fiscal year ended April 27, 2002 is referred to as "fiscal 2002").
This Proxy Statement is furnished by the Board of Directors of School
Specialty for the solicitation of proxies from the holders of our common stock,
$0.001 par value (the "Common Stock"), in connection with the Annual Meeting of
Shareholders to be held at the Radisson Paper Valley Hotel, 333 West College
Avenue, Appleton, Wisconsin, on Tuesday, August 27, 2002 at 10:00 a.m. Central
Time, and at any adjournment or postponement thereof (the "Annual Meeting"). It
is expected that the Notice of Annual Meeting of Shareholders, this Proxy
Statement and the enclosed proxy card, together with our Annual Report to
Shareholders for fiscal 2002, will be mailed to shareholders starting on or
about July 26, 2002.
Shareholders can ensure that their shares are voted at the Annual Meeting by
signing and returning the enclosed proxy card in the envelope provided or by
calling the toll-free telephone number listed on the proxy card. If you submit
a signed proxy card or vote by telephone, you may still attend the Annual
Meeting and vote in person. Any shareholder giving a proxy may revoke it before
it is voted by submitting to School Specialty's Secretary a written revocation
or a proxy bearing a later date. The presence at the Annual Meeting of a
shareholder who has voted by proxy does not itself revoke that proxy unless the
shareholder attending the Annual Meeting files a written notice of revocation
of the proxy with School Specialty's Secretary at any time prior to voting.
Proxies will be voted as specified by the shareholders. Where specific
choices are not indicated, proxies will be voted as follows:
. FOR the election of each of the individuals nominated to serve as Class I
directors,
. FOR approval of School Specialty's 2002 Stock Incentive Plan, and
. FOR ratification of the appointment of the independent auditors.
The Board of Directors knows of no other matters to be presented for
shareholder action at the Annual Meeting. If any other matters properly come
before the Annual Meeting, the persons named as proxies will vote on the same
in their discretion.
The expense of printing and mailing proxy materials, including expenses
involved in forwarding materials to beneficial owners of Common Stock held in
the name of another person, will be paid by School Specialty. No solicitation,
other than by mail, is currently planned, except that officers or employees of
School Specialty may solicit the return of proxies from certain shareholders by
telephone or other electronic means.
Only shareholders of record at the close of business on July 8, 2002 (the
"Record Date") are entitled to receive notice of and to vote the shares of
Common Stock registered in their name at the Annual Meeting. As of the Record
Date, we had 18,234,015 shares of Common Stock outstanding. Each share of
Common Stock entitles its holder to cast one vote on each matter to be voted
upon at the Annual Meeting.
Under Wisconsin law and School Specialty's By-Laws, the presence of a quorum
is required to conduct business at the Annual Meeting. A quorum is defined as
the presence, either in person or by proxy, of a majority of the total
outstanding shares of Common Stock entitled to vote at the Annual Meeting. The
shares represented
at the Annual Meeting by proxies that are marked, with respect to the election
of directors, "withhold authority" or, with respect to any other proposals,
"abstain," will be counted as shares present for the purpose of determining
whether a quorum is present. Broker non-votes (i.e., proxies from brokers or
nominees indicating that such persons have not received instructions from
beneficial owners to vote shares as to a matter with respect to which the
brokers or nominees do not have discretionary power to vote) will also be
counted as shares present for purposes of determining a quorum.
With respect to the vote required to approve the various proposals at the
Annual Meeting, the following rules apply:
. Directors are elected by the affirmative vote of a plurality of the
shares of Common Stock present, either in person or by proxy, at the
Annual Meeting and entitled to vote. In other words, the two nominees who
receive the largest number of votes will be elected as directors. In the
election of directors, votes may be cast in favor or withheld. Votes that
are withheld and broker non-votes will have no effect on the outcome of
the election of directors.
. Under Nasdaq and tax rules, approval of School Specialty's 2002 Stock
Incentive Plan requires that a majority of the votes cast be voted to
approve the plan. Abstentions count as votes cast and therefore will have
the effect of a vote against this proposal. Broker non-votes will not be
counted as votes cast and therefore will have no effect on the approval
of this proposal.
. Ratification of the appointment of the independent auditors requires that
the votes cast in favor of ratification exceed the votes cast opposing
the ratification. Abstentions and broker non-votes will therefore have no
effect on the approval of this proposal.
2
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of July 8, 2002
regarding the beneficial ownership of shares of Common Stock by each of our
directors, the executive officers named in the summary compensation table (the
"Named Officers"), all of our directors and executive officers as a group and
each person believed by us to be a beneficial owner of more than 5% of the
Common Stock. Except as otherwise indicated, the business address of each of
the following is W6316 Design Drive, Greenville, Wisconsin 54942.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Outstanding Shares (8)
------------------- -------------------- ----------------------
Daniel P. Spalding (1)(2)...................................... 395,935 2.1%
David J. Vander Zanden (1)..................................... 351,019 1.9%
Mary M. Kabacinski (1)......................................... 78,537 *
A. Brent Pulsipher (1)......................................... 18,750 *
Donald J. Noskowiak (1)........................................ 41,447 *
Leo C. McKenna (1)............................................. 29,739 *
Jonathan J. Ledecky (1)........................................ 922,579 4.8%
Jerome M. Pool (1)............................................. 19,500 *
Rochelle Lamm (1).............................................. 23,672 *
All executive officers and directors as a group (9 persons) (1) 1,881,178 9.4%
Palisade Capital Management, L.L.C. (3)
One Bridge Plaza, Suite 695
Fort Lee, New Jersey 07024.................................... 1,447,000 7.9%
RS Investment Management Co. LLC (4)
388 Market Street, Suite 200
San Francisco, California 94111............................... 1,434,850 7.9%
Capital Research and Management Company (5)
SMALLCAP World Fund, Inc.
333 South Hope Street
Los Angeles, California 90871................................. 1,339,800 7.3%
T. Rowe Price Associates, Inc (6)
T. Rowe Price New Horizons Fund, Inc.
100 East Pratt Street
Baltimore, Maryland 21202..................................... 1,149,076 6.3%
J.P. Morgan Chase & Co. (7)
270 Park Avenue
New York, New York 10017...................................... 957,960 5.3%
- --------
* Less than 1% of the outstanding Common Stock.
(1) Share amounts include options granted under our 1998 Stock Incentive Plan
which are currently exercisable, or exercisable within 60 days after the
Record Date, in the amount of 283,570 held by the Estate of Daniel P.
Spalding and/or his surviving spouse, 301,019 for Mr. Vander Zanden, 68,250
for Ms. Kabacinski, 18,750 for Mr. Pulsipher, 41,203 for Mr. Noskowiak,
23,500 for Mr. McKenna, 922,579 for Mr. Ledecky, 18,500 for Mr. Pool,
23,500 for Ms. Lamm, and 1,700,871 for all executive officers and directors
as a group.
(2) Mr. Spalding died on March 8, 2002. The shares listed for Mr. Spalding are
owned by the Estate of Daniel P. Spalding and/or his surviving spouse.
3
(3) Palisade Capital Management, L.L.C. filed an amended Schedule 13G with the
Securities and Exchange Commission ("SEC") reporting that it had, as of
December 31, 2001, sole voting and dispositive power over 1,447,000 shares
of Common Stock.
(4) RS Investment Management Co. LLC filed a Schedule 13G with the SEC
reporting that it had, as of December 31, 2001, shared voting and
dispositive power over 1,434,850 shares of Common Stock.
(5) Capital Research and Management Company and SMALLCAP World Fund, Inc. have
jointly filed an amended Schedule 13G with the SEC reporting that, as of
December 31, 2001, SMALLCAP World Fund, Inc. had sole voting power over
1,027,000 shares of Common Stock and Capital Research and Management
Company had sole dispositive power over 1,339,800 shares of Common Stock.
(6) T. Rowe Price Associates, Inc. and T. Rowe Price New Horizons Fund, Inc.
have jointly filed an amended Schedule 13G with the SEC reporting that they
had, as of December 31, 2001, sole voting power over 71,000 and 1,000,000
shares, respectively, of Common Stock and T. Rowe Price Associates, Inc.
had sole dispositive power over 1,149,076 shares of Common Stock.
(7) J.P. Morgan Chase & Co. filed a Schedule 13G with the SEC reporting that it
had, as of December 31, 2001, sole voting power over 659,924 shares of
Common Stock, sole dispositive power over 957,120 shares of Common Stock
and shared dispositive power over 840 shares of Common Stock.
(8) Based on 18,234,015 shares of Common Stock outstanding as of the Record
Date.
4
PROPOSAL ONE: ELECTION OF DIRECTORS
School Specialty's directors are divided into three classes, designated as
Class I, Class II and Class III, with staggered terms of three years each. The
term of office of directors in Class I expires at the Annual Meeting. The Board
of Directors proposes that the nominees described below, who are currently
serving as Class I directors, be elected as Class I directors for a new term of
three years ending at the 2005 Annual Meeting and until their successors are
duly elected and qualified.
The nominees have indicated a willingness to serve as directors, but if
either of them should decline or be unable to act as a director, the persons
named in the proxy will vote for the election of another person or persons as
the Board of Directors recommends.
Name and Age of Director
- ------------------------ NOMINEES FOR DIRECTOR--CLASS I
Jonathan J. Ledecky... Mr. Ledecky has served as a director of School Specialty since June
Age 44 1998 and as an employee of School Specialty from June 1998 to June
2000. He is currently Chairman of the Ledecky Foundation, a
philanthropic organization headquartered in Washington, D.C. He
founded Building One Services Corporation (formerly Consolidation
Capital Corporation) in February 1997 and served as its Chairman until
March 2000. Mr. Ledecky founded U.S. Office Products in October
1994, served as its Chairman of the Board until June 1998 and served as
its Chief Executive Officer until November 1997. Mr. Ledecky also
serves as a director of MicroStrategy Corporation and is a
Commissioner of the National Commission on Entrepreneurship. Mr.
Ledecky was Vice Chairman of Lincoln Holdings, owner of
Washington sports franchises in the NBA, NHL and WNBA, from July
1999 to July 2001. Mr. Ledecky served from 1989 to 1991 as the
President of The Legacy Fund, Inc., and from 1991 to September 1994
as President and Chief Executive Officer of Legacy Dealer Capital
Fund, Inc., a wholly-owned subsidiary of Steelcase, Inc. Prior to his
tenure at The Legacy Fund, Inc., Mr. Ledecky was a partner at Adler
and Company and a Senior Vice President at Allied Capital
Corporation, an investment management company.
Jerome M. Pool........ Mr. Pool was appointed to the Board of Directors of School Specialty in
Age 66 June 1999. Mr. Pool is a self-employed business advisor/consultant. He
retired from Jantzen, Inc., a manufacturer of apparel, in 1992 having
served as Chairman, President and Chief Executive Officer since 1983.
Prior to 1983, Mr. Pool served in various sales and management
positions with Jantzen.
5
Name and Age of Director CONTINUING DIRECTORS--CLASS II
- ------------------------ (term expiring 2003)
David J. Vander Zanden. Mr. Vander Zanden became the Interim Chief Executive Officer in
Age 47 March 2002 and has served as President and Chief Operating Officer of
School Specialty since March 1998. From 1992 to March 1998, he
served as President of Ariens Company, a manufacturer of outdoor
lawn and garden equipment. Mr. Vander Zanden has served as a
director of School Specialty since completion of the spin-off from U.S.
Office Products in June 1998.
Rochelle Lamm.......... Ms. Lamm has served as a director of School Specialty since the
Age 54 completion of the spin-off from U.S. Office Products in June 1998. Ms.
Lamm is Chairman and Chief Executive Officer of Precision Marketing
Partners, LLC and The Academy of Financial Services Studies, LLC.
Ms. Lamm was associated with Strong Advisory Services, a division of
Strong Capital Management, Inc., as its President from 1995 to
February 1998. Prior to that time, she was president and the chief
operating officer of AAL Capital Management, a mutual fund manager.
CONTINUING DIRECTOR--CLASS III
(term expiring 2004)
Leo C. McKenna......... Mr. McKenna has served as a director of School Specialty since
Age 68 completion of the spin-off from U.S. Office Products in June 1998. In
March 2002 Mr. McKenna became interim Chairman of the Board. Mr.
McKenna is a self-employed financial consultant. Mr. McKenna is a
director and a member of the Executive Committee of the Boston and
New York Life Insurance Company, a subsidiary of Boston Mutual Life
Insurance Company. He is a founder and a director of Ledyard National
Bank, where he also serves on the Trust Committee and Asset and
Liability Committees. He is a director and member of the John Brown
Cook Foundation and an overseer to the Catholic Student Center at
Dartmouth College.
One vacancy exists in the Class III directors due to the death of Mr.
Spalding on March 8, 2002.
The Board of Directors has standing Compensation, Executive Performance
Compensation and Audit Committees. The Board of Directors does not have a
Nominating Committee. The Board of Directors held nine meetings in fiscal 2002.
Each director attended at least 75% of the meetings of the Board of Directors
and meetings of committees on which each served, if any, in fiscal 2002.
The Compensation Committee is responsible for reviewing and, if appropriate,
approving the compensation of our Chief Executive Officer and our President and
the recommendations of our Chief Executive Officer and our President concerning
the compensation of our other executive officers. The members of the
Compensation Committee are Mr. Pool (Chairman), Mr. McKenna and Ms. Lamm, none
of whom are employees of School Specialty. The Compensation Committee held two
meetings in fiscal 2002.
The Board of Directors appointed the Executive Performance Compensation
Committee as a sub-committee of the Compensation Committee to approve certain
matters related to performance-based compensation when required by Section
162(m) of the Internal Revenue Code of 1986, as amended. The Executive
Performance
6
Compensation Committee is also responsible for administering our 1998 and 2002
Stock Incentive Plans. The members of the Executive Performance Compensation
Committee are Mr. Pool (Chairman) and Ms. Lamm. The Executive Performance
Compensation Committee held three meetings in fiscal 2002.
The Audit Committee is responsible for reviewing our annual audit and
meeting with our independent accountants to review our internal controls and
financial management practices. The members of the Audit Committee are Mr.
McKenna (Chairman), Ms. Lamm and Mr. Pool, each of whom is "independent" within
the meaning of the listing standards of the National Association of Securities
Dealers. The Board of Directors has adopted a charter for the Audit Committee,
which was attached as an appendix to the 2001 proxy statement. The Audit
Committee held two meetings in fiscal 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our directors
and officers, among others, to file reports with the Securities and Exchange
Commission disclosing their ownership, and changes in their ownership, of stock
in School Specialty. Copies of these reports must also be furnished to School
Specialty. Based solely on a review of these copies, we believe that during
fiscal 2002, all filing requirements were complied with.
7
EXECUTIVE COMPENSATION
Summary Compensation Information. The following table sets forth the
compensation paid by us for services rendered during fiscal 2002, fiscal 2001,
and fiscal 2000 to the Named Officers.
Summary Compensation Table
Long Term
Compensation
Awards
-------------------------------
Annual Compensation School Specialty JuneBox.com
- - ------------------- Securities Securities
Bonus Underlying Underlying All Other
Name and Principal Position Year(1) Salary ($) ($)(2) Options (#) Options (#)(7) Compensation ($)
--------------------------- ------- ---------- -------- ---------------- -------------- ----------------
Daniel P. Spalding (3).......... 2002 $262,885 $227,452 -- -- $38,160 (8)
Former Chairman of the Board 2001 265,385 -- -- 300,000 2,550 (9)
and Chief Executive Officer 2000 233,654 -- 130,000 -- 2,400 (9)
David J. Vander Zanden (4)...... 2002 $304,615 $277,452 -- -- $ 2,391 (9)
Interim Chief Executive Officer 2001 265,385 -- -- 300,000 2,550 (9)
2000 233,654 -- 130,000 -- 1,038 (9)
Mary M. Kabacinski (5).......... 2002 $200,385 $174,423 25,000 -- $ 2,391 (9)
Executive Vice President and 2001 175,000 -- -- 100,000 1,918 (9)
Chief Financial Officer 2000 131,250 -- 100,000 -- --
A. Brent Pulsipher (6).......... 2002 $190,500 $142,875 -- -- $53,711 (10)
Executive Vice President of 2001 10,990 4,714 75,000 -- --
Corporate Logistics and 2000 -- -- -- -- --
Technology
Donald J. Noskowiak............. 2002 $140,000 $ 80,000 10,000 -- $ 2,391 (9)
Vice President Finance/ 2001 140,000 -- -- 16,341 1,535 (9)
Business Development 2000 145,385 -- 10,000 -- 2,400 (9)
- --------
(1) Fiscal 2002 and fiscal 2001 represent 52 weeks, while fiscal 2000
represents 53 weeks.
(2) Consists of amounts awarded under School Specialty's Executive Incentive
Plan.
(3) Mr. Spalding died on March 8, 2002. The bonus payment listed in this table
was paid to the surviving spouse of Daniel P. Spalding.
(4) Mr. Vander Zanden was appointed Interim Chief Executive Officer upon the
death of Mr. Spalding in March 2002.
(5) Ms. Kabacinski was first employed by School Specialty in August 1999.
(6) Mr. Pulsipher was first employed by School Specialty in March 2001.
(7) Consists of options granted under the JuneBox.com, Inc. 2000 Equity
Incentive Plan. JuneBox.com, Inc. was a wholly-owned subsidiary of School
Specialty that was dissolved and merged into School Specialty in September
2001. Option grants reflected in this table under the JuneBox.com, Inc.
2000 Equity Incentive Plan were canceled without consideration in April
2001.
(8) Consists of $35,769 in salary continuation payments paid to the Estate of
Daniel P. Spalding during fiscal 2002 subsequent to Mr. Spalding's death
and $2,391 in contributions by School Specialty under our 401(k) plan.
(9) Consists of contributions by School Specialty under our 401(k) plan.
(10) Represents relocation payment of $33,867 and related tax gross-up payment
of $19,216 and contributions by School Specialty under our 401(k) plan of
$628.
8
Option Grants. The following table provides information on options to
acquire School Specialty Common Stock granted to the Named Officers during
fiscal 2002 under the School Specialty 1998 Stock Incentive Plan.
Option/SAR Grants in Last Fiscal Year
Individual Grants (1)
---------------------------------------------
Potential Realizable Value
Number of % of Total at Assumed Annual Rates
Securities Options/SARs of Stock Price Appreciation
Underlying Granted to Exercise for Option Term (2)
- - Options/SARs Employees in Price Expiration ---------------------------
Name Granted (#) Fiscal Year ($/sh) Date 5% ($) 10%($)
- ---- ------------ ------------ -------- ---------- -------- ----------
Daniel P. Spalding.... -- -- -- -- -- --
David J. Vander Zanden -- -- -- -- -- --
Mary M. Kabacinski.... 25,000 7.4% $26.75 9/24/11 $420,573 $1,065,815
A. Brent Pulsipher.... -- -- -- -- -- --
Donald J. Noskowiak... 10,000 3.0% 23.95 6/5/11 150,620 381,701
- --------
(1) The options reflected in the table include incentive and non-qualified
stock options granted under our 1998 Stock Incentive Plan. The exercise
price of each option granted was equal to 100% of the fair market value of
the Common Stock on the date of grant. The options granted vest in
increments of one-fourth of the total grant on the first, second, third and
fourth anniversaries of the grant or earlier upon certain specified change
of control events.
(2) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock appreciation of 5% and 10%. These assumed
rates of growth were selected by the SEC for illustration purposes only.
They are not intended to forecast possible future appreciation, if any, of
stock prices.
9
Option Exercises. The following table provides information regarding
options to acquire School Specialty Common Stock exercised during fiscal 2002
and options held at year end by the Named Officers.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Shares Options/SARs at FY-End (#) at FY-End ($) (1)
Acquired on Value ------------------------- -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
Daniel P. Spalding (2) -- -- 462,520 -- $5,563,282 --
David J. Vander Zanden -- -- 293,519 65,000 3,643,427 $727,525
Mary M. Kabacinski.... 500 $ 8,619 49,500 75,000 703,714 749,188
A. Brent Pulsipher.... -- -- 18,750 56,250 150,188 450,563
Donald J. Noskowiak... 38,000 477,986 38,703 15,000 488,382 95,963
- --------
(1) For valuation purposes, an April 26, 2002 market price of $28.26 was used.
(2) All of Mr. Spalding's options became exercisable as a result of his death
on March 8, 2002. The options are held by Mr. Spalding's estate and/or his
surviving spouse.
NON-EMPLOYEE DIRECTOR COMPENSATION
Non-employee directors are granted options under our 1998 Stock Incentive
Plan to purchase 15,000 shares of Common Stock upon their initial election as
members of the Board of Directors and 5,000 shares of Common Stock for each
additional year of service. These options are granted at an exercise price
equal to the fair market value on the date of grant and have three year vesting
schedules. In addition, non-employee directors are currently paid an annual
retainer of $20,000 plus $1,000 for each additional special meeting and
committee meeting attended and are reimbursed for all out-of-pocket expenses
related to their service as directors.
EMPLOYMENT CONTRACTS AND RELATED MATTERS
We have entered into employment agreements with each Named Officer.
Daniel P. Spalding, our former Chairman and Chief Executive Officer who died
in March 2002, had an employment contract that provided, upon termination of
employment due to death, for the payment of his base salary of $310,000 through
the balance of the then effective term of the agreement (September 3, 2004).
We entered into an employment agreement with David J. Vander Zanden,
President and Chief Operating Officer of School Specialty, on May 1, 2002. The
agreement has an initial term of three years, and automatically renews for
additional three year terms following the first year of the initial term or any
renewal term unless either party gives notice of non-renewal. The agreement
currently provides for an annual base salary of at least $350,000 and
participation in a performance-based incentive compensation plan. The agreement
contains a confidentiality provision which is triggered upon the termination of
Mr. Vander Zanden's employment and runs for a period of two years. The
agreement provides Mr. Vander Zanden the right to terminate his employment upon
a change of control of School Specialty. In the event Mr. Vander Zanden's
employment is terminated due to his death, disability, his own right to
terminate under the agreement or upon a change of control, School Specialty is
required to pay to him his base salary for the balance of the then effective
term of the agreement. In the case of disability, these amounts are reduced by
insurance benefits provided by School Specialty. The agreement contains a
non-compete provision that applies during Mr. Vander Zanden's employment and
runs for a period of two years following termination of employment or the
length of time he receives base salary payments, whichever is longer.
10
We entered into an employment agreement with Mary M. Kabacinski, Executive
Vice President of School Specialty, on September 3, 1999. The agreement has an
initial term of two years, with automatic two year extensions following the
first year of the initial term or any renewal term unless either party gives
notice of non-renewal. The agreement provides for an annual base salary of at
least $175,000 and participation in a performance-based incentive compensation
plan. The agreement provides Ms. Kabacinski with the right to terminate her
employment upon a change of control of School Specialty. The agreement contains
a confidentiality provision which is triggered upon the termination of Ms.
Kabacinski's employment and runs for a period of two years. In the event Ms.
Kabacinski's employment is terminated due to her death, disability or upon a
change of control, School Specialty is required to pay Ms. Kabacinski her base
salary for the balance of the then effective term of the agreement. In the case
of disability, these amounts are reduced by insurance payments provided by
School Specialty. The agreement contains a non-compete provision that applies
during Ms. Kabacinski's employment and runs for a period of 18 months following
termination of employment.
We entered into an employment agreement with A. Brent Pulsipher, Executive
Vice President of Corporate Logistics and Technology of School Specialty, on
March 26, 2001. The agreement has an initial term of three years, with
automatic one year extensions unless either party gives notice of non-renewal.
The agreement provides for an annual base salary of at least $190,500 and a
guaranteed minimum bonus of $81,700 under a performance-based incentive
compensation plan. The agreement provides Mr. Pulsipher with the right to
terminate his employment upon a change of control of School Specialty. The
agreement contains confidentiality, non-solicitation and non-compete provisions
which apply during Mr. Pulsipher's employment and run for a period of two years
following termination of employment. In the event Mr. Pulsipher elects to
terminate employment upon a change of control, School Specialty is required to
pay Mr. Pulsipher his base salary through the then effective term of the
agreement.
We entered into an employment agreement with Donald J. Noskowiak, Vice
President of School Specialty, on September 3, 1999. The agreement has an
initial term of eighteen months, with automatic eighteen month extensions
unless either party gives notice of non-renewal. The agreement provides for an
annual base salary of at least $140,000 and participation in a
performance-based incentive compensation plan. The agreement provides Mr.
Noskowiak with the right to terminate his employment upon a change of control
of School Specialty. The agreement contains a confidentiality provision which
is triggered upon the termination of Mr. Noskowiak's employment and runs for a
period of two years. In the event Mr. Noskowiak elects to terminate employment
upon a change of control, School Specialty is required to pay Mr. Noskowiak his
base salary for a period of 18 months from the date of termination. The
agreement contains a non-compete provision that applies during Mr. Noskowiak's
employment and runs for a period of 18 months following termination of
employment (12 months in the case of self-termination).
11
COMPENSATION COMMITTEE REPORT
The Compensation Committee consists of Mr. Pool (Chairman), Mr. McKenna and
Ms. Lamm. The Compensation Committee is responsible for reviewing and, if
appropriate, approving the compensation of our permanent Chief Executive
Officer and Mr. Vander Zanden, our interim Chief Executive Officer, Chief
Operating Officer and President, and the recommendations of Mr. Vander Zanden
concerning the compensation levels of our other executive officers. The
Executive Performance Compensation Committee is composed of Mr. Pool (Chairman)
and Ms. Lamm. The Executive Performance Compensation Committee administers our
1998 Stock Incentive Plan and the 2002 Stock Incentive Plan, with
responsibility for determining the awards to be made under such plans.
The Compensation Committee and the Executive Performance Compensation
Committee review compensation programs for executive officers in June of each
year. Because certain matters related to compensation are approved by the
Executive Performance Compensation Committee, that committee joins in the
report of the Compensation Committee.
Overview. The compensation structure for our executive officers consists in
general of three principal components: base salary, annual cash bonus and
periodic grants of stock options. Base salary determinations are an important
ingredient in attracting and retaining quality personnel in a competitive
market. Base salaries are set at levels based generally on subjective factors,
including the individual's level of responsibility, experience and past
performance record. In addition, a significant portion of compensation is
directly related to and contingent upon objective performance criteria
established on an annual basis. Accordingly, our executives participate in cash
bonus arrangements based in part on objective formulas tied to the individual's
profit center and/or School Specialty as a whole. Finally, to ensure that
executive officers hold equity positions in School Specialty, which we think is
important, stock options are granted to executives to enable them to hold
equity interests at more meaningful levels than they could through alternative
methods.
Base Salary. The base salaries of Messrs. Spalding and Vander Zanden were
established by their employment agreements and are reviewed annually by the
Compensation Committee which makes recommendations on changes if appropriate to
the Board of Directors for approval. In fiscal 2002, the Committee recommended
increases in Messrs. Spalding's and Vander Zanden's base salaries from $275,000
to $310,000. Executive salaries for officers other than the Chief Executive
Officer and President are recommended to the Compensation Committee for review
and approval prior to submission to the Board of Directors for approval.
Cash Bonus. For corporate executives, the current incentive compensation
plan permits such persons to receive up to 100% of their base compensation in
cash bonus and is tied in part to the performance goals established on an
annual basis by the Board of Directors and in part to discretionary performance
criteria. The Committee believes that the plan provides important incentives to
executives thereby benefiting not only the executive but School Specialty as
well. Cash bonuses were earned under the plan by corporate executive officers
in fiscal 2002 because earnings per share goals were met. In addition, the
Committee accepted management's recommendations for the discretionary portions
of the plan for which their input was requested.
The Committee approved a bonus for fiscal 2002 of $227,452 for payment to
Mr. Spalding. This bonus was calculated under the fiscal 2002 incentive
compensation plan as if Mr. Spalding had completed his employment with School
Specialty through the end of fiscal 2002. This calculation was made in
recognition of Mr. Spalding's founding of School Specialty and his
extraordinary service throughout his tenure. The Compensation Committee
approved Mr. Spalding's bonus based on School Specialty's achievement of
targeted earnings goals as well as the discretionary performance factors
applicable to bonus plan participants.
With respect to Mr. Vander Zanden, the Committee approved a bonus for fiscal
2002 of $227,452 based upon the parameters of the plan. In addition to the
foregoing, the Committee also approved a one-time $50,000
12
bonus for Mr. Vander Zanden due to his exemplary performance following the
death of our former Chief Executive Officer, Daniel P. Spalding.
Equity Based Compensation. Under our 1998 Stock Incentive Plan, the
Executive Performance Compensation Committee determines the stock option awards
to be made to executive officers and others. With respect to our Chief
Executive Officer and our President, the Executive Performance Compensation
Committee bases its determination upon performance goals as well as existing
overall compensation. With respect to other executives, the Executive
Performance Compensation Committee bases its determinations on recommendations
made by management.
Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
disallows a tax deduction to public corporations for compensation over $1.0
million for any fiscal year paid to the corporation's chief executive officer
and four other most highly compensated executive officers as of the end of any
fiscal year. However, Section 162(m) also provides that qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. In making compensation decisions, it is the
Compensation Committee's current intention to recommend plans and awards which
will meet the requirements for deductibility for tax purposes under Section
162(m) and has established the Executive Performance Compensation Committee,
consisting of Mr. Pool and Ms. Lamm, to assist in that regard. Because of
uncertainties as to the application and interpretation of Section 162(m), no
assurance can be given that the compensation paid to our most highly
compensated officers will be deductible for federal income tax purposes,
notwithstanding School Specialty's efforts to satisfy such section. In
addition, School Specialty may pay compensation that does not satisfy these
requirements for deduction if it is deemed advisable for business reasons.
The Compensation Committee: The Executive Performance Compensation Committee:
Jerome M. Pool (Chairman) Jerome M. Pool (Chairman)
Leo C. McKenna Rochelle Lamm
Rochelle Lamm
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
With the exception of Leo C. McKenna, no member of the Compensation
Committee has ever been an officer of our company or any of our subsidiaries
and none of our executive officers has served on the compensation committee or
the board of directors of any company of which any of our directors is an
executive officer. Mr. McKenna is a former officer and director of a
predecessor company of School Specialty that was acquired by U.S. Office
Products in 1996.
13
AUDIT COMMITTEE REPORT
In accordance with its written charter, the Audit Committee assists the
Board in fulfilling its responsibility to our shareholders, the investment
community and governmental agencies relating to corporate accounting, financial
reporting practices and the quality and integrity of our financial reports.
During fiscal 2002, the Audit Committee met two times, and the Audit Committee
chair, the designated representative of the Audit Committee, discussed the
interim financial information contained in each of our quarterly reports on
Form 10-Q with the chief financial officer and independent auditors prior to
their filing with the SEC.
In June 2002, the Audit Committee recommended that the Board dismiss Arthur
Andersen LLP ("Andersen") as our independent auditors and engage Deloitte &
Touche LLP ("Deloitte") to serve as our independent auditors.
Auditor Independence and Fiscal 2002 Audit. In discharging its duties, the
Audit Committee obtained from Deloitte, our independent auditors for the 2002
audit, a formal written statement describing all relationships between the
auditors and us that might bear on the auditors' independence consistent with
Independence Standards Board Standard No. 1, "Independence Discussions with
Audit Committees." In addition, the Audit Committee discussed with the auditors
any relationships that may impact their objectivity and independence and
satisfied itself as to the auditors' independence. The Audit Committee also
independently discussed the quality and adequacy of our internal controls with
management and the independent auditors. The Audit Committee reviewed with the
independent auditors their audit plans, audit scope and identification of audit
risks.
The Audit Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement on Auditing Standards No. 61, as amended,
"Communication with Audit Committees" and, with and without management present,
discussed and reviewed the results of the independent auditors' examination of
the financial statements. The Audit Committee also discussed with management
and the independent auditors the objectives and scope of the internal audit
process and the results of the internal audit examinations.
Fiscal 2002 Financial Statements and Recommendations of the Committee. The
Audit Committee separately reviewed our audited financial statements as of and
for the fiscal year ended April 27, 2002 with management and the independent
auditors. Management has the responsibility for the preparation of our
financial statements and the independent auditors have the responsibility for
the examination of those statements.
Based on the above-mentioned review, and discussions with management and the
independent auditors, the Audit Committee recommended to the Board of Directors
that our audited financial statements be included in our annual report on Form
10-K for the fiscal year ended April 27, 2002, for filing with the SEC.
Audit Fees. The aggregate fee for professional services rendered (1) by
Deloitte for the audit of our financial statements as of and for the fiscal
year ended April 27, 2002 and for the reaudit of our financial statements as of
and for the fiscal year ended April 28, 2001 was approximately $200,000 and (2)
by Andersen for audit fees and for the review of the financial statements
included in our Form 10-Q filings for fiscal 2002 was approximately $183,000.
Financial Information Systems Design and Implementation Fees. The
independent auditors did not provide professional services during fiscal 2002
for the operation of our information systems or the management of our local
area networks, nor did they design or implement a hardware or software system
that aggregates source data underlying our financial statements or generates
information that is significant to our financial statements taken as a whole.
Accordingly, no financial information systems design and implementation fees
were paid to the independent auditors.
14
All Other Fees. The aggregate fees billed by Andersen during fiscal 2002
for other audit-related services was approximately $293,000 and for tax-related
services was approximately $311,000. No fees were billed by Deloitte for
non-audit and non-information systems related services during fiscal 2002. The
Audit Committee considered whether, and determined that, the provision of these
types of services was compatible with maintaining Andersen's independence.
The Audit Committee:
Leo C. McKenna (Chairman)
Rochelle Lamm
Jerome M. Pool
PERFORMANCE GRAPH
The following graph compares the total shareholder return on our Common
Stock since our initial public offering on June 9, 1998 with that of the
Russell 2000 Stock Market Index and a peer group index constructed by us. The
issuers included in the peer group index are: Renaissance Learning, Inc.
(RLRN), American Educational Products, Inc. (AMEP), Nobel Learning Communities,
Inc. (NLCI), National Computer Systems, Inc. (NLCS) and Scholastic Corporation
(SCHL). National Computer Systems, Inc. was acquired in 2000 and American
Educational Products, Inc. was acquired in 2002. Returns are included through
the date of the respective company's acquisition. The total return calculations
set forth below assume $100 invested on June 9, 1998, with reinvestment of any
dividends into additional shares of the same class of securities at the
frequency with which dividends were paid on such securities through April 27,
2002. The stock price performance shown in the graph below should not be
considered indicative of potential future stock price performance.
[CHART]
School Specialty, Inc. Russell 2000 Index Peer Group
6/9/1998 $100.00 $100.00 $100.00
4/24/1999 $125.81 $ 95.59 $132.20
4/29/2000 $120.16 $113.53 $145.41
4/28/2001 $146.97 $109.98 $248.90
4/27/2002 $182.33 $115.53 $254.01
June 9, 1998 April 24, 1999 April 29, 2000 April 28, 2001 April 27, 2002
------------ -------------- -------------- -------------- --------------
School Specialty, Inc. $100.00 $125.81 $120.16 $146.97 $182.33
Russell 2000 Index $100.00 $ 95.59 $113.53 $109.98 $115.53
Peer Group $100.00 $132.20 $145.41 $248.90 $254.01
15
PROPOSAL TWO: APPROVAL OF 2002 STOCK INCENTIVE PLAN
General
The Board of Directors adopted School Specialty's 2002 Stock Incentive Plan
(the "Plan") on June 11, 2002. The Plan authorizes grants of stock options,
including options that are intended to qualify as "incentive stock options,"
("ISOs") as defined under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as options that are not intended to so qualify.
The Plan also authorizes the direct grant of shares of common stock.
The Plan summary below is qualified in its entirety by reference to the
Plan, a copy of which is attached to this proxy statement as Appendix A.
The Board of Directors recommends a vote FOR approval of the Plan. Proxies
solicited by the Board of Directors will, unless otherwise directed, be voted
in favor of the proposal to adopt the Plan.
Purpose and Eligibility
The purpose of the Plan is to promote our long-term growth and
profitability. The Plan does this by providing key personnel with incentives to
improve shareholder value and contribute to our growth and financial success,
and by enabling us to recruit, reward and retain employees, consultants,
officers and non-employee directors. In particular, we are in the process of
recruiting a new Chief Executive Officer. The Board of Directors believes
grants of awards under the Plan are necessary for us to attract qualified
candidates for this position. Accordingly, we believe that approval of the Plan
at this time is especially important for us.
All employees, consultants, advisors and independent contractors of School
Specialty and its subsidiaries, as well as non-employee directors and officers
of School Specialty and its subsidiaries, are eligible to receive awards under
the Plan. As of April 28, 2002, School Specialty and its subsidiaries had
approximately 2,400 employees, one non-employee officer and four non-employee
directors.
Administration
The Plan is administered by the Executive Performance Compensation Committee
of the Board of Directors (the "Committee"). The Committee, in its sole
discretion, determines which individuals may participate in the Plan and the
prices (which may not be less than the fair market value on the date of award),
vesting schedules, expiration dates and other material conditions under which
the awards may be granted. The Committee may delegate to employees of School
Specialty or its subsidiaries and may, to the extent consistent with Wisconsin
law, delegate to officers of School Specialty the authority to make option
grants.
Awards
The Plan authorizes the Committee to make awards of stock options
("Options") or direct grants of restricted stock ("Stock Grants" and, together
with the Options, "Awards") with respect to shares of School Specialty common
stock to eligible individuals. The terms and conditions of Awards granted under
the Plan are set out from time to time in an agreement between School Specialty
and the individuals receiving such Awards. School Specialty may grant
nonqualified stock options ("NQSOs") to any eligible person; however, only
employees of School Specialty and its subsidiaries may receive ISOs within the
meaning of Section 422 of the Code.
Options will vest and become exercisable within such period or periods, not
to exceed 10 years (or five years for an ISO granted to a more-than-10%
shareholder), as determined by the Committee and set forth in the participant's
Award agreement. The Committee may accelerate the time at which the Awards
become exercisable.
16
Awards may be exercised by delivery of notice of exercise to School
Specialty accompanied by full payment of the exercise price. The exercise price
of options must be paid with cash, or other form approved by the Committee,
including common stock previously owned by the participant or notice delivered
pursuant to an approved broker-assisted cashless exercise.
As of the date of this Proxy Statement, no Awards have been granted under
the Plan and the Awards that will be granted in the future under the Plan are
not currently determinable; however, the Plan is limited to grants covering up
to 1,500,000 shares of Common Stock.
Adjustments
The Plan and any outstanding Awards shall be subject to adjustment, as
determined by the Committee, in the event of certain changes due to
recapitalization, reclassification, stock splits or other increase or decrease.
In the event of such changes, the Committee may make a proportionate adjustment
in the number of shares of Common Stock underlying each Award as well as in the
number of shares available under the Plan and the maximum number of shares
issuable to one person.
In the event of dissolution or liquidation of School Specialty, a merger,
consolidation or reorganization in which School Specialty is not the survivor,
or the sale of substantially all the assets of School Specialty, the Plan and
any unexercised Awards will terminate unless written provision is made for the
assumption or continuation of outstanding Awards. Prior to the consummation of
the transaction, all Awards that would otherwise terminate shall become
immediately exercisable with respect to all of the shares subject to such
Award, unless the Committee determines otherwise.
Amendment and Termination
The Board may from time to time, to the extent permitted by applicable law,
amend, suspend or terminate the Plan without the consent of participants or
shareholder approval. However, the Board may not make an amendment that has an
adverse effect on outstanding Awards without the consent of the affected
participants. In addition, the Board may not amend the Plan so as to deprive
any participant of a previously granted Award.
Unless the Board extends the Plan's term, the Committee may not grant awards
after June 11, 2012. The Plan will then terminate but will continue to govern
unexercised and unexpired Awards.
Shares Subject to the Plan
The aggregate number of shares of Common Stock that may be issued under the
Awards (whether ISOs, NQSOs or Stock Grants) may not exceed 1,500,000. The
maximum number of shares that may be subject to ISOs is 1,500,000. The maximum
number of shares that may be issued with respect to Awards granted under the
Plan to any one person in a calendar year may not exceed 500,000 shares. On the
Record Date, the closing price of School Specialty's Common Stock was $25.00
per share.
Federal Income Tax Consequences
The federal income tax consequences of NQSOs, ISOs and restricted stock
granted under the Plan are generally as follows:
NQSOs. The grant of a NQSO will have no federal income tax consequences to
School Specialty or to a participant. A participant will recognize taxable
ordinary income at the time of exercise of the option in an amount equal to the
excess of the fair market value of the stock acquired at the time of exercise
over the option price, and School Specialty will ordinarily be entitled to a
tax deduction for such amount.
17
The holder of stock acquired upon exercise of a NQSO will, upon a subsequent
disposition of such stock, generally recognize a short-term or long-term
capital gain or loss, depending upon the holding period of the stock, equal to
the difference between the amount realized on the sale and the basis in such
stock (the sum of the option price and the amount taxed as ordinary income at
the time of exercise).
ISOs. Neither the grant nor exercise of an ISO will generally have any
federal income tax consequences for a participant. The amount by which the fair
market value of the stock acquired upon the exercise of any ISO exceeds the
option price as of the date of exercise, however, is an item of "tax
preference" for purposes of computing the alternative minimum tax on
individuals. If a participant has held the stock acquired on the exercise of an
ISO for at least two years from the date of the grant of the option and at
least one year from the date of exercise, the participant will recognize
taxable long-term capital gain or loss upon a subsequent disposition of the
stock. In such circumstances, no deduction would be allowed to School Specialty
for federal income tax purposes in connection with the grant or exercise of the
option or the transfer of stock acquired upon such exercise.
If, however, the participant disposes of his or her stock within the holding
periods described above, (i) the participant will recognize ordinary income in
an amount equal to the difference between the fair market value of such stock
on the date of exercise and the option price, provided that, if the disposition
is a sale or exchange with respect to which a loss (if sustained) would be
recognized by the participant and the amount realized from such sale or
exchange is less than the fair market value on the exercise date, then the
ordinary income will be limited to the excess of the amount realized upon the
sale or exchange of the stock over the option price; (ii) School Specialty will
be entitled to a tax deduction for such year in the amount of the ordinary
income so recognized; and (iii) the participant will recognize capital gain or
loss, as the case may be, in an amount equal to the difference between the
amount realized upon such sale or exchange of the stock and the sum of the
option price plus the amount of ordinary income, if any, recognized upon such
disposition.
Restricted Stock. The grant of restricted stock is not a taxable event to a
participant, absent an election under Section 83(b) of the Code. If no election
is made, the participant will recognize income, taxable for income tax purposes
at ordinary rates, upon the lapse of the restrictions governing the stock. The
amount of the income will equal the fair market value of the stock when the
restrictions lapse. If the participant makes a Section 83(b) election within 30
days of the date of grant, he or she will be deemed to have received ordinary
income at the time of the grant of the restricted stock equal to their fair
market value at the date of grant less any amount paid by the participant for
the stock, determined without regard to the restrictions imposed thereon. If
the restricted stock is subsequently forfeited after a Section 83(b) election
and before the restrictions lapse, the participant is not entitled to claim the
loss for income tax purposes.
School Specialty or a subsidiary will be entitled to a deduction for income
tax purposes when the participant recognizes ordinary income, either as a
result of a Section 83(b) election or because of the lapse of the restrictions.
The amount of the deduction will equal the amount of ordinary income recognized
by the participant.
18
Equity Compensation Plan Information
The following table sets forth certain information as of April 27, 2002
about shares of our common stock outstanding and available for issuance under
our existing equity compensation plan, the Amended and Restated School
Specialty, Inc. 1998 Stock Incentive Plan (the "1998 Plan"). Under the 1998
Plan, we may grant stock options and other awards from time to time to
employees, consultants, advisors and independent contractors of School
Specialty and its subsidiaries, as well as non-employee directors and officers
of School Specialty. The 1998 Plan was approved by shareholders on August 29,
2000. The table does not include the additional 1,500,000 shares to be reserved
for issuance under the 2002 Stock Incentive Plan.
Number of securities
remaining available
for future issuance
Number of under equity
securities to be Weighted-average compensation plans
issued upon exercise price of (excluding
exercise of outstanding securities reflected
Plan category outstanding options options in the first column)
------------- ------------------- ----------------- --------------------
Equity compensation plans approved by security
holders, the 1998 Plan(1)....................... 3,003,738 $17.48 71,606
Equity compensation plans not approved by security
holders(2)...................................... N/A N/A N/A
Total............................................. 3,003,738 $17.48 71,606
- --------
(1) Grants for shares of our common stock under the 1998 Plan are limited to
20% of the outstanding shares of School Specialty stock. As the number of
outstanding shares of School Specialty stock increases or decreases, the
maximum number of shares that may be issued under the 1998 Plan increases
and decreases. As of April 27, 2002, there were 18,046,315 shares of School
Specialty common stock outstanding.
(2) As of April 27, 2002, School Specialty does not maintain any equity
compensation plans which have not been approved by shareholders.
PROPOSAL THREE: RATIFICATION OF INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee and subject to ratification by
the shareholders at the Annual Meeting, the Board of Directors has appointed
Deloitte & Touche LLP ("Deloitte"), an independent public accounting firm, to
audit the consolidated financial statements of School Specialty for the fiscal
year ending April 26, 2003. Deloitte audited the financial statements of School
Specialty for the fiscal year ended April 27, 2002. Representatives of Deloitte
will be present at the Annual Meeting to make any statement they may desire and
to respond to questions from shareholders.
If shareholders do not ratify the appointment of Deloitte, the selection of
our independent auditors will be reconsidered by the Board of Directors.
Information Regarding Change of Independent Auditors
On June 11, 2002, we dismissed Andersen as our independent auditors, who we
engaged upon the dismissal of PricewaterhouseCoopers LLP ("PWC") on December
11, 2000. Simultaneously with the dismissal of Andersen, we engaged Deloitte to
act as our independent auditors. In each case, the decision to change
independent auditors was approved by the Board of Directors upon the
recommendation of the Audit Committee.
Reports on our financial statements for the fiscal years ended April 27,
2002 and April 28, 2001 did not contain an adverse opinion, disclaimer of
opinion or qualification or modification as to uncertainty, audit scope or
accounting principles. During the fiscal years ended April 27, 2002 and April
28, 2001 and during the subsequent period through Andersen's and PWC's
respective periods of engagement, we had no disagreements
19
with Andersen or PWC on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. None of the
reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred
during the fiscal years ended April 27, 2002 and April 28, 2001 and through
June 11, 2002.
During the two most recent fiscal years and through June 11, 2002, School
Specialty did not consult with Deloitte, and during the period from April 25,
1999 through December 11, 2000 School Specialty did not consult with Andersen,
regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii)
of Regulation S-K.
OTHER MATTERS
Although management is not aware of any other matters that may come before
the Annual Meeting, if any such matters should be presented, the persons named
in the enclosed proxy card intend to vote in accordance with their best
judgment.
SUBMISSION OF SHAREHOLDER PROPOSALS
In accordance with our By-Laws, nominations, other than by or at the
direction of the Board of Directors, of candidates for election as directors at
the 2003 Annual Meeting of Shareholders must be submitted to us no earlier than
May 29, 2003 and no later than June 28, 2003. Any other shareholder proposed
business to be brought before the 2003 Annual Meeting of Shareholders must be
submitted to us no later than March 28, 2003. Shareholder proposed nominations
and other shareholder proposed business must be made in accordance with our
By-Laws which provide, among other things, that shareholder proposed
nominations must be accompanied by certain information concerning the nominee
and the shareholder submitting the nomination, and that shareholder proposed
business must be accompanied by certain information concerning the proposal and
the shareholder submitting the proposal. To be considered for inclusion in the
proxy statement solicited by the Board of Directors, shareholder proposals for
consideration at the 2003 Annual Meeting of Shareholders of School Specialty
must be received by us at our principal executive offices, W6316 Design Drive,
Greenville, Wisconsin, 54942 on or before March 28, 2003. Proposals should be
directed to Ms. Karen A. Riching, Assistant Secretary. To avoid disputes as to
the date of receipt, it is suggested that any shareholder proposal be submitted
by certified mail, return receipt requested.
Shareholders may obtain a copy of our Annual Report to Shareholders for
fiscal 2002, which includes our Annual Report on Form 10-K, at no cost by
writing to Ms. Karen A. Riching, Assistant Secretary, School Specialty, Inc.,
W6316 Design Drive, Greenville, Wisconsin, 54942.
By Order of the Board of Directors,
Joseph F. Franzoi IV, Secretary
20
Appendix A
SCHOOL SPECIALTY, INC.
2002 STOCK INCENTIVE PLAN
PURPOSE SCHOOL SPECIALTY, INC., a Wisconsin corporation (the
"Company"), wishes to recruit, reward, and retain
employees, consultants, independent contractors, advisors,
officers and outside directors. To further these
objectives, the Company hereby sets forth the School
Specialty, Inc. 2002 Stock Incentive Plan (the "Plan") to
provide options ("Options") or direct grants ("Stock
Grants" and, together with the Options, "Awards") to
employees, consultants, independent contractors, advisors,
officers and outside directors with respect to shares of
the Company's common stock (the "Common Stock"). The Plan
is effective as of June 11, 2002 (the "Effective Date").
PARTICIPANTS The following persons are eligible to receive Options and
Stock Grants under the Plan: (1) current and prospective
Employees (as defined below) of the Company and any
Eligible Subsidiary (as defined in the Eligible Subsidiary
section below), (2) consultants, advisors and independent
contractors of the Company and any Eligible Subsidiary and
(3) officers and directors of the Company and any Eligible
Subsidiary who are not Employees ("Eligible Officers and
Eligible Directors"). Eligible persons become "Optionees"
when the Administrator grants them an option under this
Plan or "Recipients" when they receive a direct grant of
Common Stock. (Optionees and Recipients are referred to
collectively as "Participants." The term Participant also
includes, where appropriate, a person authorized to
exercise an Award in place of the original Optionee.)
Employee means any person employed as a common law employee
of the Company or an Eligible Subsidiary.
ADMINISTRATOR The Administrator will be the Compensation Committee of the
Board of Directors of the Company (the "Compensation
Committee"), unless the Board specifies another committee.
The Board may also act under the Plan as though it were the
Compensation Committee.
The Administrator is responsible for the general operation
and administration of the Plan and for carrying out its
provisions and has full discretion in interpreting and
administering the provisions of the Plan. Subject to the
express provisions of the Plan, the Administrator may
exercise such powers and authority of the Board as the
Administrator may find necessary or appropriate to carry
out its functions. The Administrator may delegate its
functions (other than those described in the Granting of
Awards section) to Employees of the Company or Eligible
Subsidiaries and may, to the extent consistent with
Wisconsin law, delegate to officers of the Company the
authority to make Option grants.
The Administrator's powers will include, but not be limited
to, the power to amend, waive, or extend any provision or
limitation of any Award. The Administrator may act through
meetings of a majority of its members or by unanimous
consent.
GRANTING OF Subject to the terms of the Plan, the Administrator will,
AWARDS in its sole discretion, determine:
the Participants who receive Awards,
A-1
the terms of such Awards,
the schedule for exercisability or nonforfeitability
(including any requirements that the Participant or
the Company satisfy performance criteria),
the time and conditions for expiration of the Award,
and
the form of payment due upon exercise, if any.
The Administrator's determinations under the Plan need not
be uniform and need not consider whether possible
Participants are similarly situated.
Options granted to Employees may be nonqualified stock
options ("NQSOs") or "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended from time to time (the "Code"), or
the corresponding provision of any subsequently enacted tax
statute. Options granted to consultants, independent
contractors, advisors, Eligible Officers and Eligible
Directors must be NQSOs. The Administrator will not grant
ISOs unless the shareholders either have already approved
the granting of ISOs or give such approval within 12 months
after the grant.
The Administrator may impose such conditions on or charge
such price for the Stock Grants as it deems appropriate.
SUBSTITUTIONS The Administrator may also grant Awards in substitution for
options or other equity interests held by individuals who
become Employees of the Company or of an Eligible
Subsidiary as a result of the Company's acquiring or
merging with the individual's employer or acquiring its
assets. In addition, the Administrator may provide for the
Plan's assumption of Awards granted outside the Plan
(including those granted by an Eligible Subsidiary) to
persons who would have been eligible under the terms of the
Plan to receive an Award, including both persons who
provided services to any acquired company or business and
persons who provided services to the Company or any
Eligible Subsidiary. If appropriate to conform the Awards
to the interests for which they are substitutes, the
Administrator may grant substitute Awards under terms and
conditions (including Exercise Price) that vary from those
the Plan otherwise requires.
DATE OF GRANT The Date of Grant will be the date as of which this Plan or
the Administrator grants an Award to a Participant, as
specified in the Plan or in the Administrator's minutes or
other written evidence of action.
EXERCISE PRICE The Exercise Price is the value of the consideration that a
Participant must provide in exchange for one share of
Common Stock. The Administrator will determine the Exercise
Price under each Award and may set the Exercise Price
without regard to the Exercise Price of any other Awards
granted at the same or any other time. The Company may use
the consideration it receives from the Participant for
general corporate purposes.
The Exercise Price per share for NQSOs may not be less than
100% of the Fair Market Value (as defined below) of a share
on the Date of Grant. If an Option is intended to be an
ISO, the Exercise Price per share may not be less than 100%
of the Fair Market Value (on the Date of Grant) of a share
of Common Stock covered by
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the Option; provided, however, that if the Administrator
decides to grant an ISO to someone covered by Sections
422(b)(6) and 424(d) (as a more-than-10%-shareholder), the
Exercise Price of the Option must be at least 110% of the
Fair Market Value (on the Date of Grant).
The Administrator may satisfy any state law requirements
regarding adequate consideration for Stock Grants by (i)
issuing Common Stock held as treasury stock or (ii)
charging the Recipients at least the par value for the
shares covered by the Stock Grant. The Administrator may
designate that a Recipient may satisfy (ii) above either by
direct payments or by the Administrator's withholding from
other payments due to the Recipient.
FAIR MARKET Fair Market Value of a share of Common Stock for purposes
VALUE of the Plan will be determined as follows:
If the Common Stock trades on a national securities
exchange, the closing sale price on the Date of Grant;
If the Common Stock does not trade on any such
exchange, the closing sale price as reported by the
National Association of Securities Dealers, Inc.
Automated Quotation System ("Nasdaq") for such date;
If no such closing sale price information is
available, the average of the closing bid and asked
prices that Nasdaq reports for such date;
If there are no such closing bid and asked prices,
the average of the closing bid and asked prices as
reported by any other commercial service for such
date; or
If the Company has no publicly-traded stock, the
Administrator will determine the Fair Market Value
for purposes of the Plan using any measure of value
it determines in good faith to be appropriate.
For any date that is not a trading day, the Fair Market
Value of a share of Common Stock for such date shall be
determined by using the closing sale price or the average
of the closing bid and asked prices, as appropriate, for
the immediately preceding trading day. The Administrator
can substitute a particular time of day or other measure of
"closing sale price" if appropriate because of changes in
exchange or market procedures.
The Administrator has sole discretion to determine the Fair
Market Value for purposes of this Plan, and all Awards are
conditioned on the recipient's agreement that the
Administrator's determination is conclusive and binding
even though others might make a different and also
reasonable determination.
EXERCISABILITY The Administrator will determine the times and conditions
for exercise of or purchase under each Award but may not
extend the period for exercise beyond the tenth anniversary
of its Date of Grant (or five years for ISOs granted to 10%
owners covered by Code Sections 422(b)(6) and 424(d)).
Awards will become exercisable at such times and in such
manner as the Administrator determines and the Award
Agreement, if any, indicates; provided, however, that the
Administrator may, on such terms and conditions as it
determines appropriate, accelerate the time at which the
Participant may exercise any portion of
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an Award or at which restrictions on Stock Grants lapse.
For Stock Grants, "exercise" refers to acceptance of the
Award or lapse of restrictions, as appropriate in context.
If the Administrator does not specify otherwise, Options
will become exercisable and restrictions on Stock Grants
will lapse as to one-fourth of the covered shares on each
of the first four anniversaries of the Date of Grant, so
long as the recipient remains employed or continues his
relationship as a service provider to the Company or any
Eligible Subsidiary, and will expire as of the tenth
anniversary of the Date of Grant (unless they expire
earlier under the Plan or the Award Agreement). The
Administrator has the sole discretion to determine that a
change in service-providing relationship eliminates any
further service credit on the exercise schedule.
Any unexercisable portions of Awards will immediately
become exercisable upon the Participant's death or
termination of employment for Disability. Except as
provided in the preceding sentence, no portion of an Award
that is unexercisable at a recipient's termination of
service-providing relationship (for any reason) will
thereafter become exercisable (and the recipient will
immediately forfeit any unexercisable portions at his
termination of service-providing relationship), unless the
Award Agreement or the Plan provides otherwise, either
initially or by amendment.
CHANGE OF Upon a Change of Control (as defined below), all Options
CONTROL held by current Employees, consultants, advisors,
independent contractors, Eligible Officers and Eligible
Directors will become fully exercisable and all
restrictions on Stock Grants will lapse. A Change of
Control for this purpose means the occurrence of any one or
more of the following events:
a person, entity, or group (other than the Company,
any Company subsidiary, any Company benefit plan, or
any underwriter temporarily holding securities for an
offering of such securities) acquires ownership of
more than 50% of the undiluted total voting power of
the Company's then-outstanding securities eligible to
vote to elect members of the Board ("Company Voting
Securities");
completion of a merger or consolidation of the
Company with or into any other entity--unless the
holders of the Company Voting Securities outstanding
immediately before such completion, together with any
trustee or other fiduciary holding securities under a
Company benefit plan, hold securities that represent
immediately after such merger or consolidation at
least 50% of the combined voting power of the then
outstanding voting securities of either the Company
or the other surviving entity or its parent; or
the shareholders of the Company approve (i) a plan of
complete liquidation or dissolution of the Company or
(ii) an agreement for the Company's sale or
disposition of all or substantially all the Company's
assets, and such liquidation, dissolution, sale, or
disposition is completed.
Even if other tests are met, a Change of Control has
not occurred under any circumstance in which the
Company files for bankruptcy protection or is
reorganized following a bankruptcy filing.
The Administrator may allow conditional exercises in
advance of the completion of a Change of Control that
are then rescinded if no Change of Control occurs.
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The Adjustments Upon Changes in Capital Stock provisions
will also apply if the Change of Control is a Substantial
Corporate Change (as defined in those sections).
LIMITATION An Option granted to an Employee will be an ISO only to the
ON ISOs extent that the aggregate Fair Market Value (determined at
the Date of Grant) of the stock with respect to which ISOs
are exercisable for the first time by the Optionee during
any calendar year (under the Plan and all other plans of
the Company and its subsidiary corporations, within the
meaning of Code Section 422(d)), does not exceed $100,000.
This limitation applies to Options in the order in which
such Options were granted. If, by design or operation, the
Option exceeds this limit, the excess will be treated as an
NQSO.
METHOD OF To exercise any exercisable portion of an Award, the
EXERCISE Participant must:
Deliver a notice of exercise to the Assistant
Secretary of the Company designated by the Board (or
to whomever the Administrator designates), in a form
complying with any rules the Administrator may issue,
signed or otherwise authenticated by the Participant,
and specifying the number of shares of Common Stock
underlying the portion of the Award the Participant
is exercising;
Pay the full Exercise Price, if any, by cashier's or
certified check for the shares of Common Stock with
respect to which the Award is being exercised, unless
the Administrator consents to another form of payment
(which could include the use of Common Stock); and
Deliver to the Administrator such representations and
documents as the Administrator, in its sole
discretion, may consider necessary or advisable.
Payment in full of the Exercise Price need not accompany
the written notice of exercise if the exercise complies
with a previously-approved cashless exercise method,
including, for example, that the notice directs that the
stock certificates (or other indicia of ownership) for the
shares issued upon the exercise be delivered to a licensed
broker acceptable to the Company as the agent for the
individual exercising the Option and at the time the stock
certificates (or other indicia) are delivered to the
broker, the broker will tender to the Company cash or cash
equivalents acceptable to the Company and equal to the
Exercise Price and any required withholding taxes.
If the Administrator agrees to allow an Optionee to pay
through tendering Common Stock to the Company, the
individual can only tender stock he or she has held for at
least six months at the time of surrender. Shares of stock
offered as payment will be valued, for purposes of
determining the extent to which the Participant has paid
the Exercise Price, at their Fair Market Value on the date
of exercise. The Administrator may also, in its discretion,
accept attestation of ownership of Common Stock and issue a
net number of shares upon Option exercise or by having a
broker tender to the Company cash equal to the Exercise
Price and the minimum withholding taxes.
AWARD No one may exercise an Award more than ten years after its
EXPIRATION Date of Grant (or five years, for an ISO granted to a
more-than-10% shareholder). A recipient will immediately
forfeit and can never exercise any portion of an Award that
is unexercisable at his termination of service-providing
relationship (for any reason),
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unless the Award Agreement or the Plan provides otherwise,
either initially or by amendment. Unless the Award
Agreement or the Plan provides otherwise, either initially
or by amendment, no one may exercise otherwise exercisable
portions of an Award after the first to occur of:
EMPLOYMENT The 90th day after the date of termination of
TERMINATION service-providing relationship (other than for death or
Disability), where termination of employment means the time
when the employer-employee or other service providing
relationship between the Employee, consultant, independent
contractor, advisor or Eligible Officer and the Company
(and the Eligible Subsidiaries) ends for any reason,
including retirement. The Administrator may provide that
Awards terminate immediately upon termination of employment
for "cause" under an Employee's employment or consultant's
services agreement or under another definition specified in
the Award Agreement. Unless the Award Agreement provides
otherwise, termination of employment does not include
instances in which the Company immediately rehires an
Employee as a consultant, independent contractor or
advisor. The Administrator, in its sole discretion, will
determine all questions of whether particular terminations
or leaves of absence are terminations of employment and may
decide to suspend the exercise schedule during a leave
rather than to terminate the Award. Unless the Award
Agreement or the Exercisability section provides otherwise,
terminations of employment include situations in which the
Participant's employer ceases to be related to the Company
closely enough to be an Eligible Subsidiary for new grants;
GROSS For the Company's termination of the Participant's
MISCONDUCT service-providing relationship as a result of the
Participant's Gross Misconduct, the time of such
termination. For purposes of this Plan, "Gross Misconduct"
means the Participant has
committed fraud, misappropriation, embezzlement, or
willful misconduct that has resulted or is likely to
result in material harm to the Company or an Eligible
Subsidiary;
committed or been indicted for or convicted of, or
pled guilty or no contest to, any misdemeanor (other
than for minor infractions or traffic violations)
involving fraud, breach of trust, misappropriation,
or other similar activity or otherwise relating to
the Company or an Eligible Subsidiary, or any felony;
or
committed an act of gross negligence or otherwise
acted with willful disregard for the Company's or an
Eligible Subsidiary's best interests in a manner that
has resulted or is likely to result in material harm
to the Company or an Eligible Subsidiary.
If the Participant has a written employment or other
agreement in effect at the time of his termination that
specifies "cause" for termination, "Gross Misconduct" for
purposes of his termination will refer to "cause" under the
employment or other agreement, rather than to the foregoing
definition.
DISABILITY For Disability, the earlier of (i) the first anniversary of
the Participant's termination of employment for Disability
and (ii) 30 days after the Participant no longer has a
Disability, where "Disability" means the inability to
engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that
can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less
than twelve months; or
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DEATH The date 24 months after the Participant's death.
If exercise is permitted after termination of
service-providing relationship, the Award will nevertheless
expire as of the date that the former service provider
violates any covenant not to compete in effect between the
Company or any Eligible Subsidiary and such person. In
addition, an Optionee who exercises an Option more than 90
days after termination of employment with the Company
and/or an Eligible Subsidiary will only receive ISO
treatment to the extent permitted by law, and becoming or
remaining an employee of another related company (that is
not an Eligible Subsidiary) or an independent contractor to
the Company and the Eligible Subsidiaries will not prevent
loss of ISO status because of the formal termination of
employment.
Nothing in this Plan extends the term of an Award beyond
the tenth anniversary of its Date of Grant, nor does
anything in this Award Expiration section make an Award
exercisable that has not otherwise become exercisable.
AWARD Award Agreements will set forth the terms of each Award and
AGREEMENT will include such terms and conditions, consistent with the
Plan, as the Administrator may determine are necessary or
advisable. To the extent the agreement is inconsistent with
the Plan, the Plan will govern. The Award Agreements may
contain special rules. The Administrator may, but is not
required to, issue agreements for Stock Grants.
STOCK SUBJECT Except as adjusted below under Adjustments upon Changes in
TO PLAN Capital Stock,
the aggregate number of shares of Common Stock that
may be issued under the Awards (whether ISOs, NQSOs,
or Stock Grants) may not exceed 1,500,000;
the maximum number of such shares that may be subject
to ISOs may not exceed 1,500,000; and
the maximum number of shares that may be granted
under Awards for a single individual in a calendar
year may not exceed 500,000. (The individual maximum
applies only to Awards first made under this Plan and
not to Awards made in substitution of a prior
employer's options or other incentives, except as
Code Section 162(m) otherwise requires.)
The Common Stock will come from either authorized but
unissued shares or from previously issued shares that the
Company reacquires, including shares it purchases on the
open market. If any Award expires, is canceled, or
terminates for any other reason, the shares of Common Stock
available under that Award will again be available for the
granting of new Awards (but will be counted against that
calendar year's limit for a given individual).
No adjustment will be made for a dividend or other right
(except a stock dividend) for which the record date
precedes the date of exercise.
The Participant will have no rights of a shareholder with
respect to the shares of stock subject to an Award except
to the extent that the Company has issued certificates for,
or otherwise confirmed ownership of, such shares upon the
exercise of the Award.
The Company will not issue fractional shares pursuant to
the exercise of an Award, but the Administrator may, in its
discretion, direct the Company to make a cash payment in
lieu of fractional shares.
A-7
PERSON WHO During the Participant's lifetime, only the Participant or
MAY EXERCISE his duly appointed guardian or personal representative may
exercise the Awards. After his death, his personal
representative or any other person authorized under a will
or under the laws of descent and distribution may exercise
any then exercisable portion of an Award. If someone other
than the original recipient seeks to exercise any portion
of an Award, the Administrator may request such proof as it
may consider necessary or appropriate of the person's right
to exercise the Award.
ADJUSTMENTS Subject to any required action by the Company (which it
UPON CHANGES IN shall promptly take) or its Capital Stock shareholders, and
CAPITAL STOCK subject to the provisions of applicable corporate law, if,
after the Date of Grant of an Award,
the outstanding shares of Common Stock increase or
decrease or change into or are exchanged for a
different number or kind of security because of any
recapitalization, reclassification, stock split,
reverse stock split, combination of shares, exchange
of shares, stock dividend, or other distribution
payable in capital stock, or
some other increase or decrease in such Common Stock
occurs without the Company's receiving consideration
the Administrator may make a proportionate and appropriate
adjustment in the number of shares of Common Stock
underlying each Award, so that the proportionate interest
of the Participant immediately following such event will,
to the extent practicable, be the same as immediately
before such event. (This adjustment does not apply to
Common Stock that the Optionee has already purchased nor to
Stock Grants that are already nonforfeitable, except to the
extent of similar treatment for most shareholders.) Unless
the Administrator determines another method would be
appropriate, any such adjustment to an Award will not
change the total price with respect to shares of Common
Stock underlying the unexercised portion of the Award but
will include a corresponding proportionate adjustment in
the Award's Exercise Price. The Administrator will make a
commensurate change to the maximum number and kind of
shares provided in the Stock Subject to Plan section.
Any issue by the Company of any class of preferred stock,
or securities convertible into shares of common or
preferred stock of any class, will not affect, and no
adjustment by reason thereof will be made with respect to,
the number of shares of Common Stock subject to any Award
or the Exercise Price except as this Adjustments section
specifically provides. The grant of an Award under the Plan
will not affect in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure, or to merge or to consolidate, or to dissolve,
liquidate, sell, or transfer all or any part of its
business or assets.
SUBSTANTIAL Upon a Substantial Corporate Change, the Plan and any
CORPORATE unexercised Awards will terminate unless provision is made
CHANGE in writing in connection with such transaction for the
assumption or continuation of outstanding Awards, or the
substitution for such options or grants of any options or
grants covering the stock or securities of a successor
employer corporation, or a parent or subsidiary of such
successor, with appropriate adjustments as to the number
and kind of shares of stock and prices, in which event the
Awards will continue in the manner and under the terms so
provided.
A-8
Unless the Administrator determines otherwise, if an Award
would otherwise terminate under the preceding sentence,
Participants who are then Employees, consultants, advisors,
independent contractors, Eligible Officers and Eligible
Directors will have the right, at such time before the
consummation of the transaction causing such termination as
the Administrator reasonably designates, upon such
reasonable notice as determined by the Administrator, to
exercise any unexercised portions of the Award, whether or
not they had previously become exercisable.
A Substantial Corporate Change means:
the dissolution or liquidation of the Company,
merger, consolidation, or reorganization of the
Company with one or more corporations in which the
Company is not the surviving corporation,
the sale of substantially all of the assets of the
Company to another corporation, or
any transaction (including a merger or reorganization
in which the Company survives) approved by the Board
that results in any person or entity (other than any
affiliate of the Company as defined in Rule 144(a)(1)
under the Securities Act, any Company subsidiary, any
Company benefit plan, or any underwriter temporarily
holding securities for an offering of such
securities) owning 100% of the combined voting power
of all classes of stock of the Company.
ELIGIBLE Eligible Subsidiary means each of the Company's
SUBSIDIARY Subsidiaries, except as the Administrator otherwise
specifies. For ISO grants, Subsidiary means any corporation
(other than the Company) in an unbroken chain of
corporations including the Company if, at the time an ISO
is granted to a Participant under the Plan, each
corporation (other than the last corporation in the
unbroken chain) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in
another corporation in such chain. For ISO purposes,
Subsidiary also includes a single-member limited liability
company included within the chain described in the
preceding sentence. For NQSOs, the Administrator may use a
different definition of Subsidiary in its discretion and
may include other forms of entity at the same level of
equity relationship (or such other level as the Board or
the Administrator specifies).
LEGAL The Company will not issue any shares of Common Stock under
COMPLIANCE an Award until all applicable requirements imposed by
Federal and state securities and other laws, rules, and
regulations, and by any applicable regulatory agencies or
stock exchanges, have been fully met. To that end, the
Company may require the Participant to take any reasonable
action to comply with such requirements before issuing such
shares, including compliance with any Company black-out
periods or trading restrictions. No provision in the Plan
or action taken under it authorizes any action that is
otherwise prohibited by Federal or state laws.
The Plan is intended to conform to the extent necessary
with all provisions of the Securities Act of 1933, as
amended (the "Securities Act"), and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and all
regulations and rules the Securities and Exchange
Commission issues under those laws. Notwithstanding
anything in the Plan to the contrary, the Administrator
must administer the Plan, and Awards may be granted and
exercised, only in a way that
A-9
conforms to such laws, rules, and regulations. To the
extent permitted by applicable law, the Plan and any Awards
will be deemed amended to the extent necessary to conform
to such laws, rules, and regulations.
PURCHASE FOR Unless a registration statement under the Securities Act
INVESTMENT covers the shares of Common Stock a Participant receives
AND OTHER upon exercise of his Award, the Administrator may require,
RESTRICTIONS at the time of such exercise or receipt of a grant, that
the Participant agree in writing to acquire such shares for
investment and not for public resale or distribution,
unless and until the shares subject to the Award are
registered under the Securities Act. Unless the shares are
registered under the Securities Act, the Participant must
acknowledge:
that the shares purchased on exercise of the Award
are not so registered,
that the Participant may not sell or otherwise
transfer the shares unless:
the shares have been registered under the
Securities Act in connection with the sale or
transfer thereof, or
counsel satisfactory to the Company has issued
an opinion satisfactory to the Company that
the sale or other transfer of such shares is
exempt from registration under the Securities
Act, and
such sale or transfer complies with all other
applicable laws, rules, and regulations,
including all applicable Federal and state
securities laws, rules, and regulations.
Additionally, the Common Stock, when issued upon the
exercise of an Award, will be subject to any other transfer
restrictions, rights of first refusal, and rights of
repurchase set forth in or incorporated by reference into
other applicable documents, including the Company's
articles or certificate of incorporation, by-laws, or
generally applicable shareholders' agreements.
The Administrator may, in its sole discretion, take
whatever additional actions it deems appropriate to comply
with such restrictions and applicable laws, including
placing legends on certificates and issuing stop-transfer
orders to transfer agents and registrars.
TAX The Participant must satisfy all applicable Federal, state,
WITHHOLDING and local income and employment tax withholding
requirements before the Company will deliver stock
certificates or otherwise recognize ownership upon the
exercise of an Award. The Company may decide to satisfy the
withholding obligations through additional withholding on
salary or wages. If the Company does not or cannot withhold
from other compensation, the Participant must pay the
Company, with a cashier's check or certified check, the
full amounts required by withholding. Payment of
withholding obligations is due before the Company issues
shares with respect to the Award. If the Administrator so
determines, the Participant may instead satisfy the minimum
level of withholding obligations by directing the Company
to retain shares from the Award exercise, by tendering
previously owned shares, or by attesting to his ownership
of shares (with the distribution of net shares).
TRANSFERS, Unless the Administrator otherwise approves in advance in
ASSIGNMENTS, writing for estate planning or other purposes, an Award may
AND PLEDGES not be assigned, pledged, or otherwise transferred in any
way, whether by operation of law or otherwise or through
any legal or equitable proceedings (including bankruptcy),
by the Participant to any
A-10
person, except by will or by operation of applicable laws
of descent and distribution. If necessary to comply with
Rule 16b-3 of the Exchange Act, the Participant may not
transfer or pledge shares of Common Stock acquired under a
Stock Grant or upon exercise of an Option until at least
six months have elapsed from (but excluding) the Date of
Grant, unless the Administrator approves otherwise in
advance in writing. The Administrator may, in its
discretion, expressly provide that a Participant may
transfer his Award without receiving consideration to (i)
members of his immediate family (children, grandchildren,
or spouse); (ii) trusts for the benefit of such family
members; or (iii) partnerships where the only partners are
such family members.
AMENDMENT OR The Board may amend, suspend, or terminate the Plan at any
TERMINATION OF time, without the consent of the Participants or their
PLAN AND AWARDS beneficiaries; provided however, that no amendment will
deprive any Participant or beneficiary of any previously
declared Award. Except as required by law or by the
Adjustments upon Changes in Capital Stock section, the
Board may not, without the Participant's or beneficiary's
consent, modify the terms and conditions of an Award so as
to adversely affect the Participant. No amendment,
suspension, or termination of the Plan will, without the
Participant's or beneficiary's consent, terminate or
adversely affect any right or obligations under any
outstanding Awards.
PRIVILEGES No Participant and no beneficiary or other person claiming
OF STOCK under or through such Participant will have any right,
OWNERSHIP title, or interest in or to any shares of Common Stock
allocated or reserved under the Plan or subject to any
Award except as to such shares of Common Stock if any,
already issued to such Participant.
EFFECT ON Whether exercising or receiving an Award causes the
OTHER PLANS Participant to accrue or receive additional benefits under
any pension or other plan is governed solely by the terms
of such other plan.
LIMITATIONS Notwithstanding any other provisions of the Plan, no
ON LIABILITY individual acting as an agent of the Company shall be
liable to any Participant, former Participant, spouse,
beneficiary, or any other person for any claim, loss,
liability, or expense incurred in connection with the Plan,
nor shall such individual be personally liable because of
any contract or other instrument he executes in such other
capacity. The Company will indemnify and hold harmless each
agent of the Company to whom any duty or power relating to
the administration or interpretation of the Plan has been
or will be delegated, against any cost or expense
(including attorneys' fees) or liability (including any sum
paid in settlement of a claim with the Administrator's
approval) arising out of any act or omission to act
concerning this Plan unless arising out of such person's
own fraud or bad faith.
NO EMPLOYMENT Nothing contained in this Plan constitutes an employment
CONTRACT contract between the Company and the Participants. The Plan
does not give any Participant any right to be retained in
the Company's employ, nor does it enlarge or diminish the
Company's right to end the Participant's employment or
other relationship with the Company.
APPLICABLE The laws of the State of Wisconsin (other than its choice
LAW of law provisions) govern this Plan and its interpretation.
DURATION Unless the Board extends the Plan's term, the Administrator
OF PLAN may not grant Awards after June 11, 2012. The Plan will
then terminate but will continue to govern unexercised and
unexpired Awards.
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Proxy Card
SCHOOL SPECIALTY, INC.
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned appoints David J. Vander Zanden and Mary M. Kabacinski, and
each of them, as proxies, each with the power to appoint his or her substitute,
and authorizes each of them to represent and to vote, as designated on the
reverse side, all of the shares of stock of School Specialty, Inc. held of
record by the undersigned on July 8, 2002 at the 2002 Annual Meeting of
Shareholders of School Specialty, Inc. to be held on August 27, 2002 and at any
adjournment or postponement thereof.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is indicated, this proxy
will be voted "FOR" the election of each of the individuals nominated to serve
as Class I directors, "FOR" approval of the 2002 Stock Incentive Plan and "FOR"
the ratification of the independent auditors.
(Continued and to be signed on reverse side.)
Annual Meeting of Shareholders
School Specialty, Inc.
August 27, 2002
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call, toll-free, 1-800 PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
YOUR CONTROL NUMBER IS
________________________
________________________________________________________________________________
|X| Please mark your votes as in this example.
1. ELECTION OF DIRECTORS:
(To serve until the 2005 [ ] FOR all nominees [ ] WITHHOLD AUTHORITY Nominees:
Annual Meeting and until listed to the right to vote for all
their successors are (except as specified nominees listed 1-Jonathan J. Ledecky
elected and qualified) below). to the right. 2-Jerome M. Pool
Instructions: To withhold authority to vote for any indicated nominee,
write the number(s) of the nominee(s) on the line provided below.
________________________________________
2. APPROVE SCHOOL SPECIALTY'S 2002 STOCK INCENTIVE PLAN.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
3. RATIFY DELOITTE & TOUCHE LLP AS SCHOOL SPECIALTY'S INDEPENDENT AUDITORS
FOR FISCAL 2003.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING (AND ANY ADJOURNMENT OR
POSTPONEMENT THEREOF).
No. of Shares _________
Date: ______________________________, 2002
Check appropriate box
Indicate changes below: ________________________________________________________
(Signature of Shareholder)
Address Change? [ ] Name Change? [ ]
________________________________________________________
(Signature of Shareholder - if held jointly)
Please sign exactly as name appears hereon. 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.