<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 1998
REGISTRATION NO. 333-47505
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 4
TO
FORM S-1
-------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
WORKFLOW MANAGEMENT, INC.
(Exact name of registrant as specified in its charter)
----------------------
<TABLE>
<S> <C> <C>
DELAWARE 2759 06-1507104
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------
240 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
(561) 659-6551
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
STEVEN R. GIBSON
CHIEF FINANCIAL OFFICER
WORKFLOW MANAGEMENT, INC.
240 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
(561) 659-6551
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------------
<TABLE>
<CAPTION>
COPIES TO:
<S> <C>
GEORGE P. STAMAS, ESQ. LELAND E. HUTCHINSON, ESQ.
WILMER, CUTLER & PICKERING JOHN L. MACCARTHY, ESQ.
2445 M STREET, N.W. WINSTON & STRAWN
WASHINGTON, D.C. 20037 35 W. WACKER DRIVE
TELEPHONE NO. (202) 663-6000 CHICAGO, ILLINOIS 60601
FACSIMILE NO. (202) 663-6363 TELEPHONE NO. (312) 558-5600
FACSIMILE NO. (312) 558-5700
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF SECURITIES AGGREGATE REGISTRATION
TO BE REGISTERED OFFERING PRICE FEE (1)
<S> <C> <C>
Common Stock, par value $0.001 per share............................................. $37,375,000 $14,750
</TABLE>
(1) The Company has previously paid the Securities and Exchange Commission the
registration fee.
----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 9, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[LOGO]
2,500,000 SHARES
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Workflow Management, Inc. (the "Company"). Prior to this
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for information relating to the
method of determining the initial public offering price. The Common Stock has
been approved for inclusion, subject to notice of issuance, on the Nasdaq
National Market under the symbol "WORK."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.................................................. $ $ $
Total(3)................................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at $1.5
million.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
------------------
The Common Stock is offered by the Underwriters, as stated herein, subject
to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that delivery of such shares will be made through the offices of
BancAmerica Robertson Stephens, San Francisco, California, on or about
, 1998.
BANCAMERICA ROBERTSON STEPHENS
MORGAN STANLEY DEAN WITTER
SANDS BROTHERS & CO., LTD.
The date of this Prospectus is , 1998
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 5
The Spin-Offs From U.S. Office Products.................................................................... 14
Use of Proceeds............................................................................................ 20
Dividend Policy............................................................................................ 20
Dilution................................................................................................... 21
Capitalization............................................................................................. 22
Selected Financial Data.................................................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 25
Business................................................................................................... 32
Management................................................................................................. 40
Certain Transactions....................................................................................... 49
Principal Stockholders..................................................................................... 50
Description of Capital Stock............................................................................... 52
Shares Eligible for Future Sale............................................................................ 54
Underwriting............................................................................................... 55
Validity of Common Stock................................................................................... 56
Experts.................................................................................................... 56
Additional Information..................................................................................... 57
Index to Financial Statements.............................................................................. F-1
</TABLE>
------------------
The Company intends to furnish to its stockholders annual reports containing
audited consolidated financial statements audited by its independent public
accountants and quarterly reports containing unaudited consolidated financial
statements for each of the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK OF
THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF
REGULATION M. SEE "UNDERWRITING."
GetSmart-TM-, Informa-TM- and Imagenet-TM- are trademarks of the Company.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
OF WORKFLOW MANAGEMENT, INC. ("THE COMPANY" OR "WORKFLOW MANAGEMENT") AND NOTES
THERETO, THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF THE COMPANY
AND THE NOTES THERETO, AND THE FINANCIAL STATEMENTS OF CERTAIN COMPANIES
ACQUIRED BY THE COMPANY AND THE NOTES THERETO, APPEARING ELSEWHERE IN THE
PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "EXPECT," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS
ASSUMES: (I) CONSUMMATION OF THE TRANSACTIONS DESCRIBED UNDER "THE SPIN-OFFS
FROM U.S. OFFICE PRODUCTS;" (II) AN INITIAL PUBLIC OFFERING PRICE OF $13.00 PER
SHARE OF COMMON STOCK (REPRESENTING THE MIDPOINT OF THE PRICE RANGE); (III) A
DISTRIBUTION RATIO OF ONE SHARE OF COMMON STOCK FOR EVERY 7.5 SHARES OF U.S.
OFFICE PRODUCTS COMPANY'S ("U.S. OFFICE PRODUCTS") COMMON STOCK (THE
"DISTRIBUTION RATIO"); AND (IV) THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION
WILL NOT BE EXERCISED. APPROXIMATELY 14,625,268 SHARES OF COMMON STOCK ARE BEING
DISTRIBUTED TO STOCKHOLDERS OF U.S. OFFICE PRODUCTS.
UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES TO THE COMPANY (OR
WORKFLOW MANAGEMENT) INCLUDE SFI OF DELAWARE, LLC ("SFI"), SFI OF PUERTO RICO
INC., HANO DOCUMENT PRINTERS, INC. ("HANO"), UNITED ENVELOPE, LLC ("UE"), REX
ENVELOPE CO., INC. ("REX"), HUXLEY ENVELOPE CORP. ("HUXLEY"), POCONO ENVELOPE
CORP. ("POCONO"), ASTRID OFFSET CORP. ("ASTRID") (UE, REX, HUXLEY AND POCONO ARE
COLLECTIVELY REFERRED TO HEREAFTER AS "UNITED") AND BUSINESSES OF 1186202
ONTARIO LIMITED ("1186202 ONTARIO"), OF WHICH 3303471 CANADA LIMITED ("3303471
CANADA") IS A DIRECT SUBSIDIARY AND DATA BUSINESS FORMS LIMITED ("DBF") IS AN
INDIRECT SUBSIDIARY, WHOLLY-OWNED DIRECT OR INDIRECT SUBSIDIARIES OF THE
COMPANY, AS WELL AS ALL PREDECESSORS THEREOF.
THE COMPANY
Workflow Management is an integrated graphic arts company providing
documents, envelopes and commercial printing to more than 22,000 businesses in
the United States and Canada. The Company also offers various print and
facilities management services, which allow customers to realize cost savings by
outsourcing non-core operations, as well as design services and workflow
analysis. Drawing on its position in the industry and its experience in
completing acquisitions, the Company seeks to become a leading consolidator in
the highly-fragmented graphic arts industry. In the last ten years, the
Company's senior management team successfully completed the acquisition of 16
companies for Standard Forms, Inc., the predecessor to SFI. Since the
acquisition of SFI and Hano by the Print Management Division of U.S. Office
Products in January 1997, that same senior management team has continued its
acquisition strategy by successfully buying six additional companies. As a
result, the enterprise has grown from SFI's revenues and operating income of
$115.1 million and $6.7 million, respectively, for the year ended December 31,
1996, to the Company's revenues and operating income of $345.4 million and $17.1
million, respectively, for the twelve months ended January 24, 1998. The Company
currently has over 2,000 employees and has 17 manufacturing facilities in seven
states and five Canadian Provinces, 26 distribution centers, eight
print-on-demand centers and 59 sales offices. Workflow Management intends to
continue to pursue its aggressive acquisition strategy to extend its geographic
scope and market penetration, and to increase sales to existing customers by
cross-selling documents, envelopes and commercial printing.
Workflow Management offers a full range of printed products which are either
manufactured by the Company or procured from one of the Company's more than
3,500 vendors. The Company's product line includes: (i) documents,
<PAGE>
such as custom invoices, purchase orders, checks and labels; (ii) envelopes,
including specialty envelopes for uses such as credit card solicitations, annual
reports, direct mail and airline tickets; and (iii) commercial printing, such as
product and corporate brochures, personalized direct mail literature, catalogs,
directories and digital imaging. The Company's manufacturing base, combined with
its extensive vendor network and distribution capability, gives the Company
broad flexibility to meet customers' demands for printed products. For the nine
months ended January 24, 1998, approximately 55.2% of its revenues were derived
from products purchased by the Company for distribution, and 44.8% were derived
from products manufactured by the Company.
Many of the Company's customers are attempting to reduce their overhead and
direct costs by focusing on core competencies and by outsourcing non-core
operations to specialists. The Company provides customers with print management
services that are designed to control the costs of procuring, storing and using
graphic arts in their business operations. As an outsourcing specialist for
print management services, Workflow Management enables its customers to reduce
costs and improve control by soliciting competitive bids, establishing more
efficient inventory levels and order quantities, and consolidating requisitions,
production and deliveries. The Company also performs design and procurement
services for its customers. In order to meet growing demand, Workflow Management
plans to continue to expand its product lines and services, and to promote its
print and facilities management services, which allow customers to outsource the
management of print products.
The Company believes its proprietary technology and systems are central to
its ability to capitalize effectively on industry outsourcing trends and provide
it with a significant competitive advantage. The Company has developed its
GetSmart and Informa transaction and information systems to support these
services and the Company's sales of print products. The GetSmart system provides
transaction, reporting and control capabilities to the Company and its customers
in the United States. The Informa system supports requisition, distribution and
imaging services with a control database and a variety of customer interfaces
for its customers in Canada, including the Imagenet Document Manager
("Imagenet") that provides access via the world wide web. In addition, using the
GetSmart and the Informa systems, the Company has the flexibility to integrate
future acquisitions and increase its customer base rapidly and seamlessly. In
addition, with its technology platform, Workflow Management believes that it is
able to position itself as a premier technology deployer, thus increasing the
Company's attractiveness to potential acquisition targets. The Company is
granting a license to U.S. Office Products for the Company's Imagenet technology
effective on the Distribution Date (as hereafter defined). See "Certain
Transactions."
The document, envelope and commercial printing industries that comprise the
graphic arts businesses are highly fragmented, and the Company believes they are
ripe for consolidation. The Company believes that (i) the market for documents
was approximately $12.7 billion in 1996, up from $11.1 billion in 1993; (ii)
while the U.S. market for envelopes decreased from $3.0 billion in 1989 to $2.6
billion in 1992, the market has since increased to approximately $3.0 billion in
1996; and (iii) the general commercial segment of the U.S. printing industry
shipped more than $88.0 billion of products in 1996, an increase of 8% over
1995. Furthermore, management believes there are approximately 200 envelope
manufacturers in the U.S., and that the commercial printing industry is composed
of approximately 25,000 printing plants, 70% of which have fewer than 10
employees.
The Company intends to capitalize on consolidation opportunities primarily
in three business lines of the North American graphic arts industry: United
States printed products, United States envelopes and Canadian printed products.
The Company will focus on acquisition opportunities that complement and complete
its product line and service offerings. The Company believes that the greatest
consolidation opportunities exist among distribution companies in the graphic
arts industry. The Company plans to offer the customers of its newly acquired
companies its GetSmart and Informa systems and its full offering of print and
facilities management services. Workflow Management also plans to grow
internally by developing new products, cross-selling the full complement of the
Company's products and services to the customers of its subsidiaries (which
previously had limited product offerings) and implementing its transaction and
information systems throughout the Company.
2
<PAGE>
Workflow Management was incorporated in the state of Delaware on February
13, 1998. The principal executive offices of the Company are located at 240
Royal Palm Way, Palm Beach, Florida 33480. Workflow Management's telephone
number is (561) 659-6551.
WORKFLOW DISTRIBUTION
Prior to the completion of this Offering, 14,625,268 shares of Common Stock
are being distributed to the stockholders of record as of 5:00 p.m. EDT on June
9, 1998 of U.S. Office Products (the "Workflow Distribution"). U.S. Office
Products is spinning off Workflow Management as part of a comprehensive
restructuring plan adopted by the U.S. Office Products Board of Directors,
including modifications the Board of Directors has made since first adopting
this plan (as so modified, the "Strategic Restructuring Plan") in which U.S.
Office Products is spinning off the shares of the four companies (the "Spin-Off
Companies") that conduct U.S. Office Products' current print management,
technology solutions, educational supplies and corporate travel services
businesses. (These spin-offs are collectively referred to as the
"Distributions.") The effective time of the Distributions is will be 11:59 p.m.
EDT on June 9, 1998 (the "Distribution Date"). See "The Spin-Offs From U.S.
Office Products."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company....................................... 2,500,000 shares(1)
Common Stock to be Outstanding after the Offering and the Workflow 17,125,268 shares(1)(2)
Distribution............................................................
Use of Proceeds........................................................... For working capital and
general corporate
purposes, including
future acquisitions
Nasdaq National Market Symbol............................................. WORK
</TABLE>
- ------------------
(1) Excludes 375,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Excludes shares of Common Stock reserved for issuance upon the exercise of
stock options exercisable upon consummation of the Workflow Distribution.
See "Management--Replacement of Outstanding U.S. Office Products Options"
and "Management--1998 Stock Incentive Plan."
3
<PAGE>
SUMMARY FINANCIAL DATA (1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NINE MONTHS ENDED
APRIL 26, ------------------------
FOUR MONTHS --------------------
YEAR ENDED DECEMBER 31, ENDED PRO
------------------------------------------ APRIL 30, FORMA JANUARY 25, JANUARY 24,
1992 1993 1994 1995(2) 1996 1997 1997(3) 1997 1998
--------- --------- --------- --------- ------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................. $ 80,731 $ 121,463 $ 154,193 $ 309,426 $ 114,099 $ 327,381 $ 342,335 $ 239,751 $ 257,777
Cost of revenues.......... 57,054 88,255 114,885 234,959 82,998 236,340 244,475 172,869 190,482
--------- --------- --------- --------- ------------ --------- --------- ----------- -----------
Gross profit.............. 23,677 33,208 39,308 74,467 31,101 91,041 97,860 66,882 67,295
Selling, general and
administrative
expenses................ 20,800 27,683 32,020 62,012 22,485 70,949 75,568 51,735 53,083
Non-recurring acquisition
costs................... 5,006 5,006 2,902
--------- --------- --------- --------- ------------ --------- --------- ----------- -----------
Operating income.......... 2,877 5,525 7,288 12,455 8,616 15,086 17,286 12,245 14,212
Interest expense.......... 904 1,328 2,048 5,370 1,676 4,561 3,647 3,910 1,665
Interest income........... (81) (116) (18) (25) (21) (9)
Other (income) expense.... 366 511 186 62 (151) 632 408 610 (205)
--------- --------- --------- --------- ------------ --------- --------- ----------- -----------
Income before provision
for (benefit from)
income taxes and
extraordinary items..... 1,688 3,802 5,054 7,023 7,109 9,918 13,231 7,746 12,761
Provision for (benefit
from) income taxes(5)... 153 260 379 (33) 1,351 3,690 5,425 2,249 5,212
--------- --------- --------- --------- ------------ --------- --------- ----------- -----------
Income before
extraordinary items..... 1,535 3,542 4,675 7,056 5,758 6,228 $ 7,806 5,497 7,549
---------
---------
Extraordinary items(6).... 700 798
--------- --------- --------- --------- ------------ --------- ----------- -----------
Net income................ $ 1,535 $ 3,542 $ 4,675 $ 6,356 $ 5,758 $ 5,430 $ 5,497 $ 7,549
--------- --------- --------- --------- ------------ --------- ----------- -----------
--------- --------- --------- --------- ------------ --------- ----------- -----------
Per share amounts:
Basic:
Income from before
extraordinary
items............... $ 0.26 $ 0.60 $ 0.77 $ 0.90 $ 0.56 $ 0.52 $ 0.53(7) $ 0.48 $ 0.49
---------
---------
Extraordinary items... 0.09 0.07
--------- --------- --------- --------- ------------ --------- ----------- -----------
Net income............ $ 0.26 $ 0.60 $ 0.77 $ 0.81 $ 0.56 $ 0.45 $ 0.48 $ 0.49
--------- --------- --------- --------- ------------ --------- ----------- -----------
--------- --------- --------- --------- ------------ --------- ----------- -----------
Diluted.................
Income from before
extraordinary
items............... $ 0.26 $ 0.60 $ 0.77 $ 0.88 $ 0.55 $ 0.51 $ 0.53(7) $ 0.47 $ 0.48
---------
---------
Extraordinary items... 0.09 0.07
--------- --------- --------- --------- ------------ --------- ----------- -----------
Net income............ $ 0.26 $ 0.60 $ 0.77 $ 0.79 $ 0.55 $ 0.44 $ 0.47 $ 0.48
--------- --------- --------- --------- ------------ --------- ----------- -----------
--------- --------- --------- --------- ------------ --------- ----------- -----------
Weighted average shares
outstanding:............
Basic................... 5,901 5,901 6,075 7,875 10,333 12,003 14,625(8) 11,464 15,301
Diluted................. 5,901 5,901 6,094 8,003 10,547 12,235 14,625(8) 11,710 15,625
<CAPTION>
PRO PRO PRO FORMA
FORMA FORMA JANUARY 24,
JANUARY 25, JANUARY 24, 1998, AS
1997(3) 1998(3) ADJUSTED(4)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................. $ 250,820 $ 263,960 $ 263,960
Cost of revenues.......... 178,983 193,104 193,104
----------- ----------- -----------
Gross profit.............. 71,837 70,856 70,856
Selling, general and
administrative
expenses................ 55,472 55,095 55,095
Non-recurring acquisition
costs................... 2,902
----------- ----------- -----------
Operating income.......... 13,463 15,761 15,761
Interest expense.......... 2,735 2,735 1,011
Interest income...........
Other (income) expense.... 445 (333) (333)
----------- ----------- -----------
Income before provision
for (benefit from)
income taxes and
extraordinary items..... 10,283 13,359 15,083
Provision for (benefit
from) income taxes(5)... 4,216 5,477 6,184
----------- ----------- -----------
Income before
extraordinary items..... $ 6,067 $ 7,882 $ 8,899
----------- ----------- -----------
----------- ----------- -----------
Extraordinary items(6)....
Net income................
Per share amounts:
Basic:
Income from before
extraordinary
items............... $ 0.41(7) $ 0.54(7) $ 0.52(7)
----------- ----------- -----------
----------- ----------- -----------
Extraordinary items...
Net income............
Diluted.................
Income from before
extraordinary
items............... $ 0.41(7) $ 0.54(7) $ 0.52(7)
----------- ----------- -----------
----------- ----------- -----------
Extraordinary items...
Net income............
Weighted average shares
outstanding:............
Basic................... 14,625(8) 14,625(8) 17,125(9)
Diluted................. 14,625(8) 14,625(8) 17,125(9)
</TABLE>
<TABLE>
<CAPTION>
JANUARY
24, 1998
---------
DECEMBER 31,
------------------------------------------ APRIL 30, APRIL 26,
1992 1993 1994 1995 1996 1997 ACTUAL
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 6,005 $ 7,264 $ 8,583 $ 20,127 $ 23,378 $ 16,910 $ 25,370
Total assets................................ 26,543 48,374 51,357 120,630 117,949 125,108 127,105
Short-term debt payable to U.S. Office
Products.................................. 23,622 17,658
Long-term debt, less current portion........ 4,632 9,632 7,355 28,812 28,108 6,034 5,498
Long-term debt payable to U.S. Office
Products.................................. 561 1,905
Stockholders' equity........................ 7,459 11,675 12,889 24,719 29,120 47,780 55,979
<CAPTION>
PRO FORMA
PRO AS ADJUSTED
FORMA(10) (4)
----------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 43,958 $ 43,958
Total assets................................ 143,073 143,073
Short-term debt payable to U.S. Office
Products..................................
Long-term debt, less current portion........ 40,638 11,913
Long-term debt payable to U.S. Office
Products..................................
Stockholders' equity........................ 55,979 84,704
</TABLE>
- ------------------
(1) The historical financial information of the businesses that were acquired
in business combinations accounted for under the pooling-of-interests
method (the "Pooled Companies") has been combined on a historical cost
basis in accordance with generally accepted accounting principles ("GAAP")
to present this financial data as if the Pooled Companies had always been
members of the same operating group. The financial information of the
businesses acquired in the business combinations accounted for under the
purchase method (the "Purchased Companies") is included from the dates of
their respective acquisitions. The pro forma financial information reflects
completed acquisitions through May 1, 1998. See Note 4 of the Company's
Notes to Consolidated Financial Statements for a description of the number
and accounting treatment of the acquisitions by the Company.
(2) The results for the year ended December 31, 1995 include the results of
DBF, one of the Pooled Companies, from its date of incorporation on
February 8, 1995.
(3) Gives effect to the Workflow Distribution and the purchase acquisitions
completed by the Company since May 1, 1996 as if all such transactions had
been made on May 1, 1996. The pro forma statement of income data are not
necessarily indicative of the operating results that would have been
achieved had these events actually then occurred and should not be
construed as representative of future operating results.
(4) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby at the assumed initial public offering price
and the anticipated application of the estimated net proceeds therefrom.
See "Use of Proceeds."
(5) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no
federal income tax expense prior to these acquisitions by the Company.
(6) Extraordinary items represent the losses associated with the early
terminations of credit facilities at one Pooled Company, net of the related
income tax benefits.
(7) Pro forma net income per share is pro forma income before extraordinary
items per share.
(8) For calculation of the pro forma weighted average shares outstanding for
the fiscal year ended April 26, 1997 and for the nine months ended January
24, 1998 and January 25, 1997, see Note 2(k) of Notes to Pro Forma Combined
Financial Statements included herein.
(9) For calculation of pro forma as adjusted weighted average shares
outstanding for the nine months ended January 24, 1998, see Note 2(m) of
Notes to Pro Forma Combined Financial Statements included herein.
(10) Gives effect to the Workflow Distribution and the purchase acquisition of
Astrid as if such transactions had been made on January 24, 1998. The pro
forma balance sheet data are not necessarily indicative of the financial
position that would have been achieved had these events actually then
occurred and should not be construed as representative of future financial
position.
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered in evaluating the Company and its business before
purchasing shares of Common Stock offered hereby.
POTENTIAL VOLATILITY OF STOCK PRICE AND OTHER RISKS ASSOCIATED WITH SHARES
ELIGIBLE FOR IMMEDIATE SALE
As a result of the Workflow Distribution, stockholders of U.S. Office
Products are acquiring shares of Common Stock that are freely tradeable at the
time of this Offering without restrictions or further registration under the
Securities Act, except that any shares held by "affiliates" of Workflow
Management within the meaning of the Securities Act will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act ("Rule
144"). Because the Workflow Distribution is being made to existing stockholders
of U.S. Office Products who have not made an affirmative decision to invest in
the Common Stock, there can be no assurance that some or all of these
stockholders will not sell the shares of Common Stock that they receive into the
market shortly after the Workflow Distribution. In addition, U.S. Office
Products is included in certain broad-based indices tracked by a number of
investment companies and other institutional investors, and such investors can
be expected to sell the shares of Common Stock they receive in the Workflow
Distribution shortly thereafter.
In addition, upon completion of this Offering and the Workflow Distribution,
the Company will have outstanding (i) 2,500,000 shares of Common Stock issued in
this Offering, all of which will be freely tradeable unless held by affiliates
of the Company, and (ii) immediately exercisable options to acquire shares of
Common Stock. Certain executive officers and directors of the Company have
agreed (the "Lock-Up Agreements") not to sell or otherwise dispose of their
shares of Common Stock for a period of 180 days following this Offering without
the consent of BancAmerica Robertson Stephens. The Company intends to register
the shares of Common Stock reserved for issuance pursuant to its stock incentive
plan on the Distribution Date or as soon thereafter as practicable. Following
this Offering and the Workflow Distribution, in view of the large number of
shares freely-tradeable and available for immediate sale, the market for the
Common Stock could be highly volatile and the trading price of the Common Stock
could be adversely affected. See "Shares Eligible for Future Sale."
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
The Company is the result of the consolidation by U.S. Office Products of
nine separate companies engaged in the graphic arts industry. The operations of
Workflow Management as a stand-alone, consolidated entity may place significant
demands on the Company's management, operational and technical resources. Prior
to the Workflow Distribution, certain general and administrative functions
relating to the Company's business (such as legal and accounting) were handled
by U.S. Office Products. The Company's future performance will depend on its
ability to function as a stand-alone entity, to finance and manage expanding
operations, and to adapt its information systems to changes in its business. In
addition, Workflow Management will not be able to rely on the purchasing power
of U.S. Office Products and, therefore, may not be able to obtain the same
volume discounts for products and services that are available to U.S. Office
Products. As a result, the Company's expenses may be higher than when it was a
part of U.S. Office Products, and the Company may experience disruptions it
would not encounter as a part of U.S. Office Products. Furthermore, the
financial information included herein may not necessarily reflect the results of
operations and financial condition of Workflow Management had it been a
separate, stand-alone entity during the periods presented, or may not be
indicative of future results of operations and financial condition of the
Company.
DEPENDENCE UPON ACQUISITIONS FOR FUTURE GROWTH
One of the Company's strategies is to increase its revenues and the markets
it serves through the acquisition of additional graphic arts businesses. There
can be no assurance that suitable candidates for
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<PAGE>
acquisitions can be identified or, if suitable candidates are identified, that
acquisitions can be completed on acceptable terms, if at all. Prior to the
Workflow Distribution, the Company's acquisitions were completed with
substantial business, legal and accounting assistance from U.S. Office Products
and the acquisitions were primarily paid for with U.S. Office Products' common
stock. The pace of the Company's acquisition program may be adversely affected
by the absence of U.S. Office Products support for the acquisitions. In
addition, Workflow Management intends to use Common Stock to pay for certain of
its acquisitions and, therefore, if the owners of potential acquisition
candidates are not willing to receive shares of Common Stock of the Company in
exchange for their businesses, the Company's acquisition program could be
adversely affected. Moreover, the consolidation of the North American graphic
arts industry has reduced the number of larger companies available for sale,
which could lead to higher prices being paid for the acquisition of the
remaining domestic, independent companies. In addition, Workflow Management is
subject to limitations on the number of shares of capital stock it can issue
without jeopardizing the tax-free treatment of the Workflow Distribution.
Limitations on the Company's ability to issue shares of capital stock could also
adversely affect the Company's acquisition strategy. See "--Possible Limitations
on Issuances of Common Stock," "--Material Amount of Goodwill" and "--Inability
to Use Pooling-of-Interests Accounting."
RISKS RELATED TO INTEGRATION OF ACQUISITIONS
Integration of acquired companies may involve a number of special risks that
could have a material adverse effect on the Company's operations and financial
performance, including adverse short-term effects on its reported operating
results (including those adverse short-term effects caused by severance payments
to employees of acquired companies, restructuring charges associated with the
acquisitions and other expenses associated with a change of control, as well as
non-recurring acquisition costs including accounting and legal fees, investment
banking fees, recognition of transaction-related obligations and various other
acquisition-related costs); diversion of management's attention; difficulties
with retention, hiring and training of key personnel; risks associated with
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets. Furthermore, although Workflow Management conducts due
diligence and generally requires representations, warranties and
indemnifications from the former owners of acquired companies, there can be no
assurance that such owners will have accurately represented the financial and
operating conditions of their companies. If an acquired company's financial or
operating results were misrepresented, the acquisition could have a material
adverse effect on the results of operations and financial condition of Workflow
Management.
RISKS RELATED TO ACQUISITION FINANCING; ADDITIONAL DILUTION
Workflow Management currently intends to finance its future acquisitions by
using shares of its Common Stock, cash, borrowed funds or a combination thereof.
If the Common Stock does not maintain a sufficient market value, if the price of
Common Stock is highly volatile, or if potential acquisition candidates are
otherwise unwilling to accept Common Stock as part of the consideration for the
sale of their businesses, Workflow Management may be required to use more of its
cash resources or more borrowed funds in order to initiate and maintain its
acquisition program. If Workflow Management does not have sufficient cash
resources, its growth could be limited unless it is able to obtain additional
capital through debt or equity offerings. However, the use of equity offerings
in connection with the Workflow Distribution will also be subject to certain
limitations on the number of shares that Workflow Management can issue without
jeopardizing the tax-free treatment of the Workflow Distribution. See
"--Possible Limitations on Issuances of Common Stock." Prior to the Workflow
Distribution, Workflow Management was not responsible for obtaining external
sources of funding. There can be no assurance that Workflow Management, as a
stand-alone company, will be able to obtain such financing if and when it is
needed or that any such financing will be available on terms it deems
acceptable.
6
<PAGE>
The Company will have 150,000,000 authorized shares of Common Stock, a
portion of which could be available (subject to the rules and regulations of
federal and state securities laws, limitations under U.S. federal income tax
laws and the rules of the Nasdaq Stock Market) to finance acquisitions without
obtaining stockholder approval for such issuances. Existing stockholders may
suffer dilution if the Company uses Common Stock as consideration for future
acquisitions. Moreover, the issuance of additional shares of Common Stock may
have a negative impact on earnings per share and may negatively impact the
market price of the Common Stock.
MATERIAL AMOUNT OF GOODWILL
Approximately $14.2 million, or 9.9%, of the Company's pro forma total
assets as of January 24, 1998, represents intangible assets, the significant
majority of which is goodwill. Goodwill represents the excess of cost over the
fair market value of net assets acquired in business combinations accounted for
under the purchase method. The Company amortizes goodwill on a straight line
method over a period of 40 years with the amount amortized in a particular
period constituting a non-cash expense that reduces the Company's net income.
The Company will be required to periodically evaluate the recoverability of
goodwill by reviewing the anticipated undiscounted future cash flows from the
operations of the acquired companies and comparing such cash flows to the
carrying value of the associated goodwill. If goodwill becomes impaired, the
Company would be required to write down the carrying value of the goodwill and
incur a related charge to its income. A reduction in net income resulting from
the amortization or write down of goodwill could have a material and adverse
impact upon the market price of the Common Stock.
INABILITY TO USE POOLING-OF-INTERESTS ACCOUNTING
Generally accepted accounting principles require that an entity be
autonomous for a period of two years before it is eligible to complete business
combinations under the pooling-of-interests method. As a result of the Company
being a wholly-owned subsidiary of U.S. Office Products prior to the Workflow
Distribution, the Company will be unable to satisfy this criteria for a period
of two years following the Workflow Distribution. Therefore, the Company will be
precluded from completing business combinations under the pooling-of-interests
method for a period of two years and any business combinations completed by the
Company during such period will be accounted for under the purchase method
resulting in the recording of goodwill. The amortization of the goodwill will
reduce net income reported by the Company below that which would have been
reported if the pooling-of-interests method had been used by the Company.
ATTRACTION AND RETENTION OF PERSONNEL
The Company's senior management team does not have experience operating a
public company. Timothy L. Tabor has resigned as Executive Vice President of
U.S. Office Products Print Management Division and Executive Vice President and
Chief Operating Officer of SFI and Hano. Therefore, the Company is recruiting a
qualified individual to perform the functions associated with these positions.
Mr. Tabor is a member of the Board of Directors of the Company. There can be no
assurance that the Company will be successful in hiring, integrating or
retaining such an individual. Steven R. Gibson assumed the position of Vice
President of Finance and Chief Financial Officer of the Company on April 8,
1998.
The Company's operations depend on the continued efforts of Thomas B.
D'Agostino, its Chief Executive Officer, its other executive officers and the
senior management of certain of its subsidiaries. Furthermore, the Company's
operations will likely depend on the senior management of certain of the
companies that may be acquired in the future. If any of these people becomes
unable to continue in his or her present role, or if the Company is unable to
attract and retain other skilled employees, its business
7
<PAGE>
could be adversely affected. The Company does not have key man life insurance
covering any of its executive officers or other members of senior management of
its subsidiaries.
In addition, Jonathan J. Ledecky is serving as a director and an employee of
Workflow Management and is providing services to Workflow Management after the
Workflow Distribution pursuant to an employment agreement between Mr. Ledecky
and the Company. U.S. Office Products is permitted to (and will) assign to
Workflow Management certain rights of, and obligations under, U.S. Office
Products' services agreement with Mr. Ledecky dated January 13, 1998, as amended
and restated as of June 8, 1998 (the "Ledecky Services Agreement"), following
the Distributions. See "Management--Ledecky Services Agreement." Mr. Ledecky is
also serving as a director and employee of each of the other Spin-Off Companies,
and is the director or an officer of other public companies. Mr. Ledecky may be
unable to devote substantial time to the activities of Workflow Management.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS; RISKS OF INFRINGEMENT
The Company's success and ability to compete depends in part upon its
proprietary technology, trademarks and copyrights. Workflow Management regards
the software underlying its GetSmart, Imagenet and Informa systems as
proprietary, and relies primarily on trade secrets, copyright and trademark law
to protect these proprietary rights. The Company has registered some of its
trademarks, and has no patents issued nor applications pending. Existing trade
secret and copyright laws afford the Company only limited protection.
Unauthorized parties may attempt to copy aspects of the Company's software or to
obtain and use information that Workflow Management regards as proprietary.
Policing unauthorized use of the Company's software is difficult. Workflow
Management generally enters into confidentiality and assignment agreements with
its employees and generally controls access to and distribution of its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's services or technology without authorization, or to develop similar
services or technology independently. Workflow Management is not aware that any
of its software, trademarks or other proprietary rights infringe the proprietary
rights of third parties. However, there can be no assurance that third parties
will not assert infringement claims against Workflow Management in the future.
Any such claims, with or without merit, can be time consuming and expensive to
defend and may require the Company to enter into royalty or licensing agreements
or cease the alleged infringing activities. See "Business--Print Management."
EFFECTS OF CHANGES IN DEMAND FOR DOCUMENTS; CYCLICALITY
Historically, the Company's operating results have depended heavily on sales
of documents. For the fiscal year ended April 26, 1997, and for the nine months
ended January 24, 1998, sales of documents accounted for approximately 56% and
49%, respectively, of the Company's net sales. Workflow Management anticipates
that document sales will continue to account for a significant percentage of the
Company's sales for the foreseeable future. An important element of the
Company's business strategy is to continue its growth in document sales by
continuing to acquire other document companies, hiring experienced sales
representatives, attracting new customers and increasing sales to existing
customers. The overall document industry has not grown in the last few years,
although demand for certain products, such as laser forms, pressure-sensitive
labels, form/label combinations and single-part cut-sheet mailers has increased.
Accordingly, for Workflow Management to continue its growth in document sales,
it must increase its market share and respond to changes in demand in the
overall document industry. No assurance can be given that Workflow Management
will be successful in increasing its market share or responding to shifts in
demand. The failure by the Company to do so could have a material adverse effect
on its business, financial condition or results of operations.
In addition, the document industry historically has been affected by general
economic and industry cycles that have materially and adversely affected
distributors and manufacturers of documents. No assurance can be given as to the
effect of a continuation of, or change in, such business cycles on the
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<PAGE>
Company's business, financial condition or results of operations. The delay or
inability of Workflow Management to respond to changing economic cycles could
have a material adverse effect on the Company's business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Business Strategy."
RISKS ASSOCIATED WITH CANADIAN OPERATIONS
Workflow Management has significant operations in Canada. Net sales from the
Company's Canadian operations accounted for approximately 37% of the Company's
total net sales in the fiscal year ended April 26, 1997. As a result, Workflow
Management is subject to certain risks inherent in conducting business
internationally, including fluctuations in currency exchange rates. Workflow
Management is also subject to risks associated with the imposition of protective
legislation and regulations, including those resulting from trade or foreign
policy. In addition, because of the Company's Canadian operations, significant
revenues and expenses are denominated in Canadian dollars. Changes in exchange
rates may have a significant effect on the Company's business, financial
condition and results of operations. Workflow Management does not currently
engage in currency hedging transactions.
UNITED STATES POSTAL RATES; ALTERNATIVE DELIVERY MEDIA
The Company's operating results depend, to a significant extent, on sales of
envelopes. Sales of envelopes accounted for approximately 31% of the Company's
net sales for the fiscal year ended April 26, 1997. Because the great majority
of envelopes used in the United States are sent through the mail, postal rates
are a significant factor affecting the growth of envelope usage. Historically,
increases in postal rates, relative to changes in the cost of alternative
delivery means and/or advertising media, have resulted in temporary reductions
in the growth rate of mail sent. For example, third class postal rates increased
approximately 50% and 14% in 1991 and 1995, respectively, contributing to a
substantial leveling off in the growth rate of third class mail sent during the
periods following such increases. If postal rates increase, mail volume could
decline, which could reduce revenue from the Company's sale of envelopes and
reduce the Company's earnings and cash flow.
In addition, alternative delivery media may affect the demand for envelopes.
As the current trend towards usage of the Internet and other electronic media by
consumers for such purposes as paying utility and credit card bills grows,
Workflow Management expects the demand for envelopes for such purposes to
decline. Although management believes that overall demand for envelopes,
particularly the custom and specialty envelopes Workflow Management focuses on,
will continue to grow at rates comparable to recent historical levels,
competition from alternative media may reduce demand for envelopes, and the
Company's revenues from the sale of envelopes may decrease, which could reduce
the Company's earnings and cash flow.
IMPACT OF FLUCTUATIONS IN PAPER PRICES
Paper prices represent a substantial portion of the cost of producing
documents, envelopes and commercial printing distributed and manufactured by
Workflow Management. Accordingly, prevailing paper prices can have a significant
impact on the Company's sales. The timing of increases or decreases in paper
prices and any subsequent change in prices charged to the Company's customers
could have a material adverse effect on the Company's revenues and gross
margins. Although Workflow Management has generally been able to pass increases
in paper costs on to its customers, for competitive or other reasons, the
Company cannot offer any assurance that it will be able to pass all or a portion
of any future paper price or other cost increases on to its customers. If
Workflow Management were unable to pass on these costs, profit margins would
decrease, which could reduce earnings and cash flow. Moreover, an increase in
the Company's prices for the products it distributes, resulting from a
pass-through of increased paper costs, could reduce the volume of units sold by
the Company and decrease the Company's revenues.
9
<PAGE>
Due to the significance of paper to most of the Company's products, Workflow
Management is dependent upon the availability of paper. During periods of tight
paper supply, many paper producers allocate shipments of paper based on the
historical purchase levels of customers. There can be no assurance that the
Company's document and envelope businesses would not be materially adversely
affected if either Workflow Management or its vendors experienced difficulty in
obtaining adequate quantities of paper in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
UNIONIZED WORKFORCE
Approximately 31% of the Company's employees in the United States and
approximately 8% of the Company's employees in Canada are covered by collective
bargaining agreements. There can be no assurance that strikes or work stoppages
will not occur in the future. Strikes or work stoppages and the resultant
adverse impact on the Company's relationship with its customers could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company's acquisition strategy could be
adversely affected because of its union status for a variety of reasons,
including without limitation, incompatibility with a target's existing unions
and reluctance of non-union targets to become affiliated with a union based
company. See "Business--Employees."
COSTS AND RISKS OF LOSS RELATING TO ENVIRONMENTAL REGULATION
The Company's operations and real property are subject to U.S. and Canadian
federal, state, provincial and local environmental laws and regulations,
including those governing the use, storage, treatment, transportation and
disposal of solid and hazardous materials, the emission or discharge of such
materials into the environment, and the remediation of contamination associated
with such disposal or emissions (collectively, "Environmental Laws"). Workflow
Management utilizes certain hazardous and non-hazardous materials such as
washes, inks, alcohol-based products, fountain solution, photographic fixer and
developer solutions, machine and hydraulic oils and solvents. While management
believes that the Company's current operations are in substantial compliance
with Environmental Laws, there can be no assurance that all potential
environmental liabilities have been identified, or that future uses, conditions
or legal requirements (including, without limitation, those that may result from
future acts or omissions or changes in applicable Environmental Laws) will not
materially adversely affect the Company's business or operations. See
"Business--Environmental Regulations."
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS
In connection with the Distributions, U.S. Office Products is entering into
a tax allocation agreement with the Spin-Off Companies (the "Tax Allocation
Agreement"), which provides that the Spin-Off Companies will jointly and
severally indemnify U.S. Office Products for any losses associated with taxes
related to the Distributions ("Distribution Taxes") if an action or omission (an
"Adverse Tax Act") of any of the Spin-Off Companies materially contributes to a
final determination that any or all of the Distributions are taxable. Workflow
Management is also entering into a tax indemnification agreement with the other
Spin-Off Companies (the "Tax Indemnification Agreement"), under which the
Spin-Off Company that is responsible for the Adverse Tax Act will indemnify the
other Spin-Off Companies for any liability to indemnify U.S. Office Products
under the Tax Allocation Agreement. As a consequence, Workflow Management will
be liable for any Distribution Taxes resulting from any Adverse Tax Act by
Workflow Management and liable (subject to indemnification by the other Spin-Off
Companies) for any Distribution Taxes resulting from an Adverse Tax Act by the
other Spin-Off Companies. If there is a final determination that any or all of
the Distributions are taxable and it is determined that there has not been an
Adverse Tax Act by either U.S. Office Products or any of the Spin-Off Companies,
U.S. Office Products and each of the Spin-Off Companies will be liable for its
pro rata portion of the Distribution Taxes based on the value of each company's
common stock after the Distributions. As a result, the Company could become
liable for a
10
<PAGE>
pro rata portion of any Distribution Taxes with respect to not only the Workflow
Distribution but also any of the other Distributions. See "The Spin-Offs From
U.S. Office Products--Tax Allocation Agreement and Tax Indemnification
Agreement" and "The Spin-Offs From U.S. Office Products--U.S. Federal Income Tax
Consequences of the Distributions" for a detailed discussion of the Tax
Allocation Agreement, the Tax Indemnification Agreement and the U.S. federal
income tax consequences of the Distributions.
RISKS RELATED TO ALLOCATION FOR CERTAIN LIABILITIES
Under the Distribution Agreement, Workflow Management will be liable for (i)
any liabilities arising out of or in connection with the business conducted by
it or its subsidiaries, (ii) its liabilities under the Employee Benefits
Agreement, Tax Allocation Agreement and related agreements described under "The
Spin-Offs From U.S. Office Products," (iii) U.S. Office Products' debt that has
been allocated to the Company (see "The Spin-Offs From U.S. Office
Products--Distribution Agreement--Debt"), (iv) liabilities under the securities
laws relating to this Prospectus and sections of the Information
Statement/Prospectus distributed to the stockholders of U.S. Office Products in
connection with the Workflow Distribution (the "Information
Statement/Prospectus") as well as other securities law liabilities related to
the Workflow Management business that arise from information supplied to U.S.
Office Products (or that should have been supplied, but was not) by Workflow
Management, (v) U.S. Office Products' liabilities for earn-outs from
acquisitions in respect of Workflow Management and its subsidiaries, (vi)
Workflow Management's costs and expenses related to this Offering and its bank
credit facility, and (vii) $1.0 million of the transaction costs (including
legal, accounting, investment banking and financial advisory) and other fees
incurred by U.S. Office Products in connection with its Strategic Restructuring
Plan. Each of the other Spin-Off Companies will be similarly obligated to U.S.
Office Products. Workflow Management and the other Spin-Off Companies have also
agreed to bear a pro rata portion of (i) U.S. Office Products' liabilities under
the securities laws (other than claims relating solely to a specific Spin-Off
Company or relating specifically to the continuing businesses of U.S. Office
Products) and (ii) U.S. Office Products' general corporate liabilities (other
than debt, except for that specifically allocated to the Spin-Off Companies)
incurred prior to the Distributions (I.E., liabilities not related to the
conduct of a particular distributed or retained subsidiary's business) (the
"Shared Liabilities"). If one of the Spin-Off Companies defaults on an
obligation owed to U.S. Office Products, the non-defaulting Spin-Off Companies
will be obligated on a pro rata basis to pay such obligation ("Default
Liability"). As a result of the Shared Liabilities and Default Liability,
Workflow Management could be obligated to U.S. Office Products in respect of
obligations and liabilities not related to its business or operations and over
which neither it nor its management has or has had any control or
responsibility. The aggregate of the Shared Liabilities and Default Liability
for which any Spin-Off Company may be liable is, however, limited to $1.75
million. See "--Potential Liability for Taxes Related to the Distributions" and
"The Spin-Offs From U.S. Office Products." The Company's pro rata share of
Shared Liabilities and Default Liability is described in the section captioned
"The Spin-Offs From U.S. Office Products--The Distribution
Agreement--Liabilities."
POSSIBLE LIMITATIONS ON ISSUANCES OF COMMON STOCK
Section 355(e) of the Internal Revenue Code of 1986, as amended (the
"Code"), which was added in 1997, generally provides that a company that
distributes shares of a subsidiary in a spin-off that is otherwise tax-free will
incur U.S. federal income tax liability if 50% or more, by vote or value, of the
capital stock of either the company making the distribution or the spun-off
subsidiary is acquired by one or more persons acting pursuant to a plan or
series of related transactions that includes the spin-off. Stock acquired by
certain related persons is aggregated in determining whether the 50% test is
met. There is a presumption that any acquisition occurring two years before or
after the spin-off is pursuant to a plan that includes the spin-off. However,
the presumption may be rebutted by establishing that the spin-off and such
acquisition are not part of a plan or series of related transactions. As a
result of the provisions of Section 355(e), there can be no assurance that
issuances of stock by Workflow Management, including issuances in connection
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with an acquisition of another business by Workflow Management, will not create
a tax liability for U.S. Office Products.
Workflow Management is entering into the Tax Allocation Agreement and the
Tax Indemnification Agreement pursuant to which Workflow Management will be
liable to U.S. Office Products and the other Spin-Off Companies if its actions
or omissions materially contribute to a final determination that the Workflow
Distribution is taxable. See "The Spin-Offs From U.S. Office Products--Tax
Allocation Agreement and Tax Indemnification Agreement."
This limitation could adversely affect the pace of Workflow Management's
acquisitions and its ability to issue Common Stock for other purposes, including
equity offerings.
EMERGING ALTERNATIVE TECHNOLOGIES
Electronic forms and electronic data interchange technologies have recently
been introduced. There can be no assurance that such emerging technologies will
not have a material adverse effect on the Company or on the document industry.
Over the last several years, the document industry has undergone a transition as
a result of the increased usage of desk top publishing and laser printer
technology, which has led to a decreased demand for certain document products.
The continuation of such technological changes, or the development of other
trends that decrease demand for documents, could have a material adverse effect
on the Company's business, financial condition or results of operations.
COMPETITION
Workflow Management competes for retail sales of documents and envelopes
against other independent distributors and against manufacturers' direct sales
organizations. In commercial printing, the Company also competes with
manufacturers' direct sales organizations, independent brokers, advertising
agencies and design firms. The principal competitive factors in the graphic arts
industry are price, quality, selection, services, production capacity, delivery
and customer support.
Although Workflow Management often competes with smaller businesses, it also
competes against the largest competitors in the North American documents
industry, such as Moore Corporation Ltd., Reynolds & Reynolds Company, Standard
Register Company and Wallace Computer Services, Inc., and the largest
competitors in the U.S. envelope industry, such as Mail-Well, Westvaco and
Tension Envelope Company. The largest competitors for commercial printing
include direct sales organizations of Graphic Industries, Inc., R. R. Donnelley
& Sons, Quebecor, Inc. and World Color Press, Inc. Most of these competitors
have substantially greater financial resources than the Company.
INABILITY TO ASSIGN CONTRACTS
In connection with the Workflow Distribution, certain operating companies
(the "Predecessor Companies") have been reorganized into new business entitities
(the "Successor Companies"). The Predecessor Companies have entered into
numerous contracts, including leases, employment and services contracts that
will require the consents of the other parties to assignment of such contracts
to the Successor Companies. Failure to obtain any or all of such consents could
result in loss of benefits under leases or employment contracts, or loss of
revenues or the acceleration of obligations thereunder or under other contracts.
There can be no assurance that any of the parties to contracts with Predecessor
Companies will consent to the assignment of these contracts to the Successor
Companies. Inability to assign any or all of these contracts may have a material
adverse effect on the Successor Companies and Workflow Management as a whole.
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NO DIVIDENDS
Workflow Management does not expect to pay cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
DILUTION
Purchasers of Common Stock in this Offering will sustain a substantial and
immediate dilution of $8.88 per share, based on the assumed initial public
offering price. In addition, the exercise of outstanding stock options after
this Offering could have a further dilutive effect. See "Dilution."
ABSENCE OF PUBLIC MARKET
Prior to the Workflow Distribution and this Offering, there has been no
public market for the Common Stock. The initial public offering price of the
Common Stock offered hereby is being determined through negotiations among the
Company and the underwriters of this Offering and may not be indicative of the
market price for the Common Stock after this Offering. See "Underwriting." The
trading price of the Common Stock could be subject to wide fluctuations in
response to variations in the Company's quarterly operating results, changes in
earnings estimates by analysts, conditions in the Company's businesses, general
market or economic conditions or other factors. In addition, in recent years the
stock market has experienced extreme price and volume fluctuations. These
fluctuations have had a substantial effect on the market prices for many
companies, often unrelated to the operating performance of the specific
companies. Such market fluctuations could have a material adverse effect on the
market price of the Common Stock. See "--Potential Volatility of Stock Price and
Other Risks Associated With Shares Eligible for Immediate Sale."
CONSIDERATION FOR OPERATING COMPANIES EXCEEDS ASSET VALUE
To date, the purchase prices of the Company's acquisitions have not been
established by independent appraisals, but generally have been determined
through arm's-length negotiations between the Company's management and
representatives of such companies. The consideration paid for each such company
has been based primarily on the value of such company as a going concern and not
on the value of the acquired assets. Valuations of these companies determined
solely by appraisals of the acquired assets would have been less than the
consideration paid for the companies. No assurance can be given that the future
performance of such companies will be commensurate with the consideration paid.
Workflow Management does not expect to value future acquisitions on the basis of
asset appraisals. Therefore, this risk will apply to future acquisitions as
well.
RISK OF LOSS FROM POSSIBLE FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE
Several of the Company's operating companies are using billing or other
software that is not Year 2000 compliant. The Company has not quantified the
costs of addressing its Year 2000 issues, but it believes that the necessary
adaptations of these systems can be completed in the next 18 months, and that
the costs of achieving compliance will not be material. If the Company is unable
to make the necessary adaptations on a timely basis, or if the costs are greater
than expected, the consequences of untimely resolution or the costs of complying
could have an adverse impact on the Company's business or operations.
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THE SPIN-OFFS FROM U.S. OFFICE PRODUCTS
Prior to the Offering, Workflow Management has been a wholly-owned
subsidiary of U.S. Office Products. At the time of this Offering, Workflow
Management will hold all of the business and assets of, and will be responsible
for substantially all of the liabilities associated with, the Print Management
Division of U.S. Office Products. Following this Offering, all the shares of
Workflow Management's Common Stock will be distributed to the stockholders of
U.S. Office Products of record as of 5:00 p.m. EDT on June 9, 1998. U.S. Office
Products is spinning off Workflow Management as part of the Strategic
Restructuring Plan in which U.S. Office Products is spinning off the shares of
the Spin-Off Companies that conduct U.S. Office Products' current print
management, technology solutions, educational supplies and corporate travel
services businesses. At the same time as the Distributions, U.S. Office Products
is repurchasing 37,037,037 shares (including shares that may be issued on
exercise of vested and unvested stock options) of U.S. Office Products' common
stock tendered and accepted upon completion of the self-tender offer by U.S.
Office Products at $27.00 per share (or, in the case of stock options, at $27.00
minus the exercise price of the options (the "Tender Offer") and is selling
equity securities to an affiliate ("CD&R") of an investment fund managed by
Clayton, Dubilier & Rice, Inc. ("CD&R, Inc."), which will give CD&R a 24.9%
equity interest in U.S. Office Products (but no interest in the Spin-Off
Companies).
CD&R has contracted to purchase a 24.9% equity interest in U.S. Office
Products, including the shares issued to CD&R (the "Initial CD&R Acquisition").
CD&R's percentage ownership of U.S. Office Products will not increase or
decrease depending on the actual number of shares of U.S. Office Products'
common stock outstanding on the closing date of the Initial CD&R Acquisition.
CD&R will receive special warrants (the "Special Warrants") that would allow
CD&R to maintain its 24.9% ownership interest in U.S. Office Products if (i)
5 1/2% convertible subordinated notes due 2001 (the "2001 Notes") that remained
outstanding after the exchange offer for U.S. Office Products' common stock (the
"2001 Note Offer") were converted into U.S. Office Products' common stock at the
conversion price in effect after adjusting for the Tender Offer and the
Distributions, or (ii) additional shares are issued under contracts for certain
acquisitions completed by U.S. Office Products. CD&R will also receive warrants
for Common Stock (the "Common Stock Warrants"). The Common Stock Warrants will
be exercisable at any time after the second anniversary of the Initial CD&R
Acquisition until the 12th anniversary of that date.
Assuming (i) exercise of all options outstanding after the Tender Offer,
(ii) all 5 1/2% convertible subordinated notes due 2003 (the "2003 Notes") that
remain outstanding following closing of U.S. Office Products' tender offer to
repurchase its 2003 Notes for a purchase price of 94.5% of the principal amount
and accrued interest (the "2003 Note Tender") were converted in accordance with
their existing terms, in each case without any adjustment for the Strategic
Restructuring Plan, (iii) exercise of the Special Warrants in full, and (iv)
exercise of the Common Stock Warrants in full, CD&R could own approximately
37.0% of U.S. Office Products' common stock on a fully diluted basis. U.S.
Office Products expects to make adjustments to the number and exercise price of
outstanding options, and of the conversion price of any 2001 Notes of U.S.
Office Products remaining after the 2001 Note Offer and the 2003 Note Tender on
account of the restructuring transactions, and these adjustments will result in
a greater number of shares of U.S. Office Products' common stock that may be
issued upon exercise of the options and conversion of such notes. Although the
amount of these adjustments will not be known until after the completion of the
Strategic Restructuring Plan, the effect of these adjustments will be to reduce
CD&R's fully-diluted ownership interest in U.S. Office Products from the amounts
set forth above. If no outstanding options are exercised, CD&R could own
approximately 39.9% of outstanding U.S. Office Products' common stock after
implementation of the Strategic Restructuring Plan.
In connection with the Workflow Distribution, Workflow Management is
entering into a series of agreements with U.S. Office Products and the other
Spin-Off Companies to provide mechanisms for an orderly transition and to define
certain relationships among Workflow Management, U.S. Office Products and the
other Spin-Off Companies after the Workflow Distribution. These agreements are:
a distribution
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agreement (the "Distribution Agreement") among Workflow Management, U.S. Office
Products and the other Spin-Off Companies; the Tax Allocation Agreement among
Workflow Management, U.S. Office Products and the other Spin-Off Companies; an
employee benefits agreement (the "Employee Benefits Agreement") among Workflow
Management, U.S. Office Products and the other Spin-Off Companies; and the Tax
Indemnification Agreement among Workflow Management and the other Spin-Off
Companies. The terms of the Distribution Agreement, Tax Allocation Agreement,
Tax Indemnification Agreement and Employee Benefits Agreement have been
determined while Workflow Management is a wholly-owned subsidiary of U.S. Office
Products. In addition, the agreement between U.S. Office Products and CD&R
relating to CD&R's investment in U.S. Office Products (the "Investment
Agreement") specifies certain terms of these agreements and provides that they
are subject to CD&R's reasonable approval. Therefore, they are not the result of
arm's-length negotiations between independent parties.
DISTRIBUTION AGREEMENT
TRANSFER OF SUBSIDIARIES AND ASSETS. The Distribution Agreement provides
for the transfer from U.S. Office Products to Workflow Management of
substantially all of the equity interests in the U.S. Office Products
subsidiaries that are engaged in the business of Workflow Management. It also
provides that the recovery on any claims that U.S. Office Products may have
against the persons who sold businesses to U.S. Office Products that will become
part of Workflow Management in connection with the Workflow Distribution
pursuant to the relevant acquisition agreements (the "Workflow Acquisition
Indemnity Claims") will be shared between U.S. Office Products and Workflow
Management. In addition, to the extent that the Workflow Acquisition Indemnity
Claims are currently secured by the pledge of stock of U.S. Office Products that
is owned by persons who sold businesses to U.S. Office Products that will become
part of Workflow Management (and no previous claims have been made against such
shares), the pledged shares of Common Stock will be used, subject to final
resolution of the claim, to reimburse U.S. Office Products and Workflow
Management for their respective damages, expenses and agreed upon allocation of
recovery rights, which will be determined prior to the Workflow Distribution.
DEBT. The Distribution Agreement allocates a specified amount of U.S.
Office Products' debt outstanding under its credit facilities to each Spin-Off
Company and requires each Spin-Off Company, on or prior to its respective
Distribution, to obtain credit facilities, to borrow funds under such facilities
and to use the proceeds of such borrowings to pay off U.S. Office Products' debt
so allocated plus any additional debt incurred by U.S. Office Products after
January 12, 1998 (the date of the Investment Agreement) in connection with the
acquisition of an entity that has become or will become a subsidiary of such
Spin-Off Company. Under the Distribution Agreement, $30.0 million of U.S. Office
Products' debt has been allocated to Workflow Management, and, since January 12,
1998, U.S. Office Products has incurred an additional $15.6 million of debt in
connection with acquired companies that will become subsidiaries of Workflow
Management. Prior to the Workflow Distribution, Workflow Management is entering
into the credit facility described under "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," and the Company is borrowing up to $45.6 million under the facility
to pay off the debt allocated to Workflow Management by U.S. Office Products.
LIABILITIES. Under the Distribution Agreement, Workflow Management will be
responsible for (i) any liabilities arising out of or in connection with the
businesses conducted by Workflow Management and/or its subsidiaries, (ii) its
liabilities under the Distribution Agreement, Tax Allocation Agreement, Employee
Benefits Agreement and related agreements, (iii) the U.S. Office Products debt
that has been allocated to the Company as described above, (iv) liabilities
under the securities laws relating to this Prospectus and certain sections of
the Information Statement/Prospectus relating to the Workflow Distribution, as
well as other securities law liabilities related to the Workflow Management
business that arise from information supplied to U.S. Office Products (or that
should have been supplied but was not) by Workflow Management, (v) U.S. Office
Products' liabilities for earn-outs from acquisitions in respect of Workflow
Management or its subsidiaries, (vi) the Company's costs and expenses related to
this Offering and its bank credit
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facility, and (vii) $1.0 million of the transaction costs (including legal,
accounting, investment banking and financial advisory) and other fees incurred
by U.S. Office Products in connection with the Strategic Restructuring Plan.
Each of the other Spin-Off Companies will be similarly obligated to U.S. Office
Products. Workflow Management and the other Spin-Off Companies have agreed to
bear a pro rata share of (i) U.S. Office Products' liabilities under the
securities laws (other than claims relating solely to a specific Spin-Off
Company or relating specifically to the continuing businesses of U.S. Office
Products) and (ii) U.S. Office Products' general corporate liabilities (other
than debt, except for that specifically allocated to the Spin-Off Companies)
incurred prior to the Distributions (I.E., liabilities not related to the
conduct of a particular distributed or retained subsidiary's business). If one
of the Spin-Off Companies defaults on an obligation owed to U.S. Office
Products, the non-defaulting Spin-Off Companies will be obligated on a pro rata
basis to pay such obligation.
The Spin-Off Companies' pro rata share of Shared Liabilities will be, based
upon the fiscal year ended April 25, 1998, the average of (a) their revenues
relative to those of U.S. Office Products and (b) their operating income
relative to that of U.S. Office Products. The residual will be U.S. Office
Products' pro rata share. Based upon financial data for the nine-month period
ended January 24, 1998, the Company's pro rata share of Shared Liabilities would
have been 9.1%, the other Spin-Off Companies' pro rata share would have
aggregated 25.0% and U.S. Office Products' pro rata share would have been 65.6%.
As to any Default Liability, each non-defaulting company's pro rata share will
be increased to include a portion of the defaulting company's pro rata share.
The aggregate of the Shared Liabilities and Default Liability for which any
Spin-Off Company may be liable is, however, limited to $1.75 million.
The Distribution Agreement provides that each party will indemnify and hold
all of the other parties harmless from any and all liabilities for which the
former assumed liability under the Distribution Agreement. All indemnity
payments will be subject to adjustment upward or downward to take account of tax
costs or tax benefits as well as insurance proceeds. If there are any claims
made under U.S. Office Products' existing insurance policies, the amount of any
deductible or retention will be allocated by U.S. Office Products among the
claimants in a fair and reasonable manner.
OTHER PROVISIONS. The Distribution Agreement will have other customary
provisions including provisions relating to mutual release, access to
information, witness services, confidentiality and alternative dispute
resolution.
TAX ALLOCATION AGREEMENT AND TAX INDEMNIFICATION AGREEMENT
The Tax Allocation Agreement provides that each Spin-Off Company will be
responsible for its respective share of U.S. Office Products' consolidated tax
liability for the years that each such corporation was included in U.S. Office
Products' consolidated U.S. federal income tax return. The Tax Allocation
Agreement also provides for sharing, where appropriate, of state, local and
foreign taxes attributable to periods prior to the Distributions.
The Tax Allocation Agreement further provides that the Spin-Off Companies
will jointly and severally indemnify U.S. Office Products for any Distribution
Taxes assessed against U.S. Office Products if an Adverse Tax Act of any of the
Spin-Off Companies materially contributes to a final determination that any or
all of the Distributions are taxable. Workflow Management is also entering into
the Tax Indemnification Agreement with the other Spin-Off Companies under which
the Spin-Off Company that is responsible for the Adverse Tax Act will indemnify
the other Spin-Off Companies for any liability to U.S. Office Products under the
Tax Allocation Agreement. As a consequence, Workflow Management will be liable
for any Distribution Taxes resulting from any Adverse Tax Act by Workflow
Management and liable (subject to indemnification by the other Spin-Off
Companies) for any Distribution Taxes resulting from an Adverse Tax Act by the
other Spin-Off Companies. If there is a final determination that any or all of
the Distributions are taxable and it is determined that there has not been an
Adverse Tax Act by either U.S. Office Products or any of the Spin-Off Companies,
each of U.S. Office Products and the Spin-Off
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Companies will be liable for its pro rata portion of such Distribution Taxes
based on the value of each company's common stock after the Distributions. As a
result, Workflow Management could become liable for a pro rata portion of any
Distribution Taxes with respect to not only the Workflow Distribution but also
any other Distribution. The liabilities of Workflow Management under the Tax
Allocation Agreement and the Tax Indemnification Agreement are not subject to
any limits.
EMPLOYEE BENEFITS AGREEMENT
In connection with the Distributions, U.S. Office Products is entering into
the Employee Benefits Agreement with Workflow Management and the other Spin-Off
Companies to provide for an orderly transition of benefits coverage between U.S.
Office Products and the Spin-Off Companies. Pursuant to this agreement, the
respective Spin-Off Companies will retain or assume liability for
employment-related claims and severance for persons currently or previously
employed by the respective Spin-Off Companies and their subsidiaries, while U.S.
Office Products and its post-Distributions subsidiaries will retain or assume
responsibility for their current and previous employees.
The Employee Benefits Agreement reflects U.S. Office Products' expectation
that each of the Spin-Off Companies will establish 401(k) plans for their
respective employees effective as of, or shortly after, the Distribution Date
and that U.S. Office Products will transfer 401(k) accounts to those plans as
soon as practicable. The Employee Benefits Agreement also provides for spinning
off portions of U.S. Office Products' cafeteria plan that relate to employees of
the Spin-Off Companies (and their subsidiaries) and having those spun-off plans
assume responsibilities for claims submitted on or after the Distributions.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTIONS
Pursuant to the Tax Allocation Agreement and Tax Indemnification Agreement,
see "--Tax Allocation Agreement and Tax Indemnification Agreement," Workflow
Management could be liable for Distribution Taxes if any or all of the
Distributions fail to qualify as tax-free spin-offs under Section 355 of the
Code or are taxable under Section 355(e) of the Code.
THE TAX OPINION. Wilmer, Cutler & Pickering has delivered an opinion (the
"Tax Opinion") stating that for U.S. federal income tax purposes the
Distributions will qualify as tax-free spin-offs under Section 355 of the Code
and will not be taxable under Section 355(e) of the Code. The Tax Opinion is
based on the accuracy as of the time of the Distributions of factual
representations made by U.S. Office Products, the Spin-Off Companies and CD&R,
and certain other information, data, documentation and other materials that
Wilmer, Cutler & Pickering has deemed necessary.
The Tax Opinion represents Wilmer, Cutler & Pickering's best judgment of how
a court would rule. However, the Tax Opinion is not binding upon either the IRS
or any court. A ruling has not been, and will not be, sought from the IRS with
respect to the U.S. federal income tax consequences of the Distributions.
Assuming the Distributions qualify as tax-free spin-offs under Section 355
and are not taxable under Section 355(e), no gain or loss will be recognized by
U.S. Office Products as a result of the Distributions.
CONSEQUENCES OF FAILURE TO QUALIFY AS A TAX-FREE DISTRIBUTION. As noted
above, the Tax Opinion is not binding on the IRS or the courts. Prospective
stockholders should be aware that the requirements of Section 355 pertaining to
business purpose, active trade or business, and absence of a device for
distribution of earnings and profits, as well as the requirements of Section
355(e) pertaining to a plan or series of related transactions to acquire 50% or
more by vote or value of a company, are highly dependent on factual
interpretations, are to a significant extent subjective in nature, and have a
relative absence of authority addressing their application to the particular
facts presented by the Distributions. Accordingly, the IRS and/or a court could
reach a conclusion that differs from the conclusions in the Tax Opinion.
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BUSINESS PURPOSE. In order for a Distribution to qualify as a tax-free
spin-off under Section 355, it must be motivated, in whole or substantial part,
by one or more corporate business purposes. U.S. Office Products has represented
that the Distributions were motivated, in whole or substantial part, to allow
U.S. Office Products and the Spin-Off Companies to adopt strategies and pursue
objectives that are more appropriate to their respective industries and stages
of growth; to allow the Spin-Off Companies to pursue independent acquisition
programs with a more focused use of resources and, where stock is used as
consideration, to allow the Spin-Off Companies to provide stock of a public
company that is in the same industry as the business being acquired; to allow
U.S. Office Products and the Spin-Off Companies to offer their respective
employees more focused compensation packages; and to make possible the Equity
Investment which the Board of Directors of the Company concluded would
contribute to U.S. Office Products development, based on the skills and
experience of CD&R, Inc. Based on these representations and certain other
information, data, documentation and other materials, Wilmer, Cutler & Pickering
has delivered the Tax Opinion stating that each Distribution satisfies the
business purpose requirement of Section 355. However, although similar
rationales have been accepted by the IRS in other circumstances as sufficient to
meet the business purpose requirement of Section 355, there can be no assurance
that the IRS will not assert that the business purpose requirement is not
satisfied.
ACTIVE TRADE OR BUSINESS. In order for the distribution of the stock of a
Spin-Off Company (other than Navigant International, Inc. ("Navigant")) to
qualify as a tax-free spin-off under Section 355, both the Spin-Off Company and
U.S. Office Products must be engaged in an active trade or business that has
been actively conducted for the five-year period preceding the Distributions,
taking into account only businesses that have been acquired in transactions in
which no gain or loss was recognized. In order for the distribution of the stock
of Navigant to qualify as a tax-free spin-off under Section 355, substantially
all of the assets of Navigant must consist of the stock of Professional Travel
Corporation ("Professional Travel"), and Professional Travel and U.S. Office
Products must meet the requirements described in the preceding sentences.
Whether current and historical business activity constitutes an active trade or
business, and whether any gain or loss should have been recognized in an
acquisition structured and reported as a nontaxable transaction, turn in some
instances on the application of subjective legal standards and on factual
determinations, such as intentions of the parties involved. Based on the
representations of U.S. Office Products and the Spin-Off Companies, Wilmer,
Cutler & Pickering has delivered the Tax Opinion stating that each Distribution
satisfies the active trade or business requirement. However, because of the
inherently subjective nature of important elements of the active trade or
business requirement, and because the IRS may challenge the representations upon
which Wilmer, Cutler & Pickering relies, there can be no assurance that the IRS
will not assert that the active trade or business requirement is not satisfied.
ABSENCE OF A DEVICE FOR DISTRIBUTION OF EARNINGS AND PROFITS. A
Distribution will not qualify as a tax-free spin-off under Section 355 if the
Distribution was used principally as a device for the distribution of the
earnings and profits of U.S. Office Products or the Spin-Off Company. Treasury
regulations provide that this test is applied based on all the facts and
circumstances, including the presence or absence of factors described in the
Treasury Regulations as "device factors" and "nondevice factors." Application of
this test is uncertain in part because of its subjective nature. Based on the
representations of U.S. Office Products and the Spin-Off Companies, Wilmer,
Cutler & Pickering has delivered the Tax Opinion stating that none of the
Distributions is a transaction used principally as a device for the distribution
of earnings and profits of either U.S. Office Products or any of the Spin-Off
Companies. However, because of the inherently subjective nature of the device
test (including the subjectivity involved in assigning weight to various
factors), and because the IRS may challenge the representations upon which
Wilmer, Cutler & Pickering relies, there can be no assurance that the IRS will
not assert that any or all of the Distributions are transactions used
principally as a device for the distribution of earnings and profits.
EFFECT OF POST-DISTRIBUTION TRANSACTIONS. Section 355(e), which was added
in 1997, generally provides that a company that distributes shares of a
subsidiary in a spin-off that is otherwise tax-free will incur U.S.
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federal income tax liability if 50% or more, by vote or value, of the capital
stock of either the company making the distribution or the subsidiary is
acquired by one or more persons acting pursuant to a plan or a series of related
transactions that includes the spin-off. Stock acquired by certain related
persons is aggregated in determining whether this 50% test is met. There is a
presumption that any acquisition of 50% or more, by vote or value, of the
capital stock of the company or the subsidiary occurring two years before or
after the spin-off is pursuant to a plan that includes the spin-off. However,
the presumption may be rebutted by establishing that the spin-off and the
acquisition are not part of a plan or a series of related transactions. Based on
the representations of U.S. Office Products, CD&R and the Spin-Off Companies,
and the assumption that no Distribution is part of a plan that is outside the
knowledge of U.S. Office Products and the Spin-Off Companies pursuant to which
one or more persons will acquire directly or indirectly 50% or more by vote or
value of the capital stock of U.S. Office Products or of any Spin-Off Company,
Wilmer, Cutler & Pickering has delivered the Tax Opinion stating that the
Distributions will not be taxable under Section 355(e). However, there can be no
assurance that the IRS will not assert that any or all of the Distributions are
taxable under Section 355(e).
If a Distribution fails to qualify as a tax-free spin-off or is taxable
under Section 355(e), U.S. Office Products will recognize gain equal to the
difference between the fair market value of the common stock of the Spin-Off
Company and U.S. Office Products adjusted tax basis in the common stock of the
Spin-Off Company (on the Distribution Date). If U.S. Office Products were to
recognize gain on one or more Distributions, such gain would likely be
substantial.
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USE OF PROCEEDS
The proceeds to the Company from the sale of the Common Stock offered
hereby, net of the estimated expenses and underwriting discounts and commissions
of this Offering, are expected to be approximately $28.7 million ($33.3 million
if the Underwriters' over-allotment option is exercised in full), based on the
assumed initial public offering price. The Company will use the net proceeds of
this Offering for working capital and general corporate purposes, including
future acquisitions.
The Company is entering into a secured credit facility in the amount of
$150.0 million underwritten and agented by Bankers Trust Company. The Company is
closing the credit facility prior to the closing of this Offering. While the
Company intends to make acquisitions in the future, it has not entered into any
agreement as of the date of this Prospectus to make any such acquisitions.
Pending the described uses, any remaining net proceeds will be invested in
short-term readily marketable interest-bearing securities, interest-bearing bank
accounts, certificates of deposit, money market securities, U.S. government
securities or mortgage-backed securities.
DIVIDEND POLICY
Workflow Management does not anticipate declaring and paying cash dividends
on the Common Stock in the foreseeable future. The decision whether to apply any
legally available funds to the payment of dividends on the Common Stock will be
made by the Board of Directors of the Company from time to time in the exercise
of its business judgment, taking into account the Company's financial condition,
results of operations, existing and proposed commitments for use of the
Company's funds and other relevant factors. The Company's ability to pay
dividends may be restricted from time to time by financial covenants in its
credit agreements.
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DILUTION
The pro forma net tangible book value of the Company as of January 24, 1998
was approximately $41.7 million, or $2.85 per share of Common Stock. Pro forma
net tangible book value per share is equal to the Company's total pro forma
tangible assets less its pro forma total liabilities, divided by the number of
shares of Common Stock outstanding. After giving effect to the sale by the
Company of 2,500,000 shares of Common Stock offered hereby at the assumed
initial public offering price and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds," the pro forma net tangible book
value of the Company at January 24, 1998 would have been approximately $70.5
million, or approximately $4.12 per share. This represents an immediate increase
of $1.27 per share in the pro forma net tangible book value to existing
stockholders and an immediate dilution of $8.88 per share in the pro forma net
tangible book value to new investors purchasing Common Stock in this Offering.
The following table illustrates the per share dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $ 13.00
Pro forma net tangible book value per share before the
Offering............................................... $ 2.85
Increase per share attributable to new investors......... 1.27
---------
Pro forma net tangible book value per share after the
Offering................................................. 4.12
---------
Dilution per share to new investors........................ $ 8.88
---------
---------
</TABLE>
The foregoing computations assume no exercise of stock options to acquire
shares of Common Stock exercisable upon consummation of the Workflow
Distribution. To the extent that shares of Common Stock are issued upon exercise
of these options, the effect would be to increase the dilution to new investors.
See "Management--Replacement of Outstanding U.S. Office Products Options" and
"Management--1998 Stock Incentive Plan."
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CAPITALIZATION
The following table sets forth the capitalization of Workflow Management at
January 24, 1998: (i) on an actual basis; (ii) on a pro forma basis to reflect
the Workflow Distribution, the allocation of $30.0 million of debt plus $15.6
million of additional debt of the Company and the acquisition of Astrid; and
(iii) on a pro forma, as adjusted basis to give effect to the sale by the
Company of the Common Stock offered hereby and after deduction of estimated
offering expenses and underwriting discounts and commissions and application of
the net proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the historical consolidated financial statements and
the pro forma combined financial statements of the Company, and the related
notes to each thereof, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 24, 1998
--------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- --------------
<S> <C> <C> <C>
(In thousands)
Short-term debt payable to U.S. Office Products........................... $ 17,658 $ $
--------- ----------- -------
--------- ----------- -------
Long-term debt, less current portion...................................... $ 5,498 $ 40,638 $ 11,913
Long-term debt payable to
U.S. Office Products..................................................... 1,905
Stockholder's equity:
Divisional equity....................................................... 47,726
Preferred Stock, $0.001 par value, 1,000,000 shares authorized; no
shares outstanding....................................................
Common Stock, $0.001 par value, 150,000,000 shares authorized, no shares
actual; 14,625,268 shares pro forma; 17,125,268 shares pro forma, as
adjusted(1)........................................................... 15 17
Additional paid-in capital.............................................. 47,711 76,434
Cumulative translation adjustment....................................... (1,365) (1,365) (1,365)
Retained earnings....................................................... 9,618 9,618 9,618
--------- ----------- -------
Total stockholder's equity............................................ 55,979 55,979 84,704
--------- ----------- -------
Total capitalization................................................ $ 63,382 $ 96,617 $ 96,617
--------- ----------- -------
--------- ----------- -------
</TABLE>
- ----------------------
(1) Excludes shares of Common Stock reserved for issuance upon exercise of
options. See "Management--Replacement of Outstanding U.S. Office Products
Options" and "Management--1998 Stock Incentive Plan."
22
<PAGE>
SELECTED FINANCIAL DATA
The historical Statement of Income Data for the years ended December 31,
1994 and 1995, the four months ended April 30, 1996 and the fiscal year ended
April 26, 1997 and the Balance Sheet Data at April 30, 1996 and 1997 have been
derived from Workflow Management's consolidated financial statements that have
been audited and are included elsewhere in this Prospectus. The historical
Statement of Income Data for the years ended December 31, 1992 and 1993 and the
Balance Sheet Data at December 31, 1992, 1993, 1994 and 1995 have been derived
from unaudited consolidated financial statements which are not included
elsewhere in this Prospectus. The Selected Financial Data for the nine months
ended January 25, 1997 and January 24, 1998 (except pro forma amounts) have been
derived from unaudited consolidated financial statements that appear elsewhere
in this Prospectus. These unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented.
The pro forma financial data give effect, as applicable, to the Workflow
Distribution and the acquisitions completed by Workflow Management between May
1, 1996 and May 1, 1998 as if all such transactions had been consummated on May
1, 1996. In addition, the pro forma information is based on available
information and certain assumptions and adjustments.
The Selected Financial Data provided herein should be read in conjunction
with the historical financial statements, including the notes thereto, the pro
forma financial information, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" that
appear elsewhere in this Prospectus.
23
<PAGE>
SELECTED FINANCIAL DATA(1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
APRIL 26,
FOUR MONTHS --------------------
YEAR ENDED DECEMBER 31, ENDED PRO
------------------------------------------ APRIL 30, FORMA
1992 1993 1994 1995(2) 1996 1997 1997(3)
--------- --------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................. $ 80,731 $ 121,463 $ 154,193 $ 309,426 $ 114,099 $ 327,381 $ 342,335
Cost of revenues.......................... 57,054 88,255 114,885 234,959 82,998 236,340 244,475
--------- --------- --------- --------- ------------- --------- ---------
Gross profit.............................. 23,677 33,208 39,308 74,467 31,101 91,041 97,860
Selling, general and administrative
expenses................................ 20,800 27,683 32,020 62,012 22,485 70,949 75,568
Non-recurring acquisition costs........... 5,006 5,006
--------- --------- --------- --------- ------------- --------- ---------
Operating income.......................... 2,877 5,525 7,288 12,455 8,616 15,086 17,286
Interest expense.......................... 904 1,328 2,048 5,370 1,676 4,561 3,647
Interest income........................... (81) (116) (18) (25)
Other (income) expense.................... 366 511 186 62 (151) 632 408
--------- --------- --------- --------- ------------- --------- ---------
Income before provision for (benefit from)
income taxes and extraordinary items.... 1,688 3,802 5,054 7,023 7,109 9,918 13,231
Provision for (benefit from) income
taxes(5)................................ 153 260 379 (33) 1,351 3,690 5,425
--------- --------- --------- --------- ------------- --------- ---------
Income before extraordinary items......... 1,535 3,542 4,675 7,056 5,758 6,228 $ 7,806
---------
---------
Extraordinary items(6).................... 700 798
--------- --------- --------- --------- ------------- ---------
Net income................................ $ 1,535 $ 3,542 $ 4,675 $ 6,356 $ 5,758 $ 5,430
--------- --------- --------- --------- ------------- ---------
--------- --------- --------- --------- ------------- ---------
Per share amounts:
Basic:
Income from before extraordinary
items............................... $ 0.26 $ 0.60 $ 0.77 $ 0.90 $ 0.56 $ 0.52 $ 0.53(7)
---------
---------
Extraordinary items................... 0.09 0.07
--------- --------- --------- --------- ------------- ---------
Net income............................ $ 0.26 $ 0.60 $ 0.77 $ 0.81 $ 0.56 $ 0.45
--------- --------- --------- --------- ------------- ---------
--------- --------- --------- --------- ------------- ---------
Diluted:
Income from before extraordinary
items............................... $ 0.26 $ 0.60 $ 0.77 $ 0.88 $ 0.55 $ 0.51 $ 0.53(7)
---------
---------
Extraordinary items................... 0.09 0.07
--------- --------- --------- --------- ------------- ---------
Net income............................ $ 0.26 $ 0.60 $ 0.77 $ 0.79 $ 0.55 $ 0.44
--------- --------- --------- --------- ------------- ---------
--------- --------- --------- --------- ------------- ---------
Weighted average shares outstanding
Basic................................. 5,901 5,901 6,075 7,875 10,333 12,003 14,625(8)
Diluted............................... 5,901 5,901 6,094 8,003 10,547 12,235 14,625(8)
<CAPTION>
NINE MONTHS ENDED
-------------------------------------------------------------------
PRO PRO PRO FORMA
FORMA FORMA AS ADJUSTED
JANUARY 25, JANUARY 24, JANUARY 25, JANUARY 24, JANUARY 24,
1997 1998 1997(3) 1998(3) 1998(4)
----------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................. $ 239,751 $ 257,777 $ 250,820 $ 263,960 $ 263,960
Cost of revenues.......................... 172,869 190,482 178,983 193,104 193,104
----------- ----------- ----------- ----------- ---------------
Gross profit.............................. 66,882 67,295 71,837 70,856 70,856
Selling, general and administrative
expenses................................ 51,735 53,083 55,472 55,095 55,095
Non-recurring acquisition costs........... 2,902 2,902
----------- ----------- ----------- ----------- ---------------
Operating income.......................... 12,245 14,212 13,463 15,761 15,761
Interest expense.......................... 3,910 1,665 2,735 2,735 1,011
Interest income........................... (21) (9)
Other (income) expense.................... 610 (205) 445 (333) (333)
----------- ----------- ----------- ----------- ---------------
Income before provision for (benefit from)
income taxes and extraordinary items.... 7,746 12,761 10,283 13,359 15,083
Provision for (benefit from) income
taxes(5)................................ 2,249 5,212 4,216 5,477 6,184
----------- ----------- ----------- ----------- ---------------
Income before extraordinary items......... 5,497 7,549 $ 6,067 $ 7,882 $ 8,899
----------- ----------- ---------------
----------- ----------- ---------------
Extraordinary items(6)....................
----------- -----------
Net income................................ $ 5,497 $ 7,549
----------- -----------
----------- -----------
Per share amounts:
Basic:
Income from before extraordinary
items............................... $ 0.48 $ 0.49 $ 0.41(7) $ 0.54(7) $ 0.52(7)
----------- ----------- ---------------
----------- ----------- ---------------
Extraordinary items...................
----------- -----------
Net income............................ $ 0.48 $ 0.49
----------- -----------
----------- -----------
Diluted:
Income from before extraordinary
items............................... $ 0.47 $ 0.48 $ 0.41(7) $ 0.54(7) $ 0.52(7)
----------- ----------- ---------------
----------- ----------- ---------------
Extraordinary items...................
----------- -----------
Net income............................ $ 0.47 $ 0.48
----------- -----------
----------- -----------
Weighted average shares outstanding
Basic................................. 11,464 15,301 14,625(8) 14,625(8) 17,125(9)
Diluted............................... 11,710 15,625 14,625(8) 14,625(8) 17,125(9)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1992 1993 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................ $ 6,005 $ 7,264 $ 8,583 $ 20,127
Total assets................................................................... 26,543 48,374 51,357 120,630
Short-term debt payable to U.S. Office Products................................
Long-term debt, less current portion........................................... 4,632 9,632 7,355 28,812
Long-term debt payable to U.S. Office Products.................................
Stockholder's equity........................................................... 7,459 11,675 12,889 24,719
<CAPTION>
JANUARY 24, 1998
----------------------
APRIL 30, APRIL 26, PRO
1996 1997 ACTUAL FORMA(10)
----------- ----------- --------- -----------
<S> <C>
BALANCE SHEET DATA:
Working capital................................................................ $ 23,378 $ 16,910 $ 25,370 $ 43,958
Total assets................................................................... 117,949 125,108 127,105 143,073
Short-term debt payable to U.S. Office Products................................ 23,622 17,658
Long-term debt, less current portion........................................... 28,108 6,034 5,498 40,638
Long-term debt payable to U.S. Office Products................................. 561 1,905
Stockholder's equity........................................................... 29,120 47,780 55,979 55,979
<CAPTION>
PRO FORMA,
AS ADJUSTED(4)
----------------
BALANCE SHEET DATA:
Working capital................................................................ $ 43,958
Total assets................................................................... 143,073
Short-term debt payable to U.S. Office Products................................
Long-term debt, less current portion........................................... 11,913
Long-term debt payable to U.S. Office Products.................................
Stockholder's equity........................................................... 84,704
</TABLE>
- ----------------------
(1) The historical financial information of the Pooled Companies has been
combined on a historical cost basis in accordance with GAAP to present this
financial data as if the Pooled Companies had always been members of the
same operating group. The financial information of the Purchased Companies
is included from the dates of their respective acquisitions. The pro forma
financial information reflects completed acquisitions through May 1, 1998.
See Note 4 of the Company's Notes to Consolidated Financial Statements for
a description of the number and accounting treatment of the acquisitions by
the Company.
(2) The results for the year ended December 31, 1995 include the results of
DBF, one of the Pooled Companies, from its date of incorporation on
February 8, 1995.
(3) Gives effect to the Workflow Distribution and the acquisitions completed by
the Company since May 1, 1996 as if all such transactions had been made on
May 1, 1996. The pro forma statement of income data are not necessarily
indicative of the operating results that would have been achieved had these
events actually then occurred and should not be construed as representative
of future operating results.
(4) Adjusted to give effect to the sale by the Company of 2,500,000 shares of
Common Stock offered hereby at the assumed initial public offering price
and the anticipated application of the estimated net proceeds therefrom.
See"Use of Proceeds."
(5) Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no
federal income tax expense prior to these acquisitions by the Company.
(6) Extraordinary items represent the losses associated with the early
terminations of credit facilities at one Pooled Company, net of the related
income tax benefits.
(7) Pro forma net income per share is pro forma income before extraordinary
items per share.
(8) For calculation of the pro forma weighted average shares outstanding for
the fiscal year ended April 26, 1997 and for the nine months ended January
24, 1998 and January 25, 1997, see Note 2(k) of Notes to Pro Forma Combined
Financial Statements included herein.
(9) For calculation of pro forma as adjusted weighted average shares
outstanding for the nine months ended January 24, 1998, see Note 2(m) of
Notes to Pro Forma Combined Financial Statements included herein.
(10) Gives effect to the Workflow Distribution and the purchase acquisition of
Astrid as if such transactions had been made on January 24, 1998. The pro
forma balance sheet data are not necessarily indicative of the financial
position that would have been achieved had these events actually then
occurred and should not be construed as representative of future financial
position.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis contains forward-looking statements
that involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," "expect," and similar expressions are intended to
identify such forward-looking statements. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Business," as well as those discussed elsewhere
in this Prospectus.
OVERVIEW
Workflow Management is an integrated graphic arts company providing
documents, envelopes and commercial printing to more than 22,000 businesses in
the United States and Canada. U.S. Office Products acquired SFI and a related
company, Hano, on January 24, 1997. On April 25, 1997, U.S. Office Products
acquired United. On April 26, 1997, U.S. Office Products acquired DBF. On
February 26, 1998, U.S. Office Products acquired Astrid. Upon consummation of
the transactions described under the caption "The Spin-Offs From U.S. Office
Products," these companies will become direct or indirect wholly-owned
subsidiaries of Workflow Management.
Workflow Management's consolidated financial statements give retroactive
effect to the seven business combinations accounted for under the
pooling-of-interests method during the period from January 1997 through April
1997 (the "Pooled Companies") and include the results of the two companies
acquired in business combinations accounted for under the purchase method, each
from its acquisition date. Prior to their respective dates of acquisition by
U.S. Office Products, the Pooled Companies reported results for years ended on
December 31. Upon acquisition by U.S. Office Products and effective for the
fiscal year ended April 26, 1997 ("Fiscal 1997"), the Pooled Companies changed
their year-ends from December 31 to conform with U.S. Office Products' fiscal
year, which ends on the last Saturday of April. The following discussion should
be read in conjunction with Workflow Management's consolidated financial
statements and related notes thereto and pro forma financial statements and
related notes thereto appearing elsewhere in this Prospectus.
In accordance with generally accepted accounting principles, the Company
will be unable to utilize the pooling-of-interests method to account for
acquisitions for a period of two years following the completion of the Strategic
Restructuring Plan. During this period, the Company will not reflect any
non-recurring acquisition costs in its results of operations, as all costs
incurred of this nature would be related to acquisitions accounted for under the
purchase method and would, therefore, be capitalized as a portion of the
purchase consideration.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
the years ended December 31, 1994 and 1995, the fiscal year ended April 26, 1997
and for the nine months ended January 25, 1997 and January 24, 1998, as well as
for the fiscal year ended April 26, 1997 and for the nine months ended January
25, 1997 and January 24, 1998, on a pro forma basis reflecting the Workflow
Distribution and the results of the completed business combinations accounted
for under the purchase method as if such transactions had occurred on May 1,
1996.
25
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
YEAR ENDED -------------------------- ----------------------------
-------------------------------- PRO FORMA
DECEMBER 31, DECEMBER 31, APRIL 26, APRIL 26, JANUARY 25, JANUARY 24,
1994 1995 1997 1997 1997 1998
--------------- --------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........................ 74.5 75.9 72.2 71.4 72.1 73.9
----- ----- ----- ----- ----- -----
Gross profit.......................... 25.5 24.1 27.8 28.6 27.9 26.1
Selling, general and administrative
expenses.............................. 20.8 20.1 21.7 22.1 21.6 20.6
Non-recurring acquisition costs......... 1.5 1.5 1.2
----- ----- ----- ----- ----- -----
Operating income...................... 4.7 4.0 4.6 5.0 5.1 5.5
Interest expense, net................... 1.3 1.7 1.4 1.1 1.6 0.6
Other (income).......................... 0.1 0.2 0.3 (0.1)
----- ----- ----- ----- ----- -----
Income before provision for income taxes
and extraordinary items............... 3.3 2.3 3.0 3.9 3.2 5.0
Provision for income taxes.............. 0.3 1.1 1.6 0.9 2.1
----- ----- ----- ----- ----- -----
Income before extraordinary items....... 3.0 2.3 1.9 2.3% 2.3 2.9
-----
-----
Extraordinary items--loss on early
terminations of credit facilities, net
of income taxes....................... 0.2 0.2
----- ----- ----- ----- -----
Net income.............................. 3.0% 2.1% 1.7% 2.3% 2.9%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
<CAPTION>
PRO FORMA PRO FORMA
JANUARY 25, JANUARY 24,
1997 1998
------------- -------------
<S> <C> <C>
Revenues................................ 100.0% 100.0%
Cost of revenues........................ 71.4 73.2
----- -----
Gross profit.......................... 28.6 26.8
Selling, general and administrative
expenses.............................. 22.1 20.8
Non-recurring acquisition costs......... 1.1
----- -----
Operating income...................... 5.4 6.0
Interest expense, net................... 1.1 1.0
Other (income).......................... 0.2 (0.1)
----- -----
Income before provision for income taxes
and extraordinary items............... 4.1 5.1
Provision for income taxes.............. 1.7 2.1
----- -----
Income before extraordinary items....... 2.4% 3.0%
----- -----
----- -----
Extraordinary items--loss on early
terminations of credit facilities, net
of income taxes.......................
Net income..............................
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 24, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 25,
1997
Consolidated revenues increased 7.5%, from $239.8 million for the nine
months ended January 25, 1997, to $257.8 million for the nine months ended
January 24, 1998. This increase was primarily due to sales to a large new
account, passing on increased product costs to customers, increased sales to
existing customers and the purchase acquisition of FMI Graphics, Inc. in 1997,
which was subsequently merged into SFI.
Gross profit increased 0.6%, from $66.9 million, or 27.9% of revenues, for
the nine months ended January 25, 1997 to $67.3 million, or 26.1% of revenues,
for the nine months ended January 24, 1998. This decrease in gross profit as a
percentage of revenues was primarily due to inefficiencies related to the start-
up period of a large new account.
Selling, general and administrative expenses increased 2.6%, from $51.7
million, or 21.6% of revenues, for the nine months ended January 25, 1997 to
$53.1 million, or 20.6% of revenues, for the nine months ended January 24, 1998.
This decrease in selling, general and administrative expenses as a percentage of
revenues was primarily due to an increase in revenues combined with a decrease
in executive compensation at the subsidiary level.
The Company incurred non-recurring acquisition costs of $2.9 million for the
nine-months ended January 25, 1997 in conjunction with business combinations
accounted for under the pooling-of-interests method. These non-recurring
acquisition costs included accounting, legal and investment banking fees, real
estate and environmental assessments and appraisals and various regulatory fees.
GAAP requires the Company to expense all acquisition costs (both those paid by
the Company and those paid by the sellers of the acquired companies) related to
business combinations accounted for under the pooling-of-interests methods of
accounting.
Interest expense, net of interest income, decreased 57.4%, from $3.9 million
for the nine months ended January 25, 1997 to $1.7 million for the nine months
ended January 24, 1998. The decrease was due primarily to the fact that a
portion of the debt outstanding during the nine months ended January 25, 1997
was repaid by U.S. Office Products upon acquisition of the Pooled Companies, and
U.S. Office Products did not charge the Company interest on the long-term
portion of the payable balance.
26
<PAGE>
Other expense decreased $815,000 from other expense of $610,000 for the nine
months ended January 25, 1997, to other income of $205,000 for the nine months
ended January 24, 1998. The decrease is primarily the result of costs incurred
at one of the Pooled Companies, prior to January 25, 1997, relating to a
contemplated initial public offering that was aborted as a result of that
company's acquisition by U.S. Office Products.
Provision for income taxes increased from $2.2 million for the nine months
ended January 25, 1997 to $5.2 million for the nine months ended January 24,
1998, reflecting effective income tax rates of 29.0% and 40.8%, respectively.
The lower effective tax rate for the nine months ended January 25, 1997,
compared to the federal statutory rate of 35.0% plus state taxes, is the result
of certain of the companies included in the results not being subject to federal
income taxes on a corporate level as they had elected to be treated as
subchapter S corporations.
FISCAL YEAR ENDED APRIL 26, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Consolidated revenues increased 5.8%, from $309.4 million in 1995, to $327.4
million in Fiscal 1997. This increase was primarily due to sales to a large new
account, passing on increased product costs to customers and increased sales to
existing customers.
Gross profit increased 22.3%, from $74.5 million, or 24.1% of revenues, in
1995 to $91.0 million, or 27.8% of revenues, in Fiscal 1997. The increase in
gross profit as a percentage of revenues was due primarily to cost reductions
resulting from an increased utilization of Company owned manufacturing
facilities and to increased rebates and purchase discounts from vendors.
Selling, general and administrative expenses increased 14.4%, from $62.0
million, or 20.1% of revenues, in 1995 to $70.9 million, or 21.7% of revenues,
in Fiscal 1997. The increase in selling, general and administrative expenses as
a percentage of revenues was due primarily to an increase in fixed costs as a
result of expansions to Company facilities for anticipated future growth.
The Company incurred non-recurring acquisition costs of $5.0 million for the
fiscal year ended April 26, 1997 in conjunction with business combinations
accounted for under the pooling-of-interests method.
Interest expense, net of interest income, decreased 15.5%, from $5.4 million
in 1995 to $4.5 million in Fiscal 1997. The decrease was due primarily to the
fact that a portion of the debt outstanding during 1995 was repaid by U.S.
Office Products upon acquisition of the Pooled Companies and U.S. Office
Products did not charge the Company interest on the long-term portion of the
payable balance.
Other expense increased $570,000, from $62,000 in 1995, to $632,000 in
Fiscal 1997. Fiscal 1997 other expense consists primarily of costs incurred at
one of the Pooled Companies, prior to January 25, 1997, relating to a
contemplated initial public offering that was aborted as a result of that
company's acquisition by U.S. Office Products.
Provision for income taxes increased from a benefit of $33,000 in 1995 to an
expense of $3.7 million in Fiscal 1997, reflecting effective income tax rates of
- -0.5% and 37.2%, respectively. The benefit from income taxes in 1995, compared
to the federal statutory rate of 35.0% plus state taxes, is the result of
certain of the companies included in the results not being subject to federal
income taxes on a corporate level as they had elected to be treated as
subchapter S corporations. In Fiscal 1997, this effect was partially offset by
non-deductible non-recurring acquisition costs.
During Fiscal 1997, the Company incurred an extraordinary item totaling
$798,000, which represented the expenses, net of the expected income tax
benefit, associated with the early termination of the credit facility at one of
the Pooled Companies during Fiscal 1997.
27
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Consolidated revenues increased 100.7%, from $154.2 million in 1994, to
$309.4 million in 1995. This increase was primarily due to a purchase
acquisition by one of the Pooled Companies in February 1995 (the "1995 Purchased
Company"), sales to new accounts and increased sales to existing customers.
Gross profit increased 89.4%, from $39.3 million, or 25.5% of revenues, in
1994 to $74.5 million, or 24.1% of revenues, in 1995. The increase in gross
profit was due primarily to the acquisition of the 1995 Purchased Company. The
decrease in gross profit as a percentage of revenues was due primarily to the
acquisition of the 1995 Purchased Company, which historically had lower gross
margins.
Selling, general and administrative expenses increased 93.7%, from $32.0
million, or 20.8% of revenues, in 1994 to $62.0 million, or 20.1% of revenues,
in 1995. The decrease in selling, general and administrative expenses as a
percentage of revenues was due primarily to increased revenues which were
generated without a correlating increase in selling, general and administrative
expense which were primarily fixed in nature.
Interest expense, net of interest income, increased 162.2%, from $2.0
million in 1994 to $5.4 million in fiscal 1995. The increase is due primarily to
financing obtained by one of the Pooled Companies to acquire the 1995 Purchased
Company.
Provision for income taxes decreased from $379,000 in 1994 to a benefit of
$33,000 in 1995, reflecting effective income tax rates of 7.5% and -0.5%,
respectively. The lower effective income tax rate in 1994 and the benefit from
income taxes in 1995, compared to the federal statutory rate of 35.0% plus state
taxes, is the result of certain of the companies included in the results not
being subject to federal income taxes on a corporate level as they had elected
to be treated as subchapter S corporations.
PRO FORMA COMBINED RESULTS OF OPERATIONS
The pro forma combined financial data discussed herein does not purport to
represent the results that the Company would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of the
applicable periods, as assumed, or the future results of the Company.
NINE MONTHS ENDED JANUARY 24, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 25,
1997
Pro forma revenues increased 5.2%, from $250.8 million for the nine months
ended January 25, 1997, to $264.0 million for the nine months ended January 24,
1998. This increase was primarily due to sales to a large new account, passing
on increased product costs to customers and increased sales to existing
customers.
Pro forma gross profit decreased 1.4%, from $71.8 million, or 28.6% of pro
forma revenues, for the nine months ended January 25, 1997, to $70.9 million, or
26.8% of pro forma revenues, for the nine months ended January 24, 1998. This
decrease in gross profit as a percentage of revenues was primarily due to
inefficiencies related to the start-up period of a large new account.
Pro forma selling, general and administrative expenses decreased 0.7%, from
$55.5 million, or 22.1% of pro forma revenues for the nine months ended January
25, 1997, to $55.1 million, or 20.8% of pro forma revenues for the nine months
ended January 24, 1998. The decrease in selling, general and administrative
expenses as a percentage of revenues was primarily due to spreading fixed costs
over a larger revenue base during the nine months ended January 24, 1998.
The provision for income taxes has been estimated using an effective income
tax rate of 41.0%, which represents anticipated federal and state income tax
rates.
28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At January 24, 1998, the Company had cash of $248,000 and working capital of
$25.4 million. The Company's capitalization, defined as the sum of long-term
debt, long-term payable to U.S. Office Products and stockholder's equity, at
January 24, 1998 was approximately $63.4 million. On a pro forma basis at
January 24, 1998, the Company had working capital of $44.0 million and
capitalization of $96.6 million.
During the nine months ended January 24, 1998, net cash provided by
operating activities was $6.0 million. Net cash used in investing activities was
$4.0 million, including $3.4 million of capital expenditures and the payment of
non-recurring acquisition costs of $906,000. Net cash used by financing
activities totaled $3.9 million which consisted entirely of the net repayment of
debt.
During the nine months ended January 25, 1997, net cash provided by
operating activities was $19.5 million. Net cash used in investing activities
was $7.7 million, including $7.4 million of capital expenditures. Net cash used
in financing activities totaled $10.6 million, consisting of the repayment of
debt of $22.4 million and the payment of dividends at Pooled Companies of $4.6
million which was partially offset by the $16.4 million capital contribution by
U.S. Office Products.
During the fiscal year ended April 26, 1997, net cash provided by operating
activities was $19.7 million. Net cash used in investing activities was $14.1
million, including $4.1 million of cash paid for non-recurring acquisition costs
and $9.5 million of capital expenditures. Net cash used in financing activities
totaled $4.7 million, consisting primarily of the repayment of debt of $17.2
million and the payment of dividends at Pooled Companies of $6.1 million,
partially offset by the $20.1 million capital contribution by U.S. Office
Products.
During the year ended December 31, 1995, net cash provided by operating
activities was $11.1 million. Net cash used in investing activities was $42.4
million, including $37.9 million of net cash paid in acquisitions and $5.9
million of capital expenditures. Net cash provided by financing activities
totaled $31.4 million, consisting primarily of an increase in debt of $35.8
million and the payment of dividends at Pooled Companies of $3.9 million.
During the year ended December 31, 1994, net cash provided by operating
activities was $6.1 million. Net cash used in investing activities was $123,000.
Net cash used in financing activities totaled $5.3 million, consisting primarily
of the payment of debt of $3.1 million and the payment of dividends at Pooled
Companies of $2.3 million.
Workflow Management has significant operations in Canada. Net sales and
income before provision for income taxes from the Company's Canadian operations
accounted for approximately 37.1% and 59.6% of the Company's total net sales and
income before provision for income taxes, respectively, in the fiscal year ended
April 26, 1997. As a result, Workflow Management is subject to certain risks
inherent in conducting business internationally, including fluctuations in
currency exchange rates. Changes in exchange rates may have a significant effect
on the Company's business, financial condition and results of operations. The
Company is currently reviewing certain hedge transaction options to mitigate the
effect of currency fluctuations.
Workflow Management's anticipated capital expenditures budget for the next
twelve months is approximately $10.0 million for new equipment and maintenance.
As a result of the provisions of Section 355 of the Code, the Company may be
subject to constraints in its ability to issue additional shares of Common Stock
in certain transactions for two years following the date of the Workflow
Distribution. In particular, if 50% or more, by vote or value, of the capital
stock of Workflow Management is acquired by one or more persons acting pursuant
to a plan or series of transactions that includes the spin-off transaction,
Workflow Management will suffer significant tax liability. Workflow Management
will evaluate any significant future issuance of capital stock to avoid the
imposition of such tax liability. See "Risk Factors--Possible Limitations on
Issuances of Common Stock."
29
<PAGE>
The Distribution Agreement with U.S. Office Products calls for an allocation
of $45.6 million of debt by U.S. Office Products resulting in the forgiveness of
$20.1 million of debt at January 24, 1998, which will be reflected in the
financial statements as a contribution of capital by U.S. Office Products. The
Company is entering into a secured $150.0 million revolving credit facility
underwritten and agented by Bankers Trust Company. The credit facility will
mature approximately five years from the Distribution Date and will be secured
by all assets of the Company. The credit facility will be subject to terms and
conditions typical of a credit facility of such type and size, including certain
financial covenants. Interest rate options are available to the Company
conditioned on certain leverage tests. The maximum rate of interest will be the
prime rate from time to time in effect. Workflow Management expects that the
credit facility will be adequate to repay the debt allocated by U.S. Office
Products and to fund working capital and capital expenditure needs. Workflow
Management expects that a portion of the credit facility will also be available
to fund the cash portion of future acquisitions, subject to the maintenance of
bank covenants.
The Company anticipates that its current cash on hand, cash flow from
operations, the net proceeds from this Offering and additional financing
available under the bank line of credit will be sufficient to meet the Company's
liquidity requirements for its operations for the next 12 months. However, the
Company intends to pursue acquisitions, which are expected to be funded through
cash, stock or a combination thereof. There can be no assurance that additional
sources of financing will not be required during the next 12 months or
thereafter.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Workflow Management's envelope business is subject to seasonal influences
from holiday mailings. As Workflow Management continues to complete
acquisitions, it may become subject to other seasonal influences if the
businesses it acquires are seasonal. Quarterly results also may be materially
affected by the timing of acquisitions, the timing and magnitude of costs
related to such acquisitions, variations in the prices paid by the Company for
the products it sells, the mix of products sold and general economic conditions.
Moreover, the operating margins of companies acquired may differ substantially
from those of Workflow Management, which could contribute to further fluctuation
in its quarterly operating results. Therefore, results for any quarter are not
necessarily indicative of the results that Workflow Management may achieve for
any subsequent fiscal quarter or for a full fiscal year.
The following tables set forth certain unaudited quarterly financial data
for the year ended December 31, 1995, the fiscal year ended April 26, 1997 and
the nine months ended January 24, 1998. The information has been derived from
unaudited consolidated financial statements, that in the opinion of management
reflect adjustments, consisting only of normal recurring accruals, necessary for
a fair presentation of such quarterly information.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues........................................................................ $ 65,497 $ 80,595 $ 79,815 $ 83,519
Gross profit.................................................................... 15,770 19,361 19,229 20,107
Operating income................................................................ 2,681 3,296 3,306 3,172
Net income...................................................................... 1,789 1,529 1,744 1,294
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
JULY 27, OCT. 26, JAN. 25, APRIL 26,
1996 1996 1997 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues........................................................................ $ 78,071 $ 80,227 $ 81,453 $ 87,630
Gross profit.................................................................... 21,717 22,518 22,647 24,159
Operating income................................................................ 4,650 6,085 1,510 2,841
Net income (loss)............................................................... 2,974 3,181 (658) (67)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------
JULY 26, OCT. 25, JAN. 24,
1997 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Revenues..................................................................................... $ 82,163 $ 88,884 $ 86,730
Gross profit................................................................................. 21,895 23,314 22,086
Operating income............................................................................. 4,975 4,842 4,395
Net income................................................................................... 2,703 2,582 2,264
</TABLE>
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during 1994, 1995 or Fiscal 1997.
NEW ACCOUNTING PRONOUNCEMENT
REPORTING COMPREHENSIVE INCOME. In June 1997, FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 130 requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Workflow Management intends to
adopt SFAS No. 130 in the fiscal year ending April 24, 1999.
YEAR 2000 ISSUE
Many existing computer programs were designed and developed without
considering the impact of the upcoming change in the century and consequently
use only two digits to identify a year in the date field. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000 (the "Year 2000 Issue"). The Company has reviewed the potential impact of
the Year 2000 Issue on its business, operations and financial condition and has
concluded that it will not be material.
The Company intends to have its proprietary software systems and related
services (known as GetSmart) Year 2000 ready by July 1998 and its proprietary
systems and related services (known as Informa) Year 2000 ready by the end of
the third fiscal quarter of 1998. With respect to the third party vendors
components, the Company will use its best efforts to replace third-party
software, hardware, and computer systems that are currently not Year 2000 ready
by December 31, 1999.
31
<PAGE>
BUSINESS
The following discussion and analysis contains forward-looking statements
that involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," "expect," and similar expressions are intended to
identify such forward-looking statements. The Company's actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Business," as well as those discussed elsewhere
in this Prospectus.
COMPANY OVERVIEW
Workflow Management is an integrated graphic arts company providing
documents, envelopes and commercial printing to more than 22,000 businesses in
the United States and Canada. The Company also offers various print and
facilities management services which allow customers to realize cost savings by
outsourcing non-core operations, as well as design services and workflow
analysis. Drawing on its position in the industry and its experience in
completing acquisitions, the Company seeks to become a leading consolidator in
the highly-fragmented graphic arts industry. In the last ten years, the
Company's senior management team successfully completed the acquisition of 16
companies for Standard Forms, Inc., the predecessor to SFI. Since the
acquisition of SFI and Hano by the Print Management Division of U.S. Office
Products in January 1997, that same management team has continued its
acquisition strategy by successfully buying six additional companies. As a
result, the enterprise has grown from SFI's revenues and operating income of
$115.1 million and $6.7 million, respectively, for the year ended December 31,
1996, to the Company's revenues and operating income of $345.4 million and $17.1
million, respectively, for the twelve months ended January 24, 1998. The Company
currently has over 2,000 employees and has 17 manufacturing facilities in seven
states and five Canadian Provinces, 26 distribution centers, eight print-on-
demand centers and 59 sales offices. Workflow Management intends to continue to
pursue its aggressive acquisition strategy to extend its geographic scope and
market penetration and to increase sales to existing customers by cross-selling
documents, envelopes and commercial printing.
Workflow Management offers a full range of printed products which are either
manufactured by the Company or procured from one of the Company's more than
3,500 vendors. The Company's product line includes: (i) documents, such as
custom invoices, purchase orders, checks and labels; (ii) envelopes, including
specialty envelopes for uses such as credit card solicitations, annual reports,
direct mail and airline tickets; and (iii) commercial printing, such as product
and corporate brochures, personalized direct mail literature, catalogs,
directories and digital imaging. The Company's manufacturing base, combined with
its extensive vendor network and distribution capability, gives the Company
broad flexibility to meet customers' demands for printed products. For the nine
months ended January 24, 1998, approximately 55.2% of its revenues were derived
from products purchased by the Company for distribution, and 44.8% were derived
from products manufactured by the Company.
Many of the Company's customers are attempting to reduce their overhead and
direct costs by focusing on core competencies and by outsourcing non-core
operations to specialists. The Company provides customers with print management
services that are designed to control the costs of procuring, storing and using
graphic arts in their business operations. As an outsourcing specialist for
print management services, Workflow Management enables its customers to reduce
costs and improve control by soliciting competitive bids, establishing more
efficient inventory levels and order quantities, and consolidating requisitions,
production and deliveries. The Company also performs design and procurement
services for its customers. In order to meet growing demand, Workflow Management
plans to continue to expand its product lines and services, and to promote its
print and facilities management services, which allow customers to outsource the
management of print products.
32
<PAGE>
The Company believes that its proprietary technology and systems are central
to its ability to capitalize effectively on industry outsourcing trends and
provide it with a significant competitive advantage. The Company has developed
its GetSmart and Informa transaction and information systems to support these
services and the Company's sales of print products. The GetSmart system provides
transaction, reporting and control capabilities to the Company and its customers
in the United States. The Informa system supports requisition, distribution and
imaging services with a control database and a variety of customer interfaces
for its customers in Canada, including the Imagenet Document Manager that
provides access via the world wide web. In addition, using the GetSmart and the
Informa systems, the Company has the flexibility to integrate future
acquisitions and increase its customer base rapidly and seamlessly. In addition,
with its technology platform, Workflow Management believes that it is able to
position itself as a premier technology deployer, thus increasing the Company's
attractiveness to potential acquisition targets. The Company is granting a
license to U.S. Office Products for the Company's Imagenet technology effective
on the Distribution Date. See "Certain Transactions."
The document, envelope and commercial printing industries that comprise the
graphic arts businesses are highly fragmented, and the Company believes they are
ripe for consolidation. The Company believes that the market for documents was
approximately $12.7 billion in 1996, up from $11.1 billion in 1993; (ii) while
the U.S. market for envelopes decreased from $3.0 billion in 1989 to $2.6
billion in 1992, the market has since increased to approximately $3.0 billion in
1996; and (iii) the general commercial segment of the United States printing
industry shipped more than $88.0 billion of products in 1996, an increase of 8%
over 1995. Furthermore, management believes there are approximately 200 envelope
manufacturers in the U.S., and that the commercial printing industry is composed
of approximately 25,000 printing plants, 70% of which have fewer than 10
employees.
The principal subsidiaries of the Company are as follows:
- SFI is a national distributor of documents and other printed consumables
used by businesses in the United States. SFI also provides print
management services that are designed to control its customers' costs of
procuring, storing and using graphic arts. SFI developed its proprietary
GetSmart information system as the platform for delivering these services
and executing sales. SFI has 338 employees, 150 of which are in sales. SFI
has 25 sales offices and nine distribution warehouses located in eight
states.
- United is a regional manufacturer and distributor of envelopes, primarily
custom and specialty envelopes for applications such as credit card
solicitations, annual reports, direct mail and airline tickets. United
manufactures its products in four plants located in New York, New Jersey
and Pennsylvania. United also has several digital pre-press systems for
converting text and graphics to film and plates prior to printing,
enabling United to offer design services to its customers. United has 311
employees, of which 19 are in sales and 223 are in manufacturing.
- DBF is a Canadian manufacturer, printer and distributor of documents and
other printed products, such as labels, direct mail, business
communications, security products, bar coding and thermal labeling. DBF
also offers its customers document and print facility management services
through its proprietary Informa and Imagenet systems. These systems allow
DBF's customers to control printing processes at DBF's eight Imagenet
print centers which are located in six cities across Canada. In addition,
DBF has 11 plants with approximately 1,200 employees, of which 854 are
engaged in manufacturing or printing.
- Hano is a manufacturer and printer of documents. Hano has three plants
located in Georgia, Illinois and Massachusetts. Hano has 184 employees.
Approximately 21% of Hano's products are sold to SFI.
BUSINESS STRATEGY
The Company's objective is to become a leading single source provider of
printed products and related services to businesses of all sizes. To attain its
goals, Workflow Management plans to grow both
33
<PAGE>
externally, through strategic acquisitions, and internally, through new product
development, cross-selling the full suite of the Company's products and services
to its subsidiaries, which had previously limited product offerings, and
cross-utilization of the Company's proprietary computer systems. In addition,
the Company intends to develop additional systems to establish a position as one
of the industry's most technologically sophisticated providers of printed
products and related management services.
Workflow Management intends to capitalize on consolidation opportunities in
three segments of the North American graphic arts industry: U.S. printed
products, U.S. envelopes and Canadian printed products. Through acquisitions,
the Company plans to expand its presence into new geographic regions and
increase penetration in regions where it currently has operations. In the U.S.
printed products market, the acquisition strategy will focus on the large
population of independent distributors. Workflow Management is the third largest
print distributor in North America. In the last ten years the Company's senior
management team successfully completed the acquisition of 16 smaller
distributors for Standard Forms, Inc., the predecessor to SFI. Since the
acquisition of SFI and Hano by the Print Management Division of U.S. Office
Products in January 1997, that same senior management team has continued its
acquisition strategy by successfully buying six additional companies, including
envelope businesses and print businesses. The Company intends to pursue
additional acquisitions in the highly fragmented U.S. print distribution market.
In the U.S. envelope market, Workflow Management will seek to acquire high
value-added producers of specialty envelope and direct mail concerns. In the
Canadian printed products market, the Company plans to leverage its document
sales force and customer base with selective acquisitions of commercial print
manufacturers.
Workflow Management intends to grow internally through product development,
cross-marketing and cross-utilization of its proprietary GetSmart, Informa and
Imagenet computer systems. A substantial majority of the Company's net sales are
derived from custom documents, envelopes and commercial printing. The Company
believes that its analysis, design work and print management services enable the
Company to better understand customers' requirements, and foster close business
relationships between the Company and its customers. Workflow Management
believes that its knowledge of customer requirements and these relationships
enable the Company to identify new product lines and services in response to
emerging customer opportunities and provide cross-marketing opportunities for
the Company's various product lines and services. The Company also believes that
it will be able to increase sales by implementing its GetSmart, Informa and
Imagenet systems on a Company-wide basis.
PRODUCT LINES
DOCUMENTS. Workflow Management offers a complete line of custom and stock
documents, such as invoices, purchase orders, money orders, bank drafts and
labels. These documents may be fan-folded, roll-fed, snap-apart or cut-sheet,
and manufactured to specification with respect to content, size, plies, paper
and inks. More than 85% of the Company's revenues from sales of documents are
from sales of custom products.
ENVELOPES. Workflow Management offers a complete line of conventional and
specialty envelopes for applications such as billing, credit card solicitations,
annual reports, proxy solicitations, direct mail and airline tickets. These
envelopes are of varying sizes and specialized materials, with constructions
including wallet flap, flat mailer, safety fold, peel and seal, clasp, button
and string, window, expansion and continuous. The Company can customize
dimensions, materials, construction, and graphics to customers' specific
requirements.
COMMERCIAL PRINTING. The Company's commercial printing line includes
products such as corporate brochures, personalized direct mail, catalogs,
directories and promotional products. These products are designed and
manufactured to customers' requirements. Workflow Management provides a variety
of custom services, including art direction, digital and conventional design,
layout, illustration, photography and production.
34
<PAGE>
The following table sets forth the amount of the Company's revenue derived
from each of its three largest product lines for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, APRIL 26, JANUARY 24,
1995 1997 1998
------------ ----------- ------------
<S> <C> <C> <C>
(IN THOUSANDS)
Documents............................................ $ 178,806 $ 186,787 $ 126,756
Envelopes............................................ 101,642 97,256 74,290
Commercial Printing.................................. 24,850 37,426 32,978
</TABLE>
PRINT MANAGEMENT
Workflow Management supports its product offering with a selection of
value-added services. For many businesses, the costs of managing, storing, and
using printed products exceed their purchase price. The Company seeks to control
these costs and improve efficiency throughout the workflow by providing systems
analysis, design, and facilities and inventory management services. Workflow
Management delivers its print management services through GetSmart and Informa,
its proprietary computerized transaction and information systems. The Company
does not charge a separate fee for its management services, but instead tailors
its product pricing to reflect the services provided.
GETSMART SYSTEM. The Company offers the GetSmart system in the United
States. GetSmart provides transaction, reporting and control capabilities to the
Company and its customers. SFI introduced GetSmart in 1986, and it re-engineered
the system in 1993 to incorporate advances in hardware and software
technologies. The system's transaction database now includes more than 200,000
SKUs, 12,000 active customers and 3,500 active vendors. Customers can access
GetSmart either off-line, through the Company's sales and customer support
personnel, or on-line, through wide area network, dial-up, leased-line and
Internet connections. This array of delivery options makes GetSmart available to
customers of every size and complexity, and to customers at every level of
computer sophistication. The discussion below summarizes these support
functions. The Company is continually refining and enhancing the GetSmart
system.
A customer can initiate a distribution from inventory by issuing a
requisition through GetSmart. GetSmart then allocates the merchandise to the
cost center and routes the release to the appropriate distribution facility.
Customers can specify their minimum inventory requirements or can rely on
GetSmart's ongoing analysis of usage patterns and lead times. GetSmart notifies
the Company's sales representative when a re-order point is reached, and the
representative negotiates a new purchase order with the customer. The purchase
order is entered into the system and GetSmart tracks the order to the product's
receipt at the Company's distribution center. At this point the storage,
shipment, usage and re-order cycle begins again. Throughout the cycle, the
system supports inventory transfers and write-offs, returns of items
requisitioned in error, and purchases that are shipped directly to customers by
the Company's vendors. GetSmart produces invoices when merchandise is received
at the Company's distribution centers, or when it is shipped to customers, and
tracks invoices through to remittance. All transactions can be consummated in a
number of electronic formats required by customers' data processing operations.
GetSmart also offers electronic catalogs of 375,000 promotional products and
30,000 office products. The catalogs provide product images and descriptions, as
well as powerful search engines enabling customers to locate the products best
suited to their requirements.
GetSmart can generate more than 100 real-time and periodic reports to
customers. These reports detail, summarize and analyze purchases, inventory
levels, utilization rates and billing by cost center, product, and product line
to meet each customer's specific needs. Reports can be viewed on-screen in real
time, printed at the customer's premises, printed remotely and delivered to a
customer, or transmitted electronically for further processing by a customer's
internal management information system. The
35
<PAGE>
Company maintains five years of historical data on-line for comparative reports
and analyses. In addition, GetSmart's Base Line Pricing Report routinely
analyzes changes in prices charged to managed accounts, an analysis the Company
believes is unique in the industry.
GetSmart also provides customers with a system of management controls for
certain services. Customers may control cost center access with passwords,
allocate inventories to cost centers, limit the transacting and reporting
authority of each cost center by product or product line, constrain purchases
and requisitions to amounts budgeted for each cost center, and suspend
transactions until they are reviewed and approved. The Company can customize
GetSmart to create optimal programs for its customers.
INFORMA SYSTEM. Workflow Management offers the Informa system in Canada.
Informa supports requisition, distribution, and digital imaging services with a
central transaction database and a variety of customer interfaces. In addition
to sophisticated print-on-demand capabilities, Informa provides much of the
functionality of the GetSmart system: inventory inquiries and releases; order
tracking; usage analysis and forecasting; detailed reporting for cost centers
and products; and procurement-card and X.12 EDI billing. Customer interfaces
include terminal access, a graphical user interface client, e-mail, world wide
web browser, touch-tone, and automated voice recognition. Informa is accessed
through leased lines, dial-up service, Internet and wide area networks.
Informa's Electronic Job Ticket ("EJT") interface is a specialized e-mail
enabling customers to requisition documents and other products from the
Company's distribution centers, and to route attached documents to the Company's
network of Imagenet print-on-demand facilities. EJT's print-on-demand feature
supports a broad range of custom specifications, including quantities; fixed and
variable imaging; page orientation; paper size, weight, grade, and color;
drilling and binding; and cover page. EJT also provides fields for the
customer's budget code, billing information, and distribution instructions. EJT
originates jobs ranging from single impressions, to thousands of copies
delivered to a single location, to thousands of documents mailed to tens of
thousands of recipients.
IMAGENET DOCUMENT MANAGER. The Company intends to deploy Imagenet for use
in the United States. Workflow Management is licensing Imagenet to U.S. Office
Products effective on the Distribution Date.
Workflow Management provides customers with world wide web-access to Informa
through its Imagenet. This application provides a browser interface to Informa's
transaction and reporting features for managing and distributing inventories
held for customers. The application also offers a full-featured document
librarian, with image storage, retrieval, viewing, downloading, archiving, and
version control. In addition, Imagenet provides estimation and requisition for
digital print-on-demand orders. Production images for these orders can be
uploaded to the world wide web or retrieved from the application's document
library.
OPERATIONS
SALES. Workflow Management sells its products directly to end-users, as
well as to distributors and brokers who re-sell to end-users. The Company
employs more than 350 sales representatives and 175 customer service personnel
in 59 sales offices throughout the United States and Canada. Sales
representatives are compensated through salaries and commissions. Commissioned
sales representatives are compensated based on either product sales or gross
margins. In addition to the Company's line of documents, commercial printing,
envelopes and related products, the sales force offers value-added services
including workflow analysis, design, document management, and print-on-demand.
The Company's sales force is supported by its GetSmart and Informa transaction
and information systems. See "--Print Management."
PURCHASING. Workflow Management purchases raw materials such as paper
stock, ink, stock envelopes, adhesives, plates, film, chemicals, and cartons
from a variety of manufacturers and resellers. These materials are purchased
job-by-job or under contracts with terms of up to two years. Longer-term supply
contracts generally specify services to be provided and may guarantee product
availability, but
36
<PAGE>
typically reserve to vendors the right to adjust prices as required by market
conditions. The largest suppliers of paper stock to the Company are Rollsource,
Appleton, Mead, Avenor and Domtar. Workflow Management also purchases finished
goods for resale to customers. These finished goods include the Company's full
line of documents, envelopes and commercial printing. Workflow Management has
more than 3,500 suppliers of finished goods, including, among the largest, Ward
Kraft Forms, United Computer Supplies, Gilman Sky, Transkrit and United
Stationers, Inc.
MANUFACTURING. Workflow Management manufactures documents and envelopes.
Documents produced by the Company include continuous and snap-apart forms, roll
forms, cut sheets and label/form combinations, and checks and other security
documents. Workflow Management operates 13 document plants in Canada and four in
the United States. These plants employ more than 1,100 manufacturing personnel
and utilize over 250 presses and other machines. The Company also manufactures a
broad line of conventional and specialty envelopes in four plants located in New
York, New Jersey and Pennsylvania. The envelope plants currently operate more
than 80 manufacturing and printing machines. Workflow Management operates a
network of eight Imagenet print-on-demand facilities in Canada, providing
digital imaging and litho quick printing. The Company also operates several
conventional and digital pre-press systems for converting text and graphics to
film and plates prior to printing. Among these pre-press capabilities are
several state-of-the art digital systems which enhance overall production
efficiency and provide high-process capabilities to customers.
DISTRIBUTION. Products manufactured by Workflow Management are either
shipped directly to customers or held in inventory and shipped as requisitioned
by customers. Finished goods purchased by the Company from manufacturers and
wholesalers are either shipped directly to customers by vendors, or shipped to,
stored in, and shipped from one of the Company's distribution centers. Workflow
Management owns or leases nine distribution centers in the United States and 17
in Canada, and rents additional warehouse space as necessary. More than 120
distribution personnel are employed by Workflow Management. Products are
transported from the Company's suppliers and to its customers by short-haul,
regional, contract and custom carriers, as well as by air and ground courier
services.
CUSTOMERS
Workflow Management has more than 22,000 customers ranging in size from
small office/home office businesses to Fortune 500 companies in industries such
as healthcare, insurance, energy, advertising, travel and financial services.
Significant customers of the Company include: Bank of Montreal; Aetna, Inc.;
Citibank N.A.; Chase Manhattan Corp.; Group Health Incorporated; Health
Insurance Plan of Greater New York, Inc.; Heilig-Meyers Company; Merrill Lynch &
Co., Inc.; Banco Popular, Inc.; Shell Canada; and Salomon Smith Barney Holdings,
Inc.
The Company's five largest customers accounted for 10.7% of the Company's
net sales for the nine months ended January 24, 1998. The Company's single
largest customer accounted for approximately 4.1% of net sales for the nine
months ended January 24, 1998. Although that customer has recently agreed to be
acquired, the Company has entered into a new four year services agreement with
the customer.
COMPETITION
Workflow Management competes for retail sales of documents and envelopes
against other independent distributors and against manufacturers' direct sales
organizations. In commercial printing, the Company also competes with
manufacturers' direct sales organizations, independent brokers, advertising
agencies and design firms. The principal competitive factors in the graphic arts
industry are price, quality, selection, services, production capacity, delivery
and customer support.
Although Workflow Management often competes with smaller businesses, it also
competes against the largest competitors in the North American documents
industry, such as Moore Corporation Ltd., Reynolds & Reynolds Company, Standard
Register Company and Wallace Computer Services, Inc., and the largest
competitors in the U.S. envelope industry, such as Mail-Well, Westvaco and
Tension Envelope Company.
37
<PAGE>
The largest competitors for commercial printing include direct sales
organizations of Graphic Industries, Inc., R. R. Donnelley & Sons, Quebecor,
Inc. and World Color Press, Inc. Most of these competitors have substantially
greater financial resources than the Company.
EMPLOYEES
As of December 31, 1997, Workflow Management had more than 2,000 full- and
part-time employees, including over 550 in sales and sales support and more than
1,200 in manufacturing. Approximately 31% of the Company's employees in the
United States and approximately 8% of the Company's employees in Canada are
represented by labor unions. There can be no assurance that work stoppages or
strikes will not occur. The Company considers its employee relations to be good.
INTELLECTUAL PROPERTY
Workflow Management has more than 40 registered trademarks in the U.S. and
Canada, including GetSmart, Informa and Imagenet. The Company believes that its
trademarks and other proprietary rights are material to the operations of its
business. Workflow Management regards its GetSmart, Informa and Imagenet
software as proprietary, and relies on a combination of copyright and trademark
laws, trade secrets, confidentiality agreements and contractual provisions to
protect its rights. Workflow Management is not aware that any of its software,
trademarks or other proprietary rights are being infringed by third parties, or
that it infringes proprietary rights of third parties. See "Risk
Factors--Dependence on Intellectual Property Rights; Risks of Infringement."
PROPERTIES
The following table sets forth certain information about the Company's
executive offices and manufacturing and printing facilities:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
FUNCTION AND LOCATION FOOTAGE TITLE EXPIRATION
- ---------------------------------------------------------------------- ------------ ---------- --------------------
<S> <C> <C> <C>
EXECUTIVE OFFICE:
Palm Beach, Florida................................................. 5,000 Leased 2003
MANUFACTURING AND PRINTING:
Conyers, Georgia.................................................... 71,300 Leased 2006
Mt. Olive, Illinois................................................. 82,000 Leased 2004
Springfield, Massachusetts.......................................... 65,000 Leased 2004
Lyndhurst, New Jersey............................................... 16,000 Leased 2000
New York, New York.................................................. 160,000 Leased 2002
New York, New York.................................................. 53,000 Leased 2005
New York, New York.................................................. 60,000 Leased 2002
Norfolk, Virginia................................................... 26,400 Owned --
Mt. Pocono, Pennsylvania............................................ 140,000 Owned --
Calgary, Alberta.................................................... 48,000 Leased 1999
Calgary, Alberta.................................................... 30,000 Leased 1999
Edmonton, Alberta................................................... 81,000 Leased 2006
Victoria, British Columbia.......................................... 14,000 Leased 1999
Winnipeg, Manitoba.................................................. 12,500 Leased 2002
Brampton, Ontario................................................... 174,500 Leased 1999
Brampton, Ontario................................................... 44,200 Leased 2000
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE LEASE
FUNCTION AND LOCATION FOOTAGE TITLE EXPIRATION
- ---------------------------------------------------------------------- ------------ ---------- --------------------
<S> <C> <C> <C>
London, Ontario..................................................... 17,500 Leased month-to-month
Mississauga, Ontario................................................ 60,000 Leased 2004
Mississauga, Ontario................................................ 7,200 Leased month-to-month
Toronto, Ontario.................................................... 10,000 Leased 2000
Regina, Saskatchewan................................................ 28,000 Leased 2006
Dorval, Quebec...................................................... 42,000 Owned --
Granby, Quebec...................................................... 100,000 Owned --
Pointe Claire, Quebec............................................... 30,000 Leased 1998
</TABLE>
In addition to those facilities identified above, Workflow Management leases
other offices, warehouses and distribution centers across the United States and
Canada.
Workflow Management believes that its properties are adequate to support its
operations for the foreseeable future.
ENVIRONMENTAL REGULATIONS
The Company's operations and real property are subject to United States and
Canadian federal, state, provincial, and local environmental laws and
regulations, including those governing the use, storage, treatment,
transportation and disposal of solid and hazardous materials, the emission or
discharge of such materials into the environment, and the remediation of
contamination associated with such disposal or emissions. Certain of these laws
and regulations may impose joint and several liability on lessees and owners or
operators of facilities for the costs of investigation or remediation of
contaminated properties, regardless of fault or the legality of the original
disposal.
The past and present business operations of the Company that are subject to
the Environmental Laws and regulations include the use, storage, handling, and
contracting for recycling or disposal of hazardous and nonhazardous materials
such as washes, inks, alcohol-based products, fountain solution, photographic
fixer and developer solutions, machine and hydraulic oils, and solvents.
Workflow Management generates both hazardous and non-hazardous waste.
Limited environmental investigations have been conducted at certain of the
Company's properties. Based on these investigations and all other available
information, management believes that the Company's current operations are in
substantial compliance with the Environmental Laws. The Company is not aware of
any liability under the Environmental Laws that the Company believes would have
a material adverse effect on the Company's business, financial condition or
results of operations. No assurance can be given, however, that all potential
environmental liabilities have been identified or that future uses, conditions
or legal requirements (including, without limitation, those that may result from
future acts or omissions or changes in applicable Environmental Laws) will not
require material expenditures to maintain compliance or resolve potential
liabilities.
LEGAL MATTERS
Workflow Management is involved in various lawsuits arising in the ordinary
course of business. Workflow Management believes that the outcome of these
matters will not have a material adverse effect on the Company's business,
financial condition or results of operations.
39
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Following this Offering, it is anticipated that the directors, executive
officers and key employees of the Company will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
OFFICERS AND DIRECTORS OF THE COMPANY:
Thomas B. D'Agostino................................. 55 Chairman of the Board, President, Chief Executive
Officer and Director
Steven R. Gibson..................................... 38 Vice President and Chief Financial
Officer
Claudia S. Amlie..................................... 29 Vice President and General Counsel
Thomas A. Brown, Sr.(1)(2)........................... 55 Director
Gus J. James, II(1).................................. 59 Director
Jonathan J. Ledecky.................................. 40 Director
Timothy L. Tabor..................................... 44 Director
F. Craig Wilson(2)................................... 48 Director
KEY EMPLOYEES OF SUBSIDIARIES:
John Conway.......................................... 55 President of Data Business Forms Limited
Thomas B. D'Agostino, Jr.*........................... 31 President of SFI of Delaware, LLC
Robert M. Fishbein................................... 55 Co-Chairman and Co-President of United Envelope, LLC
Richard M. Schlanger................................. 53 Co-Chairman and Co-President of United Envelope, LLC
Andre Beaudet........................................ 55 President of Hano Document Printers, Inc.
</TABLE>
- ------------------
* Thomas B. D'Agostino, Jr. is the son of Thomas B. D'Agostino, Chairman of
the Board and Chief Executive Officer of the Company.
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
The Board of Directors intends to increase its size from six to seven
members following this Offering and to appoint the seventh director to serve on
the Compensation Committee.
THOMAS B. D'AGOSTINO is Chairman of the Board, President and Chief Executive
Officer of the Company. Mr. D'Agostino was President of SFI and its predecessor
company, Forms & Peripherals, Inc., from 1972 until 1998, and was appointed
President of U.S. Office Products Print Management Division in January 1997 when
U.S. Office Products acquired SFI and Hano.
STEVEN R. GIBSON is Vice President and Chief Financial Officer of the
Company, the position to which he was appointed in April 1998. From February
1997 until April 1998, Mr. Gibson was President of Cortez Financial Services,
Inc, an investment banking company. From May 1985 to February 1997, he was
employed in various positions at NationsBank Corporation, ultimately serving as
Senior Vice President.
CLAUDIA S. AMLIE was appointed Vice President and General Counsel of the
Company in May 1998. From July 1997 until April 1998, she served as an associate
attorney at the law firm of Edwards & Angell in Palm Beach, Florida. Ms. Amlie
worked as an associate attorney at Foley & Lardner in West Palm Beach, Florida
from June 1996 to July 1997 and Stearns, Weaver, Miller, Weissler, Alhadeff &
Sitterson in Miami, Florida from August 1994 to May 1996. Ms. Amlie graduated
from law school in 1994.
40
<PAGE>
THOMAS A. BROWN, SR. has served as the Vice
President-Purchasing/Sourcing/Logistics of Pfizer, Inc., a large pharmaceutical
company, since May 1996. From June 1991 until May 1996, Mr. Brown was Vice
President-Procurement of Aetna, Inc., a national insurance company.
GUS J. JAMES, II is the President, a director and shareholder of the law
firm of Kaufman & Canoles in Norfolk, Virginia. Mr. James has practiced law with
Kaufman & Canoles since 1967. See "Certain Transactions."
JONATHAN J. LEDECKY will serve as a director and an employee of the Company
and each of the other Spin-Off Companies. He founded Consolidation Capital
Corporation in February 1997 and will serve as its Chairman and Chief Executive
Officer. Mr. Ledecky founded U.S. Office Products in October 1994 and will serve
as its Chairman of the Board until the Distribution Date and served as its Chief
Executive Officer until November 5, 1997. Mr. Ledecky has also served as the
Non-Executive Chairman of the Board of USA Floral Products, Inc. since April
1997 and has been a director of UniCapital Corporation since October 1997. 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.
TIMOTHY L. TABOR served as Executive Vice President of U.S. Office Products
Print Management Division and Executive Vice President and Chief Operating
Officer of SFI and Hano from May 1997 until the Distribution Date. From 1996
until 1997, he served as an executive officer of SFI and Hano. From 1993 to
1995, Mr. Tabor managed his own investments. From 1987 to 1993, Mr. Tabor held
various positions with Tudor Investment Corp., serving as Director of Technology
from 1987 to 1990, Director of the Securities Department from 1990 until 1992
and as a proprietary trader in 1993.
F. CRAIG WILSON has served as Chief Executive Officer and Chairman of the
Board of Cortez III Service Corporation ("Cortez III") since March 1997. Cortez
III provides logistics and technical services to various governmental agencies.
Mr. Wilson also serves as President of EC III, Inc., a joint venture of Cortez
III, and EG&G, Inc. From 1993 to 1997, Mr. Wilson was Chief Operating Officer of
Cortez III.
JOHN CONWAY has served as President of DBF since 1992. From 1987 to 1992,
Mr. Conway was Vice President and General Manager of Data East.
THOMAS B. D'AGOSTINO, JR. was appointed President of SFI in 1998. He
previously served as Vice President of Sales of SFI from 1997 until 1998. From
1995 to 1997, he served as President of Hano. From 1993 to 1995, Mr. D'Agostino,
Jr. held several other positions with Hano, including Vice President of Sales
and Marketing and General Manager.
ROBERT M. FISHBEIN is Co-Chairman of United. He has also served as
Co-President of United since 1994. From 1982 to 1994, Mr. Fishbein held the
position of Executive Vice President of United.
RICHARD M. SCHLANGER is also Co-Chairman of United. He has also served as
Co-President of United since 1994. From 1982 to 1994, Mr. Schlanger held the
position of Executive Vice President of United.
ANDRE BEAUDET is President of both Hano and Multiple Pakfold, Inc., the
distributor arm of DBF. Mr. Beaudet joined DBF in 1992 when it acquired Southam
Paragon, where he had been employed since 1965. From 1986 to 1997, Mr. Beaudet
held a variety of positions at Southam Paragon, including President and Vice
President.
Directors are elected for a one-year term and hold office until their
successors have been elected and qualified or until such director's earlier
resignation or removal.
41
<PAGE>
COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee. The Audit Committee is
charged with reviewing Workflow Management's annual audit and meeting with the
Company's independent accountants to review the Company's internal controls and
financial management practices. Messrs. Brown and James are members of the Audit
Committee.
The Board of Directors has a Compensation Committee. The Compensation
Committee is charged with determining the compensation of Workflow Management's
executive officers and administering the 1998 Stock Incentive Plan. Mr. Wilson
and Mr. Brown are members of the Compensation Committee. See "--1998 Stock
Incentive Plan."
LEDECKY SERVICES AGREEMENT
Jonathan J. Ledecky entered into the Ledecky Services Agreement with U.S.
Office Products on January 13, 1998, as amended and restated as of June 8, 1998,
which will be effective on the Distribution Date and contingent on the
consummation of the Distributions. The Ledecky Services Agreement will expire on
September 30, 1998 if none of the Distributions has occurred by that date. If
the Ledecky Services Agreement becomes effective, it will replace his employment
agreement with U.S. Office Products as amended November 4, 1997. The principal
terms of this agreement, as amended, are summarized here.
The Ledecky Services Agreement governs Mr. Ledecky's continuing obligations
to U.S. Office Products. Under the Ledecky Services Agreement, Mr. Ledecky will
report to the U.S. Office Products Board and will provide high-level acquisition
negotiation services and strategic business advice. Under the Agreement, Mr.
Ledecky will remain an employee of U.S. Office Products at an annual salary of
$48,000 through June 30, 2001. As a continuing employee of U.S. Office Products,
Mr. Ledecky will also retain his existing U.S. Office Products' options despite
his reduction in services to U.S. Office Products. U.S. Office Products can
terminate Mr. Ledecky's employment only for "cause" where cause consists of (i)
his conviction of, or guilty or nolo contendere plea to, a felony demonstrably
and materially injurious to U.S. Office Products, or (ii) his violation of the
non-competition provision as it relates to U.S. Office Products. If Mr. Ledecky
resigns or is terminated, he will cease to vest in his U.S. Office Products
stock options and will have 90 days to exercise any vested options.
The Company is entering into an employment agreement with Mr. Ledecky,
effective as of June 10, 1998, that will implement assigned portions of the
Ledecky Services Agreement. Under the employment agreement, Mr. Ledecky will
report to the Board of Directors and senior management of the Company. In such
capacity, Mr. Ledecky will provide high-level acquisition negotiation services
and strategic business advice. The Company can require Mr. Ledecky's performance
of such services, consistent with his other contractual obligations to
Consolidation Capital Corporation, U.S. Office Products and the other Spin-Off
Companies. As an employee, Mr. Ledecky will also be subject to the generally
applicable personnel policies of the Company and will be eligible for such
benefit plans in accordance with their terms. The Company will pay Mr. Ledecky
an annual salary of $48,000 for up to two years. The Company may terminate Mr.
Ledecky's employment with "cause," where cause is defined as in the Ledecky
Services Agreement as modified to refer to the Company.
The Ledecky Services Agreement provides for non-competition and
non-solicitation restrictions that continue until the end of a specified
restricted period, which for Workflow Management, means the later of June 10,
2000 or the date one year after Mr. Ledecky leaves Workflow Management's employ.
These provisions generally restrict Mr. Ledecky from, among other things,
investing in or working for or on behalf of any business selling any products or
services in direct competition with U.S. Office Products or the Spin-Off
Companies (collectively, the "U.S. Office Products Companies"), within 100 miles
of any location where the relevant U.S. Office Products Company regularly
maintains an office with employees. (For this purpose, "products or services"
are those that U.S. Office Products offered on January 13, 1998.)
Notwithstanding this prohibition, Mr. Ledecky may serve in a policy making role
(but not engage in direct personal competition) with respect to the following
businesses: (i) certain businesses that are potentially
42
<PAGE>
competitive with Aztec Technology Partners, Inc. if those businesses (A) relate
to computer installation and servicing, (B) information technology, or (C)
telecommunications, and if, when acquired, the businesses met certain revenue
limits and had their principal place of business in the same metropolitan area
as that of the acquiring electrical contracting and services business; (ii)
businesses selling, supplying, or distributing janitorial or sanitary products
or services; (iii) businesses managing or servicing office equipment (other than
computers); (iv) businesses providing internet access services; (v) UniCapital
Corporation's current businesses (which include equipment leasing); or (vi) U.S.
Marketing Services. The Ledecky Services Agreement prohibits Mr. Ledecky from
trying to hire away managerial employees of the U.S. Office Products Companies
or from calling upon customers of the U.S. Office Products Companies to solicit
or sell products or services in direct competition with the U.S. Office Products
Companies. Mr. Ledecky also may not hire away for Consolidation Capital
Corporation any person then or in the preceding one year employed by the U.S.
Office Products Companies. U.S. Office Products is permitted to (and will)
assign to Workflow Management the ability to enforce the non-competiton
provisions described above as to its own business, which will then constitute
part of his employment agreement with the Company.
Mr. Ledecky is receiving a stock option for Common Stock from Workflow
Management as of June 10, 1998. The option is intended to compensate Mr. Ledecky
for his services to Workflow Management as an employee. That option is being
granted under the Company's 1998 Stock Incentive Plan. The option covers 7.5% of
the outstanding Common Stock, determined as of the Distribution Date, without
regard to the Offering. The per share exercise price of the option is equal to
the initial public offering price of the Common Stock. If this Offering does not
occur, the exercise price of Mr. Ledecky's option will be equal to the closing
sale price of the Common Stock on Nasdaq on June 10, 1998 (the date of the
grant). The estimated value of this option depends on its exercise price and the
trading volatility of the Common Stock. Based on an assumed initial public
offering price of $13.00 per share and an assumed trading volatility index of
the Common Stock of 40%, the estimated value of the option would be
approximately $2.8 million, net of taxes at an assumed 40% rate.
Mr. Ledecky's option fully vests when granted but will not be exercisable
until the 12-month anniversary of the Workflow Distribution. Mr. Ledecky's
option from the Company will be exercisable immediately if Mr. Ledecky dies
before the option expires or, if Workflow Management accelerates the exercise
schedule of options for substantially all management option holders (in this
latter case, Mr. Ledecky's option will become exercisable on the same
accelerated schedule as the other Workflow Management option holders). All
unexercised portions of the option will expire ten years after its date of grant
or, if applicable, as of the date Mr. Ledecky violates his non-competition
agreement with Workflow Management.
DIRECTOR COMPENSATION
Non-employee directors will receive cash compensation in the amount of
$10,000 per year. In addition, non-employee directors are receiving formula
stock options under the 1998 Stock Incentive Plan of 15,000 shares as of June
10, 1998, exercisable at the initial public offering price. If the Offering does
not occur, the exercise price of the options granted as of June 10, 1998 will be
equal to the closing sale price of the Common Stock on Nasdaq on June 10, 1998.
Non-employee directors are also eligible to receive formula stock options for
additional shares at each annual meeting at which such director is reelected to
the Company's Board of Directors. The exercise price of these options will be
the fair market value of the Common Stock on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Board of Directors of Workflow Management has ever been an
officer of the Company or any of its subsidiaries, except that Mr. D'Agostino
was the President of U.S. Office Products Print Management Division, and a
member of the Board of Directors of SFI prior to the Distribution Date, and Mr.
Tabor was the Executive Vice President of U.S. Office Products Print Management
Division
43
<PAGE>
and the Executive Vice President and Chief Operating Officer of SFI and Hano
prior to the Distribution Date. Mr. Tabor has resigned as an officer of the
Print Management Division of U.S. Office Products, SFI and Hano. In addition,
Mr. Ledecky was the Chief Executive Officer of U.S. Office Products until
November 5, 1997 and will be Chairman of U.S. Office Products until the
Distribution Date.
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
paid by the Company for services rendered during the fiscal year ended April 25,
1998 to the Chief Executive Officer and to the other officers of the Company
whose combined compensation exceeded $100,000 during this period (collectively
the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
---------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION
- -------------------------------------------------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Thomas B. D'Agostino
Chairman of the Board,
Chief Executive Officer and
Director of the Company............................... $ 400,000 $ -0- 45,000 $ 9,968(1)
Michael B. Feldman
Vice President of Finance
and Chief Financial Officer of the Company (3)........ $ 133,750 $ 25,000 37,500 $ 6,319(2)
Timothy L. Tabor (4)
Executive Vice President--
U.S. Office Products Print
Management Division and Director of the Company....... $ 260,000 $ 25,000 15,000 $ 5,041(5)
</TABLE>
- ----------------------
(1) Includes $6,805 of insurance premiums and $3,163 of 401(k) plan
contributions paid by the Company on Mr. D'Agostino's behalf.
(2) Includes $3,403 of insurance premiums and $2,916 of 401(k) plan
contributions paid by the Company on Mr. Feldman's behalf.
(3) Steven R. Gibson assumed the position of Vice President and Chief Financial
Officer on April 8, 1998.
(4) Mr. Tabor has resigned as an officer of the Print Management Division of
U.S. Office Products, SFI and Hano.
(5) Includes $5,041 of insurance premiums paid by the Company on Mr. Tabor's
behalf.
EMPLOYMENT CONTRACTS AND RELATED MATTERS
On January 23, 1997, SFI entered into an employment agreement with Thomas B.
D'Agostino. The employment agreement provides for a four-year term. Pursuant to
this agreement, Mr. D'Agostino is entitled to receive minimum annual
compensation of $400,000, incentive bonuses and certain perquisites and
benefits. In the event that Mr. D'Agostino's employment is terminated for any
reason other than cause, Mr. D'Agostino's employment agreement provides that he
is entitled to receive his base salary and benefits for the longer of (i) six
months from the date of termination or (ii) the remaining time under the term of
the employment agreement. The employment agreement also contains a
non-competition covenant which prohibits Mr. D'Agostino from engaging in certain
activities during the term of the employment agreement and for the longer of (i)
a period of one year thereafter or (ii) as long as Mr. D'Agostino continues to
receive severance payments from SFI. The Company is entering into a new
employment agreement with Mr. D'Agostino after the closing of the Offering. The
terms of such employment agreement will not differ materially from the terms of
Mr. D'Agostino's current employment agreement with SFI, except that the maximum
incentive bonus payable to Mr. D'Agostino is currently $300,000 and the
incentive bonus payable to Mr. D'Agostino under his employment agreement with
the Company will not be subject to any maximum.
44
<PAGE>
On January 23, 1997, Hano entered into an employment agreement with Timothy
L. Tabor in the capacity of Executive Vice President. The employment agreement
provided a one-year initial term and a one-year renewal term. Pursuant to this
agreement, Mr. Tabor was entitled to receive minimum annual compensation of
$260,000, incentive bonuses as determined by the compensation committee of the
U.S. Office Products' Board of Directors and certain perquisites and benefits
upon termination for any reason other than cause, Mr. Tabor's employment
agreement provides that he is entitled to receive his base salary and benefits
for the longer of (i) three months from the date of termination or (ii) the
remaining time under the term of the employment agreement. The employment
agreement also contains a non-competition covenant which prohibits Mr. Tabor
from engaging in certain activities during the term of the employment agreement
and for the longer of (i) a period of one year thereafter or (ii) as long as Mr.
Tabor continues to receive severance payments from Hano.
The Company has entered into employment agreements with Steven R. Gibson,
Vice President and Chief Financial Officer, Claudia S. Amlie, Vice President and
General Counsel, and certain other employees (collectively, the "Executive
Employment Agreements") on the general terms described here. The Executive
Employment Agreements (i) provide for an initial term of two years; (ii) contain
non-competition covenants which prohibit the employees from engaging in certain
activities during the term of the Executive Employment Agreements and for the
longer of (x) a period of one year thereafter or (y) as long as the employees
receive severance payments from the Company; and (iii) provide for severance
payments upon termination without cause for the longer of (x) three months from
the date of termination or (y) the remaining term under the Executive Employment
Agreement. Under the Executive Employment Agreements, employees are eligible to
receive up to 50% of their base salary in bonus compensation, payable in cash or
stock based awards, as determined by the Compensation Committee based on
specified performance criteria. Mr. Gibson's base salary under his Executive
Employment Agreement is $175,000 annually and Ms. Amlie's base salary under her
Executive Employment Agreement is $110,000 annually.
INDEMNIFICATION
The Certificate of Incorporation of the Company provides that no director
will be liable to the Company or its stockholders for monetary damages for a
breach of fiduciary duty to the fullest extent permissible under Delaware law.
The Company's By-laws provide that the Company will, to the fullest extent
permitted under Delaware law, indemnify its officers and directors against any
damages arising out of their actions as officers or directors of the Company.
REPLACEMENT OF OUTSTANDING U.S. OFFICE PRODUCTS OPTIONS
Substantially all vested and unvested options (the "U.S. Office Products
Options") to acquire shares of U.S. Office Products' common stock that are held
by Workflow Management employees on the Distribution Date are being replaced
with options (the "Workflow Options") to acquire shares of Common Stock. As of
the Distribution Date, approximately 835,862 U.S. Office Products Options were
held by employees of Workflow Management (assuming all option holders tendered
all the shares underlying their options in the Tender Offer). The number of
Workflow Options that will be outstanding after the Distributions will depend on
the trading prices of U.S. Office Products' common stock around the time of the
Distributions and the public offering price of the Common Stock in the Offering.
For those reasons, the number of Workflow Options into which the U.S. Office
Products Options will convert is not yet determinable. The following formulae
will be used to adjust the number and exercise price of U.S. Office Products
Options. Such formulae will adjust solely for the Distributions and not for
other events, such as the Tender Offer. The formulae will not affect when the
options vest or when employees can exercise the options. The exercise price of
U.S. Office Products Options will be adjusted by applying the following formula:
45
<PAGE>
Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price of
Common Stock in the Offering
Trading Price of U.S. Office
Products' Common Stock
Pre-Workflow Distribution
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New)=Option Shares (Old) X Trading Price of U.S. Office Products'
Common Stock Pre-Workflow Distribution
Initial Public Offering Price of
Common Stock in the Offering
For all optionees, the "Trading Price of U.S. Office Products' Common Stock
Pre-Workflow Distribution" will be the average closing price of U.S. Office
Products' common stock for the lesser of (a) ten business days preceding the
Distributions, or (b) the number of business days falling between the expiration
of the Tender Offer and the completion of the Distributions. If the initial
public offering price cannot be determined at the time of the adjustment, the
closing price on June 10, 1998 will be substituted for the initial public
offering price in the formulae. The foregoing formula adjustments are intended
to preserve for the holders of U.S. Office Products Options the intrinsic value
per option, measured as the difference between the market value of one share of
U.S. Office Products' common stock at the time of the Workflow Distribution and
the exercise price of such option. The intrinsic value of the adjusted Workflow
Options will be no greater than the intrinsic value of the U.S. Office Products
Options immediately before the Distributions, and the ratio of exercise price to
market price will be not less than the ratio immediately before the
Distributions.
1998 STOCK INCENTIVE PLAN
The Company has adopted the 1998 Stock Incentive Plan (the "Plan"). The
purpose of the Plan is to promote the long-term growth and profitability of the
Company by providing employees with incentives to improve stockholder value and
contribute to the growth and financial success of the Company, and by enabling
the Company to attract, retain and reward highly motivated and qualified
employees. The maximum percentage of shares of Common Stock that may be issued
with respect to awards granted under the Plan is 30% of the outstanding Common
Stock of the Company following the Workflow Distribution, without regard to this
Offering. The maximum number of shares that may be issued with respect to awards
granted under the Plan to any individual in a calendar year may not exceed
1,500,000 shares. The Plan will be administered by the Compensation Committee of
the Board of Directors. All employees of the Company and its subsidiaries, as
well as non-employee directors of the Company, are eligible to receive awards
under the Plan. The Plan authorizes the Compensation Committee to make awards of
stock options, restricted stock, stock appreciation rights and other stock-based
awards. The Compensation Committee will determine the prices, vesting schedules,
expiration dates and other material conditions under which such awards may be
exercised.
As of June 10, 1998, Mr. Ledecky is receiving a stock option for Common
Stock from Workflow Management, pursuant to the Plan. The option is intended to
compensate Mr. Ledecky for his services to Workflow Management as an employee.
The option covers 7.5% of the outstanding Common Stock determined as of the
Distribution Date, without regard to the Offering. The per share exercise price
of the option is equal to the initial public offering price of the Common Stock.
Mr. Ledecky's option fully vests when granted but will not be exercisable
until the 12-month anniversary of the Distribution Date. Mr. Ledecky's option
from the Company will be exercisable immediately if Mr. Ledecky dies before the
option expires or, if and to the extent that, Workflow Management accelerates
the exercise schedule of options for substantially all Workflow Management
option holders. All unexercised portions of the option will expire ten years
after its date of grant or, if applicable, as of the date Mr. Ledecky violates
his non-competition agreement with Workflow Management.
As of June 10, 1998, Thomas B. D'Agostino is also receiving an option (the
"D'Agostino Option") pursuant to the Plan for 7.5% of the outstanding Common
Stock as of the Distribution Date, without regard to the Offering. The
D'Agostino Option is on the same terms as Mr. Ledecky's option, including an
46
<PAGE>
exercise price equal to the initial public offering price. The estimated value
of this option depends on its exercise price and the trading volatility of the
Common Stock. Based on an assumed initial public offering price of $13.00 per
share and an assumed trading volatility index of the Common Stock of 40%, the
estimated value of the option would be approximately $2.8 million, net of taxes
at an assumed 40% rate.
In addition to Mr. Ledecky and Mr. D'Agostino, certain executive officers
and key employees of the Company are receiving option grants for a total of
905,000 shares of Common Stock, including option grants to Steven R. Gibson and
Claudia S. Amlie for 175,000 and 50,000 shares of Common Stock, respectively, at
the initial public offering price of this Offering. The options will vest in
equal installments over three years from the date of grant.
If the Offering does not occur, the exercise price of the options granted as
of June 10, 1998 will be equal to the closing sale price of the Common Stock on
Nasdaq on June 10, 1998.
OPTIONS GRANTED IN FISCAL YEAR 1998
The following table sets forth certain information regarding options to
acquire common stock of U.S. Office Products granted to the Named Officers
during the year ended April 25, 1998. All options were granted by U.S. Office
Products as options to acquire U.S. Office Products' common stock and are being
replaced with options to acquire Common Stock of the Company in connection with
the Workflow Distribution. See "--Replacement of Outstanding U.S. Office
Products Options."
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
PERCENT OF APPRECIATION FOR
OPTIONS TOTAL OPTIONS OPTION TERM (4)
GRANTED GRANTED IN EXERCISE EXPIRATION ----------------------
NAME (1)(2) FISCAL YEAR(3) PRICE (2) DATE 5% 10%
- ------------------------------ ------------- --------------- ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Thomas B. D'Agostino.......... 45,000 5.9% $ 15.17 4/28/07 $ 429,315 $ 1,087,968
Timothy L. Tabor.............. 15,000 2.0% $ 15.17 4/28/07 $ 143,105 $ 362,656
Michael B. Feldman............ 15,000 2.0% $ 15.17 4/28/07 $ 143,105 $ 362,656
22,500 2.9% $ 21.13 9/17/07 $ 298,992 $ 757,705
</TABLE>
- --------------------
(1) The options granted are non-qualified stock options, which are exercisable
at the market price on the date of grant.
(2) The exercise price of U.S. Office Products Options will be adjusted by
applying the following formula:
Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price
of Common Stock in this Offering
Trading Price of U.S. Office Products' Common
Stock Pre-Workflow
Distribution
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New) = Option Shares (Old) XTrading Price of U.S. Office
Products' Common Stock
Pre-Workflow Distribution
Initial Public Offering Price of
Common Stock in the Offering
For all optionees, the "Trading Price of U.S. Office Products' Common Stock
Pre-Workflow Distribution" will be the average closing price of U.S. Office
Products' common stock for the lesser of (a) ten business days preceding the
Distributions, or (b) the number of business days falling between the
expiration of the Tender Offer and the completion of the Distributions. If
the initial public offering price cannot be determined at the time of the
adjustment, the closing price on June 10, 1998 will be substituted for the
initial public offering price in the formulae. The exercise price and number
of options will be adjusted solely for the Distributions and not for other
events, such as the Tender Offer. The foregoing formula adjustments are
intended to preserve for the holders of U.S. Office Products Options the
intrinsic value per option, measured as the difference between the market
value of one share of U.S. Office Products' common stock at the time of the
Workflow Distribution and the exercise price of such option. The intrinsic
value of the adjusted Workflow Options will be no greater than the intrinsic
value of the U.S. Office Products Options before the Distributions, and the
ratio of exercise price to market price will be not less than the ratio
before the Distributions. The formulae will not affect when the options vest
or when employees can exercise the options.
(3) Total options granted means all options granted to employees of Workflow
Management.
(4) 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 Securities and Exchange Commission (the
"Commission") for illustration purposes only. They are not intended to
forecast possible future appreciation, if any, of stock prices. No gain to
the optionees is possible without an increase in stock prices, which will
benefit all stockholders.
47
<PAGE>
AGGREGATE OPTION EXERCISES IN FISCAL YEAR ENDED APRIL 25, 1998 AND FISCAL
YEAR-END 1998 OPTION VALUES
The following table sets forth certain information regarding option
exercises and unexercised options held by the Named Officers at April 25, 1998.
All options were granted by U.S. Office Products as options to acquire U.S.
Office Products' common stock are being replaced with options to acquire shares
of Common Stock of the Company in connection with the Workflow Distribution. See
"--Replacement of Outstanding U.S. Office Products Options."
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-
OPTIONS HELD AT APRIL 25, MONEY OPTIONS AT FISCAL
1998 (1) (4) YEAR END ($) (1) (2) (3)
SHARES ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas B. D'Agostino........ -- -- -- 45,000 -- $ 76,725
Timothy L. Tabor............ 48,522 486,601 -- 15,000 -- $ 25,575
Michael B. Feldman.......... -- -- 36,391 37,500 $ 224,714 $ 25,575
</TABLE>
- ------------------
(1) The exercise price of U.S. Office Products Options will be adjusted by
applying the following formula:
Exercise Price (New) = Exercise Price (Old) X Initial Public Offering Price
of Common Stock in the Offering
Trading Price of U.S. Office Products' Common
Stock Pre-Workflow Distribution
The number of U.S. Office Products Options will be adjusted by applying the
following formula:
Option Shares (New) = Option Shares (Old) XTrading Price of U.S. Office
Products' Common Stock
Pre-Workflow Distribution
Initial Public Offering Price of
Common Stock in the Offering
For all optionees, the "Trading Price of U.S. Office Products' Common Stock
Pre-Workflow Distribution" will be the average closing price of U.S. Office
Products' common stock for the lesser of (a) ten business days preceding the
Distributions, or (b) the number of business days falling between the
expiration of the Tender Offer and the completion of the Distributions. If
the initial public offering price cannot be determined at the time of the
adjustment, the closing price on June 10, 1998 will be substituted for the
initial public offering price in the formulae. The exercise price and number
of options will be adjusted solely for the Distributions and not for other
events, such as the Tender Offer. The foregoing formula adjustments are
intended to preserve for the holders of U.S. Office Products Options the
intrinsic value per option, measured as the difference between the market
value of one share of U.S. Office Products' common stock at the time of the
Workflow Distribution and the exercise price of such option. The intrinsic
value of the adjusted Workflow Options will be no greater than the intrinsic
value of the U.S. Office Products Options before the Distributions, and the
ratio of exercise price to market price will be not less than the ratio
before the Distributions. The formulae will not affect when the options vest
or when employees can exercise the options.
(2) Options are "in-the-money" if the closing market price of U.S. Office
Products' common stock exceeds the exercise price of the options.
(3) The value of unexercised options represents the difference between the
exercise price of such options and $16.875, the closing market price of U.S.
Office Products' common stock at April 24, 1998.
(4) 25% of these options became exercisable on April 28, 1998.
48
<PAGE>
CERTAIN TRANSACTIONS
On January 24, 1997, in separate, related transactions, U.S. Office Products
acquired SFI and Hano from Thomas B. D'Agostino, the Chairman and Chief
Executive Officer of Workflow Management, and other stockholders, including
Thomas B. D'Agostino, Jr., Mr. D'Agostino's son, for a total of 3,628,500 shares
of U.S. Office Products' common stock valued at $18.00 per share. The
transactions were effected through mergers which were accounted for as
pooling-of-interests. At the time of the acquisitions, Mr. D'Agostino owned 98%
of the issued and outstanding securities of SFI, and 75% of the issued and
outstanding securities of Hano, and received 3,387,699 shares of U.S. Office
Products' common stock in consideration for these transactions. Thomas B.
D'Agostino, Jr. received 73,144 shares of U.S. Office Products' common stock in
consideration for these transactions. In connection with the transaction, SFI
entered into a four-year employment agreement with Mr. D'Agostino which provided
for an annual salary of $400,000 and a one-year employment agreement with
Timothy L. Tabor, a Director of the Company, which provided an annual salary of
$260,000. See "Management--Employment Contracts and Related Matters." These
transactions were the subject of arm's-length negotiations with U.S. Office
Products.
The Company has from time to time retained the law firm of Kaufman & Canoles
in connection with certain legal representations. Gus J. James, II, a Director
of the Company, is the President, a director and a shareholder of Kaufman &
Canoles.
Prior to December 1996, SFI leased warehouse space from a partnership in
which Mr. D'Agostino had a 50% interest. The total payments by SFI under this
lease were $81,000 in each of calendar years 1995 and 1996. This lease was
terminated in December 1996. The Company believes that the terms of this
transaction are as favorable as could be negotiated with third parties.
Prior to or after the Workflow Distribution, the Company expects to enter
into a lease with an entity owned or controlled by Mr. D'Agostino for office
space in Norfolk, Virginia. The terms of any such lease have not yet been
determined. The Company anticipates that lease payments will be based on the
market value of the office space and will be comparable to rents that would be
charged to parties not affiliated with Mr. D'Agostino. The Company believes that
the terms of this transaction are as favorable as could be negotiated with third
parties.
SFI loaned Mr. D'Agostino $453,000 in 1995 and $382,000 in 1996. Interest
accrued on amounts outstanding at prime plus 1%. All of Mr. D'Agostino's
outstanding indebtedness to SFI was offset against dividend distributions to Mr.
D'Agostino. The Company believes that the terms of this transaction were subject
to terms no less favorable than an arm's-length transaction.
Workflow Management is granting a license of the Imagenet technology to U.S.
Office Products effective on the Distribution Date. Workflow Management will
retain ownership of Imagenet, but U.S. Office Products will receive a perpetual,
non-exclusive, non-transferable license to use the technology and the source
code to develop derivative applications; provided, however, that for a period of
30 months, U.S. Office Products will not use the Imagenet technology or any
derivative application to offer its customers the kind of print and forms
services that Workflow Management offers its customers, including print-on-
demand and print management. U.S. Office Products has agreed to refer customers
seeking such services to the Company during the restricted period. The license
fee payable with respect to the license will be a one time fee of $5,000. The
Company believes that the terms of the license are commercially reasonable as
between the Company and U.S. Office Products.
For a discussion of matters related to the spin-off of the Company from U.S.
Office Products, see "The Spin-Offs From U.S. Office Products."
For a discussion of transactions between the Company and Mr. Ledecky, see
"Management--Ledecky Services Agreement."
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the number and percentage of outstanding
shares of U.S. Office Products' common stock beneficially owned as of May 15,
1998 and as adjusted to reflect the Workflow Distribution and this Offering
(assuming no exercise of the Underwriters' over-allotment option), by (i) all
persons known by Workflow Management to own beneficially more than 5% of the
U.S. Office Products' common stock, (ii) each director and each Named Officer
who is a stockholder, and (iii) all directors and executive officers as a group.
All persons listed below have sole voting and investment power with respect to
their shares of U.S. Office Products' common stock unless otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF SHARES OF
PERCENT OF U.S. WORKFLOW WORKFLOW
NUMBER OF SHARES OFFICE PRODUCTS MANAGEMENT MANAGEMENT
OF U.S. OFFICE COMMON STOCK COMMON STOCK, COMMON STOCK,
PRODUCTS COMMON PRIOR TO AS ADJUSTED AS ADJUSTED
NAME AND ADDRESS OF BENEFICIAL OWNER STOCK OFFERING (1) (1)
- -------------------------------------------- ----------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
OFFICERS AND DIRECTORS
Thomas B. D'Agostino (7).................... 500,183(2) * 50,043 *
301 Australian Ave.
Palm Beach, FL 33480
Thomas A. Brown, Sr......................... 0 0% 0 0%
165 Flanders Road
Bethlehem, CT 06751
Jonathan J. Ledecky (7)..................... 2,428,125(3) 1.8 248,520 1.7
240 Royal Palm Way
Palm Beach, Florida 33480
Gus J. James, II............................ 0 0 0 0
One Commercial Place
Norfolk, VA 23514
Timothy L. Tabor (7)........................ 3,750(4) * 0 0
276 Park Avenue South
New York, NY 10010
Michael B. Feldman (7)...................... 40,141(5) * 0 0
3701 E. Virginia Beach Blvd.
Norfolk, VA 23502
F. Craig Wilson............................. 0 0 0 0
4841 Tramway Ridge Drive N.E.
Albuquerque, NM 87111
All current executive officers and directors 2,972,199 2.2 298,563 2.0
as a group (six persons) (7)..............
5% STOCKHOLDERS
FMR Corp.(6)................................ 15,754,406 11.7 1,612,474 9.4
Devonshire Street
Boston, MA 02109
Massachusetts Financial Services (6)........ 8,262,886 6.1 845,712 4.9
500 Boylston Street
Boston, MA 02116
</TABLE>
- ------------------
* Less than 1%.
(1) The "Number of Shares of Workflow Management Common Stock, As Adjusted" and
"Percent of Shares of Workflow Management Common Stock, as Adjusted" reflect
the results of the Tender Offer (assuming each person tendered all their
shares and all their shares underlying options in the Tender Offer), the
application of the Distribution Ratio and the Offering and assumes no
options are exercisable within 60 days.
50
<PAGE>
(2) Includes 11,250 shares which may be acquired upon exercise of U.S. Office
Products Options exercisable within 60 days following the Workflow
Distribution. Excludes Mr. D'Agostino's option for 7.5% of the Common Stock
that the Company expects to grant under the 1998 Stock Incentive Plan, which
will not be exercisable until the 12-month anniversary of the Workflow
Distribution. See "Management--1998 Stock Incentive Plan."
(3) Excludes options for U.S. Office Products' common stock that will not be
converted into options for Common Stock at the time of the Workflow
Distribution. Also excludes Mr. Ledecky's option for up to 7.5% of the
Common Stock that will be granted under the Company's 1998 Stock Incentive
Plan, which will not be exercisable until the 12-month anniversary of the
Workflow Distribution. See "Management--Ledecky Services Agreement."
(4) Includes 3,750 shares which may be acquired upon exercise of U.S. Office
Products Options exercisable within 60 days following the Workflow
Distribution.
(5) Includes 40,141 shares which may be acquired upon exercise of U.S. Office
Products Options exercisable within 60 days following the Workflow
Distribution.
(6) Based upon a Schedule 13G for U.S. Office Products filed with the
Commission.
(7) In respect of U.S. Office Products' Options, the option exercise price will
be adjusted by applying the following formula:
Exercise Price (New) = Exercise Price (Old) XInitial Public Offering Price
of Common Stock in the Offering
Trading Price of U.S. Office Products' Common
Stock Pre-Workflow Distribution
In respect of U.S. Office Products' Options, the number of options will be
adjusted by applying the following formula:
Option Shares (New) = Option Shares (Old) XTrading Price of U.S. Office
Products' Common Stock Pre-Workflow Distribution
Initial Public Offering Price of Common Stock
in the Offering
For all optionees, the "Trading Price of U.S. Office Products' Common Stock
Pre-Workflow Distribution" will be the average closing price of U.S. Office
Products' common stock for the lesser of (a) ten business days preceding the
Distributions, or (b) the number of business days falling between the
expiration of the Tender Offer and the completion of the Distributions. If
the initial public offering price cannot be determined at the time of the
adjustment, the closing price on June 10, 1998 will be substituted for the
initial public offering price in the formulae. The exercise price and number
of options will be adjusted solely for the Distributions and not for other
events, such as the Tender Offer. The foregoing formula adjustments are
intended to preserve for the holders of U.S. Office Products Options the
intrinsic value per option, measured as the difference between the market
value of one share of U.S. Office Products' common stock at the time of the
Workflow Distribution and the exercise price of such option. The intrinsic
value of the adjusted Workflow Options will be no greater than the intrinsic
value of the U.S. Office Products Options before the Distributions, and the
ratio of exercise price to market price will be not less than the ratio
before the Distributions. The formulae will not affect when the options vest
or when employees can exercise the options.
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
At the time of this Offering and the Workflow Distribution, the Company's
authorized capital stock will consist of 150,000,000 shares of Common Stock and
1,000,000 shares of preferred stock, par value $0.001 per share (the "Preferred
Stock"). Upon completion of this Offering and the Workflow Distribution, the
Company will have outstanding approximately 17,125,268 shares of Common Stock
and no shares of Preferred Stock. Set forth below is a description of the
Company's capital stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors. Subject
to the rights of any then outstanding shares of Preferred Stock, the holders of
the Common Stock are entitled to such dividends as may be declared in the
discretion of the Board of Directors out of funds legally available therefor.
See "Dividend Policy." The holders of Common Stock are entitled to share ratably
in the net assets of the Company upon liquidation after payment or provision for
all liabilities and any preferential liquidation rights of any Preferred Stock
then outstanding. The holders of Common Stock have no preemptive rights to
purchase any other securities of the Company. Shares of Common Stock are not
subject to any redemption provisions and are not convertible into any other
securities of the Company. All of the shares of Common Stock to be distributed
pursuant to this Offering will be fully paid and nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Certificate of Incorporation and limitations prescribed by law,
the Board of Directors is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, in each case without any further action or vote
by the stockholders. The Company has no current plans to issue any shares of
Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the authority of the
Board of Directors described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate, or associate of such
person, who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before
52
<PAGE>
the person becomes an interested stockholder; (ii) the interested stockholder
acquired 85% or more of the outstanding voting stock of the corporation in the
same transaction that makes such person an interested stockholder (excluding
shares owned by persons who are both officers and directors of the corporation,
and shares held by certain employee stock ownership plans); or (iii) on or after
the date the person becomes an interested stockholder, the business combination
is approved by the corporation's board of directors and by the holders of at
least 66 2/3% of the corporation's outstanding voting stock at an annual or
special meeting, excluding shares owned by the interested stockholder. Under
Section 203, an "interested stockholder" is defined as any person who is: (i)
the owner of 15% or more of the outstanding voting stock of the corporation; or
(ii) an affiliate or associate of the corporation if such affiliate or associate
was the owner of 15% or more of the outstanding voting stock of the corporation
at any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested stockholder.
Under the Company's Certificate of Incorporation the affirmative vote of a
majority of the directors is required to approve an interested stockholder
transaction.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaws or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Certificate of Incorporation or By-laws.
LIMITATION ON DIRECTORS' LIABILITIES AND INDEMNIFICATION
Pursuant to the Certificate of Incorporation and under Delaware law,
directors of Workflow Management are not liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty, except for
liability in connection with a breach of duty of loyalty, for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, for dividend payments or stock repurchases that are illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit. The Company's By-laws provide that the Company will, to the
fullest extent permitted under Delaware law, indemnify its officers and
directors against any damages arising out of their actions as officers or
directors of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock will be American Stock
Transfer & Trust Company.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market
following this Offering and the Workflow Distribution could have an adverse
effect on the market price of the Common Stock. The 2,500,000 shares of Common
Stock offered by the Company hereby (and any shares sold pursuant to the
exercise of the Underwriters' over-allotment option) will be freely tradable
without restriction other than in the hands of "affiliates" of the Company as
defined in Rule 144. Shares of Common Stock issued upon consummation of the
Workflow Distribution will be freely tradeable after the Workflow Distribution
other than in the hands of "affiliates" of the Company as defined in Rule 144.
Common stock in the hands of affiliates will be "restricted securities" subject
to Rule 144 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction) for
at least one year, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the outstanding Common
Stock (approximately 171,250 shares of Common Stock immediately after this
Offering and the Workflow Distribution or approximately 175,000 shares if the
Underwriters' over-allotment option is exercised in full) or (ii) the average
weekly trading volume in the Common Stock in the over-the-counter market during
the four calendar weeks preceding the date on which notice of such sale is filed
pursuant to Rule 144. Sales under Rule 144 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A stockholder (or
stockholders whose shares are aggregated) who is not an affiliate of the Company
for at least 90 days prior to a sale and who has beneficially owned "restricted
securities" for at least two years is entitled to sell such shares under Rule
144 without regard to the limitations described above.
Certain executive officers and directors of the Company have agreed not to
sell or otherwise dispose of their shares of Common Stock for a period of 180
days following this Offering without the consent of BancAmerica Robertson
Stephens.
The Company intends to register the shares of Common Stock reserved for
issuance pursuant to its Plan on the Distribution Date or as soon thereafter as
practicable. A substantial number of options to acquire shares of Common Stock
will be exercisable upon consummation of the Workflow Distribution. Following
this Offering and the Workflow Distribution, in view of the large number of
shares freely tradeable and available for immediate sale, the market for the
Company's Common Stock could be highly volatile, which could adversely affect
the trading price of the Common Stock. See "Risk Factors--Potential Volatility
of Stock Price and Other Risks Associated with Shares Eligible for Immediate
Sale."
54
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through their
representatives, BancAmerica Robertson Stephens, Morgan Stanley Dean Witter and
Sands Brothers & Co., Ltd. (the "Representatives"), have severally agreed,
subject to the terms and conditions of an underwriting agreement among the
Company and the Underwriters (the "Underwriting Agreement"), to purchase the
number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all of such shares
if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------------- -----------
<S> <C>
BancAmerica Robertson Stephens.....................................................
Morgan Stanley Dean Witter.........................................................
Sands Brothers & Co., Ltd. ........................................................
-----------
Total..........................................................................
-----------
-----------
</TABLE>
The Representatives have advised the Company that they propose to offer the
shares of Common Stock to the public at the offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of not in excess of $ per share, of which $ may be
reallowed to other dealers. After the initial public offering, the public
offering price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall affect the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 375,000
additional shares of Common Stock at the same price per share as the Company
will receive for the 2,500,000 shares that the Underwriters have agreed to
purchase from the Company. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of Common Stock to be purchased by it shown in the above table represents
as a percentage of the 2,500,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the 2,500,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Pursuant to the terms of the Lock-Up Agreements, the holders of
approximately shares of the Common Stock have agreed with the
Representatives that for a period of 180 days after the date of this Prospectus
(the "Lock-Up Period"), subject to certain limited exceptions, they will not
sell or otherwise dispose of shares of Common Stock, including shares issuable
under options or warrants exercisable during the Lock-Up Period, any options or
warrants to purchase shares of Common Stock or any securities convertible into
or exchangeable for shares of Common Stock owned directly by such holders or
with respect to which they have the power of disposition without the prior
written consent of BancAmerica Robertson Stephens. However, BancAmerica
Robertson Stephens may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
There are no agreements between the Representatives and any of the Company's
stockholders providing consent by the Representatives to the sale of shares
prior to the expiration of the Lock-Up Period. The Company has agreed that
during the Lock-Up Period, the Company will not, subject to certain exceptions,
without the prior written consent of BancAmerica Robertson Stephens, (i) consent
to the disposition of any shares held by stockholders prior to the expiration of
the Lock-Up Period or (ii) issue, sell, contract to sell or otherwise dispose
of, any shares of Common Stock, any options or warrants to purchase any shares
of Common Stock or any securities convertible into, exercisable for or
exchangeable for shares of Common
55
<PAGE>
Stock, other than the Company's sale of shares in this Offering, the issuance of
Common Stock upon the exercise of outstanding options and warrants and the
Company's issuance of options and stock under the existing stock option and
stock purchase plans and in connection with future acquisitions. See "Shares
Eligible for Future Sale."
The Representatives have advised the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
Prior to this Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock offered hereby was determined through negotiations between the Company and
the Representatives. Among the factors to be considered in such negotiations
will be prevailing market conditions, certain financial information of the
Company, market valuations of other companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
Certain persons participating in this Offering may engage in transactions,
including syndicate covering transactions or the imposition of penalty bids,
which may involve the purchase of Common Stock on the Nasdaq National Market or
otherwise. Such transactions may stabilize or maintain the market price of the
Common Stock at a level above that which might otherwise prevail in the open
market and, if commenced, may be discontinued at any time.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this Offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock will be passed upon for the
Company by Wilmer, Cutler & Pickering, Washington, D.C. Certain legal matters in
connection with the Common Stock will be passed upon for the Underwriters by
Winston & Strawn, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Workflow Management as of April 30,
1996 and April 26, 1997, and for the fiscal year ended December 31, 1995, the
four months ended April 30, 1996 and the fiscal year ended April 26, 1997
included in this Prospectus, except as they relate to Workflow Management, Inc.
for the year ended December 31, 1994; Hano Document Printers, Inc. as of
December 31, 1995 and for the year then ended; and United Envelope Co., Inc. and
its affiliate, Rex Envelope Co., Inc. as of December 31, 1994 and 1995 and for
the years then ended, have been audited by Price Waterhouse LLP, independent
accountants, and insofar as they relate to Workflow Management, Inc. for the
year ended December 31, 1994 by KPMG Peat Marwick LLP; Hano Document Printers,
Inc., by KPMG Peat Marwick
56
<PAGE>
LLP; and United Envelope Co., Inc. and Huxley Envelope Corp. by Hertz, Herson &
Company LLP, independent accountants, whose reports dated February 17, 1998,
August 28, 1996 and March 6, 1996, respectively, thereon appear herein. Such
financial statements have been so included in reliance on the reports of such
independent accountants given on the authority of such firms as experts in
auditing and accounting.
The financial statements of Astrid Offset Corp. as of July 31, 1997 and for
the year then included in this Prospectus have been so included in reliance on
the February 6, 1997 report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 pursuant to the Securities Act with respect to the Common Stock offered
hereby (the "Registration Statement"). This prospectus (the "Prospectus") does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain items of which are omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus concerning the provisions of any document filed with the Registration
Statement as exhibits are necessarily summaries of such documents, and each such
statement is qualified in its entirety by reference to the copy of the
applicable document filed as an exhibit to the Registration Statement.
For further information about the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and to the financial
statements, schedules and exhibits filed as a part thereof. Upon completion of
this Offering, the Company will be subject to the information requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, will file reports and other information with the
Commission. The Registration Statement, the exhibits and schedules forming a
part thereof and the reports and other information filed by the Company with the
Commission in accordance with the Exchange Act may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549; at its New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048; and its Chicago Regional
Officer, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the public reference section of the
Commission, 450 Fifth Street N.W., Washington, D.C. 20549, upon payment of the
prescribed rates. The Commission maintains a world wide web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission, and the address of
such site is http://www.sec.gov.
57
<PAGE>
WORKFLOW MANAGEMENT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WORKFLOW MANAGEMENT, INC. HISTORICAL FINANCIAL STATEMENTS
Page
---
Report of Price Waterhouse LLP, Independent Accountants F-2
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors F-3
Report of KPMG Peat Marwick LLP, Independent Auditors F-4
Report of Hertz, Herson & Company, LLP, Independent Auditors F-5
Report of Hertz, Herson & Company, LLP, Independent Auditors F-6
Consolidated Balance Sheet as of April 30, 1996, April 26, 1997 and January 24,
1998 (unaudited) F-7
Consolidated Statement of Income for the years ended December 31, 1994 and 1995,
the four months ended April 30, 1996, the fiscal year ended April 26, 1997 and
the nine months ended January 25, 1997 (unaudited) and January 24, 1998
(unaudited) F-8
Consolidated Statement of Stockholder's Equity for the years ended December 31,
1994 and 1995, the four months ended April 30, 1996, the fiscal year ended April
26, 1997 and the nine months ended January 24, 1998 (unaudited) F-9
Consolidated Statement of Cash Flows for the years ended December 31, 1994 and
1995, the four months ended April 30, 1996, the fiscal year ended April 26, 1997
and the nine months ended January 25, 1997 (unaudited) and January 24, 1998
(unaudited) F-10
Notes to Consolidated Financial Statements F-12
ASTRID OFFSET CORPORATION
Report of Price Waterhouse LLP, Independent Accountants F-28
Balance Sheet as of July 31, 1997 and October 31, 1997 (unaudited) F-30
Statement of Income for the year ended July 31, 1997 and the three months ended
October 31, 1996 (unaudited) and 1997 (unaudited) F-31
Statement of Stockholder's Equity for the year ended July 31, 1997 and the three
months ended October 31, 1997 (unaudited) F-32
Statement of Cash Flows for the year ended July 31, 1997 and the three months ended
October 31, 1996 (unaudited) and 1997 (unaudited) F-33
Notes to Financial Statements F-34
WORKFLOW MANAGEMENT, INC. PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction to Pro Forma Financial Information F-37
Pro Forma Combined Balance Sheet as of January 24, 1998 (unaudited) F-38
Pro Forma Combined Statement of Income for the nine months ended January 24, 1998
(unaudited) F-39
Pro Forma Combined Statement of Income for the nine months ended January 25, 1997
(unaudited) F-40
Pro Forma Combined Statement of Income for the fiscal year ended April 26, 1997
(unaudited) F-41
Notes to Pro Forma Combined Financial Statements F-42
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Workflow Management, Inc.:
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Workflow Management, Inc. (the
"Company") and its subsidiaries at April 30, 1996 and April 26, 1997, and the
results of their operations and their cash flows for the fiscal year ended
December 31, 1995, the four months ended April 30, 1996 and the fiscal year
ended April 26, 1997, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Hano Document Printers, Inc. ("Hano"), United Envelope Co., Inc. and its
affiliate, Rex Envelope Co. Inc. ("United") and Huxley Envelope Corporation
("Huxley"), wholly-owned subsidiaries, which statements reflect total revenues
for the year ended December 31, 1995 of $31,299,000, $81,917,000 and
$18,868,000, respectively. Those statements were audited by other auditors whose
reports thereon have been furnished to us, and our opinion expressed herein,
insofar as it relates to the amounts included for Hano, United and Huxley, is
based solely on the reports of the other auditors. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits and the reports of
other auditors provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
February 10, 1998, except for Note 1
and the last paragraph of Note 3,
which are as of May 14, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Workflow Management, Inc.:
We have audited the accompanying consolidated statements of income,
stockholder's equity and cash flows of Workflow Management, Inc. and
subsidiaries (the "Company") for the year ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. We did not audit the financial
statements of United Envelope Co., Inc. and its affiliates, Rex Envelope Co.,
Inc. ("United"), and Huxley Envelope Corporation ("Huxley"), wholly owned
subsidiaries, which statements reflect total revenues constituting 46.3 percent
of the consolidated total for the year ended December 31, 1994. Those statements
were audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to the amounts included for United and Huxley, is
based solely on the reports of the other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit and the reports of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the results of operations and cash flows of Workflow
Management, Inc. and subsidiaries for the year ended December 31, 1994 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
February 17, 1998
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
of Hano Document Printers, Inc.:
We have audited the balance sheet of Hano Document Printers, Inc. as of
December 31, 1995 and the related statements of income, stockholders' equity and
cash flows for the year then ended, which are not included herein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hano Document Printers, Inc.
as of December 31, 1995 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
August 28, 1996
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
United Envelope Co., Inc.
We have audited the combined balance sheets of United Envelope Co., Inc. and
its affiliate, Rex Envelope Co., Inc., as at December 31, 1995 and 1994, and the
related combined statements of income and retained earnings and cash flows for
the years then ended (not presented separately herein). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As referred to in Note A on "Principles of Combination," the companies,
whose financial statements are combined, are related through common ownership
and control. In addition, each has pledged certain assets and guaranteed
long-term indebtedness of the other as described in the notes to financial
statements. In view of their close operating and financial relationship, the
preparation of combined financial statements was considered appropriate. The
combined statements, however, do not refer to a legal entity and neither of the
companies guarantees trade obligations of the other.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of United
Envelope Co., Inc. and its affiliate as at December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
HERTZ, HERSON & COMPANY, LLP
New York, New York
March 6, 1996
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Huxley Envelope Corporation
Industrial Park Blvd.
Mt. Pocono Industrial Park
Mt. Pocono, PA 18344
We have audited the balance sheets of Huxley Envelope Corporation as at
December 31, 1995 and 1994, and the related statements of income and retained
earnings (accumulated deficit) and cash flows for the years then ended (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Huxley Envelope Corporation
as at December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
HERTZ, HERSON & COMPANY, LLP
New York, New York
March 4, 1996
F-6
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................. $ 1,324 $ 2,168 $ 248
Accounts receivable, less allowance for doubtful accounts of $1,993,
$1,831 and $2,828, respectively......................................... 50,942 50,917 54,121
Inventories............................................................... 23,815 26,990 29,330
Prepaid expenses and other current assets................................. 3,314 3,402 1,875
---------- ---------- -----------
Total current assets.................................................. 79,395 83,477 85,574
Property and equipment, net................................................. 31,647 33,119 31,064
Notes receivable from employees............................................. 3,461 3,643
Intangible assets, net...................................................... 879 913 2,203
Other assets................................................................ 6,028 4,138 4,621
---------- ---------- -----------
Total assets.......................................................... $ 117,949 $ 125,108 $ 127,105
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term debt........................................................... $ 23,515 $ 3,681 $ 4,939
Short-term payable to U.S. Office Products................................ 23,622 17,658
Accounts payable.......................................................... 22,163 27,031 23,749
Accrued compensation...................................................... 4,752 4,173 4,004
Other accrued liabilities................................................. 5,587 8,060 9,854
---------- ---------- -----------
Total current liabilities............................................. 56,017 66,567 60,204
Long-term debt.............................................................. 28,108 6,034 5,498
Long-term payable to U.S. Office Products................................... 561 1,905
Deferred income taxes....................................................... 4,704 4,045 3,507
Other long-term liabilities................................................. 121 12
---------- ---------- -----------
Total liabilities..................................................... 88,829 77,328 71,126
---------- ---------- -----------
Commitments and contingencies
Stockholder's equity:
Divisional equity......................................................... 11,790 45,614 47,726
Cumulative translation adjustment......................................... 352 97 (1,365)
Retained earnings......................................................... 16,978 2,069 9,618
---------- ---------- -----------
Total stockholder's equity............................................ 29,120 47,780 55,979
---------- ---------- -----------
Total liabilities and stockholder's equity............................ $ 117,949 $ 125,108 $ 127,105
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE FOUR FISCAL FOR THE NINE
YEAR ENDED MONTHS ENDED YEAR ENDED MONTHS ENDED
-------------------------- ------------- ------------- ------------------------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, JANUARY 25, JANUARY 24,
1994 1995 1996 1997 1997 1998
------------ ------------ ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues............................ $ 154,193 $ 309,426 $ 114,099 $ 327,381 $ 239,751 $ 257,777
Cost of revenues.................... 114,885 234,959 82,998 236,340 172,869 190,482
------------ ------------ ------------- ------------- ----------- -----------
Gross profit.................. 39,308 74,467 31,101 91,041 66,882 67,295
Selling, general and administrative
expenses.......................... 32,020 62,012 22,485 70,949 51,735 53,083
Non-recurring acquisition costs..... 5,006 2,902
------------ ------------ ------------- ------------- ----------- -----------
Operating income.............. 7,288 12,455 8,616 15,086 12,245 14,212
Other (income) expense:
Interest expense.................. 2,048 5,370 1,676 4,561 3,910 1,665
Interest income................... (18) (25) (21) (9)
Other............................. 186 62 (151) 632 610 (205)
------------ ------------ ------------- ------------- ----------- -----------
Income before provision for (benefit
from) income taxes and
extraordinary items............... 5,054 7,023 7,109 9,918 7,746 12,761
Provision for (benefit from) income
taxes............................. 379 (33) 1,351 3,690 2,249 5,212
------------ ------------ ------------- ------------- ----------- -----------
Income before extraordinary items... 4,675 7,056 5,758 6,228 5,497 7,549
Extraordinary items--losses on early
terminations of credit facilities,
net of income taxes............... 700 798
------------ ------------ ------------- ------------- ----------- -----------
Net income.......................... $ 4,675 $ 6,356 $ 5,758 $ 5,430 $ 5,497 $ 7,549
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
Weighted average shares outstanding:
Basic........................... 6,075 7,875 10,333 12,003 11,464 15,301
Diluted......................... 6,094 8,003 10,547 12,235 11,710 15,625
Per share amounts:
Basic:
Income before extraordinary
items....................... $ 0.77 $ 0.90 $ 0.56 $ 0.52 $ 0.48 $ 0.49
Extraordinary items........... 0.09 0.07
------------ ------------ ------------- ------------- ----------- -----------
Net income.................... $ 0.77 $ 0.81 $ 0.56 $ 0.45 $ 0.48 $ 0.49
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
Diluted:
Income from before
extraordinary items......... $ 0.77 $ 0.88 $ 0.55 $ 0.51 $ 0.47 $ 0.48
Extraordinary items........... 0.09 0.07
------------ ------------ ------------- ------------- ----------- -----------
Net income.................... $ 0.77 $ 0.79 $ 0.55 $ 0.44 $ 0.47 $ 0.48
------------ ------------ ------------- ------------- ----------- -----------
------------ ------------ ------------- ------------- ----------- -----------
Unaudited pro forma net income
before extraordinary items (see
Note 8)........................... $ 3,788 $ 3,344 $ 7,549
------------- ----------- -----------
------------- ----------- -----------
Unaudited pro forma income per share
before extraordinary items:
Basic........................... $ 0.32 $ 0.29 $ 0.49
------------- ----------- -----------
------------- ----------- -----------
Diluted......................... $ 0.31 $ 0.29 $ 0.48
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE TOTAL
DIVISIONAL TRANSLATION RETAINED STOCKHOLDER'S
EQUITY ADJUSTMENT EARNINGS EQUITY
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993................................... $ 4,239 $ $ 7,436 $ 11,675
Cash dividends at Pooled Companies........................... (3,461) (3,461)
Net income................................................... 4,675 4,675
----------- ----------- ----------- -------------
Balance at December 31, 1994................................... 4,239 8,650 12,889
Transactions of Pooled Companies:
Issuance of Pooled Company common stock in conjunction with
acquisition.............................................. 7,451 7,451
Capital contributions...................................... 100 100
Cash dividends............................................. (2,465) (2,465)
Cumulative translation adjustment............................ 388 388
Net income................................................... 6,356 6,356
----------- ----------- ----------- -------------
Balance at December 31, 1995................................... 11,790 388 12,541 24,719
Cash dividends at Pooled Companies........................... (1,321) (1,321)
Cumulative translation adjustment............................ (36) (36)
Net income................................................... 5,758 5,758
----------- ----------- ----------- -------------
Balance at April 30, 1996...................................... 11,790 352 16,978 29,120
Transactions of Pooled Companies:
Retirement of common stock................................. (477) (477)
Cash dividends............................................. (6,102) (6,102)
Undistributed earnings of subchapter S corporations........ 14,237 (14,237)
Cumulative translation adjustment............................ (255) (255)
Capital contribution by U.S. Office Products................. 20,064 20,064
Net income................................................... 5,430 5,430
----------- ----------- ----------- -------------
Balance at April 26, 1997...................................... 45,614 97 2,069 47,780
Unaudited data:
Issuance of U.S. Office Products Company common stock in
conjunction with acquisition............................... 2,112 2,112
Cumulative translation adjustment............................ (1,462) (1,462)
Net income................................................... 7,549 7,549
----------- ----------- ----------- -------------
Balance at January 24, 1998 (unaudited)........................ $ 47,726 $ (1,365) $ 9,618 $ 55,979
----------- ----------- ----------- -------------
----------- ----------- ----------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE NINE
FOR THE FOUR FISCAL MONTHS
FOR THE YEAR ENDED MONTHS ENDED YEAR ENDED ENDED
--------------------------- ------------- ------------- -----------
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26, JANUARY 25,
1994 1995 1996 1997 1997
------------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income......................................... $ 4,675 $ 6,356 $ 5,758 $ 5,430 $ 5,497
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 1,921 5,890 3,583 6,469 5,480
Non-recurring acquisition costs.................. 5,006 2,902
Deferred income taxes............................ (660) (956)
Extraordinary loss............................... 700 798
Other............................................ 92 122
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................ (4,607) (7,039) 3,098 25 (91)
Inventory...................................... 370 1,884 302 (3,175) (737)
Prepaid expenses and other current assets...... (720) (284) (354) 249 234
Accounts payable............................... 4,140 1,541 (339) 4,643 4,345
Accrued liabilities............................ 202 1,942 (930) 894 2,842
------------- ------------ ------------- ------------- -----------
Net cash provided by operating activities.... 6,073 11,112 11,118 19,679 19,516
------------- ------------ ------------- ------------- -----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received.... (37,859)
Payments of non-recurring acquisition costs........ (4,100) (397)
Additions to property and equipment................ (1,716) (5,944) (4,505) (9,450) (7,416)
Cash received on the sale of property and
equipment........................................ 2,033 269 82 2,199 1,324
Other.............................................. (440) 1,147 (2,739) (1,186)
------------- ------------ ------------- ------------- -----------
Net cash used in investing activities........ (123) (42,387) (4,423) (14,090) (7,675)
------------- ------------ ------------- ------------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 1,269 65,218 82 1,178 951
Payments of long-term debt......................... (4,194) (4,710) (23,135) (16,003)
Proceeds from (payments of) short-term debt, net... (134) (24,684) (5,844) (19,414) (7,353)
Payment to terminate credit facility............... (579) (974)
Payments of dividends at Pooled Companies.......... (2,266) (3,909) (1,321) (6,141) (4,630)
Retirement of common stock......................... (477)
Capital contributed by stockholders of Pooled
Company.......................................... 100
Advances from (to) U.S. Office Products............ 24,183
Capital contributed by U.S. Office Products........ 20,064 16,449
------------- ------------ ------------- ------------- -----------
Net cash provided by (used in) financing
activities................................. (5,325) 31,436 (7,083) (4,716) (10,586)
------------- ------------ ------------- ------------- -----------
Effect of exchange rates on cash and cash
equivalents........................................ 388 (29) (3)
------------- ------------ ------------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 625 549 (388) 844 1,252
Cash and cash equivalents at beginning of period..... 538 1,163 1,712 1,324 1,324
------------- ------------ ------------- ------------- -----------
Cash and cash equivalents at end of period........... $ 1,163 $ 1,712 $ 1,324 $ 2,168 $ 2,576
------------- ------------ ------------- ------------- -----------
------------- ------------ ------------- ------------- -----------
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 2,349 $ 2,703 $ 794 $ 2,063 $ 616
Income taxes paid.................................. $ 437 $ 560 $ 674 $ 3,390 $ 1,211
<CAPTION>
JANUARY 24,
1998
-----------
<S> <C>
Cash flows from operating activities:
Net income......................................... $ 7,549
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense............ 4,803
Non-recurring acquisition costs..................
Deferred income taxes............................
Extraordinary loss...............................
Other............................................
Changes in current assets and liabilities (net of
assets acquired and liabilities assumed in
business combinations accounted for under the
purchase method):
Accounts receivable............................ (2,863)
Inventory...................................... (2,830)
Prepaid expenses and other current assets...... 703
Accounts payable............................... (3,875)
Accrued liabilities............................ 2,517
-----------
Net cash provided by operating activities.... 6,004
-----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received.... 114
Payments of non-recurring acquisition costs........ (906)
Additions to property and equipment................ (3,383)
Cash received on the sale of property and
equipment........................................ 141
Other..............................................
-----------
Net cash used in investing activities........ (4,034)
-----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........... 1,771
Payments of long-term debt......................... (2,307)
Proceeds from (payments of) short-term debt, net... 1,257
Payment to terminate credit facility...............
Payments of dividends at Pooled Companies..........
Retirement of common stock.........................
Capital contributed by stockholders of Pooled
Company..........................................
Advances from (to) U.S. Office Products............ (4,620)
Capital contributed by U.S. Office Products........
-----------
Net cash provided by (used in) financing
activities................................. (3,899)
-----------
Effect of exchange rates on cash and cash
equivalents........................................ 9
-----------
Net increase (decrease) in cash and cash
equivalents........................................ (1,920)
Cash and cash equivalents at beginning of period..... 2,168
-----------
Cash and cash equivalents at end of period........... $ 248
-----------
-----------
Supplemental disclosures of cash flow information:
Interest paid...................................... $ 535
Income taxes paid.................................. $ 3,468
</TABLE>
F-10
<PAGE>
WORKFLOW MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method in the year ended December
31, 1995 and for the nine months ended January 24, 1998. The fair values of the
assets and liabilities of the acquired companies at the dates of the
acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
------------
DECEMBER 31,
1995
------------ FOR THE NINE
MONTHS ENDED
---------------
JANUARY 24,
1998
---------------
(UNAUDITED)
<S> <C> <C>
Accounts receivable.................................................................... $ 19,106 $ 1,109
Inventories............................................................................ 17,436 41
Prepaid expenses and other current assets.............................................. 578 26
Property and equipment................................................................. 21,466 84
Intangible assets...................................................................... 1,445
Other assets........................................................................... 4,499
Accounts payable....................................................................... (9,651) (332)
Accrued liabilities.................................................................... (3,700) (365)
Long-term debt......................................................................... (10)
Other long-term liabilities and minority interest...................................... (4,424)
------------ ------
Net assets acquired.............................................................. $ 45,310 $ 1,998
------------ ------
------------ ------
The acquisitions were funded as follows:
Common stock........................................................................... $ 7,451 $ 2,112
Cash paid, net of cash received........................................................ 37,859 (114)
------------ ------
Total.............................................................................. $ 45,310 $ 1,998
------------ ------
------------ ------
</TABLE>
Noncash transactions:
During the year ended December 31, 1995 and the four months ended April 30,
1996, the Company forgave receivables from an employee of $509 and $382,
respectively.
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BACKGROUND
Workflow Management, Inc. (the "Company") is a Delaware corporation which is
a wholly-owned subsidiary of U.S. Office Products Company ("U.S. Office
Products"). On January 13, 1998, U.S. Office Products announced its intention to
spin-off its Print Management Division as an independent publicly owned company.
This transaction is expected to be effected through the distribution of shares
of the Company to U.S. Office Products shareholders effective on or about June
9, 1998 (the "Distribution"). Prior to the Distribution, U.S. Office Products
plans to contribute its equity interests in certain wholly-owned subsidiaries
associated with U.S. Office Products' Print Management Division to the Company.
U.S. Office Products and the Company will enter into a number of agreements to
facilitate the Distribution and the transition of the Company to an independent
business enterprise. On March 6, 1998, the Company filed an initial public
offering registration statement for the issuance of 2.5 million shares of the
Company's common stock (plus 375,000 shares to cover over-allotments), which is
expected to close prior to or concurrent with the Distribution.
The Print Management Division was created by U.S. Office Products in January
1997 and completed seven business combinations accounted for under the
pooling-of-interests method during the period from January 1997 to April 1997
(the "Pooled Companies"). As a result of these business combinations being
accounted for under the pooling-of-interests method, the results of the Company
prior to the completion of such business combinations represent the combined
results of the Pooled Companies operating as separate autonomous entities.
NOTE 2--BASIS OF PRESENTATION
The consolidated financial statements reflect the assets, liabilities,
divisional equity, revenues and expenses that were directly related to the
Company as it was operated within U.S. Office Products. In cases involving
assets and liabilities not specifically identifiable to any particular business
of U.S. Office Products, only those assets and liabilities expected to be
transferred to the Company prior to the Distribution were included in the
Company's separate consolidated balance sheet. With the exception of interest
expense, the Company's statement of income includes all of the related costs of
doing business including an allocation of certain general corporate expenses of
U.S. Office Products which were not directly related to these businesses
including certain corporate executives' salaries, accounting and legal fees,
departmental costs for accounting, finance, legal, purchasing, marketing, human
resources as well as other general overhead costs. These allocations were based
on a variety of factors, dependent upon the nature of the costs being allocated,
including revenues, number and size of acquisitions and number of employees.
Management believes these allocations were made on a reasonable basis.
U.S. Office Products uses a centralized approach to cash management and the
financing of its operations. As a result, minimal amounts of cash and cash
equivalents and an agreed upon amount of debt will be allocated to the Company
at the time of the Distribution. The consolidated statement of income includes
an allocation of interest expense on all debt allocated to the Company. See Note
7 for further discussion of interest expense.
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-12
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CHANGE IN FISCAL YEAR
Prior to their respective dates of acquisition by U.S. Office Products, the
Pooled Companies reported results on years ending on December 31. Upon
acquisition by U.S. Office Products and effective for the fiscal year ended
April 26, 1997 ("fiscal 1997"), the Pooled Companies changed their year-ends
from December 31 to conform to U.S. Office Products' fiscal year, which ends on
the last Saturday in April. A four month fiscal transition period from January
1, 1996 through April 30, 1996 has been presented for the Company to conform its
fiscal year-end.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of products held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 3 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases is being amortized over the lesser of its useful life or its lease terms.
NOTES RECEIVABLE FROM EMPLOYEES
The Company has outsanding promissory notes receivable due from two
employees which earn interest at a rate of approximately 7% per annum. The
promissory notes receivable are due in two equal
F-13
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
installments with the first payment, including accrued interest, due on June 30,
1998 and the final payment, including all outstanding principal and remaining
interest, due on June 30, 1999.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method, and non-compete agreements.
Substantially all goodwill is amortized on a straight line basis over an
estimated useful life of 40 years. Management periodically evaluates the
recoverability of goodwill, which would be adjusted for a permanent decline in
value, if any, by comparing anticipated undiscounted future cash flows from
operations to net book value. Intangible assets associated with non-compete
agreements are being amortized using the straight-line method over the estimated
useful lives of the agreements which are generally one to five years. Other
intangibles primarily consist of customer lists which are amortized over the
estimated useful lives of the agreements which are generally one to five years.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholder's equity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments including cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value.
INCOME TAXES
As a division of U.S. Office Products, the Company does not file separate
federal income tax returns but rather is included in the federal income tax
returns filed by U.S. Office Products and its subsidiaries from the respective
dates that the entities within the Company were acquired by U.S. Office
Products. For purposes of the consolidated financial statements, the Company's
allocated share of U.S. Office Products' income tax provision was based on the
"separate return" method. Certain companies acquired in pooling-of-interests
transactions elected to be taxed as subchapter S corporations, and accordingly,
no federal income taxes were recorded by those companies for periods prior to
their acquisition by U.S. Office Products.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of the Company's
Canadian subsidiary company which the Company controls but does not include in
the consolidated federal income tax return since it is management's practice and
intent to permanently reinvest the earnings of this subsidiary.
REVENUE RECOGNITION
Revenue is recognized upon the delivery of products or upon the completion
of services provided to customers as no additional obligations to the customers
exist. Returns of the Company's product are considered immaterial.
F-14
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included in cost of revenues.
ADVERTISING COSTS
The Company expenses advertising costs when the advertisement occurs.
Advertising costs are included in the consolidated statement of income as a
component of selling, general and administrative expenses. Advertising expense
for the years ended December 31, 1994 and 1995 and the fiscal year ended April
26, 1997 was $284, $551 and $1,410, respectively.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations in the year
incurred. Research and development costs are included in the consolidated
statement of income as a component of selling, general and administrative
expenses.
INTERNALLY DEVELOPED SOFTWARE
Internal costs related to internally developed software such as internal
salaries and supplies are expensed as incurred as a component of selling,
general and administrative expenses. External costs related to internally
developed software such as outside programmers and consultants are capitalized
and expensed over the expected useful life of the software, normally three to
five years.
NON-RECURRING ACQUISITION COSTS
Non-recurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include accounting, legal, and investment banking fees, real
estate and environmental assessments and appraisals and various regulatory fees.
Generally accepted accounting principles require the Company to expense all
acquisition costs (both those paid by the Company and those paid by the sellers
of the acquired companies) related to business combinations accounted for under
the pooling-of-interests method.
NET INCOME PER SHARE
Net income per share is calculated in accordance with the Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share ("EPS").
SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of
the income statement. Basic EPS excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of shares
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. The difference between the
weighted-average number of common shares used for the calculation of basic EPS
and the weighted-average number of shares of common shares used for the diluted
EPS is comprised of the dilutive effect of outstanding common stock options.
However, a portion of the Company's employee stock options outstanding during
the periods presented were not included in the computation of diluted EPS as
they were anti-dilutive.
F-15
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. SFAS No. 130 requires
that all items that are required to be recgonized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company intends to adopt SFAS No. 130 in
fiscal 1999.
UNAUDITED INTERIM FINANCIAL DATA
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of January 24, 1998 and the results
of operations and of cash flows for the nine months ended January 25, 1997 and
January 24, 1998, as presented in the accompanying unaudited consolidated
financial data.
DISTRIBUTION RATIO
On May 14, 1998, the U.S. Office Products Board of Directors approved the
distribution ratio for the Company in connection with the Distribution. At the
date of Distribution, the Company will issue to U.S. Office Products
shareholders one share of its common stock for every 7.5 shares of U.S. Office
Products common stock held by each respective shareholder. The share data
reflected in the accompanying financial statements represents the historical
share data for U.S. Office Products for the period or as the date indicated, and
retroactively adjusted to give effect to 1 for 7.5 distribution ratio.
NOTE 4--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1997, the Company issued 10,868,509 shares of U.S. Office Products
common stock to acquire the Pooled Companies. The Pooled Companies and the
number of shares issued are as follows:
<TABLE>
<CAPTION>
NUMBER OF
COMPANY NAME SHARES ISSUED
- ------------------------------------------------------------------------------- -------------
<S> <C>
SFI Corp. ..................................................................... 2,897,060
Hano Document Printers, Inc. .................................................. 731,440
United Envelope Co., Inc.*..................................................... 2,863,634
Data Business Forms Limited.................................................... 4,376,375
-------------
Total shares issued........................................................ 10,868,509
-------------
-------------
</TABLE>
- ------------------
* Includes shares issued for the acquisitions of United Envelope Co.,
Inc.; Rex Envelope Co., Inc.; Huxley Envelope Corporation and Pocono
Envelope Corporation which were simultaneously acquired in the
aggregate.
F-16
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The Company's consolidated financial statements give retroactive effect to
the acquisitions of the Pooled Companies for all periods presented. Prior to
being acquired by U.S. Office Products, the Pooled Companies all reported on
years ending on December 31. Upon completion of the acquisitions of the Pooled
Companies, their year-ends were changed to U.S. Office Products' year-end of the
last Saturday in April.
The following presents the separate results, in each of the periods
presented, of the Company (excluding the results of Pooled Companies prior to
the dates on which they were acquired), and the Pooled Companies up to the dates
on which they were acquired:
<TABLE>
<CAPTION>
WORKFLOW POOLED
MANAGEMENT, INC. COMPANIES COMBINED
---------------- ----------- ----------
<S> <C> <C> <C>
For the year ended December 31, 1994
Revenues............................................................. $ $ 154,193 $ 154,193
Net income........................................................... $ $ 4,675 $ 4,675
For the year ended December 31, 1995
Revenues............................................................. $ $ 309,426 $ 309,426
Net income........................................................... $ $ 6,356 $ 6,356
For the four months ended April 30, 1996
Revenues............................................................. $ $ 114,099 $ 114,099
Net income........................................................... $ $ 5,758 $ 5,758
For the year ended April 26, 1997
Revenues............................................................. $ 29,373 $ 298,008 $ 327,381
Net income (loss).................................................... $ (61) $ 5,491 $ 5,430
For the nine months ended January 25, 1997 (unaudited):
Revenues............................................................. $ $ 239,751 $ 239,751
Net income........................................................... $ $ 5,497 $ 5,497
For the nine months ended January 24, 1998 (unaudited):
Revenues............................................................. $ 257,777 $ $ 257,777
Net income........................................................... $ 7,549 $ $ 7,549
</TABLE>
PURCHASE METHOD
In 1995, one of the Pooled Companies made an acquisition accounted for under
the purchase method for an aggregate purchase price of $45,310, consisting of
$37,859 of cash and common stock with a market value of $7,451. The total assets
related to this acquisition were $63,085. No goodwill was generated in the
acquisition. The results of this acquisition have been included in the Company's
results from its date of acquisition.
During the nine months ended January 24, 1998, the Company made one
acquisition accounted for under the purchase method for an aggregate purchase
price of $1,998, consisting of 120,066 shares of common stock with a market
value of $2,112 and net of $114 of cash acquired. The total assets related to
this acquisition were $2,705, including intangible assets of $1,445. The results
of this acquisition have been included in the Company's results from its date of
acquisition.
F-17
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 4--BUSINESS COMBINATIONS (CONTINUED)
The following presents the unaudited pro forma results of operations of the
Company for the year ended December 31, 1995 and includes the Company's
consolidated financial statements, which give retroactive effect to the
acquisitions of the Pooled Companies for all periods presented, and the results
of the purchase acquisition completed in 1995 as if it had been made at the
beginning of 1995. The results presented below include certain pro forma
adjustments to reflect the amortization of intangible assets, adjustments in
executive compensation of $875 for the year ended December 31, 1995, and the
inclusion of a federal income tax provision on all earnings:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Revenues................................................................... $ 319,527
Income before extraordinary items.......................................... 5,303
Net income................................................................. 4,603
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of 1995 or the results
which may occur in the future.
NOTE 5--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
---------- ----------
<S> <C> <C>
Land.................................................................. $ 1,589 $ 1,022
Buildings............................................................. 3,144 4,705
Furniture and fixtures................................................ 34,207 42,394
Warehouse equipment................................................... 3,624 1,013
Equipment under capital leases........................................ 589 916
Leasehold improvements................................................ 2,167 2,933
---------- ----------
45,320 52,983
Less: Accumulated depreciation........................................ (13,673) (19,864)
---------- ----------
Net property and equipment............................................ $ 31,647 $ 33,119
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, and the fiscal year ended April 26, 1997 was
$1,904, $4,720, $3,174 and $5,778, respectively.
F-18
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26, JANUARY 24,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill.................................................... $ 496 $ 496 $ 1,940
Non-compete agreements...................................... 287 322 322
Other....................................................... 304 507 506
----------- ----------- -----------
1,087 1,325 2,768
Less: Accumulated amortization.............................. (208) (412) (565)
----------- ----------- -----------
Net intangible assets................................. $ 879 $ 913 $ 2,203
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Amortization expense for the years ended December 31, 1994 and 1995, the
four months ended April 30, 1996, fiscal year ended April 26, 1997 and the nine
months ended January 24, 1998 was $17, $74, $44, $204 and $165 (unaudited),
respectively.
NOTE 7--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Credit facilities with banks, average interest rate of 8.4% at
April 30, 1996........................................................ $ 19,201 $
Current maturities of long-term debt.................................... 4,314 3,681
--------- ---------
Total short-term debt............................................. $ 23,515 $ 3,681
--------- ---------
--------- ---------
</TABLE>
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Notes payable, secured by certain assets of the Company, interest rates
ranging from 7.5% to 13.4%............................................ $ 32,037 $ 9,283
Capital lease obligations............................................... 385 432
--------- ---------
32,422 9,715
Less: Current maturities of long-term debt.............................. (4,314) (3,681)
--------- ---------
Total long-term debt.............................................. $ 28,108 $ 6,034
--------- ---------
--------- ---------
</TABLE>
F-19
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1998............................................................... $ 3,681
1999............................................................... 5,953
2000............................................................... 36
2001............................................................... 26
2002............................................................... 19
Thereafter.........................................................
---------
Total maturities of long-term debt........................... $ 9,715
---------
---------
</TABLE>
PAYABLE TO U.S. OFFICE PRODUCTS
The short-term payable to U.S. Office Products was incurred by the Company
primarily as a result of U.S. Office Products repaying short-term debt
outstanding at the businesses acquired by U.S. Office Products at or soon after
the respective dates of acquisition and through the centralized cash management
system, which involves daily advances or sweeps of cash to keep the cash balance
at or near zero on a daily basis.
The long-term payable to U.S. Office Products primarily represents payments
made by U.S. Office Products on behalf of the Company and a reasonable
allocation by U.S. Office Products of certain general corporate expenses.
Interest has been allocated to the Company based upon the Company's average
outstanding payable balance with U.S. Office Products at U.S. Office Products
average interest rate during such period. U.S. Office Products allocated $1,013
(unaudited) of interest expense to the Company during the nine months ended
January 24, 1998. There was no significant amount of intercompany debt
outstanding during prior periods and, therefore, no interest expense was
allocated to the Company by U.S. Office Products during such periods.
At the date of Distribution, U.S. Office Products has agreed to allocate
$30,000 in debt to the Company. The allocation will first include debt
outstanding with third parties and the balance will represent intercompany debt
payable to U.S. Office Products. The debt payable to U.S. Office Products will
be payable upon the completion of the Distribution. The Company is currently in
discussions with several financial institutions regarding a credit facility of
approximately $150,000 which would be used for working capital and acquisition
purposes. The Company expects that the credit facility will include customary
covenants including maintenance of financial ratios and limitations on dividend
payments.
F-20
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES
Domestic and foreign income before provision for income taxes and
extraordinary items consist of the following:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
---------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Domestic.............................................. $ 5,054 $ 5,582 $ 4,599 $ 4,006
Foreign............................................... 1,441 2,510 5,912
------ ------ ------ ------
Total............................................. $ 5,054 $ 7,023 $ 7,109 $ 9,918
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED FOR THE FOUR FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Income taxes currently payable:
Federal............................................. $ $ $ $ 196
State............................................... 379 376 460 628
Foreign............................................. (409) 891 3,526
----- --- ------ ------
379 (33) 1,351 4,350
----- --- ------ ------
Deferred income tax expense (benefit)................. (660)
----- --- ------ ------
Total provision for income taxes.................. $ 379 $ (33) $ 1,351 $ 3,690
----- --- ------ ------
----- --- ------ ------
</TABLE>
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax assets:
Inventory.................................................................................. $ $ 145
Allowance for doubtful accounts............................................................ 497
Accrued liabilities........................................................................ 168
--------- ---------
Total current deferred tax assets........................................................ 810
--------- ---------
Long-term deferred tax liabilities:
Property and equipment..................................................................... (1,238)
Intangible assets.......................................................................... 36
Other...................................................................................... (4,704) (3,653)
--------- ---------
Total long-term deferred tax liabilities................................................. (4,704) (4,855)
--------- ---------
Net deferred tax liability............................................................... $ (4,704) $ (4,045)
--------- ---------
--------- ---------
</TABLE>
F-21
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--INCOME TAXES (CONTINUED)
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE FOUR FOR THE FISCAL
-------------------------------- MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, APRIL 30, APRIL 26,
1994 1995 1996 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
U.S. federal statutory rate........................... 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal income tax
benefit............................................. 7.5 5.4 6.5 6.8
Subchapter S corporation income not subject to
corporate level taxation............................ (35.0) (27.7) (22.6) (24.6)
Foreign earnings not subject to U.S. taxes............ (7.3) (12.4) (21.4)
Nondeductible acquisition costs....................... 11.8
Foreign taxes......................................... 12.5 25.6
Other................................................. (5.9) 4.0
----- ----- ----- -----
Effective income tax rate............................. 7.5% (0.5)% 19.0% 37.2%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Certain Pooled Companies were organized as subchapter S corporations prior
to the closing of their acquisitions by the Company and, as a result, the
federal tax on their income was the responsibility of their individual
stockholders. Accordingly, the specific Pooled Companies provided no federal
income tax expense prior to these acquisitions by the Company.
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the specific Pooled Companies had been subject to
federal income taxes for the fiscal year ended April 26, 1997.
<TABLE>
<CAPTION>
FOR THE
FISCAL
YEAR ENDED
APRIL 26,
1997
-------------
<S> <C>
Income before extraordinary items per consolidated statement of income............................. $ 6,228
Pro forma income tax provision adjustment.......................................................... 2,440
------
Pro forma income before extraordinary items........................................................ $ 3,788
------
------
</TABLE>
F-22
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 9--LEASE COMMITMENTS
The Company leases various types of warehouse and office facilities and
equipment, furniture and fixtures under noncancelable lease agreements which
expire at various dates. Future minimum lease payments under noncancelable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
1998......................................................................................... $ 216 $ 3,915
1999......................................................................................... 150 3,751
2000......................................................................................... 67 3,093
2001......................................................................................... 29 2,612
2002......................................................................................... 22 2,334
Thereafter................................................................................... 3,467
----- -----------
Total minimum lease payments................................................................. 484 $ 19,172
-----------
-----------
Less: Amounts representing interest.......................................................... (52)
-----
Present value of net minimum lease payments.................................................. $ 432
-----
-----
</TABLE>
Rent expense for all operating leases for the years ended December 31, 1994
and 1995, the four months ended April 30, 1996, and the fiscal year ended April
26, 1997 was $2,112, $6,137, $1,844, and $4,928, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon a change of control or
certain other events. No amounts have been accrued at April 30, 1996 or April
26, 1997 related to these agreements, as no change of control has occurred.
DISTRIBUTION
On or immediately after the Distribution, the Company expects to have a
credit facility in place. The terms of the credit facility are expected to
contain customary covenants including financial covenants. The Company plans to
use a portion of the proceeds from the credit facility to repay certain amounts
payable to U.S. Office Products.
On or before the date of the Distribution, the Company, U.S. Office Products
and the other Spin-Off Companies will enter into the Distribution Agreement, the
Tax Allocation Agreement, and the Employee Benefits Agreement, and the Spin-Off
Companies will enter into the Tax Indemnification Agreement, and
F-23
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
may enter into other agreements, including agreements relating to referral of
customers to one another. These agreements are expected to provide, among other
things, for U.S. Office Products and the Company to indemnify each other from
tax and other liabilities relating to their respective businesses prior to and
following the Workflow Distribution. Certain of the obligations of the Company
and the other Spin-Off Companies to indemnify U.S. Office Products are joint and
several. Therefore, if one of the other Spin-Off Companies fails to satisfy its
indemnification obligations to U.S. Office Products when such a loss occurs, the
Company may be required to reimburse U.S. Office Products for all or a portion
of the losses that otherwise would have been allocated to other Spin-Off
Companies. In addition, the agreements will allocate liabilities, including
general corporate and securities liabilities of U.S. Office Products not
specifically related to the Company's business, between U.S. Office Products and
each Spin-Off Company.
NOTE 11--EMPLOYEE BENEFIT PLANS
Effective September 1, 1996, the Company implemented the U.S. Office
Products 401(k) Retirement Plan (the "401(k) Plan") which allows employee
contributions in accordance with Section 401(k) of the Internal Revenue Code.
The Company matches a portion of employee contributions and all full-time
employees are eligible to participate in the 401(k) Plan after one year of
service.
Certain subsidiaries of the Company have, or had prior to implementation of
the 401(k) Plan, qualified defined contribution benefit plans, which allow for
voluntary pre-tax contributions by the employees. The subsidiaries paid all
general and administrative expenses of the plans and in some cases made matching
contributions on behalf of the employees. For 1994, 1995, the four months ended
April 30, 1996 and fiscal 1997, the subsidiaries incurred expenses totaling
$444, $602, $179 and $481, respectively, related to these plans.
NOTE 12--STOCKHOLDER'S EQUITY
CAPITAL CONTRIBUTION BY U.S. OFFICE PRODUCTS
During the fiscal year ended April 26, 1997, U.S. Office Products
contributed $20,064 of capital to the Company. The contribution reflects the
forgiveness of intercompany debt by U.S. Office Products, as it was agreed that
the Company would be allocated only $30,000 of debt plus the amount of any
additional debt incurred after January 12, 1998 in connection with the
acquisition of entities that will become subsidiaries of the Company.
EMPLOYEE STOCK PLANS
Prior to the Distribution, certain employees of the Company participated in
the U.S. Office Products 1994 Long-Term Incentive Plan covering employees of
U.S. Office Products. U.S. Office Products, as the sole stockholder of the
Company prior to distribution, has approved a new stock option plan for the
Company. Upon Distribution, the Company expects to replace the options to
purchase shares of common stock of U.S. Office Products held by employees with
options to purchase shares of common stock of the Company.
U.S. Office Products granted 402,290 options to Company employees under the
Plan during fiscal 1997; and the Company accounted for these options in
accordance with APB Opinion No. 25. Accordingly, because the exercise prices of
the options have equaled the market price on the date of grant, no
F-24
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 12--STOCKHOLDER'S EQUITY (CONTINUED)
compensation expense was recognized for the options granted. Had compensation
expense been recognized based upon the fair value of the stock options on the
grant date under the methodology prescribed by SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company's net income and net income per share for
the year ended April 26, 1997 would not have been materially effected.
Mr. Ledecky is receiving a stock option for Common Stock from the Company as
of June 10, 1998. The Board intends the option to be compensation for Mr.
Ledecky's services as an employee of the Company. The option will cover 7.5% of
the outstanding Common Stock determined as of the date of the Distribution,
without regard to the Offering, with no anti-dilution provisions in the event of
issuance of additional shares of Common Stock (other than with respect to stock
splits or reverse stock splits). The option will have a per share exercise price
equal to the IPO price. If this Offering does not occur, the exercise price of
the option will be equal to the closing sale price of the Common Stock on Nasdaq
on June 10, 1998 (the date of grant).
As of June 10, 1998, the Company is granting an option for 7.5% of the
outstanding Common Stock determined as of the Distribution Date, without regard
to the Offering, to Mr. D'Agostino, approximately 10% to certain executive
officers and 15,000 shares to each non-employee director. The options will be
granted under the 1998 Stock Incentive Plan (the "Plan") and will have a per
share exercise price equal to the IPO price. If this Offering does not occur,
the exercise price of the option will be equal to the closing sale price of the
Common Stock on Nasdaq on June 10, 1998 (the date of grant). Total options
available for grant under the Plan will be 30% of the outstanding shares of the
Company's common stock immediately following the Distribution, including the
options to be granted to Mr. Ledecky, Mr. D'Agostino, executive officers and
non-employee directors described above.
F-25
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 13--SEGMENT REPORTING
GEOGRAPHIC SEGMENTS
The following table sets forth information as to the Company's operations in
its different geographic segments:
<TABLE>
<CAPTION>
UNITED
STATES CANADA TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
For the year ended December 31, 1994:
Revenues................................................................... $ 154,193 $ $ 154,193
Operating income........................................................... 7,288 7,288
Identifiable assets at year-end............................................ 51,357 51,357
For the year ended December 31, 1995:
Revenues................................................................... $ 196,922 $ 112,504 $ 309,426
Operating income........................................................... 7,859 4,596 12,455
Identifiable assets at year-end............................................ 64,301 56,329 120,630
For the four months ended April 30, 1996:
Revenues................................................................... $ 73,047 $ 41,052 $ 114,099
Operating income........................................................... 3,435 5,181 8,616
Identifiable assets at period end.......................................... 66,255 51,694 117,949
For the fiscal year ended April 26, 1997:
Revenues................................................................... $ 205,910 $ 121,471 $ 327,381
Operating income........................................................... 7,010 8,076 15,086
Identifiable assets at year-end............................................ 72,854 52,254 125,108
</TABLE>
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED)
The following presents certain unaudited quarterly financial data for the
year ended December 31, 1995, the fiscal year ended April 26, 1997 and the
fiscal year ending April 25, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
Revenues.................................................. $ 65,497 $ 80,595 $ 79,815 $ 83,519 $ 309,426
Gross profit.............................................. 15,770 19,361 19,229 20,107 74,467
Operating income.......................................... 2,681 3,296 3,306 3,172 12,455
Net income................................................ 1,789 1,529 1,744 1,294 6,356
</TABLE>
F-26
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 14--QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 26, 1997
------------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.................................................. $ 78,071 $ 80,227 $ 81,453 $ 87,630 $ 327,381
Gross profit.............................................. 21,717 22,518 22,647 24,159 91,041
Operating income.......................................... 4,650 6,085 1,510 2,841 15,086
Net income (loss)......................................... 2,974 3,181 (658) (67) 5,430
Pro forma income (loss) before extraordinary item
(see Note 8)............................................ 1,809 1,935 (400) 444 3,788
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDING APRIL 25, 1998
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH(1) TOTAL
--------- --------- --------- ----------- ----------
Revenues................................................. $ 82,163 $ 88,884 $ 86,730 $ 257,777
Gross profit............................................. 21,895 23,314 22,086 67,295
Operating income......................................... 4,975 4,842 4,395 14,212
Net income............................................... 2,703 2,582 2,264 7,549
Pro forma income before extraordinary item (See Note
8)..................................................... 2,703 2,582 2,264 7,549
</TABLE>
- ------------------
(1) This column was intentionally left blank as the information included in the
consolidated financial statements for the fiscal year ending April 25, 1998
is currently included through January 24, 1998.
NOTE 15--SUBSEQUENT EVENTS (UNAUDITED)
On January 13, 1998, U.S. Office Products announced its intention to
complete the Distribution described in Note 1. In addition, subsequent to April
26, 1997, the Company has completed two business combinations accounted for
under the purchase method in exchange for U.S. Office Products common stock with
a market value on the date of acquisition of approximately $2,112 and cash of
$13,275. The results of operations for the nine months ended January 24, 1998
include the results of the acquired companies from their dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1997 as if the Distribution and acquisitions described above
had been consummated as of the beginning of fiscal 1997. The results presented
below include certain pro forma adjustments to reflect the amortization of
intangible assets, adjustments in executive compensation of $1,058, $793 and $84
for the fiscal year ended April 26, 1997, the nine months ended January 25,
1997, and the nine months ended January 24, 1998, respectively, and the
inclusion of a federal income tax provision on all earnings:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ------------------------
ENDED JANUARY 25, JANUARY 24,
APRIL 26, 1997 1997 1998
---------------- ----------- -----------
<S> <C> <C> <C>
Revenues............................................................. $ 342,335 $ 250,820 $ 263,960
Income before extraordinary items.................................... 7,806 6,067 7,882
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1997 or the
results which may occur in the future.
F-27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Astrid Offset Corporation
In our opinion, the accompanying balance sheet and the related statements of
income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of Astrid Offset Corporation at July
31, 1997 and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
February 6, 1998
F-28
<PAGE>
ASTRID OFFSET CORPORATION
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1997 1997
--------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash....................................................................................... $ 481 $ 412
Marketable securities...................................................................... 916 904
Accounts receivable........................................................................ 954 1,180
Prepaid expenses and other assets.......................................................... 74 102
Inventory.................................................................................. 241 237
--------- -----------
Total current assets................................................................. 2,666 2,835
Property and equipment, net................................................................ 1,695 1,582
Other assets............................................................................... 22
--------- -----------
Total assets......................................................................... $ 4,383 $ 4,417
--------- -----------
--------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current maturities, long-term debt......................................................... $ 422 $ 271
Accounts payable........................................................................... 39 163
Accrued liabilities........................................................................ 149 56
Due to officer............................................................................. 55 58
--------- -----------
Total current liabilities............................................................ 665 548
Long-term debt............................................................................. 1,607 1,606
Deferred income taxes...................................................................... 140 145
--------- -----------
Total liabilities.................................................................... 2,412 2,299
Stockholder's equity:
Common stock, no par value, 10 shares authorized, issued and outstanding................. 14 14
Treasury stock........................................................................... (1,064) (1,064)
Retained earnings........................................................................ 3,021 3,168
--------- -----------
Total stockholder's equity........................................................... 1,971 2,118
--------- -----------
--------- -----------
Total liabilities and stockholder's equity........................................... $ 4,383 $ 4,417
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
ASTRID OFFSET CORPORATION
STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JULY 31, --------------------
1997 1996 1997
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Sales............................................................................. $ 10,022 $ 2,400 $ 2,566
Cost of sales..................................................................... 5,850 1,306 1,378
----------- --------- ---------
Gross profit.................................................................... 4,172 1,094 1,188
Selling, general and administrative expenses...................................... 1,819 370 419
----------- --------- ---------
Operating income................................................................ 2,353 724 769
Other (income) expense:
Interest expense................................................................ 252 123 6
Interest income................................................................. (74) (10) (9)
Realized and unrealized (gains) losses.......................................... (257) (69) 13
----------- --------- ---------
Income before taxes on income..................................................... 2,432 680 759
Provision for city income taxes................................................... 87 11 19
----------- --------- ---------
Net income........................................................................ $ 2,345 $ 669 $ 740
----------- --------- ---------
----------- --------- ---------
Unaudited pro forma information (see Note 2):
Income before provision for income taxes........................................ $ 2,432 $ 680 $ 759
Pro forma Provision for income taxes............................................ 973 272 304
----------- --------- ---------
Pro forma net income.......................................................... $ 1,459 $ 408 $ 455
----------- --------- ---------
----------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
ASTRID OFFSET CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON TREASURY RETAINED STOCKHOLDER'S
STOCK STOCK EARNINGS EQUITY
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Balance, July 31, 1996............................................. $ 14 $ (1,064) $ 2,798 $ 1,748
Net income....................................................... 2,345 2,345
Distributions.................................................... (2,122) (2,122)
--------- --------- --------- ------------
Balance, July 31, 1997............................................. 14 (1,064) 3,021 1,971
Unaudited data:
Net income....................................................... 740 740
Distributions.................................................... (593) (593)
--------- --------- --------- ------------
Balance, October 31, 1997 (unaudited).............................. $ 14 $ (1,064) $ 3,168 $ 2,118
--------- --------- --------- ------------
--------- --------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
ASTRID OFFSET CORPORATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OCTOBER 31,
JULY 31, --------------------
1997 1996 1997
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income................................................................. $ 2,345 $ 669 $ 740
Adjustments to net income to net cash provided by (used in) operating
activities:
Depreciation and amortization............................................ 475 76 135
Unrealized/realized (gain) loss on sale of marketable trading
securities............................................................. (257) (69) 13
Deferred income taxes.................................................. 32 4 5
Changes in operating assets and liabilities:
Marketable trading securities.......................................... 4 (1) (1)
Accounts receivable.................................................... (192) (506) (226)
Prepaid and other assets............................................... (54) (42) (28)
Inventory.............................................................. (26) (116) 4
Accounts payable and accrued liabilities............................... (155) (98) 31
Due to officer......................................................... (3) 3
----------- --------- ---------
Net cash provided by (used in) operating activities.................. 2,169 (83) 676
----------- --------- ---------
Cash flow from financing activities:
Principal payments on long-term debt....................................... (525) (85) (152)
Distributions to stockholder............................................... (2,122) (391) (593)
----------- --------- ---------
Net cash used in financing activities................................ (2,647) (476) (745)
----------- --------- ---------
Net decrease in cash......................................................... (478) (559) (69)
Cash and cash equivalents, beginning of year................................. 959 959 481
----------- --------- ---------
Cash and cash equivalents, end of year....................................... $ 481 $ 400 $ 412
----------- --------- ---------
----------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest..................................................... $ 74 $ 24 $ 27
Cash paid for taxes........................................................ $ 54 $ 13 $ 11
Supplemental disclosure of non-cash transaction:
Purchase of machinery and equipment for Note Payable....................... $ 1,550 $ 1,550 $
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS)
1. BUSINESS AND ORGANIZATION
Astrid Offset Corporation (the "Company") is a manufacturer and wholesale
vendor of sheet-fed offset printing and envelopes. The Company's sales are to
trade customers primarily in the greater New York City area.
On February 2, 1998, the Company entered into a Letter of Intent with U.S.
Office Products Company ("U.S. Office Products") for the potential sale of
Astrid Offset Corporation to U.S. Office Products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company's financial statements are prepared on the accrual basis of
accounting, whereby revenues and related assets are generally recognized when
products are completed and shipped and expenses and related liabilities are
recognized when the obligations are incurred.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with a maturity of three months or less at the date of
purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated using straight-line and accelerated
methods over their estimated useful lives of three to seven years.
INCOME TAXES
The Company has elected S-Corporation status as defined by the Internal
Revenue Code and states whereby the stockholder is taxed on his proportionate
share of the Company's taxable income. Therefore, no provision or liability for
federal income taxes has been included in the financial statements. The Company
is subject to New York City income tax which has been appropriately reflected in
the financial statements.
Deferred income taxes are provided in recognition of timing differences
between financial statements and tax reporting of income and expense items since
the Company files its New York City income tax returns on a cash basis.
The unaudited pro forma income tax information included in the Statement of
Operations is presented in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for
F-33
<PAGE>
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes", as if the Company had been subject to federal income taxes for
the entire periods presented.
FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, and accrued liabilities as reflected in the financial
statements approximates fair value because of the short-term maturity of these
instruments. The carrying amounts of long-term debt approximates fair value.
MARKETABLE SECURITIES
The Company's marketable securities consist of investments in certain
equities and mutual funds and are classified as trading, accordingly, any
realized or unrelated gains and losses are recorded in the period incurred.
UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial information for the three month periods ended October
31, 1996 and 1997 has been prepared from the unaudited financial records of the
Company and in the opinion of management, reflects all adjustments, consisting
only of normal recurring items, necessary for a fair presentation of the
financial position and results of operations and of cash flows for the interim
periods presented.
CONCENTRATIONS OF CREDIT RISKS
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of trade accounts receivable. Receivables are
not collateralized and accordingly, the Company performs ongoing credit
evaluations to reduce the risk of loss. At July 31, 1997, $515 of the accounts
receivable balance relates to one customer and its subsidiaries.
The Company maintains bank accounts at one financial institution. The
balances are insured by the Federal Deposit Insurance Corporation up to $100. At
July 31, 1997, the Company has no uninsured cash balances.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
JULY 31,
1997
-----------
<S> <C>
Raw materials........................................................................ $ 159
Work-in-process...................................................................... 82
-----
$ 241
-----
-----
</TABLE>
F-34
<PAGE>
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<S> <C>
Machinery and equipment............................................. $ 4,699
Furniture and fixtures.............................................. 80
Computer equipment.................................................. 64
Leasehold improvements.............................................. 206
Delivery equipment.................................................. 31
---------
5,080
Accumulated depreciation............................................ (3,385)
---------
$ 1,695
---------
---------
</TABLE>
Depreciation expense for the year ended July 31, 1997 was $304.
5. LONG-TERM DEBT
The long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31,
1997
---------
<S> <C>
Instrument note to Summit Leasing Corp. payable in monthly installments of $9 including interest at 7.95%
per annum. Note is collateralized by Komori Lithrone two-color press, with note maturing March
1998. ................................................................................................. $ 70
Installment note to Komar Leasing Corp. payable in monthly installments of $25 including interest at 8.9%
per annum. Note is collateralized by Komori six-color press with the note maturing July 2004........... 1,385
Installment note to Emanuel Rosenbaum payable in monthly installments of $9 including interest at 10% per
annum. The note matures October 1997. ................................................................. 26
Note payable to Emanuel Rosenbaum due September 2000 with payment of interest only at 10% until September
1997, monthly payments of $17 thereafter. Note is secured by treasury stock. .......................... 548
---------
2,029
Current maturities....................................................................................... 422
---------
$ 1,607
---------
---------
</TABLE>
F-35
<PAGE>
ASTRID OFFSET CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
5. LONG-TERM DEBT (CONTINUED)
Principal payments required under long-term debt obligations are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 422
1999................................................................ 372
2000................................................................ 409
2001................................................................ 268
2002-2004........................................................... 558
---------
$ 2,029
---------
---------
</TABLE>
6. LEASE COMMITMENTS
In June 1997, the Company entered into a lease agreement for its primary
office facility. The lease terms requires annual payments of $384 (or $32
monthly) through 2007.
7. RELATED PARTY TRANSACTIONS
The Company's stockholder is the trustee for the profit sharing plan
maintained by the Company.
The Company's largest customer, United Envelope, is a subsidiary of U.S.
Office Products Company and represents $515 of the Company's July 31, 1997
accounts receivable balance.
8. TREASURY STOCK
In September 1990, the Company purchased common stock in the amount of
$1,064 from its former stockholder. The Company has a note outstanding in
connection with this treasury stock purchase.
9. EMPLOYEE BENEFIT PLAN
In April 1991, the Company established a profit sharing plan. Contributions
by the Company are discretionary and cannot exceed 15% of the total plan
compensation of all participants.
10. SUBSEQUENT EVENTS
Shareholder distributions of $595 were made during the period of November 1,
1997, through January 31, 1998.
F-36
<PAGE>
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements give effect to the spin-off of
Workflow Management, Inc. (the "Company"), formerly the Print Management
Division of U.S. Office Products Company ("U.S. Office Products"), through the
distribution of shares of the Company to U.S. Office Products shareholders (the
"Distribution") and probable and completed acquisitions through May 1, 1998.
The pro forma combined balance sheet gives effect to the Distribution and
the acquisition of Astrid Offest Corporation as if both transactions had
occurred as of the Company's most recent balance sheet date, January 24, 1998.
The pro forma combined statements of income for the fiscal year ended April 26,
1997 and the nine months ended January 24, 1998 and January 25, 1997 give effect
to the Distribution and the acquisitions of Astrid Offset Corporation and FMI
Graphics, Inc., an individually insignificant company, in business combinations
accounted for under the purchase method which have been completed during the
fiscal year ending April 25, 1998 (the "Fiscal 1998 Purchase Acquisitions"), as
if all such transactions had occurred on May 1, 1996.
The pro forma combined statement of income for the year ended April 26, 1997
includes the audited financial information of the Company for the year ended
April 26, 1997 and the unaudited financial information of the Fiscal 1998
Purchase Acquisitions for the period from May 1, 1996 through April 26, 1997.
The pro forma combined statement of income for the nine months ended January
24, 1998 includes the unaudited financial information of the Company and the
Fiscal 1998 Purchase Acquisitions for the nine months ended January 24, 1998.
The pro forma combined statement of income for the nine months ended January
25, 1997 includes the unaudited financial information of the Company and the
Fiscal 1998 Purchase Acquisitions for the nine months ended January 25, 1997.
The historical financial statements of the Company give retroactive effect
to the results of the seven companies acquired by the Company during the fiscal
year ended April 26, 1997 in business combinations accounted for under the
pooling-of-interests method of accounting.
The historical financial statements of the Company also reflect an allocated
portion of general and administrative costs incurred by U.S. Office Products.
The allocated costs include expenses such as: certain corporate executives'
salaries, accounting and legal fees, departmental costs for accounting, finance,
legal, purchasing, marketing and human resources, as well as other general
overhead costs. These corporate overheads have been allocated to the Company
using one of several factors, dependent on the nature of the costs being
allocated, including revenues, number and size of acquisitions and number of
employees. Interest costs have been allocated to the Company based upon the
Company's average intercompany balance with U.S. Office Products at U.S. Office
Products' weighted average interest rate during such periods.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent what the Company's financial position or results of operations would
have been had the transactions which are the subject of pro forma adjustments
occurred on those dates, as assumed, and are not necessarily representative of
the Company's financial position or results of operations in any future period.
The pro forma combined financial statements should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
Prospectus.
F-37
<PAGE>
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED BALANCE SHEET
JANUARY 24, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASTRID PRO FORMA
WORKFLOW OFFSET PRO FORMA OFFERING PRO FORMA
MANAGEMENT, INC. CORPORATION ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
---------------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 248 $ 330 $ (578)(b) $ $ 28,725(d) $
(28,725)(d)
Accounts receivable, net............. 54,121 1,158 55,279 55,279
Inventory............................ 29,330 209 29,539 29,539
Prepaid and other current assets..... 1,875 87 1,962 1,962
---------------- ------------- ----------- --------- ----------- -----------
Total current assets............... 85,574 1,784 (578) 86,780 86,780
Property and equipment, net............ 31,064 2,718 33,782 33,782
Notes receivable from employees........ 3,643 3,643 3,643
Intangible assets, net................. 2,203 12,029(a) 14,232 14,232
Other assets........................... 4,621 15 4,636 4,636
---------------- ------------- ----------- --------- ----------- -----------
Total assets....................... $ 127,105 $ 4,517 $ 11,451 $ 143,073 $ $ 143,073
---------------- ------------- ----------- --------- ----------- -----------
---------------- ------------- ----------- --------- ----------- -----------
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C> <C> <C> <C>
Current liabilities:
Short-term debt...................... $ 4,939 $ 640 $ (640)(b) $ 4,939 $ $ 4,939
Short-term payable to U.S. Office
Products........................... 17,658 (17,658)(b)
Accounts payable..................... 23,749 173 23,922 23,922
Accrued compensation................. 4,004 4,004 4,004
Other accrued liabilities............ 9,854 103 9,957 9,957
---------------- ------------- ----------- --------- ----------- -----------
Total current liabilities.......... 60,204 916 (18,298) 42,822 42,822
Long-term debt......................... 5,498 2,240 32,900(b) 40,638 (28,725)(d) 11,913
Long-term payable to U.S. Office
Products............................. 1,905 13,275(a)
(15,180)(b)
Deferred income taxes.................. 3,507 115 3,622 3,622
Other long-term liabilities............ 12 12 12
---------------- ------------- ----------- --------- ----------- -----------
Total liabilities.................. 71,126 3,271 12,697 87,094 (28,725) 58,369
---------------- ------------- ----------- --------- ----------- -----------
Stockholder's equity:
Common stock......................... 15(c) 15 2(d) 17
Additional paid-in-capital........... 47,711(c) 47,711 28,723(d) 76,434
Divisional equity.................... 47,726 (47,726)(c)
Cumulative translation adjustment.... (1,365) (1,365) (1,365)
Retained earnings.................... 9,618 9,618 9,618
Equity in purchased company.......... 1,246 (1,246)(a)
---------------- ------------- ----------- --------- ----------- -----------
Total stockholder's equity......... 55,979 1,246 (1,246) 55,979 28,725 84,704
---------------- ------------- ----------- --------- ----------- -----------
Total liabilities and stockholder's
equity........................... $ 127,105 $ 4,517 $ 11,451 $ 143,073 $ $ 143,073
---------------- ------------- ----------- --------- ----------- -----------
---------------- ------------- ----------- --------- ----------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-38
<PAGE>
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 24, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASTRID PRO FORMA
WORKFLOW OFFSET FMI PRO FORMA OFFERING PRO FORMA
MANAGEMENT, INC. CORPORATION GRAPHICS, INC. ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
----------------- ------------- --------------- ------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............... $ 257,777 $ 7,115 $ 1,914 $ (2,846)(e) $ 263,960 $ $ 263,960
Cost of revenues....... 190,482 4,210 1,258 (2,846)(e) 193,104 193,104
-------- ------ ------ ------------- --------- ------------- -----------
Gross profit....... 67,295 2,905 656 70,856 70,856
Selling, general and
administrative
expenses............. 52,918 1,364 499 (84)(f) 54,697 54,697
Amortization expense... 165 233(h) 398 398
-------- ------ ------ ------------- --------- ------------- -----------
Operating income... 14,212 1,541 157 (149) 15,761 15,761
Other (income) expense:
Interest expense..... 1,665 22 2 1,046(i) 2,735 (1,724)(l) 1,011
Interest income...... (9) (17) (2) 28(i)
Other income......... (205) (128) (333) (333)
-------- ------ ------ ------------- --------- ------------- -----------
Income (loss) before
provision for income
taxes................ 12,761 1,664 157 (1,223) 13,359 1,724 15,083
Provision for income
taxes................ 5,212 4 261(j) 5,477 707(j) 6,184
-------- ------ ------ ------------- --------- ------------- -----------
Net income (loss)...... $ 7,549 $ 1,664 $ 153 $ (1,484) $ 7,882 $ 1,017 $ 8,899
-------- ------ ------ ------------- --------- ------------- -----------
-------- ------ ------ ------------- --------- ------------- -----------
Weighted average shares
outstanding:
Basic.............. 15,301 14,625(k) 17,125(m)
Diluted............ 15,625 14,625(k) 17,125(m)
Net income per share:
Basic.............. $ 0.49 $ 0.54 $ 0.52
-------- --------- -----------
-------- --------- -----------
Diluted............ $ 0.48 $ 0.54 $ 0.52
-------- --------- -----------
-------- --------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-39
<PAGE>
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED JANUARY 25, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASTRID PRO FORMA
WORKFLOW OFFSET FMI PRO FORMA OFFERING PRO FORMA
MANAGEMENT, INC. CORPORATION GRAPHICS, INC. ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
----------------- ------------- --------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 239,751 $ 7,056 $ 6,835 $ (2,822)(e) $ 250,820 $ $ 250,820
Cost of revenues........ 172,869 4,219 4,717 (2,822)(e) 178,983 178,983
-------- ------ ------ ----------- --------- ----------- -----------
Gross profit........ 66,882 2,837 2,118 71,837 71,837
Selling, general and
administrative
expenses.............. 51,590 1,469 2,086 (793)(f) 55,074 55,074
722(g)
Amortization expense.... 145 253(h) 398 398
Non-recurring
acquisition costs..... 2,902 2,902 2,902
-------- ------ ------ ----------- --------- ----------- -----------
Operating income.... 12,245 1,368 32 (182) 13,463 13,463
Other (income) expense:
Interest expense...... 3,910 10 (1,185)(i) 2,735 (1,724)(l) 1,011
Interest income....... (21) (27) (11) 59(i)
Other................. 610 (146) (19) 445 445
-------- ------ ------ ----------- --------- ----------- -----------
Income before provision
for income taxes...... 7,746 1,541 52 944 10,283 1,724 12,007
Provision for income
taxes................. 2,249 1,967(j) 4,216 707(j) 4,923
-------- ------ ------ ----------- --------- ----------- -----------
Net income.......... $ 5,497 $ 1,541 $ 52 $ (1,023) $ 6,067 $ 1,017 $ 7,084
-------- ------ ------ ----------- --------- ----------- -----------
-------- ------ ------ ----------- --------- ----------- -----------
Weighted average shares
outstanding:
Basic................. 11,464 14,625(k) 17,125(m)
Diluted............... 11,710 14,625(k) 17,125(m)
Net income per share:
Basic................. $ 0.48 $ 0.41 $ 0.41
-------- --------- -----------
-------- --------- -----------
Diluted............... $ 0.47 $ 0.41 $ 0.41
-------- --------- -----------
-------- --------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-40
<PAGE>
WORKFLOW MANAGEMENT, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASTRID PRO FORMA
WORKFLOW OFFSET FMI PRO FORMA OFFERING
MANAGEMENT, INC. CORPORATE GRAPHICS, INC ADJUSTMENTS SUBTOTAL ADJUSTMENTS
----------------- ----------- --------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues......................... $ 327,381 $ 9,963 $ 8,976 $ (3,985)(e) $ 342,335 $
Cost of revenues................. 236,340 5,934 6,186 (3,985)(e) 244,475
-------- ----------- ------ ------------- --------- -------------
Gross profit................. 91,041 4,029 2,790 97,860
Selling, general and
administrative expenses........ 70,753 2,035 2,779 (1,058)(f) 75,038
529(g)
Amortization expense............. 196 334(h) 530
Non-recurring acquisition
costs.......................... 5,006 5,006
-------- ----------- ------ ------------- --------- -------------
Operating income............. 15,086 1,994 11 195 17,286
Other (income) expense:
Interest expense............... 4,561 10 (924)(i) 3,647 (2,299)(l)
Interest income................ (25) (36) (15) 76(j)
Other.......................... 632 (209) (15) 408
-------- ----------- ------ ------------- --------- -------------
Income before provision for
income taxes and extraordinary
items.......................... 9,918 2,239 31 1,043 13,231 2,299
Provision for income taxes....... 3,690 1,735(j) 5,425 943(j)
-------- ----------- ------ ------------- --------- -------------
Net income (loss)................ $ 6,228 $ 2,239 $ 31 $ (692) $ 7,806 $ 1,356
-------- ----------- ------ ------------- --------- -------------
-------- ----------- ------ ------------- --------- -------------
Weighted average shares
outstanding:
Basic........................ 12,003 14,625(k)
Diluted...................... 12,235 14,625(k)
Income before extraordinary items
per share:
Basic........................ $ 0.52 $ 0.53
-------- ---------
-------- ---------
Diluted...................... $ 0.51 $ 0.53
-------- ---------
-------- ---------
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenues......................... $ 342,335
Cost of revenues................. 244,475
-----------
Gross profit................. 97,860
Selling, general and
administrative expenses........ 75,038
Amortization expense............. 530
Non-recurring acquisition
costs.......................... 5,006
-----------
Operating income............. 17,286
Other (income) expense:
Interest expense............... 1,348
Interest income................
Other.......................... 408
-----------
Income before provision for
income taxes and extraordinary
items.......................... 15,530
Provision for income taxes....... 6,368
-----------
Net income (loss)................ $ 9,162
-----------
-----------
Weighted average shares
outstanding:
Basic........................ 17,125(m)
Diluted...................... 17,125(m)
Income before extraordinary items
per share:
Basic........................ $ 0.54
-----------
-----------
Diluted...................... $ 0.54
-----------
-----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-41
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reflect purchase price adjustments associated with the
acquisition of Astrid Offset Corporation ("Astrid"). The acquisition of Astrid
will be initially funded by U.S. Office Products, accordingly, an adjustment has
been made to increase the long-term payable to U.S. Office Products by $13,275.
The portion of the consideration assigned to goodwill ($12,029) in this
transaction, which was accounted for under the purchase method, represents the
excess of the cost over the fair market value of the net assets acquired. The
Company amortizes goodwill over a period of 40 years. The recoverability of the
unamortized goodwill will be assessed on an ongoing basis by comparing
anticipated undiscounted future cash flows from operations to net book value.
(b) Represents payment of debt of $33,478 due to U.S. Office Products
through the use of $578 of cash and $32,900 in borrowings drawn from the
Company's credit facility entered into concurrently with the Distribution as
U.S. Office Products agreed to allocate only $45,577 of the total debt payable
to U.S. Office Products by the Company ($4,939 and $40,638 in short-term and
long-term debt, respectively) at the date of the Distribution.
(c) Adjustment to reflect the reclassification of divisional equity to
common stock and additional paid-in-capital as a result of the Workflow
Distribution. The Workflow Distribution will result in the issuance of 14,625
shares of Common Stock.
(d) Adjustment to reflect $28,725 of proceeds (net of expenses and
underwriting discounts) from the sale of 2,500 shares of Common Stock as part of
the Offering and the utilization of the proceeds to repay debt.
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(e) Adjustment to reflect the elimination of revenues and cost of revenues
on transactions between Astrid Offset and the Company.
(f) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions. The
Company believes that these reductions are expected to remain in place for the
foreseeable future and are not reasonably likely to affect operating
performance.
(g) Adjustment to reflect additional corporate overhead during the period
prior to the formation of the Print Management division by U.S. Office Products
as if the division had been formed on May 1, 1996.
(h) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1998 Purchase
Acquisitions for the periods prior to the respective dates of acquisition. The
Company has recorded goodwill amortization in the historical financial
statements from the respective dates of acquisition forward. The goodwill is
being amortized over an estimated life of 40 years.
(i) Adjustment to reflect the increase/reduction in interest expense.
Interest expense is being calculated on the debt outstanding at January 24, 1998
of $45,577 at a weighted average interest rate of approximately 8.0%. The
adjustment also reflects a reduction in interest income to zero as the Company
expects to use all available cash to repay debt rather than for investment
purposes. Pro forma interest expense will fluctuate $21 on an annual basis for
each 0.125% change in interest rates.
F-42
<PAGE>
WORKFLOW MANAGEMENT, INC.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS (CONTINUED)
(j) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 41%. The
difference between the effective tax rate of 41% and the statutory tax rate of
35% relates primarily to state income taxes and non-deductible goodwill. This
adjustment assumes that all companies were taxed at 41% regardless of how they
were taxed prior to being acquired by the Company, including those companies
that previously paid no taxes under subchapter S.
(k) The weighted average shares outstanding used to calculate pro forma
earnings per share of 14,625 is calculated based upon approximately 109,690
shares of U.S. Office Products common stock expected to be outstanding on the
date of the Workflow Distribution divided by 7.5, which is the Distribution
Ratio.
(l) Adjustment to reflect a decrease in interest expense as a result of the
utilization of the net proceeds from the Offering of $28,725 to repay debt at an
annual interest rate of 8.0%.
(m) The weighted average shares outstanding used to calculate pro forma as
adjusted earnings per share of 17,125 is based upon the 14,625 shares of common
stock issued as a result of the Workflow Distribution and 2,500 shares issued in
the Offering.
F-43
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses payable by the Company
in connection with the issuance and distribution of the Common Stock. All of
such expenses, except the Securities and Exchange Commission registration fee,
are estimated:
<TABLE>
<S> <C>
SEC Registration Fee............................................................ $ 14,750
NASD Fee........................................................................ 5,500
The Nasdaq Stock Market Listing Fee............................................. 47,500
Blue Sky Fees and Expenses...................................................... 5,000
Legal Fees and Expenses......................................................... 500,000
Accounting Fees and Expenses.................................................... 500,000
Printing Fees and Expenses...................................................... 350,000
Transfer Agent & Registration Fees and Expenses................................. 75,000
Miscellaneous................................................................... 12,250
---------
Total..................................................................... $1,500,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Nine of the Certificate of Incorporation provides that the Company
shall indemnify its directors and officers to the fullest extent permitted by
the General Corporation Law of the State of Delaware.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, I.E., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Eight of the Certificate of Incorporation states that directors of
Workflow Management will not be liable to the Company or its stockholders for
monetary damages for any breach of fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the General Corporation Law of the State of Delaware, which makes
directors liable for unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) for any transaction from which the director derived an
improper personal benefit.
II-1
<PAGE>
Article IV of the By-laws provides that Workflow Management shall indemnify
its officers and directors (and those serving at the request of the Company as
an officer or director of another corporation, partnership, joint venture, trust
or other enterprise), and may indemnify its employees and agents (and those
serving at the request of the Company as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise), against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred, if such officer, director, employee
or agent acted in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of Workflow Management, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. In a derivative action, indemnification shall be limited to
expenses (including attorney's fees) actually and reasonably incurred by such
officer, director, employee or agent in the defense or settlement of such action
or suit, and no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to Workflow
Management unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper.
Unless the Board of Directors otherwise determines in a specific case,
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding shall be paid by Workflow Management in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the officer or director to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See index to exhibits.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
II-2
<PAGE>
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized in Palm
Beach, Florida, on June 8, 1998.
<TABLE>
<S> <C> <C>
WORKFLOW MANAGEMENT, INC.
By: /s/ THOMAS B. D'AGOSTINO
-----------------------------------------
Name: Thomas B. D'Agostino
TITLE: CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.
Each person named below constitutes and appoints Thomas B. D'Agostino and
Gus J. James, II as his true and lawful attorney-in-fact and agent, each acting
alone with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement on Form S-1,
and to any registration statement filed under Securities and Exchange Commission
Rule 462, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
SIGNATURE CAPACITY DATE
- ------------------------------ -------------------------- -------------------
/s/ THOMAS B. D'AGOSTINO Chief Executive Officer
- ------------------------------ (Principal Executive June 8, 1998
Thomas B. D'Agostino Officer) and Director
* Chief Financial Officer
- ------------------------------ (Principal Financial and June 8, 1998
Steven R. Gibson Accounting Officer)
*
- ------------------------------ Director June 8, 1998
Thomas A. Brown, Sr.
*
- ------------------------------ Director June 8, 1998
Gus J. James, II
*
- ------------------------------ Director June 8, 1998
Jonathan J. Ledecky
II-4
<PAGE>
<TABLE>
<C> <S> <C>
*
- ------------------------------ Director June 8, 1998
Timothy L. Tabor
*
- ------------------------------ Director June 8, 1998
F. Craig Wilson
* Thomas B. D'Agostino
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Underwriting Agreement
3.1** Certificate of Incorporation
3.2** Certificate of Amendment of Certificate of Incorporation
3.3** By-laws
4.1** Specimen certificate representing shares of Common Stock
5* Opinion of Wilmer, Cutler & Pickering as to legality of securities being offered
8+ Tax opinion of Wilmer, Cutler & Pickering
10.1** Form of Distribution Agreement among U.S. Office Products Company, Workflow Management, Inc., Paradigm
Concepts, Inc., TDOP, Inc. and School Specialty, Inc.
10.2** Form of Tax Allocation Agreement among U.S. Office Products Company, Workflow Management, Inc.,
Paradigm Concepts, Inc., TDOP, Inc. and School Specialty, Inc.
10.3** Form of Tax Indemnification Agreement among Workflow Management, Inc., Paradigm Concepts, Inc., TDOP,
Inc. and School Specialty, Inc.
10.4** Form of Employee Benefits Agreement among U.S. Office Products Company, Workflow Management, Inc.,
Paradigm Concepts, Inc., TDOP, Inc. and School Specialty, Inc.
10.5** Agreement dated as of January 24, 1997 between SFI Corp. and Thomas B. D'Agostino
10.6** Agreement dated as of January 24, 1997 between Hano Document Printers, Inc. and Timothy L. Tabor
10.7** Services Agreement dated as of January 13, 1998 between U.S. Office Products Company and Jonathan J.
Ledecky
10.8* Form of Credit Agreement
10.9** Form of 1998 Stock Incentive Plan
10.10** Form of Executive Employment Agreement
10.11* Form of Employment Agreement between Workflow Management, Inc. and Jonathan J. Ledecky
10.12** Employment Agreement between Workflow Management, Inc. and Steven R. Gibson
10.13** Employment Agreement between Workflow Management, Inc. and Claudia S. Amlie
10.14* Amendment to Services Agreement dated as of June 8, 1998 between U.S. Office Products Company and
Jonathan J. Ledecky
10.15* Form of License Agreement between Workflow Management, Inc. and U.S. Office Products Company for
Imagenet technology.
21* Subsidiaries of Registrant
23.1* Consent of Wilmer, Cutler & Pickering contained in Exhibit 5 hereto
23.2* Consent of Price Waterhouse LLP
23.3* Consent of KPMG Peat Marwick LLP
23.4* Consent of Hertz, Herson & Company LLP
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<S> <C>
23.5* Consent of KPMG Peat Marwick LLP
23.6* Consent of Price Waterhouse LLP
23.7** Consent of Jonathan J. Ledecky to be named as a director
23.8** Consent of Timothy L. Tabor to be named as a director
23.9** Consent of Gus J. James, II to be named as a director
23.10** Consent of Thomas A. Brown, Sr. to be named as a director
23.11* Consent of Wilmer, Cutler & Pickering contained in Exhibit 8 hereto
24.1* Power of Attorney (included on signature page in Part II)
27** Financial data schedule
99.1** Valuation and Qualifying Accounts and Reserves
</TABLE>
- ------------------
* Filed herewith
** Previously filed
*** To be filed by amendment
+ Incorporated by reference herein from Workflow Management's Registration
Statement on Form S-1 initially filed with the Securities and Exchange
Commission on February 19, 1998 (File No. 333-46535)
<PAGE>
2,500,000 Shares(1)
WORKFLOW MANAGEMENT, INC.
Common Stock
UNDERWRITING AGREEMENT
June __, 1998
BANCAMERICA ROBERTSON STEPHENS
MORGAN STANLEY DEAN WITTER
SANDS BROTHERS & CO., LTD.
as Representatives of the several Underwriters
(the "Representatives")
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
Workflow Management, Inc., a Delaware corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (hereinafter collectively called the
"Underwriters") and hereby confirms its respective agreements with the
several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
2,500,000 shares of its authorized and unissued Common Stock, par value $0.001
per share, to the several Underwriters. The 2,500,000 shares of the Company's
Common Stock, par value $0.001 per share, to be sold by the Company are
hereinafter collectively called the "Firm Shares". The Company also proposes to
grant to the Underwriters an option to purchase up to 375,000 additional
- ---------------
(1) Plus an option to purchase up to 375,000 additional shares from the Company
to cover over-allotments, if any.
1
<PAGE>
shares of the Company's Common Stock, par value $0.001 per share,
respectively, as provided in Section 7 hereof. The up to 375,000 additional
shares of the Company's Common Stock, par value $0.001 per share, to be sold
by the Company if the Underwriters exercise such option pursuant to Section 7
are hereinafter collectively called the "Option Shares". As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of the Company's Common Stock, par value $0.001 per share,
to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Common Stock".
2. Representations, Warranties and Agreements of the
Company.
The Company represents and warrants to and agrees with each of
the Underwriters that:
(a) A registration statement on Form S-1 (File No.
333-47505) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration
statement, such amended prospectuses subject to completion and such
abbreviated registration statements pursuant to Rule 462(b) of the Rules and
Regulations as may have been required prior to the date hereof have been
similarly prepared and filed with the Commission; and the Company will file
such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration
statement and amendments, of each related prospectus subject to completion
(the "Preliminary Prospectuses") and of any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations have been
delivered to you.
If the registration statement relating to the Shares has
been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from
the registration statement pursuant to
2
<PAGE>
Rule 43OA(a) or, if BancAmerica Robertson Stephens, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration
statement relating to the Shares has not been declared effective under the
Act by the Commission, the Company will prepare and promptly file an
amendment to the registration statement, including a final form of
prospectus, or, if BancAmerica Robertson Stephens, on behalf of the several
Underwriters, shall agree to the utilization of Rule 434 of the Rules and
Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the
registration statement pursuant to Rule 43OA(a) or files a term sheet
pursuant to Rule 434 of the Rules and Regulations, the information deemed to
be a part of the registration statement at the time it became effective
pursuant to Rule 43OA(b) or Rule 434(d) of the Rules and Regulations) and, in
the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement,
shall also mean (from and after the effectiveness of such amendment or the
filing of such abbreviated registration statement) such registration
statement as so amended, together with any such abbreviated registration
statement. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement
at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 43OA(a) of the
Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule
43OA(b) of the Rules and Regulations); provided, however, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of BancAmerica
Robertson Stephens, on behalf of the several Underwriters, the Company shall
have provided to the
3
<PAGE>
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable,
prior to the time that a confirmation is sent or given for purposes of
Section 2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus
subject to completion" (as defined in Rule 434(g) of the Rules and
Regulations) last provided to the Underwriters by the Company and circulated
by the Underwriters to all prospective purchasers of the Shares (including
the information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of
the Shares that differs from the prospectus referred to in the immediately
preceding sentence (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus
from and after the time it is first provided to the Underwriters for such
use. If in reliance on Rule 434 of the Rules and Regulations and with the
consent of BancAmerica Robertson Stephens, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters a term
sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that a
confirmation is sent or given for purposes of Section 2(10)(a) of the Act,
the Prospectus and the term sheet, together, will not be materially different
from the prospectus in the Registration Statement.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or, to the Knowledge of the
Company, instituted proceedings for that purpose, and each such Preliminary
Prospectus has conformed in all material respects to the requirements of the
Act and the Rules and Regulations and, as of its date, has not included any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and at the time the Registration
Statement became or becomes, as the case may be, effective and at all times
subsequent thereto up to and on the Closing Date (as hereinafter defined) and
on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the
4
<PAGE>
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) the Prospectus, and any amendments or
supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subparagraph (b) shall apply to information
contained in or omitted from the Registration Statement or the Prospectus, or
any amendments or supplements thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the
Company by or on behalf of such Underwriter specifically for use in the
preparation thereof.
(c) Each of the Company and its subsidiaries that have
been incorporated has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, and each subsidiary organized as a limited liability company
has been duly organized and is validly existing as a limited liability
company and is in good standing under the laws of the jurisdiction of its
organization with full power and authority (corporate or other) to own, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, except as may be pledged as
security for the $150.0 million credit facility from Bankers Trust Company
(the "BT Credit Facility") or as otherwise disclosed in the Prospectus; each
of the Company and its subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries considered as one enterprise (a "Material Adverse Effect");
no proceeding is pending or to the Knowledge of the Company has been
instituted in any such jurisdiction, revoking, limiting or
5
<PAGE>
curtailing, or seeking to revoke, limit or curtail, such power and authority
or qualification; each of the Company and its subsidiaries is in possession
of and operating in compliance with all authorizations, licenses,
certificates, consents, orders and permits from state, federal and other
regulatory authorities which are material to the conduct of its business or
where failure to possess or operate in compliance therewith would not have a
Material Adverse Effect, all of which are valid and in full force and effect;
neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws in the case of a corporation or certificate of
organization or operating agreement in the case of a limited liability
company, or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound, except such as would not have a Material
Adverse Effect; and neither the Company nor any of its subsidiaries is in
material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge,
except as contemplated by the Prospectus or where any such violation or
default would not have a Material Adverse Effect. The Company does not own or
control, directly or indirectly, any corporation, association or other entity
other than SFI, Hano Document Printers, Inc., United Envelope Co., Inc., Rex
Envelope Co., Inc., Huxley Envelope Corp., Pocono Envelope Corp., Data
Business Forms Limited, and Astrid Offset Corp., SFI of Delaware, LLC, United
Envelope, LLC and 3303471 Canada Limited, and all references in this
Agreement to "subsidiaries" refer to the foregoing entities.
(d) The Company has full corporate right, power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law, including federal
or state securities
6
<PAGE>
laws, or the public policy underlying such laws, and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under, (i) any material
bond, debenture, note or other evidence of indebtedness, or under any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of its subsidiaries or
their respective properties may be bound, (ii) the charter or bylaws of the
Company or any of its subsidiaries in the case of a corporation or the
certificate of organization or operating agreement in the case of a limited
liability company or (iii) any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
any of its subsidiaries or over their respective properties, except as
contemplated by the Prospectus or where any such breach or violation would
not have a Material Adverse Effect. No consent, approval, authorization or
order of or qualification with any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of
its subsidiaries or over their respective properties is required for the
execution and delivery of this Agreement and the consummation by the Company
or any of its subsidiaries of the transactions herein contemplated, except
such as may be required under the Act, the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), applicable Candadian securities laws or
state or other securities or Blue Sky laws or by the National Association of
Securities Dealers, Inc. (the "NASD"), all of which requirements have been
satisfied in all material respects.
(e) There is not any pending or, to the Company's
knowledge, threatened action, suit, claim or proceeding against the Company,
any of its subsidiaries or any of their respective properties, assets or
rights or, to the Company's knowledge, any of their respective officers or
directors before any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over
7
<PAGE>
their respective officers or properties or otherwise which (i) if adversely
determined would have a Material Adverse Effect, (ii) if adversely determined
would reasonably prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or the
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company or any of its subsidiaries of a character
required to be described or referred to in the Registration Statement or the
Prospectus or to be filed as an exhibit to the Registration Statement by the
Act or the Rules and Regulations which have not been accurately described in
all material respects in the Registration Statement or the Prospectus or
filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities (other than
such preemptive rights or other rights to subscribe for or purchase
securities as were fully complied with or expressly waived or with respect to
the violation of which the right to make a claim is barred by the applicable
statute of limitations), and the authorized and outstanding capital stock of
the Company conforms in all material respects as is set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state in all
material respects the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares to be
purchased from the Company hereunder have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company against payment therefor in accordance with the
terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable, and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no preemptive right,
co-sale right, registration right, right of first refusal or other similar
right of stockholders exists with respect to any of the Firm Shares or the
Option Shares to be purchased from the Company hereunder or the issuance and
sale thereof other than those that have been expressly waived prior to the
date hereof and those that will
8
<PAGE>
automatically expire upon and will not apply to the consummation of the
transactions contemplated on the Closing Date. No further approval or
authorization of any stockholder, the Board of Directors of the Company or
others is required for the issuance and sale or transfer of the Shares except
as may be required under the Act, the Exchange Act or state or other
securities or Blue Sky laws or the NASD. All issued and outstanding shares of
capital stock of each subsidiary of the Company which are owned by the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, and were not issued in violation of or subject to any
preemptive right, or other rights to subscribe for or purchase shares (other
than such preemptive rights or other rights to subscribe for or purchase
securities as were fully complied with or expressly waived or with respect to
the violation of which the right to make a claim is barred by the applicable
statute of limitations), and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest,
except as security for the BT Credit Facility or as otherwise disclosed in
the Prospectus. Except as disclosed in the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, neither the Company nor any subsidiary has outstanding any
options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock or any
such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(g) Each of the accounting firms that has examined certain
of the financial statements that are filed with the Commission as a part of
the Registration Statement and are included in the Prospectus, are to the
Company's knowledge, independent accountants within the meaning of the Act
and the Rules and Regulations; the financial statements (including the
related notes) included in the Registration Statement and the Prospectus (and
any amendments or supplements thereto) present fairly, in all material
respects, the financial position, the results of operations and cash flows of
the applicable company at the dates and for the
9
<PAGE>
periods indicated in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated except as may
otherwise be stated therein. The interim financial statements set forth in
the Registration Statement and the Prospectus (and any amendments and
supplements thereto) have been prepared, to the extent such information
relates to the Company, on a basis consistent with the audited financial
statements and reflect all adjustments that are necessary to a fair statement
of the results for the interim periods presented. All pro forma financial
information included in the Prospectus has been prepared, in all material
respects, in accordance with the Commission's rules and guidelines with
respect to pro forma financial information. No financial statements or
schedules, other than the financial statements or schedules that are included
in the Registration Statement, are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and
except as described in the Prospectus, there has not been (i) any material
adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company and its subsidiaries considered as one
enterprise, (ii) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered in the
ordinary course of business, (iii) any obligation, direct or contingent, that
is material to the Company and its subsidiaries that would have a Material
Adverse Effect, except obligations incurred in the ordinary course of
business, (iv) any change in the capital stock or outstanding indebtedness of
the Company or any of its subsidiaries that would have a Material Adverse
Effect, (v) any dividend or distribution of any kind declared, paid or made
on the capital stock of the Company or any of its subsidiaries or (vi) any
loss or damage (whether or not insured) to the property of the Company or any
of its subsidiaries which has been sustained or will have been sustained that
would have a Material Adverse Effect.
(i) Except as set forth in the Registration Statement and
the Prospectus, (i) each of the Company and its subsidiaries has good and
marketable title to all properties and assets described in the Registration
Statement and the Prospectus as owned by it, free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest, other than
such
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as would not have a Material Adverse Effect, (ii) the agreements to which the
Company or any of its subsidiaries is a party described in the Registration
Statement and the Prospectus are valid agreements, to the Company's
knowledge, enforceable by the Company and its subsidiaries (as applicable),
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles,
and, to the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements and (iii) each of the Company and its subsidiaries has, to the
Company's knowledge, valid and enforceable leases for all properties
described in the Registration Statement and the Prospectus as leased by it,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
Except as set forth in the Registration Statement and the Prospectus, the
Company owns or leases all such properties as are necessary to its operations
as now conducted or as proposed to be conducted.
(j) The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown thereon as due, and there is no tax deficiency that
has been or, to the Company's knowledge, might be asserted against the
Company or any of its subsidiaries that might have a Material Adverse Effect;
and all tax liabilities are adequately provided for on the books of the
Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company or any of its subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect; neither the Company nor any such subsidiary, since the date of its
acquisition, has been refused any insurance coverage sought or applied for;
and neither the Company nor any
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subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
(l) To the Company's knowledge, no labor disturbance by
the employees of the Company or any of its subsidiaries exists or is
imminent; and, except as provided in the Prospectus, to the Company's
knowledge, there is no existing or imminent labor disturbance by the
employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers, authorized
dealers or international distributors that would reasonably be expected to
result in a Material Adverse Effect.
(m) Except as described in the Prospectus or as would not
have a Material Adverse Effect, each of the Company and its subsidiaries owns
or possesses adequate rights to use all material patents, patent rights,
inventions, trade secrets, know-how, trademarks, service marks, trade names
and copyrights described or referred to in the Prospectus as owned or used by
it or which are necessary to conduct its businesses as described in the
Registration Statement and the Prospectus; the expiration of any patents,
patent rights, trademarks, service marks, or copyrights would not have a
Material Adverse Effect; neither the Company nor any of its subsidiaries has
received any notice of, or the Company has any knowledge of, any infringement
of or conflict with asserted rights of the Company or any of its subsidiaries
by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights; and
neither the Company nor any of its subsidiaries has received any notice of,
or the Company has any knowledge of, any infringement of or conflict with
valid rights of others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names or copyrights
which, singly or in the aggregate, would or could reasonably be expected to
have a Material Adverse Effect.
(n) The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
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(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future, to conduct its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) the
completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any
Preliminary Prospectuses, the Prospectus, the Registration Statement and
other materials, if any, permitted by the Act.
(q) Neither the Company nor any of its subsidiaries has
since the date of its acquisition, or to the Company's Knowledge, has at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law or (ii) made any payment to any federal or state
governmental officer or official, or other person charged with similar public
or quasi-public duties, other than payments required or permitted by the laws
of the United States or any jurisdiction thereof or by the laws of Canada or
any province or jurisdiction thereof.
(r) The Company has not taken and will not take, directly
or indirectly, any action resulting in a violation of Rule 102 of Regulation
M under the Exchange Act or designed to, or that might reasonably be expected
to, cause or result in, under the Exchange Act or otherwise, stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Shares.
(s) Each officer and director of the Company, and each of
certain other beneficial owners of Common Stock named in Schedule B hereto
have agreed in writing that such person will not, for a period of 180 days
from the date that the Registration Statement is declared effective by the
Commission (the "Lock-up Period"), offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
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(collectively, a "Disposition") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, the
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of
disposition, other than (i) as a bona fide gift or gifts, provided the donee
or donees thereof agree in writing to be bound by this restriction, (ii) the
exercise of stock options or (iii) with the prior written consent of
BancAmerica Robertson Stephens. The persons listed on Schedule B hereto agree
that the foregoing restriction precludes the holder of the Securities from
engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than such holder. Such prohibited hedging or other transactions
would include, without limitation, any short sale (whether or not against the
box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index)
that includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person has also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
certain of its officers and directors and certain of its stockholders have
agreed to such or similar restrictions (the "Lock-up Agreements") presently
in effect or effected hereby. The Company hereby represents and warrants that
it will not release any of its officers or directors or other stockholders
from any Lock-up Agreements currently existing or hereafter effected without
the prior written consent of BancAmerica Robertson Stephens.
(t) Except as set forth in the Registration Statement and
the Prospectus, (i) the Company and its subsidiaries are in compliance in
material respects with all material rules, laws and regulations relating to
the use, treatment, storage and disposal of toxic substances and protection
of health or the environment ("Environmental Laws") which are applicable to
their businesses, except where such noncompliance would not have a
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Material Adverse Effect, (ii) neither the Company nor any of its subsidiaries
has received notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim would have a Material
Adverse Effect or is required to be disclosed in the Registration Statement
and the Prospectus, (iii)to the Knowledge of the Company, neither the Company
nor any of its subsidiaries will be required to make during the foreseeable
future material capital expenditures to comply with Environmental Laws as
currently in effect and (iv) no property which is owned, leased or occupied
by the Company or any of its subsidiaries has been designated as a Superfund
site pursuant to the Comprehensive Response, Compensation and Liability Act
of 1980, as amended (42 U.S.C. section 9601, et seq.), or otherwise designated
as a contaminated site under applicable state or local law.
(u) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) material transactions are executed in accordance with
management's general or specific authorizations, (ii) material transactions
are recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them required to be disclosed in the Registration Statement and
Prospectus, except as disclosed in the Registration Statement and the
Prospectus.
(w) The Company has entered into the Distribution
Agreement, the Tax Allocation Agreement, the Employee Benefits Agreement, and
the Tax Indemnification Agreement (all as defined in the Registration
Statement and the Prospectus), and such agreements constitute valid and
binding agreements of the Company, enforceable in accordance with their
terms, except as rights to indemnification
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<PAGE>
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles. The descriptions of such
agreements contained in the Prospectus accurately summarize the material
terms of such agreements.
3. Purchase Sale and Delivery of Shares. On the basis of the representations,
warranties and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to sell to the Underwriters,
and each of the Underwriters agrees, acting severally and not jointly, to
purchase from the Company at a purchase price of $______ per share, the Firm
Shares. The obligation of each of the Underwriters to the Company shall be to
purchase from the Company that number of Firm Shares which is set forth
opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the several Underwriters by
wire transfer of immediately available funds to the Company. Such delivery
and payment shall take place at the Washington, D.C. office of Wilmer, Cutler
& Pickering (or at such other place as may be agreed upon among the
Representatives, the Company and the Attorneys), at 9:00 A.M. (EDST time) on
the fourth (4th) full business day following the date of this Agreement or at
such other time and date not later than seven (7) full business days
following the first day that Shares are traded as the Representatives, the
Company and the Attorneys may determine (or at such time and date to which
payment and delivery shall have been postponed pursuant to Section 10
hereof), such time and date of payment and delivery being herein called the
"Closing Date"; provided, however, that if the Company has not made available
to the Representatives copies of the Prospectus within the time provided in
Section 4(d) hereof, the Representatives may, in their sole discretion,
postpone the Closing Date until no later than two (2) full business days
following delivery of copies of the Prospectus to the Representatives. The
certificates for the Firm Shares to be so delivered will be made available to
you at such office or such other location, including, without limitation, in
New York City, as you may reasonably request for checking at least
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<PAGE>
one (1) full business day prior to the Closing Date and will be in such names
and denominations as you may request, such request to be made at least two
(2) full business days prior to the Closing Date. If the Representatives so
elect, delivery of the Firm Shares may be made by credit through full fast
transfer to the accounts at The Depository Trust Company designated by the
Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the Closing Date for the Firm Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such
Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $_____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front cover
page, the two bold legends on the bottom of the inside front cover and under
the caption "Underwriting" (insofar as such information relates to the
Underwriters) in any Preliminary Prospectus and in the Prospectus constitutes
the only information furnished by the Underwriters to the Company for
inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and
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delivered by the parties hereto, to become effective as promptly as possible;
the Company will use its best efforts to cause any abbreviated registration
statement pursuant to Rule 462(b) of the Rules and Regulations as may be
required subsequent to the date the Registration Statement is declared
effective to become effective as promptly as possible; the Company will
notify you, promptly after it shall receive notice thereof, of the time when
the Registration Statement, any subsequent amendment to the Registration
Statement or any abbreviated registration statement has become effective or
any supplement to the Prospectus has been filed; if the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 43OA(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective
which is declared effective by the Commission; if the Company files a term
sheet pursuant to Rule 434 of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus and the term sheet
meeting the requirements of Rule 434(b) or (c), as applicable, of the Rules
and Regulations, have been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of the Prospectus
is required under Rule 424(b)(3) of the Rules and Regulations, it will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed with the Commission within the time period
prescribed; it will notify you promptly of any request by the Commission for
the amending or supplementing of the Registration Statement or the Prospectus
or for additional information; promptly upon your request, it will prepare
and file with the Commission any amendments or supplements to the
Registration Statement or the Prospectus which, in the reasonable opinion of
Winston & Strawn, counsel for the several Underwriters ("Underwriters'
Counsel"), may be necessary or advisable in connection with the distribution
of the Shares by the Underwriters; it will promptly prepare and file with the
Commission, and promptly notify you of the filing of, any amendments or
supplements to the Registration Statement or the Prospectus which may be
necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares
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<PAGE>
is required to be delivered under the Act, any event shall have occurred as a
result of which the Prospectus or any other Prospectus relating to the Shares
as then in effect would include any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or
more after the effective date of the Registration Statement in connection
with the sale of the Shares, it will prepare promptly upon request, but at
the expense of such Underwriter, such amendment or amendments to the
Registration Statement and such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section 10(a)(3) of
the Act; and it will file no amendment or supplement to the Registration
Statement or the Prospectus which shall not previously have been submitted to
you a reasonable time prior to the proposed filing thereof or to which you
shall reasonably object in writing, subject, however, to compliance with the
Act and the Rules and Regulations, the Exchange Act and the rules and
regulations of the Commission thereunder and the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceeding for that purpose; and it will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such stop order
should be issued.
(c) The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
reasonably designate and to continue such qualifications in effect for so
long as may be required for purposes of the distribution of the Shares,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation or to execute a general
consent to service of process in any jurisdiction in which it is not
otherwise required to be so qualified or to so execute a general consent to
service of process or to take any action which would subject it to taxation
in such state or jurisdiction solely on account of registration of the
Shares. In each jurisdiction in which the Shares shall have been qualified as
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above provided, the Company will make and file such statements and reports in
each year as are or may be required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available,
and, in the case of the Prospectus and any term sheet or abbreviated term
sheet under Rule 434, in no event later than the first (1st) full business
day following the first (1st) day that Shares are traded, copies of the
Registration Statement (three of which will be signed and which will include
all exhibits), each Preliminary Prospectus, the Prospectus and any amendments
or supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you
may from time to time reasonably request. Notwithstanding the foregoing, if
BancAmerica Robertson Stephens, on behalf of the several Underwriters, shall
agree to the utilization of Rule 434 of the Rules and Regulations, the
Company shall provide to you copies of a Preliminary Prospectus updated in
all respects through the date specified by you in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
45th day following the end of the fiscal quarter first occurring after the
first anniversary of the effective date of the Registration Statement, an
earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its stockholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and such
unaudited quarterly reports of operations for each of the first three
quarters of the fiscal year as may be required by applicable law or the rules
of NASDAQ/NMS to be sent to stockholders, and will furnish to you and the
other several Underwriters hereunder, upon request (i) concurrently with
furnishing such reports to its stockholders, statements of operations of the
Company for each of the first three (3) quarters in the form furnished to the
Company's stockholders,
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(ii) concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are
available, copies of all reports (financial or other) mailed to stockholders,
(iv) as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, any securities exchange
or the NASD, (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released
to stockholders or prepared by the Company or any of its subsidiaries and
(vi) any additional material information of a public nature concerning the
Company or any of its subsidiaries or their businesses which you may
reasonably request. During such five (5) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated or combined basis to the extent that the accounts of the Company
and its subsidiaries are consolidated or combined and shall be accompanied by
similar financial statements for any significant subsidiary which is not so
consolidated or combined.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will use its best efforts to comply with
all criteria to have its Common Stock listed on the NASDAQ National Market or
any other national securities exchange on which the Common Stock is then
listed.
(j) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on their respective parts to be performed
hereunder or to fulfill any condition of the Underwriters' obligations
hereunder, or if the Company shall terminate this Agreement pursuant to
Section 11(a) hereof, or if
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the Underwriters shall terminate this Agreement pursuant to Section 11(b)(i),
the Company shall reimburse the several Underwriters for all reasonable
out-of-pocket expenses (including reasonable fees and disbursements of
Underwriters' Counsel) incurred by the Underwriters in investigating or
preparing to market or marketing the Shares.
(k) If at any time during the 90-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially adversely affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning the
substance of and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(l) Except as disclosed in the Prospectus and the
financial statements of the Company, and the related notes thereto, included
in the Prospectus, during the Lock-up Period, the Company will not, without
the prior written consent of BancAmerica Robertson Stephens, effect the
Disposition of, directly or indirectly, any Securities other than (i) the
sale of Firm Shares and Option Shares,(ii) the Company's granting of options
with respect to, and the issuance and registration of shares of Common Stock
by the Company in an amount equal to 30% of the issued and outstanding common
stock of the Company following the Workflow Distribution (as hereafter
defined), without regard to this Offering in connection with, the Stock
Option Plan, (iii) the distribution of its Securities to stockholders of U.S.
Office Products Company pursuant to the Registration Statement on Form S-1
(File No. 333-46535) (the "Workflow Distribution"), (iv) the issuance of
securities in connection with acquisitions.
(m) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
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5. Expenses.
(a) The Company agrees with each of the Underwriters that:
(i) The Company will pay and bear all costs and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus, and any amendments or
supplements thereto; the printing of this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Preliminary Blue Sky Survey
and any Supplemental Blue Sky Survey, the Underwriters' Questionnaire and
Power of Attorney, other than the fees and expenses of Underwriters counsel
and any instruments related to any of the foregoing; the issuance and
delivery of the Shares hereunder to the several Underwriters, including
transfer taxes, if any, the cost of all certificates representing the Shares
and transfer agent's and registrar's fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of furnishing to the
several Underwriters copies of the Registration Statement (including
appropriate exhibits), Preliminary Prospectus and the Prospectus, and any
amendments or supplements to any of the foregoing; NASD filing fees and the
cost of qualifying the Shares under the laws of such jurisdictions as you may
designate (including filing fees and fees and disbursements of Underwriters'
Counsel in connection with such NASD filings and Blue Sky qualifications);
and all other expenses directly incurred by the Company in connection with
the performance of its obligations hereunder;
(ii) In addition to its other obligations under Section
8(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Company's obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the
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extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the
prime rate (or other commercial lending rate for borrowers of the highest
credit standing) listed from time to time in The Wall Street Journal which
represents the base rate on corporate loans posted by a substantial majority
of the nation's 30 largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within 30 days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request; and
(b) In addition to their other obligations under Section
8(b) hereof, the Underwriters, acting severally and not jointly, agree that,
as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding described in Section 8(b) hereof,
they will reimburse the Company on a monthly basis for all reasonable legal
or other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Underwriters' obligation to reimburse the Company
for such expenses and the possibility that such payments might later be held
to have been improper by a court of competent jurisdiction. To the extent
that any such interim reimbursement payment is so held to have been improper,
the Company shall promptly return such payment to the Underwriters together
with interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to the Company
within 30 days of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis
on which such amounts shall be apportioned among the reimbursing parties,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD.
Any such arbitration must be commenced by service of a written
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demand for arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(d) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case
may be, of the representations and warranties of the Company herein, to the
performance by the Company of their respective obligations hereunder and to
the following additional conditions:
(a) The Registration Statement shall have become effective
not later than 2:00 P.M., San Francisco time, on the date following the date
of this Agreement, or such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the reasonable satisfaction of Underwriters'
Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of the Registration Statement and
the Prospectus, and the registration, authorization, issue, sale and delivery
of the Shares, shall have been reasonably satisfactory to Underwriters'
Counsel, and such counsel shall have been furnished with such papers and
information as they may reasonably have requested to enable them to pass upon
the matters referred to in this Section 6.
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(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date, or any later date on which Option
Shares are to be purchased, as the case may be, there shall not have been any
change in the condition (financial or otherwise), earnings, operations or
business of the Company and its subsidiaries considered as one enterprise
from that set forth in the Registration Statement or the Prospectus, which,
in your reasonable judgment, is material and adverse and that makes it, in
your reasonable judgment, impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus.
(d) (i) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may
be, the following opinion of counsel for the Company as to the Company and
all United States subsidiaries, Wilmer, Cutler & Pickering, and of Canadian
counsel as to opinions (A), (B), (C), (D), (E), (G), (O), (P), (Q), (R)
below, for all Canadian subsidiaries, each dated the Closing Date or such
later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for
each of the Underwriters, to the effect that:
(A) Each of the Company and its subsidiaries organized
as a corporation has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation;
(B) Each subsidiary organized as a limited liability
company has been duly organized and is in good standing under the
laws of its jurisdiction of organization;
(C) Each of the Company and its subsidiaries organized
as a corporation has the corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus;
(D) Each subsidiary organized as a limited liability
companion has the power and authority to own, lease and operate its
properties and to conduct its business as now conducted as described
in the Prospectus;
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(E) Each of the Company and its subsidiaries is duly
qualified to do business as a foreign corporation and is in good
standing in each state specified on Schedule C hereto. To such
counsel's knowledge, the Company does not own or control, directly or
indirectly, any corporation, association or other entity other than
the subsidiaries;
(F) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the
caption "Capitalization" as of the dates stated therein, the issued
and outstanding shares of capital stock of the Company have been duly
and validly issued and are fully paid and nonassessable, and, to such
counsel's knowledge, will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right (other than such
preemptive rights or other rights to subscribe for or purchase
securities as were fully complied with or expressly waived or with
respect to the violation of which the right to make a claim is barred
by the applicable statute of limitations);
(G) All issued and outstanding shares of capital stock
of each subsidiary of the Company organized as a corporation have been
duly authorized and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, have not been issued
in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right
and are owned by the Company free and, except pursuant to the BT
Credit Facility or as described in the Prospectus clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest
(other than such preemptive rights or other rights to subscribe for or
purchase securities as were fully complied with or expressly waived or
with respect to the violation of which the right to make a claim is
barred by the applicable statute of limitations);
(H) The Firm Shares or the Option Shares, as the case
may be, to be issued by the Company pursuant to the terms of this
Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will
be duly and validly issued and fully paid and nonassessable, and,
to such counsel's
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Knowledge, will not have been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first
refusal or other similar right (other than such preemptive rights or
other rights to subscribe for or purchase securities as were fully
complied with or expressly waived or with respect to the violation of
which the right to make a claim is barred by the applicable statute of
limitations);
(I) The Company has the corporate power and authority
to enter this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(J) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been
duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and binding
agreement of the Company, enforceable in accordance with its
terms, except insofar as indemnification provisions may be limited by
applicable law or public policy, and except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally or
by general equitable principles;
(K) The Commission has advised the Company that the
Registration Statement has become effective under the Act and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are currently pending or overtly
threatened under the Act;
(L) The information in the Prospectus under the
captions "Description of Capital Stock", "Risk Factors Potential
Liability for Taxes Related to the Distributions", "Risk
Factors - Possible Limitations on Issuances of Common Stock", and "The
Spin-Offs from U.S. Office Products", to the extent that it constitutes
matters of law or legal conclusions, has been reviewed by such counsel
and is a fair summary of such matters and conclusions in all material
respects; and the form of certificates evidencing the Common
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Stock and filed as exhibits to the Registration Statement
comply with Delaware law;
(M) The descriptions in the Registration Statement and
the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required
to be presented by the Act and the applicable Rules and Regulations;
the descriptions of the Distribution Agreement, the Tax Allocation
Agreement, the Employee Benefits Agreement, and the Tax
Indemnification Agreement in the Registration Statement and the
Prospectus accurately summarize in all material respects the material
terms of such agreements;
(N) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company
is a party of a character required to be described or referred to in
the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or
referred to therein or filed as required;
(O) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification and contribution
obligations hereunder, concerning which no opinion need be expressed)
will not (a) result in any violation of the Company's charter or bylaws
or (b) to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a
default under, any material bond, debenture, note or other evidence of
indebtedness, or any material lease, contract, indenture, mortgage,
deed of trust, loan agreement, joint venture or other agreement or
instrument known to such counsel to which the Company is a party or by
which its properties are bound, (c) any applicable statute, rule or
regulation known to such counsel or, (d) to such counsel's knowledge,
any order, writ or decree of any court, government or governmental
agency or body having jurisdiction over the Company or any of its
subsidiaries or over any of their properties or operations; provided,
however, that no opinion need be rendered concerning state securities
laws, Canadian securities laws, Blue Sky laws or the rules and
regulations of NASD;
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(P) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries
or over any of their properties or operations is necessary in
connection with the consummation by the Company of the transactions
herein contemplated, except such as have been obtained under the Act
or the Exchange Act or such as may be required under state or other
securities or Blue Sky laws or the NASD in connection with the purchase
and the distribution of the Shares by the Underwriters;
(Q) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or
any of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations or by the Exchange Act or the applicable rules and
regulations of the Commission thereunder, other than those described
therein;
(R) To such counsel's knowledge, neither the Company
nor any of its subsidiaries is presently (a) in material violation of
its respective charter or bylaws in the case of corporations or
certificate of organization or operating agreement in the case of
limited liability companies or (b) in material breach of any
applicable statute, rule or regulation known to such counsel or, to
such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or
any of its subsidiaries or over any of their properties or operations,
except in the case of clause (b) for such breach which individually or
in the aggregate would not have a Material Adverse Effect;
(S) To such counsel's knowledge, except as described
in the Prospectus, no holders of shares of Common Stock or other
securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the
Registration Statement and the Prospectus, all holders of securities of
the Company having rights known to such counsel to registration of such
shares of Common Stock or other securities, because of the filing of
the Registration Statement by the Company have, with respect to the
offering
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contemplated thereby, waived such rights or such rights have expired by
reason of lapse of time following notification of the Company's intent
to file the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights; and
(T) For U.S. federal income tax purposes, the Workflow
Distribution (as defined in the Registration Statement and Prospectus)
will qualify as a tax-free spin-off under Section 355 of the Internal
Revenue Code (the "Code") and will be taxable under Section 355(e) of
the Code.
In addition to their opinions set forth above, Wilmer, Cutler &
Pickering shall include in its opinion the following statements. Because the
primary purpose of its engagement was not to establish factual matters and
because of the wholly or partially nonlegal character of many determinations
involved in the preparation of the Registration Statement and the Prospectus,
it is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus (except to the extent expressly set
forth above) and makes no representation that it has independently checked,
investigated or verified the accuracy, completeness or fairness of such
statements (except as aforesaid). However, it met with and participated in
conferences with representatives of the Company, representatives of the
Underwriters, Underwriters' Counsel and representatives of the independent
accountants for the Company, during which the contents of the Registration
Statement and the Prospectus and related matters were discussed. Based on its
participation in the above-mentioned conferences, its review of the documents
described above, and relying as to materiality upon the opinions and
statements of officers of the Company, it advises the Underwriters that
nothing has come to its attention that causes it to believe that the
Registration Statement (other than the financial statements and notes thereto
and supporting schedules and other financial and statistical data derived
therefrom, set forth therein or omitted therefrom, as to which no advice is
given), at the time it was declared effective by the Commission, contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus (other than the financial
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statements and notes thereto and supporting schedules and other financial and
statistical data derived therefrom, set forth therein or omitted therefrom,
as to which no advice is given), as of the date of the Prospectus, included
an untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States of America or the State of
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, and of government
officials, in which case their opinion is to state that they are so relying
and that they have no knowledge of any material misstatement or inaccuracy in
any such opinion, representation or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Winston & Strawn, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby
as you may reasonably require, and the Company shall have furnished to such
counsel such documents as they may have requested for the purpose of enabling
them to pass upon such matters.
(f) (i) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may
be, a letter from Price Waterhouse LLP addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, confirming that they are
independent certified public accountants with respect to the Company within
the meaning of the Act and the applicable published Rules and Regulations and
based upon the procedures described in such letter delivered to you
concurrently with the execution of this Agreement (hereinafter called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are
to be purchased, as the case may
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be, (i) confirming, to the extent true, that the statements and conclusions
set forth in the Original Letter are accurate as of the Closing Date or such
later date on which Option Shares are to be purchased, as the case may be,
and (ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in
the condition (financial or otherwise), earnings, operations or business of
the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or the Prospectus, which, in your
reasonable judgment, is material and adverse and that makes it, in your
reasonable judgment, impracticable or inadvisable to proceed with the public
offering of the Shares as contemplated by the Prospectus. The Original Letter
from Price Waterhouse LLP shall be addressed to or for the use of the
Underwriters in form and substance satisfactory to the Underwriters and shall
(i) represent, to the extent true, that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable published Rules and Regulations, (ii) set forth their opinion with
respect to their examination of the consolidated balance sheet of the Company
as of April 30, 1996, and April 26, 1997 and the related consolidated
statements of income, stockholders' equity and cash flows for the fiscal year
ended December 31, 1995, the four months ended April 30, 1996, and the fiscal
year ended April 26, 1997, (iii) state that Price Waterhouse LLP has
performed the procedures set forth in Statement on Auditing Standards No. 71
("SAS 71") for a review of interim financial information and provide the
report of Price Waterhouse LLP described in SAS 71 on the financial
statements for the nine month period ended January 24, 1998 (the "Nine Month
Period Financial Statements"), (iv) state that in the course of such review,
nothing came to their attention that leads them to believe that any material
modifications need to be made to any of the Nine Month Period Financial
Statements in order for them to be in compliance with generally accepted
accounting principles consistently applied across the period presented and
(v) address other matters agreed upon by Price Waterhouse LLP and you.
(ii) You shall have received on the date hereof a letter
from each of the accounting firms that has examined
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certain of the financial statements that are filed with the Commission as a
part of the Registration Statement and are included in the Prospectus
addressed to the Company and the Underwriters, dated the date hereof,
confirming that (i) they are independent certified public accountants with
respect to the applicable subsidiary of the Company within the meaning of the
Act and the applicable published Rules and Regulations and (ii) the financial
statements audited by such independent certified public accountants and
included in the Registration Statement and the Prospectus comply as to form
in all material respects with the applicable accounting requirements of the
Act and the applicable published Rules and Regulations.
(g) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, a
certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be satisfied that:
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied with all
the agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later
date on which Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and, to the Knowledge of the
Company, no proceedings for that purpose have been instituted or are
pending or threatened under the Act;
(iii) When the Registration Statement became effective
and at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained all material information
required to be included therein by the Act and the Rules
34
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and Regulations and in all material respects conformed to
the requirements of the Act and the Rules and
Regulations, the Registration Statement, and any
amendment or supplement thereto, did not and does not
include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading,
the Prospectus, and any amendment or supplement thereto,
did not and does not include any untrue statement of a
material fact or omit to state a material fact necessary
to make the statements therein, in the light of the
circumstances under which they were made, not misleading,
and, since the effective date of the Registration
Statement, there has occurred no event required to be set
forth in an amended or supplemented Prospectus which has
not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus and except as described in the Prospectus, there has
not been (a) any material adverse change in the condition (financial
or otherwise), earnings, operations or business of the Company and its
subsidiaries considered as one enterprise, (b) any transaction that
is material to the Company and its subsidiaries considered as one
enterprise, except transactions entered in the ordinary course of
business, (c) any obligation, direct or contingent, that is material
to the Company and its subsidiaries that would have a Material
Adverse Effect, except obligations incurred in the ordinary course of
business, (d) any change in the capital stock or outstanding
indebtedness of the Company or any of its subsidiaries, (e) any
dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries or (f) any
loss or damage (whether or not insured) to the property of the
Company or any of its subsidiaries which has been sustained or will
have been sustained which has a Material Adverse Effect.
(h) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company, and each of other
certain beneficial owners of Securities named in
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Schedule B hereto in writing prior to the date hereof that such person will
not, during the Lock-up Period, effect the Disposition of any Securities now
owned or hereafter acquired directly by such person or with respect to which
such person has or hereafter acquires the power of disposition, other than
(i) as a bona fide gift or gifts, provided the donee or donees thereof agree
in writing to be bound by this restriction, (ii) the exercise of stock
options or (iii) with the prior written consent of BancAmerica Robertson
Stephens. The foregoing restriction shall have been expressly agreed to
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result
in a Disposition of Securities during the Lock-up Period, even if such
Securities would be disposed of by someone other than the such holder. Such
prohibited hedging or other transactions would include, without limitation,
any short sale (whether or not against the box) or any purchase, sale or
grant of any right (including, without limitation, any put or call option)
with respect to any Securities or with respect to any security (other than a
broad-based market basket or index) that includes, relates to or derives any
significant part of its value from Securities. Furthermore, such person will
have also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held
by such person except in compliance with this restriction.
(i) You shall have received from U.S. Office Products
Company ("USOP") a certificate to the effect that the self-tender offer by
USOP to its shareholders has been completed and certifying the number of
shares of USOP common stock purchased pursuant to the tender offer and the
number of shares of USOP common stock issued and outstanding immediately
after the completion of the tender offer transaction.
(j) The Company shall have furnished to you such further
certificates and documents as you shall reasonably request (including
certificates of officers of the Company) as to the accuracy of the
representations and warranties of the Company herein, as to the performance
by the Company of their respective obligations hereunder and as to the other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
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All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company will furnish you with such
number of conformed copies of such opinions, certificates, letters and
documents as you shall reasonably request.
7. Option Shares.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company hereby grants to the several Underwriters, for the purpose of
covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase up to 375,000 Company
Option Shares at the purchase price per share for the Firm Shares set forth
in Section 3 hereof. Such option may be exercised by the Representatives on
behalf of the several Underwriters on one (1) or more occasions in whole or
in part during the period of 30 days after the date on which the Firm Shares
are initially offered to the public, by giving written notice to the Company.
The number of Option Shares to be purchased by each Underwriter upon the
exercise of such option shall be the same proportion of the total number of
Option Shares to be purchased by the several Underwriters pursuant to the
exercise of such option as the number of Firm Shares purchased by such
Underwriter (set forth in Schedule A hereto) bears to the total number of
Firm Shares purchased by the several Underwriters (set forth in Schedule A
hereto), adjusted by the Representatives in such manner as to avoid
fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of immediately
available funds to the Company with regard to the Option Shares. Such
delivery and payment shall take place at the Washington, D.C. office of
Wilmer, Cutler & Pickering (or at such other place as may be agreed upon
among the Representatives and the Company) (i) on the Closing Date, if
written notice of the exercise of such option is received by the Company at
least two (2) full business days prior to the Closing Date or (ii) on a later
date which shall not be later than the third (3rd) full business day
following the date the Company
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receives written notice of the exercise of such option, if such notice is
received by the Company less than two (2) full business days prior to the
Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location, including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at
The Depository Trust Company designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior
to the date of payment and delivery for the Option Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve
any such Underwriter or Underwriters of any of its or their obligations
hereunder.
Upon exercise of any option provided for in Section 7(a) hereof, the
obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery
for such Option Shares) to the accuracy of and compliance with the
representations, warranties and agreements of the Company herein, to the
accuracy of the statements of the Company and officers of the Company made
pursuant to the provisions hereof, to the performance by the Company of its
obligations hereunder, to the conditions set forth in Section 6 hereof, and
to the condition that all proceedings taken at or prior to the payment date
in connection with the sale and transfer of such Option Shares shall be
reasonably satisfactory in form and substance to you and to Underwriters'
Counsel, and you shall have been furnished with all such documents,
certificates and opinions as you may reasonably request in order to evidence
the accuracy and completeness of any of the representations, warranties or
statements, the performance of any of the covenants or
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agreements of the Company or the satisfaction of any of the conditions herein
contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" pursuant to Rule 2720 of the NASD Conduct Rules), under the Act,
the Exchange Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of the Company herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and agrees to reimburse each Underwriter for any legal
or other expenses reasonably incurred by it in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement thereto, in
reliance upon, and in conformity with, written information relating to any
Underwriter furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof and, provided further,
that the indemnity agreement provided in this Section 8(a) with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any losses, claims, damages, liabilities or
actions based upon any
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untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy
of the Preliminary Prospectus or Prospectus in which such untrue statement or
alleged untrue statement or omission or alleged omission was corrected had
not been sent or given to such person within the time required by the Act and
the Rules and Regulations, unless such failure is the result of noncompliance
by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act or the
Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company against any losses, claims, damages
or liabilities, joint or several, to which the Company may become subject
under the Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by such Underwriter, directly or
through you, specifically for use in the preparation thereof, and agrees to
reimburse the Company for any legal or other expenses reasonably incurred by
the Company in
40
<PAGE>
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
of the Company who signed the Registration Statement and each director of the
Company, and each person, if any, who controls the Company within the meaning
of the Act or the Exchange Act. This indemnity agreement shall be in addition
to any liabilities which each Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have
to any indemnified party otherwise than under this Section 8. In case any
such action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving
the aforesaid notice from such indemnified party, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal defenses
and to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, which approval will not be unreasonably withheld, the indemnifying
party will not be liable to such indemnified party under this Section 8 for
any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof unless (i) the indemnified
41
<PAGE>
party shall have employed separate counsel in accordance with the proviso to
the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section
8(a) or 8(b) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall any indemnifying party
be liable in respect of any amounts paid in settlement of any action unless
the indemnifying party shall have approved the terms of such settlement;
provided that such consent shall not be unreasonably withheld. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnification could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the
subject matter of such proceeding.
(d) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the
fact that this Section 8 provides for indemnification in such case, all the
parties hereto shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject in such proportion so that the
Underwriters, acting severally and not jointly, are responsible pro rata for
the portion represented by the percentage that the underwriting discount
bears to the initial public offering price, and the Company is responsible
for the remaining portion, provided, however, that (i) no Underwriter shall
be required to contribute any amount in excess of the amount by which the
underwriting discount applicable to the Shares purchased by such Underwriter
exceeds the amount of damages which such Underwriter has otherwise
42
<PAGE>
required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls any Underwriter or the Company within
the meaning of the Act or the Exchange Act and each officer of the Company
who signed the Registration Statement and each director of the Company. This
subparagraph (d) shall not be operative as to any Underwriter to the extent
that the Company or each person who controls the Company and each officer of
the Company who signed the Registration Statement and each director of the
Company has received indemnity under this Section 8.
(e) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel
during the negotiations regarding the provisions hereof, including, without
limitation, the provisions of this Section 8, and are fully informed
regarding said provisions. They further acknowledge that the provisions of
this Section 8 fairly allocate the risks in light of the ability of the
parties to investigate the Company and its business in order to assure that
adequate disclosure is made in the Registration Statement and the Prospectus
as required by the Act and the Exchange Act. The parties hereto are hereby
advised that federal or state public policy, as interpreted by courts in
certain jurisdictions, may be contrary to certain of the provisions of this
Section 8, and the parties hereto hereby expressly waive and relinquish any
right or ability to assert such public policy as a defense to a claim under
this Section 8 and hereby further agree not to attempt to assert any such
defense.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Section 8
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter within the meaning of the Act or the Exchange
Act, or by or on behalf of the Company, or any of its officers, directors or
controlling persons within the meaning of
43
<PAGE>
the Act or the Exchange Act, and shall survive the delivery of the Shares to
the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such
Firm Shares in accordance with the terms hereof, and if the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters so agreed
but failed to purchase does not exceed 10% of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to take up and pay for exceeds 10% of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them)
the Firm Shares which the defaulting Underwriter or Underwriters so agreed
but failed to purchase. If such remaining Underwriters do not, at the Closing
Date, take up and pay for the Firm Shares which the defaulting Underwriter or
Underwriters so agreed but failed to purchase, the Closing Date shall be
postponed for 24 hours to allow the several Underwriters the privilege of
substituting within 24 hours (including non-business hours) another
underwriter or underwriters (which may include any nondefaulting Underwriter)
reasonably satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed
Closing Date, the Closing Date may, at the option of the Company, be
postponed for a further 24 hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, reasonably
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven
(7) full business days, in order to effect whatever changes may thereby be
made necessary in the Registration Statement or the
44
<PAGE>
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement, supplements to
the Prospectus or other such documents which may thereby be made necessary,
and (ii) the respective number of Firm Shares to be purchased by the
remaining Underwriters and substituted underwriter or underwriters shall be
taken as the basis of their underwriting obligation. If the remaining
Underwriters shall not take up and pay for all such Firm Shares so agreed to
be purchased by the defaulting Underwriter or Underwriters or substitute
another underwriter or underwriters as aforesaid and the Company shall not
find or shall not elect to seek another underwriter or underwriters for such
Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, the Company shall not be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, other than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which
Underwriter shall remain liable to the Company and the other Underwriters for
damages, if any, resulting from such default) be liable to the Company
(except to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day
following the effective date of the Registration Statement, or (ii) the time
of the initial public offering of any of the Shares by the Underwriters after
the Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 hereof before the time this
Agreement becomes effective, you, as
45
<PAGE>
Representatives of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(j) (to the extent Section 4(j) by its
terms applies), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time on or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the
case may be, (i) if the Company shall have failed, refused or been unable to
perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled
is not fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations or business of the Company and
its subsidiaries considered as one enterprise from that set forth in the
Registration Statement or the Prospectus, which, in your reasonable judgment,
is material and adverse, (ii) if additional material governmental
restrictions, not in force and effect on the date hereof, shall have been
imposed upon trading in securities generally or minimum or maximum prices
shall have been generally established on the New York Stock Exchange or on
the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, (iv)
if there shall have been a material adverse change in the general political
or economic conditions or financial markets as in your reasonable judgment
makes it inadvisable or impracticable to proceed with the offering, sale and
delivery of the Shares or (v) if there shall have been an outbreak or
escalation of hostilities or of any other insurrection or armed conflict or
the declaration by the United States of America of a national emergency
which, in the reasonable opinion of the Representatives, makes it
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In the event of termination
pursuant to subparagraph (i) above, the Company shall remain obligated to pay
costs and
46
<PAGE>
expenses pursuant to Sections 4(j), 5 and 8 hereof. Any termination pursuant
to any of subparagraphs (ii) through (v) above shall be without liability of
any party to any other party except as provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to
you shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to you c/o BancAmerica Robertson
Stephens, 555 California Street, Suite 2600, San Francisco, California 94104,
telecopier number (415) 781-0278, Attention: General Counsel; if sent to the
Company, such notice shall be mailed, delivered, telegraphed (and confirmed
by letter) or telecopied (and confirmed by letter) to Workflow Management,
Inc., 240 Royal Palm Way, Palm Beach Florida 33420, Attention: Chief
Executive Officer, with a copy to George P. Stamas, Esq., Wilmer, Cutler &
Pickering, 2445 M Street, N.W., Washington, D.C. 20037, telecopier number
(202) 663-6363, and Gus J. James, II, Esq., Kaufman & Canoles, One Commercial
Place, Norfolk, Virginia 23514, telecopier number (757) 624-3169.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective
executors, administrators, successors and assigns, and the controlling
persons within the meaning of the Act or the Exchange Act, officers and
directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons
47
<PAGE>
and said officers and directors, and for the benefit of no other person or
entity. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be
entitled to act and rely upon any statement, request, notice or agreement
made or given by you jointly or by BancAmerica Robertson Stephens on behalf
of you.
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York.
15. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
[signature page follows]
48
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement among the Company and the several Underwriters.
Very truly yours,
WORKFLOW MANAGEMENT, INC.
By:
----------------------------
Thomas B. D'Agostino
Chairman of the Board
and Chief Executive Officer
Accepted as of the date
first above written:
BANCAMERICA ROBERTSON STEPHENS
MORGAN STANLEY DEAN WITTER
SANDS BROTHERS & CO., INC.
On their behalf and on behalf of each
of the several Underwriters named in
Schedule A hereto:
By BANCAMERICA ROBERTSON STEPHENS
By:
----------------------------
Authorized Signatory
49
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- ------------ -------------
<S> <C>
BancAmerica Robertson Stephens ...............
Morgan Stanley Dean Witter ...................
Sands Brothers & Co., Inc. ...................
Total ........................................
</TABLE>
<PAGE>
SCHEDULE B
Name
- -------
Thomas B. D'Agostino
Michael B. Feldman
Thomas A. Brown, Sr.
Gus J. James II
Timothy L. Tabor
Steven R. Gibson
Claudia S. Amlie
F. Craig Wilson
<PAGE>
SCHEDULE C
<PAGE>
EXHIBIT 5
WILMER, CUTLER & PICKERING
2445 M Street, N.W.
Washington, D.C. 20037-1420
Telephone (202) 663-6000
Facsimile (202) 663-6363
June 9, 1998
Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
Gentlemen:
As special counsel for Workflow Management, Inc., a Delaware corporation
(the "Company"), we are familiar with the Company's Registration Statement on
Form S-1, first filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act"), on March
6, 1998, as amended by Amendment No. 1 to the Registration Statement filed with
the Commission on May 1, 1998, Amendment No. 2 to the Registration Statement
filed with the Commission on May 18, 1998, Amendment No. 3 to the Registration
Statement filed with the Commission on June 4, 1998, and Amendment No. 4 to the
Registration Statement filed with the Commission on June 9, 1998, as may be
further amended or supplemented (collectively, the "Registration Statement"),
with respect to the offering (the "Offering") of up to 2,500,000 shares of the
Common Stock, $.001 par value (the "Common Stock"), of the Company by the
Company (the "Firm Shares"), and up to an additional 375,000 shares of Common
Stock by the Company (the "Option Shares") subject to an Underwriters'
over-allotment option (the "Over-allotment Option"). The Firm Shares and the
Option Shares are collectively referred to hereafter as the "Shares".
In connection with the foregoing, we have examined (i) the Certificate of
Incorporation of the Company filed with the Secretary of State of Delaware on
February 12, 1998, (ii) the Certificate of Amendment to the Certificate of
Incorporation filed with the Secretary of State of Delaware on February 26,
1998; (iii) the By-Laws of the Company; (iv) the proposed form of Underwriting
Agreement filed as an Exhibit to the Registration Statement with respect to the
Shares (the "Underwriting Agreement"); (v) the form of stock certificate for
Common Stock of the Company, and (vi) such records of the corporate proceedings
of the Company, such certificates of public officials and such other documents
as we deemed necessary to render this opinion.
Based on such examination and assumption, we are of the opinion that:
1. The Company is a corporation duly incorporated and existing under the
laws of the State of Delaware.
2. The Shares will be duly authorized and when sold, issued and paid for
pursuant to the duly executed Underwriting Agreement (in substantially the
form filed as an exhibit to the Registration Statement) will be validly
issued, fully paid and nonassessable.
We hereby consent to the filing of this Opinion as Exhibit 5 to the
Registration Statement and the reference to us in the Prospectus which is part
of the Registration Statement.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /S/ THOMAS W. WHITE
-----------------------------------
Thomas W. White, a partner
<PAGE>
[W&C Draft: (New York) June 5, 1998])
Exhibit 10.8
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
among
WORKFLOW MANAGEMENT, INC.,
DATA BUSINESS FORMS LIMITED,
VARIOUS LENDING INSTITUTIONS,
and
BANKERS TRUST COMPANY,
as AGENT
--------------------------------
Dated as of June 9, 1998
--------------------------------
$150,000,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CREDIT AGREEMENT, dated as of June 9, 1998, among WORKFLOW MANAGEMENT, INC.
a Delaware corporation ("Workflow"), DATA BUSINESS FORMS LIMITED, a corporation
organized and existing under the laws of Ontario ("DBF" and, together with
Workflow, the "Borrowers" and each, a "Borrower"), the Lenders from time to time
party hereto, and BANKERS TRUST COMPANY, as Agent (in such capacity, the
"Agent"). Unless otherwise defined herein, all capitalized terms used herein and
defined in Section 10 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, subject to and upon the terms and conditions herein set forth, the
Lenders are willing to make available to the Borrowers the respective credit
facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
1.01 Commitments. (a) Subject to and upon the terms and conditions set
forth herein, (x) each Lender (other than a Canadian Lender in its capacity as
such) severally agrees to make a revolving loan or revolving loans to Workflow,
which revolving loans shall be made and maintained in Dollars (each a "Dollar
Revolving Loan" and, collectively, the "Dollar Revolving Loans") and (y) each
Canadian Lender severally agrees to make a revolving loan or revolving loans to
DBF, which revolving loans shall be made and maintained in Canadian Dollars
(each a "Canadian Revolving Loan" and, collectively, the "Canadian Revolving
Loans", and with the revolving loans made to the Borrowers pursuant to this
Section 1.01(a) being herein called a "Revolving Loan" and, collectively, the
"Revolving Loans"), which Revolving Loans:
(i) shall be made at any time and from time to time on and after the
Effective Date and prior to the Final Maturity Date;
(ii) shall, in the case of Dollar Revolving Loans, and at the option
of Workflow, be incurred and maintained as, and/or converted into, Base
Rate Loans or Eurodollar Loans, provided that (A) except as otherwise
specifically provided herein, all Dollar Revolving Loans comprising the
same Borrowing shall be of the same Type and (B) prior to the Syndication
Date, Dollar Revolving Loans may only be incurred as Eurodollar Loans on
the first day of a PSD Interest Period;
(iii) shall, in the case of Canadian Revolving Loans, and at the
option of DBF, be made either by means of (x) Canadian Prime Rate Loans in
Canadian Dollars or (y) Bankers' Acceptances Loans in Canadian Dollars on
the terms and conditions provided for herein and in Annex III (the terms
and conditions of which shall be deemed incorporated by reference into this
Agreement);
<PAGE>
(iv) may be repaid and reborrowed in accordance with the provisions
hereof;
(v) shall not be made (or be required to be made) by any Lender on any
date if, after giving effect thereto, the Revolving Credit Exposure of such
Lender would exceed the Commitment of such Lender at such time;
(vi) shall not, in the case of Canadian Revolving Loans, exceed for
any Canadian Lender at the time of the making of any such Canadian
Revolving Loans, and after giving effect thereto, that aggregate principal
amount or Face Amount, as the case may be, of such Canadian Revolving Loans
(for this purpose, using the Dollar Equivalent of the principal amount or
Face Amount, as the case may be, thereof) which, when added to the Dollar
Equivalent of the aggregate principal amount or Face Amount, as the case
may be, of all other Canadian Revolving Loans then outstanding from such
Canadian Lender, equals the Canadian Sub-Commitment of such Canadian Lender
at such time;
(vii) shall not, in the case of Canadian Revolving Loans, exceed for
all Canadian Lenders at the time of the making of any such Canadian
Revolving Loans, and after giving effect thereto, that aggregate principal
amount or Face Amount, as the case may be, of such Canadian Revolving Loans
(for this purpose, using the Dollar Equivalent of the principal amount or
Face Amount, as the case may be, thereof) which, when added to the Dollar
Equivalent of the aggregate principal amount or Face Amount, as the case
may be, of all other Canadian Revolving Loans then outstanding, equals the
Total Canadian Sub-Commitment at such time;
(viii) shall not, in the case of Dollar Revolving Loans, exceed for
all Lenders at the time of the making of any such Dollar Revolving Loans,
and after giving effect thereto, that aggregate principal amount of such
Dollar Revolving Loans which, when added to the sum of (I) the aggregate
principal amount of all other Dollar Revolving Loans then outstanding, (II)
the aggregate principal amount of all Swingline Loans then outstanding and
(III) the aggregate amount of all Letter of Credit Outstandings at such
time, equals the Total Dollar Sub-Commitment at such time; and
(ix) shall not, in the case of all Revolving Loans, be made at any
time if, after giving effect thereto, the Aggregate Revolving Credit
Exposure would exceed the Total Commitment at such time.
(b) Revolving Loans may not be incurred as Acquisition Loans if, after
giving effect thereto, the aggregate outstanding principal amount or Face
Amount, as the case may be, of all Acquisition Loans (for this purpose, using
the Dollar Equivalent of the principal amount or Face Amount, as the case may
be, of any Canadian Revolving Loans) would exceed the Acquisition Sub-Limit then
in effect.
(c) (A) Subject to and upon the terms and conditions set forth herein, BTCo
in its individual capacity agrees to make, at any time and from time to time on
and after the Effective Date and prior to the Swingline Expiry Date, a revolving
loan or revolving loans to Workflow (each a "Swingline Loan" and, collectively,
the "Swingline Loans"), which Swingline Loans:
2
<PAGE>
(i) shall be made and maintained in Dollars and as Base Rate Loans;
(ii) may be repaid and reborrowed in accordance with the provisions
hereof;
(iii) shall not be made (or required to be made) on any date if, after
giving effect thereto, the Aggregate Revolving Credit Exposure would exceed
the Total Commitment at such time; and
(iv) shall not exceed in aggregate principal amount at any time
outstanding the Maximum Swingline Amount.
(B) BTCo shall not be obligated to make any Swingline Loans at a
time when a Lender Default exists unless BTCo has entered into arrangements
satisfactory to it and Workflow to eliminate BTCo's risk with respect to the
Defaulting Lender's or Lenders' participation in such Swingline Loans, including
by cash collateralizing each such Defaulting Lender's Dollar Percentage of the
outstanding Swingline Loans. BTCo will not make a Swingline Loan after it has
received written notice from Workflow, any other Credit Party or the Required
Lenders stating that a Default or an Event of Default exists until such time as
(x) BTCo shall have received a written notice of (i) rescission of such notice
from the party or parties originally delivering the same or (ii) the waiver of
such Default or Event of Default from the Required Lenders or (y) the cure of
such Default or Event of Default.
(C) On any Business Day, BTCo may, in its sole discretion, give
notice to the Lenders that its outstanding Swingline Loans shall be funded with
a Borrowing of Dollar Revolving Loans (provided that each such notice shall be
deemed to have been automatically given upon the occurrence of a Default or an
Event of Default under Section 9.05 or upon the exercise of any of the remedies
provided in the last paragraph of Section 9), in which case a Borrowing or
Borrowings of Dollar Revolving Loans, as the case may be, constituting Base Rate
Loans (each such Borrowing or Borrowings, collectively, a "Mandatory Borrowing")
shall be made on the immediately succeeding Business Day by all Lenders pro rata
based on each Lender's Dollar Percentage or, if a Sharing Event then exists, pro
rata based on each Lenders' Percentage, and the proceeds thereof shall be
applied directly to repay BTCo for such outstanding Swingline Loans. Each Lender
hereby irrevocably agrees to make Dollar Revolving Loans upon one Business Day's
notice pursuant to each Mandatory Borrowing in the amount and in the manner
specified in the preceding sentence and on the date specified in writing by BTCo
notwithstanding (i) that the amount of the Mandatory Borrowing may not comply
with the Minimum Borrowing Amount otherwise required hereunder, (ii) whether any
conditions specified in Section 5 are then satisfied, (iii) whether a Default or
an Event of Default has occurred and is continuing, (iv) the date of such
Mandatory Borrowing and (v) the amount of, or termination of, the Total
Commitment at such time. In the event that any Mandatory Borrowing cannot for
any reason be made on the date otherwise required above (including, without
limitation, as a result of the commencement of a proceeding under the Bankruptcy
Code in respect of Workflow), each Lender (other than BTCo) hereby agrees that
it shall forthwith purchase (as of the date the Mandatory Borrowing would
otherwise have occurred, but adjusted for any payments received from Workflow on
or after such date and prior to such purchase) from
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BTCo such participations in the outstanding Swingline Loans as shall be
necessary to cause such Lenders to share in such Swingline Loans ratably based
upon their respective Dollar Percentages or, if a Sharing Event exists on the
date otherwise required above, pro rata based upon their respective Percentages,
provided that (x) all interest payable on the Swingline Loans shall be for the
account of BTCo until the date as of which the respective participation is
required to be purchased and, to the extent attributable to the purchased
participation, shall be payable to the participant from and after such date and
(y) at the time any purchase of participations pursuant to this sentence is
actually made, the purchasing Lender shall be required to pay BTCo interest on
the principal amount of the participation purchased for each day from and
including the day upon which the respective participation would otherwise have
occurred to but excluding the date of payment for such participation, at the
Federal Funds Effective Rate for the first day and at the rate otherwise
applicable to Dollar Revolving Loans maintained as Base Rate Loans hereunder for
each day thereafter.
(d) Subject to and upon the terms and conditions set forth herein, each
Lender severally agrees that Workflow may, in accordance with the procedures
established pursuant to Section 1.04, incur a loan or loans (each a "Competitive
Bid Loan" and, collectively, the "Competitive Bid Loans"), denominated in
Dollars, pursuant to a Competitive Bid Borrowing at any time and from time to
time after the Effective Date and prior to the date which is 45 days prior to
the Final Maturity Date, provided that no Competitive Bid Loan may be made if,
after giving effect thereto, the Aggregate Revolving Credit Exposure would
exceed the Total Commitment as then in effect. Within the foregoing limits and
subject to the terms and conditions set forth in Sections 1.04 and 5,
Competitive Bid Loans may be repaid and reborrowed in accordance with the
provisions hereof. Competitive Bid Loans may not be incurred as Acquisition
Loans if, after giving thereto, the aggregate outstanding principal amount or
Face Amount, as the case may be, of all Acquisition Loans (for this purpose,
using the Dollar Equivalent of the principal amount or Face Amount, as the case
may be, of any Canadian Revolving Loans) would exceed the Acquisition Sub-Limit
then in effect.
1.02 Minimum Borrowing Amounts, etc. The aggregate principal amount of each
Borrowing of Loans (other than Revolving Loans made pursuant to a Mandatory
Borrowing) shall not be less than the Minimum Borrowing Amount applicable
thereto. More than one Borrowing may be incurred on any day, provided that at no
time shall there be outstanding more than ten Borrowings of Eurodollar Loans (or
such greater number of Borrowings of Eurodollar Loans as is acceptable to the
Agent).
1.03 Notice of Borrowing. (a) Whenever a Borrower desires to incur
Revolving Loans hereunder (excluding (x) Revolving Loans incurred pursuant to a
Mandatory Borrowing and (y) Borrowings of Canadian Prime Rate Loans to the
extent resulting from automatic conversions of Bankers' Acceptance Loans as
provided in clause (i) of Annex III), such Borrower shall give the Agent at the
Notice Office, (x) prior to 11:00 A.M. (New York time), at least three Business
Days' prior written notice (or telephonic notice promptly confirmed in writing)
of each Borrowing of Eurodollar Loans or Banker's Acceptance Loans and (y) prior
to 11:00 A.M. (New York time), at least one Business Day's prior written notice
(or telephonic notice promptly confirmed in writing) of each Borrowing of Base
Rate Loans or Canadian Prime
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Rate Loans. Each such notice (each, a "Notice of Borrowing") shall, except as
provided in Section 1.11(a) or (b), be irrevocable, and, in the case of each
written notice and each written confirmation of telephonic notice, shall be in
the form of Exhibit A-1, appropriately completed to specify: (i) the aggregate
principal amount (or Face Amount, as the case may be) of the Revolving Loans to
be incurred pursuant to such Borrowing (stated in the Applicable Currency); (ii)
the date of such Borrowing (which shall be a Business Day); (iii) in the case of
Dollar Revolving Loans, whether the respective Borrowing shall consist of Base
Rate Loans or, to the extent permitted hereunder, Eurodollar Loans and, if
Eurodollar Loans, the Interest Period to be initially applicable thereto; (iv)
in the case of Canadian Revolving Loans, whether the Canadian Revolving Loans
being made pursuant to such Borrowing are to be initially maintained as Canadian
Prime Rate Loans or Bankers' Acceptance Loans and, if Bankers' Acceptance Loans,
the term thereof (which shall comply with the requirements of clause (a) of
Annex III); and (v) the respective portions of such Borrowing to constitute
Acquisition Loans and Working Capital Loans.
(b) (i) Whenever Workflow desires to incur Swingline Loans hereunder,
Workflow shall give BTCo no later than 12:00 Noon (New York time) on the day
such Swingline Loan is to be incurred, written notice (or telephonic notice
promptly confirmed in writing) of such Swingline Loan. Each such notice shall be
irrevocable and shall specify in each case (x) the date of such incurrence
(which shall be a Business Day) and (y) the aggregate principal amount of the
Swingline Loan requested to be made.
(ii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(c)(C), with Workflow irrevocably agreeing, by its incurrence of any
Swingline Loan, to the making of Mandatory Borrowings as set forth in such
Section 1.01 (c) (C).
(c) The Agent shall promptly give each Lender written notice (or telephonic
notice promptly confirmed in writing) of each proposed Borrowing of Revolving
Loans, of such Lender's proportionate share thereof, and of the other matters
covered by the respective Notice of Borrowing.
(d) Without in any way limiting the obligation of any Borrower to confirm
in writing any telephonic notice permitted to be given hereunder, the Agent or
BTCo (in the case of a Borrowing of Swingline Loans), as the case may be, may
prior to receipt of written confirmation act without liability upon the basis of
such telephonic notice, believed by the Agent or BTCo in good faith to be from
the president, any vice-president or any Authorized Financial Officer of such
Borrower, or from any other authorized officer of such Borrower designated in
writing by such Borrower to the Agent as being authorized to give such notices.
In each such case, each Borrower hereby waives the right to dispute the Agent's
or BTCo's record of the terms of such telephonic notice.
1.04 Competitive Bid Borrowings. (a) Whenever Workflow desires to incur a
Competitive Bid Borrowing, Workflow shall deliver to the Agent at the Notice
Office prior to 11:00 A.M (New York time), at least three Business Days prior to
the date of such proposed Competitive Bid Borrowing, a written notice
substantially in the form of Exhibit B (each a
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"Notice of Competitive Bid Borrowing"), such notice to specify in each case (i)
the date of the proposed Competitive Bid Borrowing (which shall be a Business
Day), (ii) the aggregate principal amount of the proposed Competitive Bid
Borrowing (which shall not be less than the Minimum Borrowing Amount applicable
thereto), (iii) the maturity date (each a "Competitive Bid Loan Maturity Date")
for repayment of each Competitive Bid Loan to be made as part of such
Competitive Bid Borrowing (which maturity date may not be earlier than seven
days after the date of such Competitive Bid Borrowing or later than 360 days
after the date of such Competitive Bid Borrowing (but in no event later than the
thirtieth day preceding the Final Maturity Date)), (iv) the interest payment
date or dates relating thereto (which shall be at least every three months in
the case of maturities in excess of three months), and (v) any other terms to be
applicable to such Competitive Bid Borrowing (although all Competitive Bid
Borrowings shall be required to be made, and maintained, in Dollars). The Agent
shall promptly notify each Bidder Lender of each such request for a Competitive
Bid Borrowing received by it from Workflow by telecopying to each such Bidder
Lender a copy of the related Notice of Competitive Bid Borrowing.
(b) Each Bidder Lender shall, if in its sole discretion it elects to do so,
irrevocably offer to make one or more Competitive Bid Loans to Workflow as part
of such proposed Competitive Bid Borrowing at a rate or rates of interest
specified by such Bidder Lender in its sole discretion and determined by such
Bidder Lender independently of each other Bidder Lender, by notifying the Agent
in writing (which notice shall be promptly distributed to Workflow, provided
that the Agent shall not be liable to any Bidder Lender or to Workflow for
failure to distribute any such notice to Workflow unless such failure resulted
from the gross negligence or willful misconduct on the part of the Agent (as
finally determined by a court of competent jurisdiction)), before 10:00 A.M.
(New York time) on the date (the "Reply Date") which is two Business Days before
the date of such proposed Competitive Bid Borrowing, of the minimum amount, if
any, and maximum amount of each Competitive Bid Loan which such Bidder Lender
would be willing to make as part of such proposed Competitive Bid Borrowing
(which amounts may, subject to the proviso to the first sentence of Section
1.01(d), exceed such Lender's Commitment) and the rate or rates of interest
therefor; provided, that if the Agent in its capacity as a Bidder Lender shall,
in its sole discretion, elect to make any such offer, it shall notify Workflow
in writing of such offer before 9:30 A.M. (New York time) on the Reply Date. If
any Bidder Lender shall elect not to make such an offer, such Bidder Lender
shall so notify the Agent, before 10:00 A.M. (New York time) on the Reply Date,
and such Bidder Lender shall not be obligated to, and shall not, make any
Competitive Bid Loan as part of such Competitive Bid Borrowing; provided, that
the failure by any Bidder Lender to give such notice shall not cause such Bidder
Lender to be obligated to, and such Bidder Lender shall not, make any
Competitive Bid Loan as part of such proposed Competitive Bid Borrowing.
(c) Workflow shall, in turn, before 12:00 Noon (New York time) on the Reply
Date, either
(1) cancel such Competitive Bid Borrowing by giving the Agent notice
(in writing or by telephone promptly confirmed in writing) to that effect,
or
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(2) accept one or more of the offers made by any Bidder Lender or
Bidder Lenders pursuant to clause (b) above by giving notice (in writing or
by telephone confirmed in writing) to the Agent of the amount of each
Competitive Bid Loan (which amount shall be equal to or greater than the
minimum amount, if any, and equal to or less than the maximum amount,
notified to Workflow by the Agent on behalf of each such Bidder Lender for
such Competitive Bid Borrowing) and reject any remaining offers made by
Bidder Lenders pursuant to clause (b) above by giving the Agent notice to
that effect; provided that acceptance of offers may only be made on the
basis of ascending Absolute Rates commencing with the lowest rate so
offered; provided further, however, if offers are made by two or more
Bidder Lenders at the same rate and acceptance of all such equal offers
would result in a greater principal amount of Competitive Bid Loans being
accepted than the aggregate principal amount requested by Workflow,
Workflow shall have the right to accept one or more such equal offers in
their entirety and reject the other equal offer or offers or to allocate
acceptance among all such equal offers (but giving effect to the minimum
amounts, if any, and maximum amounts specified for each such offer pursuant
to clause (b) above), as Workflow may elect in its sole discretion.
(d) If Workflow notifies the Agent that such Competitive Bid Borrowing is
canceled pursuant to clause (c)(1) above, the Agent shall give prompt written
notice thereof to the Bidder Lenders and such Competitive Bid Borrowing shall
not be made.
(e) If Workflow accepts one or more of the offers made by any Bidder Lender
or Bidder Lenders pursuant to clause (c)(2) above, the Agent shall in turn
promptly notify (in writing or by telephone confirmed in writing) (x) each
Bidder Lender that has made an offer as described in clause (b) above, of the
date and aggregate amount of such Competitive Bid Borrowing and whether or not
any offer or offers made by such Bidder Lender pursuant to clause (b) above have
been accepted by such Borrower and (y) each Bidder Lender that is to make a
Competitive Bid Loan as part of such Competitive Bid Borrowing, of the amount of
each Competitive Bid Loan to be made by such Bidder Lender as part of such
Competitive Bid Borrowing.
(f) On the last Business Day of each calendar quarter, the Agent shall
notify the Borrowers and the Lenders of the aggregate principal amount of
Competitive Bid Loans outstanding to Workflow at such time.
1.05 Disbursement of Funds. (a) No later than 1:00 P.M. (New York time) on
the date specified in each Notice of Borrowing (or (x) in the case of Swingline
Loans, no later than 2:00 P.M. (New York time) on the date specified in the
notice delivered pursuant to Section 1.03(b), (y) in the case of Mandatory
Borrowings, no later than 12:00 Noon (New York time) on the date specified in
Section 1.01(c)(C), or (z) in the case of Competitive Bid Loans, no later than
1:00 P.M. (New York time) on the date specified pursuant to Section 1.04(a)),
each Lender (or, in the case of a Borrowing of Canadian Revolving Loans, each
Canadian Lender) will make available its pro rata share of each Borrowing
requested to be made on such date (or (x) in the case of Swingline Loans, BTCo
shall make available the full amount thereof and (y) in the case of Competitive
Bid Loans, the respective Bidder Lenders which are to make such Competitive
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Bid Loans in accordance with Section 1.04(e) shall make available their
respective amounts thereof) in the manner provided below. All amounts shall be
made available to the Agent in Dollars (in the case of Dollar Loans) or Canadian
Dollars (in the case of Canadian Revolving Loans), as the case may be, and
immediately available funds at the appropriate Payment Office and, except for
Revolving Loans made pursuant to a Mandatory Borrowing, the Agent promptly will
make available to the respective Borrower by depositing to its account at the
appropriate Payment Office the aggregate of the amounts so made available in the
type of funds received. Unless the Agent shall have been notified by any Lender
prior to the date of Borrowing that such Lender does not intend to make
available to the Agent its portion of the Borrowing or Borrowings to be made on
such date, the Agent may assume that such Lender has made such amount available
to the Agent on such date of Borrowing, and the Agent, in reliance upon such
assumption, may (in its sole discretion and without any obligation to do so)
make available to the respective Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Lender
and the Agent has made available same to the respective Borrower, the Agent
shall be entitled to recover such corresponding amount from such Lender. If such
Lender does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent shall promptly notify the respective Borrower, and such
Borrower shall immediately pay such corresponding amount to the Agent. The Agent
shall also be entitled to recover from such Lender or such Borrower, as the case
may be, interest on such corresponding amount in respect of each day from the
date such corresponding amount was made available by the Agent to such Borrower
to the date such corresponding amount is recovered by the Agent, at a rate per
annum equal to (x) if paid by such Lender, the Federal Funds Effective Rate or
(y) if paid by such Borrower, the then applicable rate of interest, calculated
in accordance with Section 1.09, for the respective Loans.
(b) Nothing herein shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
any Borrower may have against any Lender as a result of any default by such
Lender hereunder.
1.06 Notes; etc.. (a) Each Borrower's obligation to pay the principal of
(or the Face Amount of, as the case may be), and interest on, all the Loans made
to such Borrower by each Lender shall be set forth in the Register maintained by
the Agent pursuant to Section 12.17 and shall, if requested by any Lender, also
be evidenced (i) if Dollar Revolving Loans, by a promissory note duly executed
and delivered by Workflow substantially in the form of Exhibit C-1, with blanks
appropriately completed in conformity herewith (each a "Dollar Revolving Note"
and, collectively, the "Dollar Revolving Notes"), (ii) if Canadian Revolving
Loans, by a promissory note duly executed and delivered by DBF substantially in
the form of Exhibit C-2, with blanks appropriately completed in conformity
herewith (each a "Canadian Revolving Note" and, collectively, the "Canadian
Revolving Notes"), and (iii) if Swingline Loans, by a promissory note duly
executed and delivered by Workflow substantially in the form of Exhibit C-3,
with blanks appropriately completed in conformity herewith (the "Swingline
Note"). The terms of each Competitive Bid Loan shall be evidenced by the
respective correspondence between Workflow and the respective Bidder Lender
pursuant to Section 1.04 and, unless otherwise agreed by Workflow and the
respective Bidder Lender or unless the respective Bidder Lender makes a request
pursuant to the immediately succeeding sentence, Competitive Bid
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Loans shall not be evidenced by promissory notes. If requested by any Lender,
(x) Workflow agrees to execute and deliver a promissory note, in form reasonably
satisfactory to the respective Lender, evidencing the Competitive Bid Loans of
such Lender to Workflow (with any such promissory notes herein called
"Competitive Bid Notes") and (y) each Borrower agrees to execute and deliver a
Dollar Revolving Note, a Canadian Revolving Note or the Swingline Note, as the
case may be, evidencing the Dollar Revolving Loans, the Canadian Revolving Loans
or the Swingline Loans, respectively, of such Lender to such Borrower.
(b) The Dollar Revolving Note issued to each Lender shall (i) be executed
by Workflow, (ii) be payable to the order of such Lender and be dated the
Effective Date (or, if issued to a Person that became a Lender after the
Effective Date, be dated the date of issuance thereof), (iii) be in a stated
principal amount equal to the Commitment of such Lender (or, if issued after the
termination thereof, be in a stated principal amount equal to the outstanding
Dollar Revolving Loans of such Lender at such time) and be payable in the
outstanding principal amount of the Dollar Revolving Loans evidenced thereby,
(iv) mature on the Final Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.09 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01, and mandatory prepayment as
provided in Section 4.02, and (vii) be entitled to the benefits of this
Agreement and the other Credit Documents.
(c) The Canadian Revolving Note issued by DBF to each Lender that has a
Canadian Sub-Commitment or outstanding Canadian Revolving Loans shall (i) be
executed by DBF, (ii) be payable to the order of such Lender (or an Affiliate
thereof designated by such Lender) and be dated the Effective Date (or, if
issued to a Person that has become a Lender after the Effective Date, be dated
the date of issuance thereof), (iii) be in a stated principal amount (expressed
in Canadian Dollars) which exceeds by 25% the Canadian Dollar Equivalent (as of
the date of issuance) of the respective Lender's Canadian Sub-Commitment;
provided that if, because of fluctuations in exchange rates after the Effective
Date, the amount of the Canadian Revolving Note of DBF held by any Lender would
not be at least as great as the outstanding principal amount of, and the Face
Amount of, as applicable, Canadian Revolving Loans made by such Lender to DBF
and evidenced thereby, the respective Lender may request (and in such case DBF
shall promptly execute and deliver) a new Canadian Revolving Note in an amount
equal to the greater of (x) that amount (expressed in Canadian Dollars) which at
that time exceeds by 25% the Canadian Dollar Equivalent of the respective
Lender's Canadian Sub-Commitment or (y) the then outstanding principal amount
of, and the Face Amount of, as applicable, all Canadian Revolving Loans made by
such Lender to DBF, (iv) be payable in Canadian Dollars in the outstanding
principal amount of, and Face Amount of, as applicable, the Canadian Revolving
Loans made to DBF and evidenced thereby, (v) mature on the Final Maturity Date,
(vi) bear interest as provided in the appropriate clause of Section 1.09 in
respect of the Canadian Prime Rate Loans evidenced thereby, (vii) be subject to
voluntary prepayment as provided in Section 4.01, and mandatory prepayment as
provided in Section 4.02, and (viii) be entitled to the benefits of this
Agreement and the other Credit Documents.
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(d) The Swingline Note issued to BTCo shall (i) be executed by Workflow,
(ii) be payable to the order of BTCo and be dated the Effective Date, (iii) be
in a stated principal amount equal to the Maximum Swingline Amount and be
payable in the outstanding principal amount of the Swingline Loans evidenced
thereby, (iv) mature on the Swingline Expiry Date, (v) bear interest as provided
in Section 1.09 in respect of the Base Rate Loans evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 4.01, and mandatory
prepayment as provided in Section 4.02, and (vii) be entitled to the benefits of
this Agreement and the other Credit Documents.
(e) Each Lender will note on its internal records the amount of each Loan
made by it to each Borrower and each payment in respect thereof and will prior
to any transfer of any of its Notes endorse on the reverse side thereof the
outstanding principal amount of Loans (including, without limitation, the Face
Amount of any Bankers' Acceptances) evidenced thereby. Failure to make any such
notation, or any error in such notation, shall not affect the respective
Borrower's obligations in respect of such Loans.
1.07 Conversions. (a) Workflow shall have the option to convert on any
Business Day all or a portion at least equal to the applicable Minimum Borrowing
Amount of the outstanding principal amount of Dollar Revolving Loans of one Type
into Borrowing of the other Type of Dollar Revolving Loans, provided that (i) no
conversion of Base Rate Loans into Eurodollar Loans may be made prior to the
Syndication Date except for a conversion made on the first day of a PSD Interest
Period, (ii) no partial conversion of a Borrowing of Eurodollar Loans shall
reduce the outstanding principal amount of the Eurodollar Loans made pursuant to
such Borrowing to less than the Minimum Borrowing Amount applicable thereto,
(iii) Base Rate Loans may only be converted into Eurodollar Loans if no Default
or Event of Default is in existence on the date of the conversion, and (iv)
Borrowings of Eurodollar Loans resulting from this Section 1.07 shall be limited
in number as provided in Section 1.02. Each such conversion shall be effected by
Workflow by giving the Agent at the Notice Office, prior to 11:00 A.M. (New York
time), at least three Business Days' (or one Business Day's in the case of a
conversion into Base Rate Loans) prior written notice (or telephonic notice
promptly confirmed in writing) (each a "Notice of Conversion") specifying the
Dollar Revolving Loans to be so converted, the Type of Dollar Revolving Loans to
be converted into and, if to be converted into a Borrowing of Eurodollar Loans,
the Interest Period to be initially applicable thereto. The Agent shall give
each Lender prompt notice of any such proposed conversion affecting any of such
Lender's Dollar Revolving Loans.
(b) Mandatory conversions of Bankers' Acceptance Loans into Canadian Prime
Rate Loans shall be made in the circumstances, and to the extent, provided in
clause (i) of Annex III. Except as otherwise provided in the immediately
preceding sentence and as provided in clause (i) of Annex III, Bankers'
Acceptance Loans shall not be permitted to be converted into Canadian Prime Rate
Loans, and Canadian Prime Rate Loans shall not be permitted to be converted into
Bankers' Acceptance Loans. However, subject to compliance with the terms and
conditions of this Agreement, DBF may from time to time repay Canadian Revolving
Loans of one Type made to it and, concurrently therewith, may borrow another
Type of Canadian Revolving Loans permitted to be incurred by it.
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1.08 Pro Rata Borrowings. Subject to the provisions of Section 1.16(b) and
in the case of Mandatory Borrowings, Section 1.01(c)(C) and in the case of
Bankers' Acceptance Loans, clause (e) of Annex III, (i) all Borrowings of Dollar
Revolving Loans under this Agreement shall be made by the Lenders pro rata on
the basis of their Dollar Percentages and (ii) all Borrowings of Canadian
Revolving Loans under this Agreement shall be made by the Canadian Lenders pro
rata on the basis of their Canadian Percentages. It is understood that no Lender
shall be responsible for any default by any other Lender of its obligation to
make Loans hereunder and that each Lender shall be obligated to make the Loans
required to be made by it hereunder, regardless of the failure of any other
Lender to fulfill its commitments hereunder.
1.09 Interest. (a) Workflow agrees to pay interest in respect of the unpaid
principal amount of each Base Rate Loan made to it from the date of the
Borrowing thereof until the conversion or maturity (whether by acceleration or
otherwise) of such Base Rate Loan, at a rate per annum which shall at all times
be the sum of the Applicable Base Rate/Canadian Prime Rate Margin plus the Base
Rate, each as in effect from time to time.
(b) Workflow agrees to pay interest in respect of the unpaid principal
amount of each Eurodollar Loan made to it from the date of the Borrowing thereof
until the conversion or maturity (whether by acceleration or otherwise) of such
Eurodollar Loan at a rate per annum which shall, at all times during each
Interest Period applicable thereto, be the sum of the Applicable Eurodollar
Margin as in effect from time to time plus the relevant Eurodollar Rate for such
Interest Period.
(c) DBF agrees to pay interest in respect of the unpaid principal amount of
each Canadian Prime Rate Loan made to it from the date the proceeds thereof are
made available to it (which shall, in the case of a conversion pursuant to
clause (i) of Annex III, be deemed to be the date upon which a maturing Bankers'
Acceptance is converted into a Canadian Prime Rate Loan pursuant to said clause
(i), with the proceeds thereof to be equal to the full Face Amount of the
maturing Bankers' Acceptances) until the maturity thereof (whether by
acceleration or otherwise) at a rate per annum which shall be equal to the sum
of the Applicable Base Rate/Canadian Prime Rate Margin plus the Canadian Prime
Rate, each as in effect from time to time.
(d) With respect to Bankers' Acceptance Loans, Acceptance Fees shall be
payable in connection therewith as provided in clause (g) of Annex III. Until
maturity of the respective Banker's Acceptances, interest shall not otherwise be
payable with respect thereto.
(e) Workflow agrees to pay interest in respect of the unpaid principal
amount of each Competitive Bid Loan made to it from the date the proceeds
thereof are made available to it until the maturity thereof (whether by
acceleration or otherwise) at the rate or rates per annum specified pursuant to
Section 1.04(b) by the Bidder Lender or Bidder Lenders, as the case may be,
making such Competitive Bid Loan and accepted by Workflow pursuant to Section
1.04(c)(2).
(f) Overdue principal and, to the extent permitted by law, overdue interest
in respect of each Loan and any other overdue amount payable hereunder shall, in
each case, bear interest at a rate per annum (i) in the case of overdue
principal of, and interest or other amounts
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owing with respect to, Canadian Revolving Loans and any other amounts owing in
Canadian Dollars, equal to 2% per annum in excess of the rate of interest
otherwise applicable to Canadian Prime Rate Loans from time to time, and (ii) in
all other cases, equal to the greater of (x) 2% per annum in excess of the rate
otherwise applicable to Base Rate Loans from time to time and (y) the rate which
is 2% in excess of the rate then borne by such Loans. Notwithstanding anything
to the contrary contained in this Section 1.09(f), so long as any Canadian
Revolving Loans are secured by Real Property located in Canada, overdue
principal in respect of any Canadian Revolving Loans shall bear interest at the
rate otherwise applicable thereto pursuant to Section 1.09(c) unless a higher
rate of interest is then permitted under applicable law, in which case such
higher rate of interest shall apply subject to the provisions of this Section
1.09(f).
(g) Interest shall accrue from and including the date of any Borrowing of
any Loan to but excluding the date of any repayment thereof and shall be payable
(i) in respect of each Base Rate Loan and Canadian Prime Rate Loan, quarterly in
arrears on the last Business Day of each April, July, October and January, (ii)
in respect of each Eurodollar Loan, on the last day of each Interest Period
applicable thereto and, in the case of an Interest Period of six months, on the
date occurring three months after the first day of such Interest Period, (iii)
in respect of each Competitive Bid Loan, at such times as specified in the
Notice of Competitive Bid Borrowing relating thereto and (iv) in respect of each
Loan (other than Bankers' Acceptances), on any prepayment or conversion (on the
amount prepaid or converted), at maturity (whether by acceleration or otherwise)
and, after such maturity, on demand, provided, that in the case of Dollar
Revolving Loans maintained as Base Rate Loans, interest shall not be payable
pursuant to the preceding clause (iv) at the time of any repayment or prepayment
thereof unless the respective repayment or prepayment is made in conjunction
with a permanent reduction of the Total Commitment.
(h) All computations of interest hereunder shall be made in accordance with
Section 12.07(b).
(i) The Agent, upon determining the Eurodollar Rate for any Borrowing of
Eurodollar Loans for any Interest Period, shall promptly notify Workflow and the
Lenders thereof. Each such determination shall, absent manifest error, be final
and conclusive and binding on all parties hereto.
1.10 Interest Periods. At the time Workflow gives a Notice of Borrowing or
Notice of Conversion in respect of the making of, or conversion into, a
Borrowing of Eurodollar Loans (in the case of the initial Interest Period
applicable thereto) or prior to 11:00 A.M. (New York time) on the third Business
Day prior to the expiration of an Interest Period applicable to a Borrowing of
Eurodollar Loans, Workflow shall have the right to elect, by giving the Agent
written notice (or telephonic notice promptly confirmed in writing), the
Interest Period applicable to such Borrowing, which Interest Period shall, at
the option of Workflow, be a one, two, three or six month period, provided that:
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;
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(ii) the initial Interest Period for any Borrowing of Eurodollar Loans
shall commence on the date of such Borrowing (including the date of any
conversion from a Borrowing of Base Rate Loans) and each Interest Period
occurring thereafter in respect of such Borrowing shall commence on the day
on which the next preceding Interest Period expires;
(iii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period, such Interest Period shall end on the last Business Day of
such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, that if any Interest Period would
otherwise expire on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(v) subject to the foregoing clauses (i) through (iv), only a one
month Interest Period shall be available to be selected prior to the
Syndication Date, with all Dollar Revolving Loans constituting Eurodollar
Loans during such period to be outstanding pursuant to a single Borrowing,
with all such Borrowings to commence and end on the same day;
(vi) no Interest Period may be elected if it would extend beyond the
Final Maturity Date; and
(vii) no Interest Period may be elected at any time when a Default or
an Event of Default is then in existence.
If upon the expiration of any Interest Period, Workflow has failed to, or is not
permitted to, elect a new Interest Period to be applicable to the respective
Borrowing of Eurodollar Loans as provided above, Workflow shall be deemed to
have elected to convert such Borrowing into a Borrowing of Base Rate Loans
effective as of the expiration date of such current Interest Period.
1.11 Increased Costs, Illegality, etc. (a) In the event that (x) in the
case of clauses (i) and (iv) below, the Agent or (y) in the case of clauses (ii)
and (iii) below, any Lender, shall have determined (which determination shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto):
(i) on any date for determining the Eurodollar Rate for any Interest
Period, that, by reason of any changes arising after the date of this
Agreement affecting the interbank Eurodollar market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loans or Competitive Bid Loans because of (x) any change
since the date of this Agreement in any
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applicable law, governmental rule, regulation, guideline, order or request
(whether or not having the force of law), or in the interpretation or
administration thereof and including the adoption or introduction of any
new law or governmental rule, regulation, guideline, order or request, such
as, for example, but not limited to: (A) a change in the basis of taxation
of payment to any Lender of the principal of or interest on the Loans, the
Notes or any other amounts payable hereunder (except for changes in the
rate of tax on, or determined by reference to, the net income or profits of
such Lender pursuant to the laws of the jurisdiction in which it is
organized or in which its principal office or applicable lending office is
located or any subdivision thereof or therein) or (B) a change in official
reserve requirements, but, in all events, excluding reserves required under
Regulation D to the extent included in the computation of the Eurodollar
Rate and/or (y) other circumstances since the date of this Agreement
affecting such Lender, the interbank Eurodollar market or the position of
such Lender in such market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loan or Competitive Bid Loan has been made (x) unlawful by any law or
governmental rule, regulation or order, (y) impossible by compliance by any
Lender in good faith with any governmental request (whether or not having
force of law) or (z) impracticable as a result of a contingency occurring
after the date of this Agreement which materially and adversely affects the
interbank Eurodollar market; or
(iv) at any time that Canadian Dollars are not available in sufficient
amounts, as determined in good faith by the Agent, to fund any Borrowing of
Canadian Revolving Loans requested pursuant to Section 1.01;
then, and in any such event, the Agent (in the case of clause (i) or (iv) above)
or such Lender shall give notice (by telephone confirmed promptly in writing) to
the respective Borrower or Borrowers and (except in the case of clauses (i) and
(iv)) to the Agent of such determination (which notice the Agent shall promptly
transmit to each of the other Lenders). Thereafter (w) in the case of clause (i)
above, Eurodollar Loans shall no longer be available until such time as the
Agent notifies Workflow and the Lenders that the circumstances giving rise to
such notice by the Agent no longer exist, and any Notice of Borrowing or Notice
of Conversion given by Workflow with respect to Eurodollar Loans which have not
yet been incurred shall be deemed rescinded by Workflow, (x) in the case of
clause (ii) above, the respective Borrower or Borrowers agree to pay to such
Lender, upon written demand therefor (accompanied by the written notice referred
to below), such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as shall be required to compensate such Lender
for such increased costs or reductions in amounts received or receivable
hereunder (a written notice as to the additional amounts owed to such Lender,
showing in reasonable detail the basis for the calculation thereof, submitted to
such Borrower or Borrowers by such Lender shall, absent manifest error, be final
and conclusive and binding upon all parties hereto), (y) in the case of clause
(iii) above, the respective Borrower or Borrowers shall take one of the actions
specified in Section 1.11(b) as promptly as possible and, in any event, within
the time period required by law and (z) in the case of clause (iv) above,
Canadian Revolving Loans (exclusive of Canadian Revolving Loans which have
theretofore been funded)
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shall no longer be available until such time as the Agent notifies the Borrowers
and the Lenders that the circumstances giving rise to such notice by the Agent
no longer exist, and any Notice of Borrowing given by any Borrower with respect
to such Canadian Revolving Loans which have not been incurred shall be deemed
rescinded by the respective Borrower.
(b) At any time that any Eurodollar Loan or Competitive Bid Loan is
affected by the circumstances described in Section 1.11(a)(ii) or (iii), the
respective Borrower may (and in the case of a Eurodollar Loan or Competitive Bid
Loan affected pursuant to Section 1.11(a)(iii) the respective Borrower shall)
either (i) if the affected Eurodollar Loan or Competitive Bid Loan is then being
made pursuant to a Borrowing, cancel said Borrowing by giving the Agent
telephonic notice (confirmed promptly in writing) thereof on the same date that
such Borrower was notified by a Lender pursuant to Section 1.11(a)(ii) or
(iii)), or (ii) if the affected Eurodollar Loan or Competitive Bid Loan is then
outstanding, upon at least three Business Days' notice to the Agent, (A) in the
case of a Eurodollar Loan, require the affected Lender to convert each such
Eurodollar Loan into a Base Rate Loan (which conversion, in the case of the
circumstances described in Section 1.11(a)(iii), shall occur no later than the
last day of the Interest Period then applicable to such Eurodollar Loan (or such
earlier date as shall be required by applicable law)) and (B) in the case of a
Competitive Bid Loan, repay such Competitive Bid Loan in full; provided, that if
more than one Lender is affected at any time as described above in this clause
(b), then all affected Lenders must be treated the same pursuant to this Section
1.11(b).
(c) If any Lender shall have determined that after the date hereof, the
adoption, introduction or effectiveness of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by such Lender with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of increasing the amount of capital required or expected to be maintained
by such Lender or any corporation controlling such Lender based on the existence
of such Lender's Commitment or obligation hereunder, then from time to time,
upon written demand by such Lender (with a copy to the Agent), the Borrowers
jointly and severally shall pay to such Lender such additional amounts as shall
be required to compensate such Lender or such other corporation for the
increased cost to such Lender or such other corporation or the reduction in the
rate of return to such Lender or such other corporation as a result of such
increase of capital. In determining such additional amounts, each Lender will
act reasonably and in good faith and will use averaging and attribution methods
which are reasonable, provided that such Lender's determination of compensation
owing under this Section 1.11(c) shall, absent manifest error, be final and
conclusive and binding on all the parties hereto. Each Lender, upon determining
that any additional amounts will be payable pursuant to this Section 1.11(c),
will give prompt written notice thereof to the Borrowers, which notice shall
show in reasonable detail the basis for calculation of such additional amounts,
although the failure to give any such notice shall not release or diminish the
Borrowers' obligations to pay additional amounts pursuant to this Section
1.11(c) upon the subsequent receipt of such notice.
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1.12 Compensation. The respective Borrower or Borrowers agree to compensate
each Lender, upon its written request (which request shall set forth in
reasonable detail the basis for requesting such compensation), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund its Eurodollar Loans
or Competitive Bid Loans but excluding loss of anticipated profit with respect
to any Loans) which such Lender may sustain: (i) if for any reason (other than a
default by such Lender or the Agent) a Borrowing of Eurodollar Loans or
Competitive Bid Loans does not occur on a date specified therefor in a Notice of
Borrowing, Notice of Competitive Bid Borrowing or Notice of Conversion (whether
or not withdrawn or deemed withdrawn pursuant to Section 1.11(a) or (b)); (ii)
if any repayment (including any repayment made pursuant to Section 4.01 or 4.02
or as a result of an acceleration of the Loans pursuant to Section 9) or
conversion of any Eurodollar Loans occurs on a date which is not the last day of
an Interest Period applicable thereto; (iii) if any repayment (including any
repayment made pursuant to Section 4.01 or 4.02 or as a result of an
acceleration of the Loans pursuant to Section 9) of any Competitive Bid Loans or
Bankers' Acceptance Loans occurs on a date which is not the maturity date of the
respective Competitive Bid Loans or Bankers' Acceptance, as the case may be;
(iv) if any prepayment of any Eurodollar Loans, Competitive Bid Loans or
Bankers' Acceptance Loans is not made on any date specified in a notice of
prepayment given by the respective Borrower or Borrowers; or (v) as a
consequence of (x) any other default by the Borrower or Borrowers to repay its
Loans when required by the terms of this Agreement or (y) an election made
pursuant to Section 1.11(b).
1.13 Lending Offices; Changes Thereto. (a) Each Lender may at any time or
from time to time designate, by written notice to the Agent to the extent not
already reflected on Annex II, one or more lending offices (which, for this
purpose, may include Affiliates of the respective Lender) for the various Loans
made, and Letters of Credit participated in, by such Lender (including by
designating a separate lending office (or Affiliate) to act as such with respect
to Dollar Loans and Letter of Credit Outstanding versus Canadian Revolving
Loans); provided that, for designations made after the Effective Date, to the
extent such designation shall result in increased costs under Section 1.11, 2.05
or 4.04 in excess of those which would be charged in the absence of the
designation of a different lending office (including a different Affiliate of
the respective Lender), then the Borrowers shall not be obligated to pay such
excess increased costs (although the Borrowers, in accordance with and pursuant
to the other provisions of this Agreement, shall be obligated to pay the costs
which would apply in the absence of such designation and any subsequent
increased costs of the type described above resulting from changes after the
date of the respective designation). Each lending office and Affiliate of any
Lender designated as provided above shall, for all purposes of this Agreement,
be treated in the same manner as the respective Lender (and shall be entitled to
all indemnities and similar provisions in respect of its acting as such
hereunder).
(b) Each Lender agrees that, upon the occurrence of any event giving rise
to the operation of Section 1.11(a)(ii) or (iii), 1.11(c), 2.05 or 4.04 with
respect to such Lender, it will, if requested by the applicable Borrower, use
reasonable efforts (subject to overall policy considerations of such Lender) to
designate another lending office for any Loans or Letters of Credit affected by
such event; provided, that such designation is made on such terms that, in the
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sole judgment of such Lender, such Lender and its lending office suffer no
economic, legal or regulatory disadvantage, with the object of avoiding the
consequences of the event giving rise to the operation of any such Section.
Nothing in this Section 1.13 shall affect or postpone any of the obligations of
any Borrower or the right of any Lender provided in Section 1.11, 2.05 or 4.04.
1.14 Replacement of Lenders. (a) (i) If any Lender becomes a Defaulting
Lender or otherwise defaults in its obligations to make Loans or fund Unpaid
Drawings, (ii) if any Lender refuses to consent to certain proposed changes,
waivers, discharges or terminations with respect to this Agreement which have
been approved by the Required Lenders as (and to the extent) provided in Section
12.12(b) or (iii) upon the occurrence of any event giving rise to the operation
of Section 1.11(a)(ii) or (iii), Section 1.11(c), Section 2.05 or Section 4.04
with respect to any Lender which results in such Lender charging to any Borrower
increased costs in excess of those being generally charged by the other Lenders,
the Borrowers shall have the right, in accordance with the requirements of
Section 12.04(b), if no Event of Default will exist after giving effect to such
replacement, to replace such Lender (the "Replaced Lender") with an Eligible
Transferee or Transferees, none of which shall constitute a Defaulting Lender at
the time of such replacement (collectively, the "Replacement Lender"), and each
of whom shall be reasonably acceptable to the Agent and the Letter of Credit
Issuer, provided that (A) at the time of any replacement pursuant to this
Section 1.14, the Replacement Lender shall enter into one or more Assignment and
Assumption Agreements pursuant to Section 12.04(b) (and with the assignment fee
payable pursuant to said Section 12.04(b) to be paid by the Replacement Lender)
pursuant to which the Replacement Lender shall acquire the entire Commitment
(including any Canadian Sub-Commitment) and all outstanding Loans of, and in
each case participations in Swingline Loans and Letters of Credit by, the
Replaced Lender and, in connection therewith, shall pay (x) to the Replaced
Lender in respect thereof an amount (in the respective currencies in which such
Obligations are denominated) equal to the sum of (I) an amount equal to the
principal of (including, without limitation, the Face Amount of Bankers'
Acceptance Loans), and all accrued interest on, all outstanding Loans of the
Replaced Lender, (II) an amount equal to all Unpaid Drawings that have been
funded by (and not reimbursed to) such Replaced Lender, together with all then
unpaid interest with respect thereto at such time and (III) an amount equal to
all accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant
to Section 3.01, (y) to the Letter of Credit Issuer an amount equal to such
Replaced Lender's Dollar Percentage of any Unpaid Drawing (which at such time
remains an Unpaid Drawing) to the extent such amount was not theretofore funded
by such Replaced Lender and (z) to BTCo an amount equal to such Replaced
Lender's Dollar Percentage of any Mandatory Borrowing to the extent such amount
was not theretofore funded by such Replaced Lender and (B) all obligations of
the Borrowers owing to the Replaced Lender (other than those specifically
described in clause (A) above in respect of which the assignment purchase price
has been, or is concurrently being, paid) shall be paid in full to such Replaced
Lender concurrently with such replacement.
(b) Upon the execution of the respective Assignment and Assumption
Agreements, the payment of amounts referred to in clauses (A) and (B) of Section
1.14(a) and, if so requested by the Replacement Lender, delivery to the
Replacement Lender of the appropriate Note or Notes executed by the respective
Borrowers, the Replacement Lender shall become a Lender hereunder and the
Replaced Lender shall cease to constitute a Lender hereunder, except
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with respect to indemnification provisions applicable to the Replaced Lender
under this Agreement (including, without limitation, Sections 1.11, 1.12, 2.05,
4.04, 12.01 and 12.06), which shall survive as to such Replaced Lender.
1.15 Bankers' Acceptance Provisions. The parties hereto agree that the
provisions of Annex III shall apply to all Bankers' Acceptances and Bankers'
Acceptance Loans created hereunder, and that the provisions of Annex III shall
be deemed incorporated by reference into this Agreement as if such provisions
were set forth in their entirety herein.
1.16 Special Provisions Regarding Canadian Revolving Loans. (a) On the
fifth Business Day after the occurrence of a Sharing Event, automatically (and
without the taking of any action) (x) all then outstanding Canadian Revolving
Loans shall be automatically converted into Dollar Revolving Loans (in an amount
equal to the Dollar Equivalent of the aggregate principal amount or Face Amount,
as the case may be, of the Canadian Revolving Loans on the date such Sharing
Event first occurred, which Dollar Revolving Loans (i) shall be owed by DBF,
(ii) shall thereafter be deemed to be Base Rate Loans and (iii) shall be
immediately due and payable on the date such Sharing Event has occurred) and (y)
all accrued and unpaid interest and other amounts owing with respect to such
Canadian Revolving Loans shall be immediately due and payable in Dollars, taking
the Dollar Equivalent of such accrued and unpaid interest and other amounts.
(b) Upon the occurrence of a Sharing Event, each Lender shall (and hereby
unconditionally and irrevocably agrees to) purchase and sell (in each case in
Dollars) undivided participating interests in the Revolving Loans outstanding
to, and any Unpaid Drawings owing by, each Borrower in such amounts so that each
Lender shall have a share of the outstanding Revolving Loans and Unpaid Drawings
then owing by each Borrower equal to its Percentage thereof. Upon any such
occurrence the Agent shall notify each Lender and shall specify the amount of
Dollars required from such Lender in order to effect the purchases and sales by
the various Lenders of participating interests in the amounts required above
(together with accrued interest with respect to the period for the last interest
payment date through the date of the Sharing Event plus any additional amounts
payable by any respective Borrower pursuant to Section 4.04 in respect of such
accrued but unpaid interest); provided, in the event that a Sharing Event shall
have occurred, each Lender shall be deemed to have purchased, automatically and
without request, such participating interests. Promptly upon receipt of such
request, each Lender shall deliver to the Agent (in immediately available funds
in Dollars) the net amounts as specified by the Agent. The Agent shall promptly
deliver the amounts so received to the various Lenders in such amounts as are
needed to effect the purchases and sales of participations as provided above.
Promptly following receipt thereof, each Lender which has sold participations in
any of its Revolving Loans (through the Agent) will deliver to each Lender
(through the Agent) which has so purchased a participating interest a
participation certificate dated the date of receipt of such funds and in such
amount. It is understood that the amount of funds delivered by each Lender shall
be calculated on a net basis, giving effect to both the sales and purchases of
participations by the various Lenders as required above.
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(c) Upon, and after, the occurrence of a Sharing Event (i) no further
Canadian Revolving Loans shall be made to DBF, (ii) all amounts from time to
time accruing with respect to, and all amounts from time to time payable on
account of, such Canadian Revolving Loans (including, without limitation, any
interest and other amounts which were accrued but unpaid on the date of such
purchase) shall be payable in Dollars as if such Canadian Revolving Loan had
originally been made in Dollars and shall be distributed by the relevant Lenders
(or their affiliates) to the Agent for the account of the Lenders which made
such Loans or are participating therein and (iii) the Canadian Sub-Commitments
of the various Canadian Lenders shall be automatically terminated.
Notwithstanding anything to the contrary contained above, the failure of any
Lender to purchase its participating interest in any Revolving Loans upon the
occurrence of a Sharing Event shall not relieve any other Lender of its
obligation hereunder to purchase its participating interests in a timely manner,
but no Lender shall be responsible for the failure of any other Lender to
purchase the participating interest to be purchased by such other Lender on any
date.
(d) If any amount required to be paid by any Lender pursuant to Section
1.16(b) is not paid to the Agent within one Business Day following the date upon
which such Lender receives notice from the Agent of the amount of its
participations required to be purchased pursuant to said Section 1.16(b), such
Lender shall also pay to the Agent on demand an amount equal to the product of
(i) the amount so required to be paid by such Lender for the purchase of its
participations times (ii) the daily average Federal Funds Effective Rate, during
the period from and including the date of request for payment to the date on
which such payment is immediately available to the Agent times (iii) a fraction
the numerator of which is the number of days that elapsed during such period and
the denominator of which is 360. If any such amount required to be paid by any
Lender pursuant to Section 1.16(b) is not in fact made available to the Agent
within three Business Days following the date upon which such Lender receives
notice from the Agent as to the amount of participations required to be
purchased by it, the Agent shall be entitled to recover from such Lender on
demand, such amount with interest thereon calculated from such request date at
the rate per annum applicable to Dollar Revolving Loans maintained as Base Rate
Loans hereunder. A certificate of the Agent submitted to any Lender with respect
to any amounts payable under this Section 1.16 shall be conclusive in the
absence of manifest error. Amounts payable by any Lender pursuant to this
Section 1.16 shall be paid to the Agent for the account of the relevant Lenders;
provided that, if the Agent (in its sole discretion) has elected to fund on
behalf of such Lender the amounts owing to such Lenders, then the amounts shall
be paid to the Agent for its own account.
(e) Whenever, at any time after the relevant Lenders have received from any
Lenders purchases of participations in any Revolving Loans pursuant to this
Section 1.16, the Lenders receive any payment of account thereof, such Lenders
will distribute to the Agent, for the account of the various Lenders
participating therein, such Lenders' participating interests in such amounts
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such participations were outstanding) in like funds as
received; provided, however, that in the event that such payment received by any
Lenders is required to be returned, the Lenders who received previous
distributions in respect of their participating interests therein
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will return to the respective Lenders any portion thereof previously so
distributed to them in like funds as such payment is required to be returned by
the respective Lenders.
(f) Each Lender's obligation to purchase participating interests pursuant
to this Section 1.16 shall be absolute and unconditional and shall not be
affected by any circumstance including, without limitation, (a) any setoff,
counterclaim, recoupment, defense or other right which such Lender may have
against any other Lender, the relevant Borrower or any other Person for any
reason whatsoever, (b) the occurrence or continuance of an Event of Default, (c)
any adverse change in the condition (financial or otherwise) of any Borrower or
any other Person, (d) any breach of this Agreement by any Borrower or any Lender
or any other Person, or (e) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
(g) Notwithstanding anything to the contrary contained elsewhere in this
Agreement, upon any purchase of participations as required above, each Lender
which has purchased such participations shall be entitled to receive from the
relevant Borrowers any increased costs and indemnities (including, without
limitation, pursuant to Sections 1.11, 1.12, 2.05 and 4.04) directly from the
Borrowers to the same extent as if it were the direct Lender as opposed to a
participant therein, which increased costs shall be calculated without regard to
Section 1.13, Section 12.04(a) or the last sentence of Section 12.04(b). The
Borrowers acknowledge and agree that, upon the occurrence of a Sharing Event and
after giving effect to the requirements of this Section 1.16, increased Taxes
may be owing by them pursuant to Section 4.04, which Taxes shall be paid (to the
extent provided in Section 4.04) by the respective Borrowers, without any claim
that the increased Taxes are not payable because same resulted from the
participations effected as otherwise required by this Section 1.16.
1.17 Certain Override Provisions Regarding Utilizations of the
Total Canadian Sub-Commitment. (a) Notwithstanding anything to the contrary
contained in this Agreement, the parties hereto agree that (i) the Total
Canadian Sub-Commitment shall be fixed on a quarterly basis in accordance with
this Section 1.17, (ii) in no event shall the Total Canadian Sub-Commitment
exceed the least of (x) $50,000,000, (y) the sum of the Canadian Sub-Commitments
of the various Canadian Lenders as then in effect (after giving effect to any
reductions to such Canadian Sub-Commitments from time to time, including
pursuant to Sections 3.02, 3.03 and/or 9) and (z) the Total Commitment then in
effect, (iii) in no event shall the Canadian Sub-Commitment for any Canadian
Lender exceed the amount set forth opposite such Canadian Lender's name in Annex
I-B directly below the column entitled "Canadian Sub-Commitment," as the same
may be reduced from time to time pursuant to Sections 3.02, 3.03 and/or 9 or as
the same may be further adjusted from time to time as a result of assignments to
or from such Lender pursuant to Section 1.14 or 12.04(b), (iv) at no time shall
Workflow be permitted to request an extension of credit pursuant to the Total
Commitment (whether in the form of Revolving Loans, Swingline Loans, Competitive
Bid Loans or Letter of Credit Outstandings) and no such credit shall be made
available if, after giving effect thereto, the sum of the aggregate principal
amount of outstanding Revolving Loans (excluding for this purpose Canadian
Revolving Loans), Swingline Loans and Competitive Bid Loans and the amount of
Letter of Credit Outstandings at such time would exceed an amount equal to the
Total
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Commitment as then in effect less the Total Canadian Sub-Commitment as then in
effect, (v) at no time shall DBF be permitted to request an extension of credit
in the form of Canadian Revolving Loans if, after giving effect thereto, the
aggregate principal (and Face Amount, as applicable) of outstanding Canadian
Revolving Loans (for this purpose, using the Dollar Equivalent of the principal
and/or Face Amount, as appropriate, of Canadian Revolving Loans) would at any
time exceed the Total Canadian Sub-Commitment; and (vi) the Canadian
Sub-Commitment for any Canadian Lender at any time shall be an amount equal to
its pro rata share of the Total Canadian Sub-Commitment at such time determined
on the basis of the Canadian Percentages of the various Canadian Lenders. At all
times from and after the date of this Agreement until an adjustment is made in
accordance with this Section 1.17, the Total Canadian Sub-Commitment shall be
$25,000,000.
(b) Workflow, not more than 30 days and not less than 5 Business Days prior
to the last day of each calendar quarter, shall give written notice to the Agent
either (x) requesting an adjustment (subject to the limitations set forth in
clause (a) of this Section 1.17) effective as of the first Business Day of the
immediately following calendar quarter (each such date an "Adjustment Date") to
the amount of the Total Canadian Sub-Commitment; or (y) confirming that there
will be no adjustments to the amount available under the Total Canadian
Sub-Commitment, provided that (i) no reduction to the amount of the Total
Canadian Sub-Commitment may be made if, after giving effect to any such
reduction, the Total Canadian Sub-Commitment would be less than the sum of the
aggregate Face Amount of all Bankers' Acceptance Loans and the principal amount
of all Canadian Prime Rate Loans (for this purpose, using the Dollar Equivalent
of the Face Amounts or principal amounts thereof) then outstanding (other than
any such Canadian Revolving Loans which will be repaid in full on or before the
respective Adjustment Date) and (ii) the failure by Workflow to deliver any such
written notice (or the delivery by Workflow of any such notice which does not
comply with the requirements contained in this Section) to the Agent within the
period required above will be deemed to be delivery by Workflow to the Agent of
a written notice that there will be no adjustment to the Total Canadian
Sub-Commitment. If any adjustment is made on an Adjustment Date as described in
this Section, then on the respective Adjustment Date all repayments requested by
this Section and Section 4.02(a) shall be made on such date to the extent
required as a result of such adjustments and in manner provided in Section 4.02.
(c) In connection with any loans and/or repayments made as a result of
adjustments to the Total Canadian Sub-Commitment and the Canadian Sub-Commitment
for any Canadian Lender as requested above, then, so long as arrangements
satisfactory to the Agent are made for the repayment of all amounts which will
be due on the respective Adjustment Date as a result thereof, loans shall be
permitted to be requested by the Borrowers as a result of any change in the
amount of the Total Canadian Sub-Commitment on such date (subject to
satisfaction of the other terms and conditions of this Agreement) so long as
arrangements satisfactory to the Agent are made so that, by the time required by
Section 4.03, all payments will be made by the Borrowers on such Adjustment Date
as a result of any change in the amount of the Total Canadian Sub-Commitment, on
such date. It is understood and agreed that the Agent shall not have any
liability to any Lenders if the payments contemplated above in this Section are
not actually made on the Adjustment Date, and that any failure to make the
payments required to be
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made on an Adjustment Date pursuant to this Section or Section 4.02(a) shall
constitute an Event of Default in accordance with the terms of Section 9.01.
SECTION 2. Letters of Credit.
2.01 Letters of Credit. (a) Subject to and upon the terms and conditions
set forth herein, Workflow may request the Letter of Credit Issuer at any time
and from time to time on or after the Effective Date and prior to the 30th day
prior to the Final Maturity Date to issue, for the account of Workflow and in
support of (x) trade obligations and other obligations of Workflow or any of its
Subsidiaries incurred in the ordinary course of business and (y) such other
obligations of Workflow or any of its Subsidiaries to any other Person that are
reasonably acceptable to the Agent and the Letter of Credit Issuer, and subject
to and upon the terms and conditions set forth herein, the Letter of Credit
Issuer agrees to issue from time to time, irrevocable letters of credit in such
form as may be approved by the Letter of Credit Issuer and the Agent (each such
letter of credit, a "Letter of Credit" and, collectively, the "Letters of
Credit").
(b) The Letter of Credit Issuer hereby agrees that it will (subject to the
terms and conditions contained herein), at any time and from time to time on and
after the Effective Date and prior to the 30th day prior to the Final Maturity
Date, following its receipt of the respective Letter of Credit Request, issue
for the account of Workflow, subject to the terms and conditions of this
Agreement, one or more Letters of Credit, provided that the Letter of Credit
Issuer shall be under no obligation to issue any Letter of Credit if at the time
of such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain the Letter of
Credit Issuer from issuing such Letter of Credit or any requirement of law
applicable to the Letter of Credit Issuer or any request or directive
(whether or not having the force of law) from any governmental authority
with jurisdiction over the Letter of Credit Issuer shall prohibit, or
request that the Letter of Credit Issuer refrain from, the issuance of
letters of credit generally or such Letter of Credit in particular or shall
impose upon the Letter of Credit Issuer with respect to such Letter of
Credit any restriction or reserve or capital requirement (for which the
Letter of Credit Issuer is not otherwise compensated) not in effect on the
date hereof, or any unreimbursed loss, cost or expense which was not
applicable, in effect or known to the Letter of Credit Issuer as of the
date hereof and which the Letter of Credit Issuer reasonably and in good
faith deems material to it; or
(ii) the Letter of Credit Issuer shall have received notice from
Workflow, any other Credit Party or the Required Lenders prior to the
issuance of such Letter of Credit of the type described in clause (v) of
Section 2.01(c).
Notwithstanding anything to the contrary contained in this Agreement, Workflow,
the Letter of Credit Issuer and each of the other Lenders hereby acknowledge and
agree that the letter of credit, dated May 13, 1997, in the stated amount of
$1,000,000 and having the number S-11882 which was issued by the Letter of
Credit Issuer for the account of U.S. Office Products and for the benefit of
Toronto Dominion Bank under U.S. Office Products' previous credit agreement
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agented by the Letter of Credit Issuer shall for all purposes of this Agreement
be deemed to be a Letter of Credit issued under this Agreement for the account
of Workflow on the Effective Date and Workflow shall be fully obligated with
respect thereto. In addition, Workflow hereby authorizes the Letter of Credit
Issuer to amend such Letter of Credit to reflect that the account party is now
Workflow instead of U.S. Office Products.
(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued
the Stated Amount of which, when added to the Letter of Credit Outstandings at
such time, would exceed $5,000,000, (ii) no Letter of Credit shall be issued if,
after giving effect thereto, the Aggregate Revolving Credit Exposure would
exceed the Total Commitment at such time, (iii) each Letter of Credit shall have
an expiry date occurring not later than the earlier of (x) one year (or 180 days
in the case of a trade Letter of Credit) after such Letter of Credit's date of
issuance, provided that any standby Letter of Credit may be automatically
extendible for periods of up to one year so long as such standby Letter of
Credit provides that the Letter of Credit Issuer retains an option, satisfactory
to the Letter of Credit Issuer, to terminate such standby Letter of Credit
within a specified period of time prior to each scheduled extension date and (y)
the fifth Business Day (or the 30th day in the case of trade Letters of Credit)
prior to the Final Maturity Date, (iv) each Letter of Credit shall be
denominated in Dollars and issued on a sight basis, and (v) the Letter of Credit
Issuer will not issue any Letter of Credit after it has received written notice
from Workflow, any other Credit Party or the Required Lenders stating that a
Default or an Event of Default exists until such time as the Letter of Credit
Issuer shall have received a written notice of (x) rescission of such notice
from the party or parties originally delivering same or (y) a waiver of such
Default or Event of Default by the Required Lenders.
(d) Notwithstanding the foregoing, in the event a Lender Default exists,
the Letter of Credit Issuer shall not be required to issue any Letter of Credit
unless the Letter of Credit Issuer has entered into arrangements satisfactory to
it and Workflow to eliminate the Letter of Credit Issuer's risk with respect to
the participation in Letters of Credit of any Defaulting Lender or Lenders,
including by cash collateralizing any such Defaulting Lender's or Lenders'
Percentage of the Letter of Credit Outstandings.
2.02 Letter of Credit Requests; Notices of Issuance. (a) Whenever Workflow
desires that a Letter of Credit be issued, Workflow shall give the Agent and the
Letter of Credit Issuer written notice thereof prior to 11:00 A.M. (New York
time) at least five Business Days (or such shorter period as may be acceptable
to the Letter of Credit Issuer) prior to the proposed date of issuance (which
shall be a Business Day), which notice shall be in the form of Exhibit A-2
appropriately completed (each a "Letter of Credit Request"). Each Letter of
Credit Request shall include any other documents as the Letter of Credit Issuer
customarily requires in connection therewith.
(b) The making of each Letter of Credit Request shall be deemed to be a
representation and warranty by Workflow that (i) such Letter of Credit may be
issued in accordance with, and will not violate the requirements of, Section
2.01(c) and (ii) all of the applicable conditions set forth in Section 5 shall
be met at the time of such issuance. Unless the Letter of Credit Issuer has
received notice from Workflow, any other Credit Party or the Required
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Lenders before it issues a Letter of Credit that one or more of the conditions
specified in Section 5 are not then satisfied, or that the issuance of such
Letter of Credit would violate Section 2.01(c), then the Letter of Credit Issuer
may issue the requested Letter of Credit for the account of Workflow in
accordance with the Letter of Credit Issuer's usual and customary practices.
(c) The Letter of Credit Issuer shall, promptly upon its issuance of a
Letter of Credit, give the Agent and Workflow written notice thereof, in each
case accompanied by a copy to the Agent of the Letter of Credit or Letters of
Credit issued by the Letter of Credit Issuer.
2.03 Agreement to Repay Letter of Credit Drawings. (a) Workflow hereby
agrees to reimburse the Letter of Credit Issuer, by making payment to the Agent
in Dollars and in immediately available funds at the appropriate Payment Office,
for any payment or disbursement made by the Letter of Credit Issuer under any
Letter of Credit (each such amount so paid or disbursed until reimbursed, an
"Unpaid Drawing") promptly upon but no later than one Business Day after the
Letter of Credit Issuer notifies Workflow that such payment or disbursement has
occurred (provided that no such notice shall be required to be given if a
Default or an Event of Default under Section 9.05 shall have occurred and be
continuing, in which case the Unpaid Drawing shall be due and payable
immediately without presentment, demand, protest or notice of any kind (all of
which are hereby waived by Workflow)), with interest on the amount so paid or
disbursed by the Letter of Credit Issuer, to the extent not reimbursed prior to
12:00 Noon (New York time) on the date of such payment or disbursement, from and
including the date paid or disbursed to but not including the date the Letter of
Credit Issuer is reimbursed therefor at a rate per annum which shall be the
Applicable Base Rate/Canadian Prime Rate Margin plus the Base Rate, each as in
effect from time to time (plus an additional 2% per annum if not reimbursed by
the third Business Day after the date of such notice of such payment or
disbursement or following the occurrence of a Default or an Event of Default
under Section 9.05), with such interest to be payable on demand.
(b) Workflow's obligation under this Section 2.03 to reimburse the Letter
of Credit Issuer with respect to Unpaid Drawings (including, in each case,
interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which Workflow or any of its Subsidiaries may have or have had against the
Letter of Credit Issuer, the Agent, any Lender, the beneficiary of any Letter of
Credit or any other Person, including, without limitation, any defense based
upon the failure of any drawing under a Letter of Credit to conform to the terms
of the Letter of Credit or any non-application or misapplication by the
beneficiary of the proceeds of such drawing, provided that Workflow shall not be
obligated to reimburse the Letter of Credit Issuer for any wrongful payment made
by the Letter of Credit Issuer under a Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part of the
Letter of Credit Issuer (as finally determined by a court of competent
jurisdiction).
2.04 Letter of Credit Participations. (a) Immediately upon the issuance by
the Letter of Credit Issuer of any Letter of Credit, the Letter of Credit Issuer
shall be deemed to have sold and transferred to each other Lender, and each such
Lender (each a "Participant") shall be deemed irrevocably and unconditionally to
have purchased and received from the Letter of Credit
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Issuer, without recourse or warranty, an undivided interest and participation,
to the extent of such Lender's Dollar Percentage, in such Letter of Credit, each
substitute letter of credit, each drawing made thereunder and the obligations of
Workflow under this Agreement with respect thereto (although Letter of Credit
Fees shall be payable directly to the Agent for the account of the Lenders as
provided in Section 3.01(b) and the Participants shall have no right to receive
any portion of any Facing Fees) and any security therefor or guaranty pertaining
thereto; provided that, upon the occurrence of a Sharing Event, the
participations described above in this Section 2.04(a) shall be automatically
adjusted so that each Lender shall have a participation in all then outstanding
Letters of Credit, and related obligations as described above, in a percentage
equal to its Percentage (which adjustments shall occur concurrently with the
adjustments described in Section 1.16). Upon any change in the Commitments or
Dollar Percentages of the Lenders pursuant to this Agreement (or in the
circumstances provided in the proviso to the immediately preceding sentence,
upon any change in the Percentages of the Lenders pursuant to this Agreement),
it is hereby agreed that, with respect to all outstanding Letters of Credit and
Unpaid Drawings, there shall be an automatic adjustment to the participations
pursuant to this Section 2.04 to reflect the new Dollar Percentages or, in the
circumstances described in the proviso to the immediately preceding sentence,
the new Percentages of the various Lenders.
(b) In determining whether to pay under any Letter of Credit, the Letter of
Credit Issuer shall not have any obligation relative to the Participants other
than to determine that any documents required to be delivered under such Letter
of Credit have been delivered and that they appear to substantially comply on
their face with the requirements of such Letter of Credit. Any action taken or
omitted to be taken by the Letter of Credit Issuer under or in connection with
any Letter of Credit, if taken or omitted in the absence of gross negligence or
willful misconduct (as finally determined by a court of competent jurisdiction),
shall not create for the Letter of Credit Issuer any resulting liability to any
Person.
(c) In the event that the Letter of Credit Issuer makes any payment under
any Letter of Credit and Workflow shall not have reimbursed such amount in full
to the Letter of Credit Issuer pursuant to Section 2.03(a), the Letter of Credit
Issuer shall promptly notify the Agent, and the Agent shall promptly notify each
Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Agent for the account of the Letter of Credit Issuer,
the amount of such Participant's Dollar Percentage (or, after the occurrence of
a Sharing Event, its Percentage) of such payment in Dollars and in same day
funds, provided that no Participant shall be obligated to pay to the Agent its
Dollar Percentage (or Percentage, as the case may be) of such unreimbursed
amount for any wrongful payment made by the Letter of Credit Issuer under a
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Letter of Credit Issuer (as
finally determined by a court of competent jurisdiction). If the Agent so
notifies any Participant required to fund a payment under a Letter of Credit
prior to 11:00 A.M. (New York time) on any Business Day, such Participant shall
make available to the Agent for the account of the Letter of Credit Issuer such
Participant's Dollar Percentage (or, after the occurrence of a Sharing Event,
its Percentage) of the amount of such payment on such Business Day in Dollars
and in same day funds. If and to the extent such Participant shall not have so
made its Dollar Percentage (or Percentage, as the case may be) of the amount of
such payment available to the Agent for the account of the Letter of
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Credit Issuer, such Participant agrees to pay to the Agent for the account of
the Letter of Credit Issuer, forthwith on demand such amount, together with
interest thereon, for each day from such date until the date such amount is paid
to the Agent for the account of the Letter of Credit Issuer at the Federal Funds
Effective Rate. The failure of any Participant to make available to the Agent
for the account of the Letter of Credit Issuer its Dollar Percentage (or, after
the occurrence of a Sharing Event, its Percentage) of any payment under any
Letter of Credit shall not relieve any other Participant of its obligation
hereunder to make available to the Agent for the account of the Letter of Credit
Issuer its Dollar Percentage (or Percentage, as the case may be) of any payment
under any Letter of Credit on the date required, as specified above, but no
Participant shall be responsible for the failure of any other Participant to
make available to the Agent for the account of the Letter of Credit Issuer such
other Participant's Dollar Percentage (or Percentage, as the case may be) of any
such payment.
(d) Whenever the Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Agent has received for the account
of the Letter of Credit Issuer any payments from the Participants pursuant to
clause (c) above, the Letter of Credit Issuer shall pay to the Agent and the
Agent shall promptly pay to each Participant which has paid its Dollar
Percentage thereof (or, after the occurrence of a Sharing Event, its
Percentage thereof), in Dollars and in same day funds, an amount equal to
such Participant's Dollar Percentage (or Percentage, as the case may be) of
the principal amount thereof and interest thereon accruing after the actual
funding of the respective participations.
(e) The obligations of the Participants to make payments to the Agent for
the account of the Letter of Credit Issuer with respect to Letters of Credit
shall be irrevocable and not subject to counterclaim, set-off or other defense
or any other qualification or exception whatsoever (except as otherwise
expressly provided in the proviso to the first sentence in Section 2.04(c)) and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or any of
the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other right which
Workflow or any of its Subsidiaries may have at any time against a
beneficiary named in a Letter of Credit, any transferee of any Letter of
Credit, any Lender or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transaction between
Workflow or any such Subsidiary and the beneficiary named in any such
Letter of Credit);
(iii) any draft, certificate or other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or
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(v) the occurrence of any Default or Event of Default.
2.05 Increased Costs. If at any time after the date hereof, the adoption,
introduction or effectiveness of any applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Letter of Credit
Issuer or any Participant with any request or directive (whether or not having
the force of law) by any such authority, central bank or comparable agency shall
either (i) impose, modify or make applicable any reserve, deposit, capital
adequacy or similar requirement against Letters of Credit issued by the Letter
of Credit Issuer or such Participant's participation therein, or (ii) impose on
the Letter of Credit Issuer or any Participant any other conditions affecting
this Agreement, any Letter of Credit or such Participant's participation
therein; and the result of any of the foregoing is to increase the cost to the
Letter of Credit Issuer or such Participant of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by the Letter of Credit Issuer or such Participant
hereunder or reduce the rate of return on its capital with respect to Letters of
Credit, then, upon written demand to Workflow by the Letter of Credit Issuer or
such Participant (a copy of which demand shall be sent by the Letter of Credit
Issuer or such Participant to the Agent), Workflow shall pay to the Letter of
Credit Issuer or such Participant such additional amount or amounts as will
compensate the Letter of Credit Issuer or such Participant for such increased
cost or reduction. A certificate submitted to Workflow by the Letter of Credit
Issuer or such Participant, as the case may be (a copy of which certificate
shall be sent by the Letter of Credit Issuer or such Participant to the Agent),
setting forth the basis for the determination of such additional amount or
amounts necessary to compensate the Letter of Credit Issuer or such Participant
as aforesaid shall be final and conclusive and binding on Workflow absent
manifest error, although the failure to deliver any such certificate shall not
release or diminish Workflow's obligations to pay additional amounts pursuant to
this Section 2.05 upon subsequent receipt of such certificate.
SECTION 3. Fees; Adjustments of Commitments.
3.01 Fees. (a) Workflow agrees to pay to the Agent for distribution to each
Non-Defaulting Lender a commitment fee (the "Commitment Fee") for the period
from the Effective Date to but not including the date the Total Commitment has
been terminated, computed for each day at a rate per annum equal to the
Applicable Commitment Fee Percentage (as in effect from time to time) on the
daily average Unutilized Commitment of such Lender. Accrued Commitment Fees
shall be due and payable quarterly in arrears on the last Business Day of each
April, July, October and January of each year and the date upon which the Total
Commitment has been terminated.
(b) Workflow agrees to pay to the Agent for distribution to each Lender
(based on its Dollar Percentage or, for periods from and after the occurrence of
a Sharing Event, its Percentage), a fee in respect of each Letter of Credit (the
"Letter of Credit Fee") for the period from and including the date of issuance
of such Letter of Credit to and including the date of termination or expiration
of such Letter of Credit, computed for each day at a rate per annum
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equal to the Applicable Eurodollar Margin (as in effect from time to time) on
the daily average Stated Amount of such Letter of Credit. Accrued Letter of
Credit Fees shall be due and payable quarterly in arrears on the last Business
Day of each April, July, October and January of each year and on the first day
on or after the termination of the Total Commitment upon which no Letters of
Credit remain outstanding.
(c) Workflow agrees to pay directly to the Letter of Credit Issuer for the
account of the Letter of Credit Issuer a fee in respect of each Letter of Credit
(the "Facing Fee") for the period from and including the date of issuance of
such Letter of Credit to and including the date of termination or expiration of
such Letter of Credit, computed for each day at a rate per annum equal to 1/4 of
1% on the daily average Stated Amount of such Letter of Credit, provided that in
no event shall the annual Facing Fee with respect to any Letter of Credit be
less than $500. Accrued Facing Fees shall be due and payable quarterly in
arrears on the last Business Day of each April, July, October and January of
each year and on the first day on or after the termination of the Total
Commitment upon which no Letters of Credit remain outstanding.
(d) Workflow agrees to pay directly to the Letter of Credit Issuer upon
each issuance of, payment under, and/or amendment of, a Letter of Credit issued
by it such amount as shall at the time of such issuance, payment or amendment be
the administrative charge which the Letter of Credit Issuer is customarily
charging for issuances of, payments under or amendments of comparable letters of
credit issued by it.
(e) At the time of the incurrence of each Bankers' Acceptance Loan,
Acceptance Fees shall be paid by DBF as required by, and in accordance with,
clause (g) of Annex III.
(f) Each Borrower agrees to pay to the Agent, for its own account, such
other fees as have been agreed to in writing from time to time by such Borrower
and the Agent.
(g) All computations of Fees shall be made in accordance with Section
12.07(b).
3.02 Voluntary Reduction of Commitments. (a) Upon at least three Business
Days' prior written notice to the Agent at the Notice Office (which notice the
Agent shall promptly transmit to each of the Lenders), Workflow shall have the
right, without premium or penalty, to terminate or partially reduce the
Unutilized Total Commitment, which notice shall specify the portion of the
specified reduction which shall apply to the Unutilized Acquisition Sub-Limit as
required by the definition of Acquisition Sub-Limit, provided that any partial
reduction pursuant to this Section 3.02(a) shall be in the amount of at least
$5,000,000 or any integral of $1,000,000 in excess thereof. Each reduction to
the Unutilized Total Commitment pursuant to this Section 3.02(a) shall apply to
permanently reduce the Commitments of the various Lenders pro rata based on
their respective Percentages. At the time of each reduction to the Commitment of
any Lender pursuant to this Section 3.02(a), Workflow shall specify the amount
of such reduction to apply to the Canadian Sub-Commitment of such Lender and to
the Dollar Sub-Commitment of such Lender (the sum of which must equal the
reduction to the Commitment of such Lender); provided that all Lenders with
Canadian Sub-Commitments shall be treated in a consistent fashion (i.e., with no
reductions, or with proportionate reductions, to their respective Canadian
Sub-Commitments) at the time of any reduction to the Unutilized Total
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Commitment pursuant to this Section 3.02(a). In the absence of a designation by
Workflow pursuant to this Section 3.02, the amount of any reduction to the
Commitment of any Lender pursuant to this Section 3.02 shall apply (i) first, to
reduce the Dollar Sub-Commitment of the respective Lender and (ii) second, to
the extent in excess thereof, to reduce the Canadian Sub-Commitment of such
Lender in each case on a pro rata basis.
(b) On any date Workflow may, at its option, permanently reduce or
terminate the Canadian Sub-Commitments by written notice to the Agent to such
effect (specifying the aggregate amount of reductions to the Canadian
Sub-Commitments); provided that (i) no such reduction shall be made in an amount
which would cause the Dollar Equivalent of the then outstanding aggregate
principal amount or Face Amount, as the case may be, of the Canadian Revolving
Loans to exceed the Canadian Sub-Commitments of the Canadian Lenders after
giving effect to the respective reduction pursuant to this clause (b), (ii) each
reduction pursuant to this clause (b) shall apply pro rata to reduce the
Canadian Sub-Commitments of the various Canadian Lenders (based upon the
relative amounts of such Canadian Sub-Commitments) and (iii) except to the
extent the reduction to the Canadian Sub-Commitments pursuant to this Section
3.02(b) is accompanied by a like reduction to the amount of the Total Commitment
pursuant to Section 3.02(a), the amount of each Lender's reduction to its
Canadian Sub-Commitment pursuant to this clause (b) shall result in a like
increase to its Dollar Sub-Commitment.
3.03 Mandatory Adjustments of Commitments, etc. (a) The Total Commitment
shall terminate on the Commitment Expiration Date unless the Effective Date has
occurred on or before such date.
(b) The Total Commitment shall terminate on the earlier of (i) the date on
which a Change of Control occurs and (ii) the Final Maturity Date.
(c) On the date of receipt by Workflow and/or any of its Subsidiaries of
Cash Proceeds from any Asset Sale, the Total Commitment shall be permanently
reduced on such date by an amount equal to the Net Cash Proceeds from such Asset
Sale, provided that such reduction shall not be required to the extent that
Workflow elects, as hereinafter provided, to cause such Net Cash Proceeds to be
reinvested in Reinvestment Assets (such election, together with any election
made pursuant to Section 3.03(d), a "Reinvestment Election"). Workflow may
exercise its Reinvestment Election with respect to an Asset Sale if (x) no
Default or Event of Default exists and (y) Workflow delivers a Reinvestment
Notice to the Agent on the date of the consummation of the respective Asset
Sale, with such Reinvestment Election being effective with respect to the Net
Cash Proceeds from such Asset Sale equal to the Anticipated Reinvestment Amount
specified in such Reinvestment Notice.
(d) On the Business Day following the date of receipt by Workflow and/or
any of its Subsidiaries of Cash Proceeds from any Recovery Event, the Total
Commitment shall be permanently reduced on such date by an amount equal to the
Net Insurance Proceeds from such Recovery Event, provided that such reduction
shall not be required to the extent that Workflow elects, as hereinafter
provided, to cause such Net Insurance Proceeds to be reinvested in
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Reinvestment Assets. Workflow may exercise its Reinvestment Election with
respect to a Recovery Event if (x) no Default or Event of Default exists and (y)
Workflow delivers a Reinvestment Notice to the Agent on the Business Day
following the date of Workflow's or its respective Subsidiary's receipt of the
proceeds from the respective Recovery Event, with such Reinvestment Election
being effective with respect to the Net Insurance Proceeds from such Recovery
Event equal to the Anticipated Reinvestment Amount specified in such
Reinvestment Notice.
(e) The Total Commitment shall be permanently reduced on the Reinvestment
Reduction Date with respect to a Reinvestment Election, in an amount equal to
the Reinvestment Reduction Amount, if any, with respect to such Reinvestment
Election.
(f) On the date of receipt by Workflow and/or any of its Subsidiaries of
cash proceeds from the incurrence of Indebtedness for borrowed money by Workflow
and/or any of its Subsidiaries (other than Indebtedness permitted by Section
8.04 as in effect on the Effective Date), the Total Commitment shall be
permanently reduced on such date by an amount equal to the cash proceeds from
such incurrence of Indebtedness (net of underwriting discounts and commissions
and other reasonable costs associated therewith).
(g) Each reduction of the Total Commitment pursuant to this Section 3.03
shall apply to proportionally and permanently reduce the Commitment of each
Lender. At the time of each reduction to the Commitment of any Lender pursuant
to this Section 3.03, Workflow shall specify the amount of such reduction to
apply to the Canadian Sub-Commitment of such Lender and to the Dollar
Sub-Commitment of such Lender (the sum of which must equal the reduction to the
Commitment of such Lender); provided that all Lenders with Canadian
Sub-Commitments shall be treated in a consistent fashion (i.e., with no
reductions, or with proportionate reductions, to their respective Canadian
Sub-Commitments) at the time of any reduction to the Total Commitment pursuant
to this Section 3.03. In the absence of a designation by Workflow pursuant to
this Section 3.03, the amount of any reduction to the Commitment of any Lender
pursuant to this Section 3.03 shall apply (i) first, to reduce the Dollar
Sub-Commitment of the respective Lender and (ii) second, to the extent in excess
thereof, to reduce the Canadian Sub-Commitments of such Lender in each case on a
pro rata basis.
SECTION 4. Payments.
4.01 Voluntary Prepayments. Each Borrower shall have the right to prepay
the Loans made to it, in whole or in part, without premium or penalty, from time
to time on the following terms and conditions:
(i) such Borrower shall give the Agent at the Notice Office written
notice (or telephonic notice promptly confirmed in writing) of its intent
to prepay the Loans, whether Dollar Revolving Loans, Canadian Revolving
Loans or Swingline Loans shall be prepaid, the amount of such prepayment
and the Types of Loans to be prepaid and (in the case of Eurodollar Loans)
the specific Borrowing(s) pursuant to which made, which notice shall be
given by the respective Borrower prior to 12:00 Noon (New York time) at
least three Business Days (or, in the case of Base Rate Loans or Canadian
Prime Rate
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Loans, at least one Business Day) prior to the date of such prepayment,
which notice shall, except in the case of Swingline Loans, promptly be
transmitted by the Agent to each of the Lenders;
(ii) each prepayment shall be in an aggregate principal amount of at
least $1,000,000 (or Cdn $1,000,000 in the case of Canadian Prime Rate
Loans or (y) $250,000 in the case of Swingline Loans), provided that no
partial prepayment of Eurodollar Loans made pursuant to a Borrowing shall
reduce the aggregate principal amount of the Eurodollar Loans outstanding
pursuant to such Borrowing to an amount less than the Minimum Borrowing
Amount applicable thereto;
(iii) each prepayment in respect of any Revolving Loans made pursuant
to a Borrowing shall be applied pro rata among such Revolving Loans;
(iv) prepayments of Bankers' Acceptance Loans may not be made prior to
the maturity date of the respective Bankers' Acceptances;
(v) with respect to each prepayment in respect of any Revolving Loans
made pursuant to this Section 4.01, such prepayment shall, unless otherwise
directed by the respective Borrower at the time of prepayment, first be
deemed to be applied to any outstanding Acquisition Loans and then to any
outstanding Working Capital Loans; and
(vi) no Competitive Bid Loan may be prepaid without the consent of the
Lender that made such Competitive Bid Loan.
4.02 Mandatory Prepayments. (a) (i) If on any day the Aggregate Revolving
Credit Exposure exceeds the Total Commitment as then in effect, Workflow shall
prepay on such day the principal of outstanding Swingline Loans and, after all
Swingline Loans have been prepaid in full or if no Swingline Loans are
outstanding, the Borrowers shall prepay on such day the principal of outstanding
Revolving Loans (other than Bankers' Acceptance Loans where the underlying
Bankers Acceptances have not yet matured) (allocated between Dollar Revolving
Loans and Canadian Revolving Loans, as the Borrowers may elect) in an amount
(for this purpose, using the Dollar Equivalent of payments in Canadian Dollars
made with respect to Canadian Revolving Loans) equal to such excess. If, after
giving effect to the prepayment of all outstanding Swingline Loans and Revolving
Loans (other than Bankers' Acceptance Loans as referenced in the immediately
preceding sentence), the sum of the outstanding Bankers' Acceptance Loans (for
this purpose, using the Dollar Equivalent of the Face Amounts thereof),
Competitive Bid Loans and Letter of Credit Outstandings exceeds the Total
Commitment then in effect, (i) an amount of cash and/or Cash Equivalents equal
to the lesser of such excess and the then outstanding Face Amount of all
Bankers' Acceptances shall be deposited by DBF with the Agent as collateral for
the obligations of DBF to the Canadian Lenders (rounded up to the nearest
integral multiple of Cdn.$100,000) in respect of an equivalent Face Amount of
outstanding Bankers' Acceptances accepted by the Canadian Lenders which shall be
paid to and applied by the Canadian Lenders, in satisfaction of the obligations
of DBF to the Canadian Lenders in respect of such Banker's Acceptances, on the
maturity date thereof, (ii) to the extent such excess exceeds the amount applied
pursuant to preceding clause (i), cash and/or Cash Equivalents in an
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amount equal to such remaining excess or, if less, an amount equal to the then
outstanding principal amount of Competitive Bid Loans shall be paid by Workflow
to the Agent to be held as collateral for the repayment of such Competitive Bid
Loans at maturity and (iii) to the extent such excess exceeds the amount applied
pursuant to preceding clauses (i) and (ii), Workflow shall pay to the Agent cash
and/or Cash Equivalents in an amount equal to the amount of such excess (less
the amount applied pursuant to preceding clauses (i) and (ii)) (up to a maximum
amount equal to the Letter of Credit Outstandings at such time), such cash
and/or Cash Equivalents to be held as security for all obligations of Workflow
hereunder and under the other Credit Documents in a cash collateral account (and
invested from time to time in Cash Equivalents selected by the Agent) to be
established by the Agent.
(ii) If on any day the Dollar Equivalent of the aggregate outstanding
principal amount (or Face Amount, as the case may be) of Canadian Revolving
Loans made to DBF exceeds the Total Canadian Sub-Commitment as then in effect,
DBF shall prepay on such day principal of outstanding Canadian Revolving Loans
(other than Bankers' Acceptance Loans where the underlying Bankers' Acceptances
have not yet matured) in an amount equal to such excess. If, after giving effect
to the prepayment in full of all such outstanding Canadian Revolving Loans other
than the Bankers' Acceptance Loans referenced in the immediately preceding
sentence, the aggregate outstanding Face Amount of Bankers' Acceptance Loans
exceeds the Total Canadian Sub-Commitment as then in effect, DBF shall pay to
the Agent on such day an amount of cash and/or Cash Equivalents equal to the
amount of such excess (rounded up to the nearest integral multiple of Cdn.
$100,000), such cash and/or Cash Equivalents to be held as cash collateral for
the obligations of DBF to the Canadian Lenders in respect of an equivalent Face
Amount of outstanding Bankers' Acceptances accepted by the Canadian Lenders
which shall be paid to and applied by the Canadian Lenders, in satisfaction of
the obligations of DBF to the Canadian Lenders in respect of such Bankers'
Acceptances, on the maturity date thereof.
(iii) If on any day the aggregate outstanding principal amount of
Dollar Revolving Loans, Competitive Bid Loans and Swingline Loans made to
Workflow and the aggregate amount of all Letter of Credit Outstandings at such
time exceeds an amount equal to the Total Dollar Sub-Commitment as then in
effect, Workflow shall prepay on such day the principal of outstanding Swingline
Loans and, after all Swingline Loans have been repaid in full or if no Swingline
Loans are outstanding, principal of outstanding Dollar Revolving Loans in an
amount equal to such excess. If, after giving effect to the prepayment of all
such outstanding Swingline Loans and Dollar Revolving Loans, the sum of the
outstanding Competitive Bid Loans and Letter of Credit Outstandings exceeds the
Total Dollar Sub-Commitment as then in effect, (i) an amount of cash and/or Cash
Equivalents equal to such excess shall be deposited by Workflow with the Agent
as Collateral for the obligations of Workflow in respect of outstanding
Competitive Bid Loans and shall be applied to the repayment of such Competitive
Bid Loans at maturity and (ii) to the extent such excess exceeds the amount
applied pursuant to preceding clause (i), Workflow shall pay to the Agent cash
and/or Cash Equivalents in an amount equal to the amount of such excess (less
the amount applied pursuant to preceding clause (i)) (up to a maximum amount
equal to the Letter of Credit Outstandings at such time), such cash and/or Cash
Equivalents to be held as security for all obligations of Workflow hereunder and
under the
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other Credit Documents in a cash collateral account (and invested from time to
time in Cash Equivalents selected by the Agent) to be established by the Agent.
(iv) If, after giving effect to any prepayment then being made
pursuant to the other provisions of this Section 4.02(A)(a) on any date, the
aggregate outstanding principal amount of all Acquisition Loans exceeds the
Acquisition Sub-Limit then in effect, the Borrowers shall prepay on such date
the principal of Acquisition Loans in an aggregate amount equal to such excess
(with the Borrowers utilizing the priorities and procedures set out in Section
4.02(a)(i) in respect of such prepayment).
(v) In the event that any Borrower is required pursuant to the other
provisions of this Section 4.02 to deliver any cash and/or Cash Equivalents to
the Agent to be held as security for the Obligations of such Borrower hereunder
and under the other Credit Documents, the Agent shall, at the request of such
Borrower and so long as no Default or Event of Default then exists, release to
such Borrower from time to time any investment earnings on such cash and/or Cash
Equivalents so long as the principal amount and/or Face Amount, as the case may
be, of the underlying Obligations remain fully collateralized at all times.
(b) With respect to each prepayment of Loans required by this Section 4.02,
the respective Borrower may designate the Types of Loans which are to be repaid
and, in the case of Eurodollar Loans and Bankers' Acceptances Loans, the
specific Borrowing(s) pursuant to which such Loans were made, provided that (i)
if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall
reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount applicable thereto, such Borrowing
shall be immediately converted into Base Rate Loans, (ii) no prepayment of
Bankers' Acceptance Loans may be made prior to the maturity date of the related
Bankers' Acceptances and (iii) each prepayment of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans. In addition, all
prepayments of Loans pursuant to this Section 4.02 shall, unless otherwise
directed by the respective Borrower at the time of prepayment, first be deemed
to be applied to any outstanding Acquisition Loans and then to any outstanding
Working Capital Loans.
(c) Notwithstanding anything to the contrary contained in this Agreement,
(i) all then outstanding Swingline Loans shall be repaid in full on the
Swingline Expiry Date, (ii) all then outstanding Competitive Bid Loans shall be
repaid in full on the respective Competitive Bid Loan Maturity Date, (iii) all
then outstanding Revolving Loans shall be repaid in full on the Final Maturity
Date and (iv) all then outstanding Loans shall be repaid in full on the date on
which a Change of Control occurs.
4.03 Method and Place of Payment. Except as otherwise specifically provided
herein, all payments under this Agreement or under any Note shall be made to the
Agent for the ratable account of the Lenders entitled thereto, not later than
12:00 Noon (local time in the city in which the Payment Office for the
respective payments is located) on the date when due and shall be made in (x)
Dollars in immediately available funds at the appropriate Payment Office of the
Agent in respect of any obligation of the Borrowers under this Agreement except
as otherwise
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provided in the immediately following clause (y) and (y) subject to the
provisions of Section 1.16, Canadian Dollars in immediately available funds at
the appropriate Payment Office of the Agent, if such payment is made in respect
of (i) principal of, the Face Amount of or interest on Canadian Revolving Loans,
or (ii) any increased costs, indemnities or other amounts owing with respect to
Canadian Revolving Loans, in the case of this clause (ii) to the extent the
respective Lender which is charging same denominates the amounts owing in
Canadian Dollars. Any payments under this Agreement which are made later than
12:00 Noon (local time in the city in which such payments are to be made) on any
Business Day shall be deemed to have been made on the next succeeding Business
Day. Whenever any payment to be made hereunder shall be stated to be due on a
day which is not a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and, with respect to payments of principal,
interest shall be payable during such extension at the applicable rate in effect
immediately prior to such extension.
4.04 Net Payments. (a) All payments made by any Borrower hereunder or under
any Note will be made without setoff, counterclaim or other defense. Except as
provided in Section 4.04(b), all such payments will be made free and clear of,
and without deduction or withholding for, any present or future taxes, levies,
imposts, duties, fees, assessments or other charges of whatever nature now or
hereafter imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein with respect to such payments (but excluding,
except as provided in the second succeeding sentence, any tax imposed on or
measured by the net income or net profits of a Lender pursuant to the laws of
the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Lender is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect to such non-excluded taxes, levies, imposts, duties,
fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, the respective
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any Note, after withholding or deduction for or on account of
any Taxes, will not be less than the amount provided for herein or in such Note.
If any amounts are payable in respect of Taxes pursuant to the preceding
sentence, the respective Borrower agrees to reimburse each Lender, upon the
written request of such Lender, for taxes imposed on or measured by the net
income or net profits of such Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or applicable
lending office of such Lender is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which such Lender is
organized or in which the principal office or applicable lending office of such
Lender is located and for any withholding of taxes as such Lender shall
determine are payable by, or withheld from, such Lender, in each case in respect
of such amounts so paid to or on behalf of such Lender pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence. The respective Borrower will furnish to the Agent
within 30 days after the date the payment of any Taxes is due pursuant to
applicable law certified copies of tax receipts evidencing such payment by such
Borrower. Each Borrower agrees to indemnify and hold harmless each Lender, and
reimburse such Lender upon its written request, for the amount of any Taxes so
levied or imposed and paid by such Lender.
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(b) Each Lender that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) for United States federal
income tax purposes (other than a Canadian Lender in its capacity solely as a
lender to DBF) agrees to deliver to Workflow and the Agent on or prior to the
Effective Date, or in the case of a Lender that is an assignee or transferee of
an interest under this Agreement pursuant to Section 12.04 (unless the
respective Lender was already a Lender hereunder immediately prior to such
assignment or transfer), on the date of such assignment or transfer to such
Lender, (i) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying to such Lender's
entitlement (as of such date) to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement and
under any Note, or (ii) if the Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 1001 or 4224 (or successor forms) pursuant to clause (i) above, (x)
a certificate substantially in the form of Exhibit D (any such certificate, a
"Section 4.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments of interest to be made under
this Agreement and under any Note. In addition, each Lender (other than a
Canadian Lender in its capacity solely as a lender to DBF) agrees that from time
to time after the Effective Date, when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to Workflow and the Agent two new accurate and
complete original signed copies of Internal Revenue Service Form 4224 or 1001
(or successor forms), or Form W-8 (or successor form) and a Section 4.04(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Note, or it shall immediately notify
Workflow and the Agent of its inability to deliver any such Form or Certificate
in which case such Lender shall not be required to deliver any such Form or
Certificate pursuant to this Section 4.04(b). Notwithstanding anything to the
contrary contained in Section 4.04(a), but subject to Section 12.04(b) and the
immediately succeeding sentence, (x) Workflow shall be entitled, to the extent
it is required to do so by law, to deduct or withhold income or similar taxes
imposed by the United States (or any political subdivision or taxing authority
thereof or therein) from interest, Fees or other amounts payable hereunder for
the account of any Lender which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for United States federal income tax
purposes to the extent that such Lender has not provided to Workflow United
States Internal Revenue Service Forms that establish a complete exemption from
such deduction or withholding and (y) Workflow shall not be obligated pursuant
to Section 4.04(a) hereof to gross-up payments to be made to a Lender in respect
of income or similar taxes imposed by the United States if (I) such Lender is
not a United States person (defined as provided above) and has not provided to
Workflow the Internal Revenue Service Forms provided for in the foregoing
provisions of this Section 4.04(b) or (II) in the case of a payment, other than
interest, to a Lender described in clause (ii) above, to the extent that such
Forms do not establish a complete exemption from withholding of such taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section 4.04 and except as set forth in Section 12.04(b),
Workflow agrees to pay any additional amounts and to indemnify each Lender in
the manner set forth in Section 4.04(a)
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(without regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any Taxes deducted or withheld by it as described in
the immediately preceding sentence as a result of any changes after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of such Taxes.
(c) Notwithstanding anything to the contrary contained in this Section
4.04, unless a Lender gives notice to the applicable Borrower that such Borrower
is obligated to pay any amount under this Section 4.04 within one year after the
later of (i) the date such Lender incurs the respective Taxes or (ii) the date
such Lender has actual knowledge of its incurrence of the respective Taxes, then
such Lender shall only be entitled to be compensated for such amount by such
Borrower pursuant to this Section 4.04 to the extent such Taxes are incurred or
suffered on or after the date which occurs one year prior to the date that such
Lender gives notice to such Borrower that such Borrower is obligated to pay the
respective amounts pursuant to this Section 4.04. This Section 4.04(c) shall
have no applicability to any Section of this Agreement other than this Section
4.04.
SECTION 5. Conditions Precedent. The obligation of each Lender to make each
Loan and the obligation of the Letter of Credit Issuer to issue each Letter of
Credit hereunder are subject, at the time of each such Credit Event (except as
otherwise hereinafter indicated), to the satisfaction of the following
conditions:
5.01 Execution of Agreement. On or prior to the Effective Date, this
Agreement shall have been executed and delivered in accordance with Section
12.10.
5.02 Notes. On the Effective Date, there shall have been delivered to the
Agent for the account of each Lender that has requested the same the appropriate
Note or Notes executed by the appropriate Borrower in the amount, maturity and
as otherwise provided herein.
5.03 No Default; Representations and Warranties. At the time of each Credit
Event and also after giving effect thereto (i) there shall exist no Default or
Event of Default and (ii) all representations and warranties contained herein
and in the other Credit Documents shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of such Credit Event, unless stated to relate to
a specific earlier date, in which case such representations and warranties shall
be true and correct in all material respects as of such earlier date.
5.04 Officer's Certificate. On the Effective Date, the Agent shall have
received a certificate dated such date signed by the president, any
vice-president or any Authorized Financial Officer of Workflow stating that all
of the applicable conditions set forth in Sections 5.03, 5.07, 5.08 and 5.09
exist as of such date.
5.05 Opinions of Counsel. On the Effective Date, the Agent shall have
received (i) from Kaufman & Canoles, special United States counsel to the Credit
Parties, an opinion addressed to the Agent, the Collateral Agent and each of the
Lenders and dated the Effective Date in the form of Exhibit E-1, (ii) from
Goodman, Phillips & Vineberg, special Canadian
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counsel to the Credit Parties, a corporate opinion addressed to the Agent, the
Collateral Agent and each of the Lenders and dated the Effective Date in the
form of Exhibit E-2 and (iii) from local and other counsel to the Credit Parties
and/or the Agent reasonably satisfactory to the Agent, opinions each of which
shall be addressed to the Agent, the Collateral Agent and each of the Lenders
and dated the Effective Date and shall cover such matters incident to the
transactions contemplated herein and in the other Credit Documents (including,
without limitation, the perfection of the security interests granted pursuant to
the Security Documents) as the Agent may reasonably request and shall be in form
and substance reasonably satisfactory to the Agent.
5.06 Corporate Proceedings. (a) On the Effective Date, the Agent shall have
received from each Credit Party a certificate, dated the Effective Date, signed
by the president or any vice-president of such Credit Party, and attested to by
the secretary or any assistant secretary of such Credit Party, in the form of
Exhibit F with appropriate insertions, together with certified copies of the
certificate or articles of incorporation and by-laws, or equivalent
organizational documents, of such Credit Party, the resolutions of such Credit
Party referred to in such certificate and each of the other documents referred
to in such certificate and all of the foregoing shall be in form and substance
reasonably satisfactory to the Agent.
(b) On the Effective Date, all corporate, limited liability company and
legal proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Documents shall be
reasonably satisfactory in form and substance to the Agent, and the Agent shall
have received all information and copies of all certificates, documents and
papers, including good standing certificates, bring-down certificates and any
other records of corporate proceedings and governmental approvals, if any, which
the Agent reasonably may have requested in connection therewith, such documents
and papers, where appropriate, to be certified by proper corporate or
governmental authorities.
(c) On the Effective Date, the corporate, ownership and capital structure
of Workflow and its Subsidiaries (including, without limitation, the terms of
any capital stock, options, warrants or other securities issued by Workflow or
any of its Subsidiaries) shall be in form and substance reasonably satisfactory
to the Agent and the Required Lenders.
5.07 Consummation of the Transaction. (a) On the Effective Date, the
Spinoff shall have been consummated in accordance with the terms and conditions
of the Spinoff Documents and all applicable laws, and each of the material
conditions precedent to the consummation of the Spinoff shall have been
satisfied and not waived except with the consent of the Agent and the Required
Lenders to the satisfaction of the Agent and the Required Lenders.
(b) On the Effective Date, Workflow shall have repaid in full all
intercompany debt owed to U.S. Office Products, which amount shall not exceed
$48,000,000.
(c) On or prior to the Effective Date, there shall have been delivered to
the Agent and the Lenders true and correct copies of all Spinoff Documents
(including, without limitation, the Spinoff Distribution Agreement, the Spinoff
Tax Allocation Agreement, the Spinoff Tax Indemnification Agreement and the
Spinoff Employee Benefits Agreement) and all of the terms
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and conditions of such Spin Off Documents shall be in form and substance
reasonably satisfactory to the Agent and the Required Lenders.
(d) On the Effective Date, the Agent shall have received evidence, in form,
scope and substance reasonably satisfactory to it, that the matters set forth in
this Section 5.07 have been satisfied as of such date.
5.08 Adverse Change; Approvals. (a) On the Effective Date, nothing shall
have occurred (and neither the Required Lenders nor the Agent shall have become
aware of any facts or conditions not previously known) which the Required
Lenders or the Agent shall determine has had, or could reasonably be expected to
have, a Material Adverse Effect.
(b) On or prior to the Effective Date, all necessary governmental (domestic
and foreign) and third party approvals and/or consents in connection with the
Transaction and the other transactions contemplated by the Documents and
otherwise referred to herein or therein shall have been obtained and remain in
effect, and all applicable waiting periods with respect thereto shall have
expired without any action being taken by any competent authority which
restrains, prevents or imposes materially adverse conditions upon, the
consummation of the Transaction or the other transactions contemplated by the
Documents or otherwise referred to herein or therein. Additionally, there shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunctive relief or other restraint pending or notified
prohibiting or imposing materially adverse conditions upon the Transaction or
the other transactions contemplated by the Documents.
5.09 Litigation. On the Effective Date, there shall be no actions, suits or
proceedings pending or threatened (x) with respect to the Transaction, this
Agreement or any other Document or (y) which the Agent or the Required Lenders
shall determine has, or could reasonably be expected to have, a Material Adverse
Effect.
5.10 Guaranties. (a) On the Effective Date, each U.S. Subsidiary Guarantor
shall have duly authorized, executed and delivered a Guaranty in the form of
Exhibit G-1 (as modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, the "U. S. Subsidiaries
Guaranty"), and the U. S. Subsidiaries Guaranty shall be in full force and
effect.
(b) On the Effective Date, (i) Workflow and each Subsidiary Guarantor
(other than the Canadian Parents) shall have duly authorized, executed and
delivered a Guaranty in the form of Exhibit G-2 (as modified, amended or
supplemented from time to time in accordance with the terms hereof and thereof,
the "Canadian General Guaranty") and (ii) each Canadian Parent shall have only
authorized, executed and delivered a Guaranty in the form of Exhibit G-3 (as
modified, amended or supplemented from time to time in accordance with the terms
hereof and thereof, the "Canadian Parent Guaranty"), and each Canadian Guaranty
shall be in full force and effect.
5.11 Pledge Agreements; Security Agreements. (a) On the Effective Date,
each U.S. Credit Party shall have duly authorized, executed and delivered a
Pledge Agreement in the
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form of Exhibit H-1 (as modified, amended or supplemented from time to time in
accordance with the terms hereof and thereof, the "U.S. Pledge Agreement") and
shall have delivered to the Collateral Agent, as pledgee thereunder, all of the
Pledged Securities referred to therein and then owned by each such U.S. Credit
Party, endorsed in blank or accompanied by executed and undated stock powers, as
appropriate, and the U.S. Pledge Agreement shall be in full force and effect.
(b) On the Effective Date, DBF and each other Canadian Credit Party shall
have duly authorized, executed and delivered one or more Pledge Agreements in
the form of Exhibit H-2 (each as modified, amended or supplemented from time to
time in accordance with the terms hereof and thereof, a "Canadian Pledge
Agreement" and, collectively, the "Canadian Pledge Agreements") and shall have
delivered to the Collateral Agent, as pledgee thereunder, all of the Pledged
Securities referred to therein and then owned by DBF and each such other
Canadian Credit Party, endorsed in blank or accompanied by executed and undated
stock powers, as appropriate, and each Canadian Pledge Agreement shall be in
full force and effect.
(c) On the Effective Date, (i) each U.S. Credit Party shall have duly
authorized, executed and delivered a Security Agreement in the form of Exhibit
I-1 (as modified, supplemented or amended from time to time in accordance with
the terms hereof and thereof, the "U.S. Security Agreement") covering all of
such U.S. Credit Party's present and future Security Agreement Collateral and
(ii) DBF and each other Canadian Credit Party shall have duly authorized,
executed and delivered one or more Security Agreements in the form of Exhibit
I-2, one or more Hypothecs in the form of Exhibit I-3, a Debenture and Debenture
Pledge Agreement in the form of Exhibit I-4 and one or more additional security
arrangements with respect to their inventory and proceeds thereof as may be
requested by the Agent and in form and substance satisfactory to the Agent (each
as modified, supplemented or amended from time to time in accordance with the
terms hereof and thereof, a "Canadian Security Agreement" and, collectively, the
"Canadian Security Agreements") covering all of DBF's and each such other
Canadian Credit Party's present and future Security Agreement Collateral, in
each case together with:
(i) proper Financing Statements (Form UCC-1 or the equivalent) fully
executed for filing under the UCC or other appropriate filing offices of
each jurisdiction as may be necessary or, in the reasonable opinion of the
Collateral Agent, desirable to perfect the security interests purported to
be created by each Security Agreement;
(ii) certified copies of Requests for Information (Form UCC-11) or
equivalent reports, listing all effective financing statements that name
any Credit Party or any of its Subsidiaries as debtor and that are filed in
the jurisdictions referred to in clause (i) above, together with copies of
such other financing statements that name any Credit Party or any of its
Subsidiaries as debtor (none of which shall cover the Collateral except to
the extent evidencing Permitted Liens or in respect of which the Collateral
Agent shall have received termination statements (Form UCC-3 or the
equivalent) or such other termination statements as shall be required by
state or local law fully executed for filing); and
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(iii) evidence that all other actions necessary or, in the reasonable
opinion of the Collateral Agent, desirable to perfect and protect the
security interests purported to be created by each Security Agreement have
been taken;
and each Security Agreement shall be in full force and effect.
5.12 Mortgages; Title Insurance; Surveys. On the Effective Date, the
Collateral Agent shall have received:
(i) fully executed counterparts of Mortgages, in form and substance
satisfactory to the Agent, which Mortgages shall cover the Mortgaged
Properties owned by the respective Credit Parties on the Effective Date as
designated on Annex V, together with evidence that counterparts of such
Mortgages have been delivered to the title insurance company insuring the
Lien of such Mortgages (or, in respect of Mortgaged Properties located in
Canada, to the applicable land registry office) for recording in all places
to the extent necessary or, in the reasonable opinion of the Collateral
Agent, desirable, to effectively create a valid and enforceable first
priority mortgage lien on each such Mortgaged Property in favor of the
Collateral Agent (or such other trustee as may be required or desired under
local law) for the benefit of the applicable Secured Creditors;
(ii) a mortgagee title insurance policy on each such Mortgaged
Property located in the United States issued by a title insurer reasonably
satisfactory to the Agent (the "Mortgage Policies") in amounts satisfactory
to the Agent assuring the Collateral Agent that the Mortgages on such
Mortgaged Properties are valid and enforceable first priority mortgage
liens on the respective Mortgaged Properties, free and clear of all defects
and encumbrances except Permitted Encumbrances and such Mortgage Policies
shall otherwise be in form and substance reasonably satisfactory to the
Agent and shall include, as appropriate, an endorsement for future advances
under this Agreement and the Notes and for any other matter that the Agent
in its discretion may reasonably request, shall not include an exception
for mechanics' liens, and shall provide for affirmative insurance and such
reinsurance as the Agent in its discretion may reasonably request; and
(iii) a survey, in form and substance reasonably satisfactory to the
Agent of each Mortgaged Property, certified by a licensed professional
surveyor reasonably satisfactory to the Agent.
5.13 Financial Statements; Pro Forma Balance Sheet; Projections. On or
prior to the Effective Date, the Agent shall have received true and correct
copies of the historical financial statements, the pro forma combined financial
statements and the projections referred to in Sections 6.09 and 6.10(b), which
historical financial statements, pro forma combined financial statements and
projections shall be in form and substance reasonably satisfactory to the Agent
and the Required Lenders.
5.14 Solvency Certificate; Environmental Analyses; Insurance Certificates.
On the Effective Date, Workflow shall have delivered to the Agent:
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(i) a solvency certificate from the chief financial officer of
Workflow in the form of Exhibit J;
(ii) environmental and hazardous substance assessments and analyses in
scope, and in form and substance, reasonably satisfactory to the Agent and
the Required Lenders; and
(iii) certificates of insurance complying with the requirements of
Section 7.03 for the business and properties of Workflow and its
Subsidiaries, and naming the Collateral Agent as an additional insured and
as loss payee, and stating that such insurance shall not be canceled
without at least 30 days prior written notice by the respective insurer to
the Collateral Agent (or such shorter period of time as a particular
insurance company generally provides).
5.15 Plans; Shareholders' Agreements; Management Agreements; Collective
Bargaining Agreements; Tax Sharing Agreements; Existing Indebtedness Agreements.
On or prior to the Effective Date, there shall have been delivered to the Agent
true and correct copies of the following documents (if any):
(i) all Plans (and for each Plan that is required to file an annual
report on Internal Revenue Service Form 5500-series, a copy of the most
recent such report (including, to the extent required, the related
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information), and for each Plan
that is a "single-employer plan," as defined in Section 4001(a)(15) of
ERISA, the most recently prepared actuarial valuation therefor) and any
other "employee benefit plans," as defined in Section 3(3) of ERISA, and
any other material agreements. Plans or arrangements with or for the
benefit of current or former employees of Workflow or any of its
Subsidiaries or any ERISA Affiliate (provided that the foregoing shall
apply in the case of any multiemployer plan, as defined in 4001(a)(3) of
ERISA, only to the extent that any document described therein is in the
possession of Workflow or any Subsidiary of Workflow or any ERISA Affiliate
or reasonably available thereto from the sponsor or trustee of any such
plan);
(ii) all collective bargaining agreements applying or relating to any
employee of Workflow or any of its Subsidiaries (collectively, the
"Collective Bargaining Agreements");
(iii) all agreements entered into by Workflow or any of its
Subsidiaries governing the terms and relative rights of its capital stock
and any agreements entered into by shareholders relating to any such entity
with respect to its capital stock (collectively, the "Shareholders'
Agreements");
(iv) all material agreements with members of, or with respect to, the
management of Workflow or any of its Subsidiaries to which Workflow or any
of its Subsidiaries are parties (collectively, the "Management
Agreements");
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(v) all tax sharing, tax allocation and other similar agreements
entered into by Workflow or any of its Subsidiaries (collectively, the "Tax
Sharing Agreements"); and
(vi) all agreements evidencing or relating to Indebtedness of Workflow
or any of its Subsidiaries which is to remain outstanding after giving
effect to the Effective Date (collectively, the "Existing Indebtedness
Agreements");
all of which Plans, Collective Bargaining Agreements, Shareholders' Agreements,
Management Agreements, Tax Sharing Agreements and Existing Indebtedness
Agreements shall be in form and substance reasonably satisfactory to the Agent.
5.16 Payment of Fees. On the Effective Date, all costs, fees and expenses,
and all other compensation contemplated by this Agreement, in each case due to
the Agent or the Lenders (including, without limitation, legal fees and
expenses) shall have been paid to the extent due.
5.17 Notice of Borrowing; Letter of Credit Request. The Agent shall have
received a Notice of Borrowing satisfying the requirements of Section 1.03(a)
with respect to each incurrence of Revolving Loans. The Agent shall have
received a Notice of Competitive Bid Borrowing satisfying the requirements of
Section 1.04 with respect to each incurrence of Competitive Bid Loans. BTCo
shall have received the notice satisfying the requirements of Section 1.03(b)(i)
with respect to each incurrence of Swingline Loans. The Agent and the Letter of
Credit Issuer shall have received a Letter of Credit Request satisfying the
requirements of Section 2.02 with respect to each issuance of a Letter of
Credit.
The occurrence of the Effective Date and the acceptance of the benefits of
each Credit Event on or after the Effective Date shall constitute a
representation and warranty by each Borrower to the Agent and each of the
Lenders that all of the conditions specified above exist as of the Effective
Date and as of the date of each such Credit Event, in each case to the extent
that such conditions are applicable to the Effective Date or each such other
Credit Event, as the case may be. All of the certificates, legal opinions and
other documents and papers referred to in Section 5, unless otherwise specified,
shall be delivered to the Agent at the Notice Office for the account of each of
the Lenders and, except for the Notes, in sufficient counterparts for each of
the Lenders and shall be reasonably satisfactory in form and substance to the
Agent.
SECTION 6. Representations, Warranties and Agreements. In order to induce
the Lenders to enter into this Agreement and to make the Loans and issue and/or
participate in the Letters of Credit provided for herein, each Borrower makes
the following representations, warranties and agreements, in each case after
giving effect to the Transaction, all of which shall survive the execution and
delivery of this Agreement, the making of the Loans and the issuance of the
Letters of Credit with the occurrence of the Effective Date and each Credit
Event on or after the Effective Date being deemed to constitute a representation
and warranty by each Borrower that the matters specified in this Section 6 are
true and correct in all material respects on and as of the Effective Date and
the date of each such Credit Event (it being understood and agreed that any
representation or warranty which by its terms is made as of a specified date
shall be required to be true and correct only as of such specified date).
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6.01 Status. Each Credit Party and each of its Subsidiaries (i) is a duly
organized and validly existing corporation, partnership or limited liability
company, as the case may be, and is in good standing, in each case under the
laws of the jurisdiction of its organization, and has the corporate, partnership
or limited liability company power and authority, as the case may be, to own its
property and assets and to transact the business in which it is engaged and
presently proposes to engage and (ii) is duly qualified and is authorized to do
business and is in good standing in all jurisdictions where it is required to be
so qualified and where the failure to be so qualified, either individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
6.02 Power and Authority. Each Credit Party has the corporate, partnership
or limited liability company power and authority, as the case may be, to
execute, deliver and carry out the terms and provisions of each of the Documents
to which it is a party and has taken all necessary corporate, partnership or
limited liability company action, as the case may be, to authorize the
execution, delivery and performance of each of the Documents to which it is a
party. Each Credit Party has duly executed and delivered each Document to which
it is a party and each such Document constitutes the legal, valid and binding
obligation of such Credit Party enforceable in accordance with its terms, except
to the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws generally
affecting creditors' rights and by equitable principles (regardless of whether
enforcement is sought in equity or at law).
6.03 No Violation. Neither the execution, delivery or performance by any
Credit Party of the Documents to which it is a party nor compliance by it with
the terms and provisions thereof, nor the consummation of the transactions
contemplated therein, (i) will contravene any applicable provision of any law,
statute, rule or regulation, or any order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result in any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or (other than pursuant to the
Security Documents) result in the creation or imposition of (or the obligation
to create or impose) any Lien upon any of the property or assets of such Credit
Party or any of its Subsidiaries pursuant to the terms of any material
indenture, mortgage, deed of trust, credit agreement or loan agreement, or any
other material agreement, contract or instrument to which such Credit Party or
any of its Subsidiaries is a party or by which it or any of its property or
assets are bound or to which it may be subject or (iii) will violate any
provision of the certificate or articles of incorporation or by-laws (or
equivalent organizational documents), as the case may be, of such Credit Party
or any of its Subsidiaries.
6.04 Litigation. There are no actions, suits or proceedings pending or, to
the best knowledge of any Borrower, threatened, with respect to Workflow or any
of its Subsidiaries that have, or that could reasonably be expected to have, a
Material Adverse Effect.
6.05 Use of Proceeds; Margin Regulations. (a) The proceeds of all Loans
shall be utilized for the general corporate and working capital purposes of
Workflow and its Subsidiaries (including for the repayment of any intercompany
debt owed to U.S. Office
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Products as contemplated by Section 5.07(b)), provided that the proceeds of all
Acquisition Loans shall be utilized solely to make Permitted Acquisitions.
(b) No part of any Credit Event (or the proceeds thereof) will be used to
purchase or carry any Margin Stock or to extend credit for the purpose of
purchasing or carrying any Margin Stock. Neither the making of any Loan
hereunder, nor the use of the proceeds thereof, nor the occurrence of any other
Credit Event, will violate or be inconsistent with the provisions of Regulation
T, U or X of the Board of Governors of the Federal Reserve System.
6.06 Approvals. No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with (except (x) as have
been obtained or made and which remain in full force and effect and (y) if this
representation is being made at any time prior to the tenth day following the
Effective Date, filings or recordations of financing statements, Mortgages and
other documents pursuant to the terms of the Security Documents (all of which
filings and recordations shall be completed within 10 days after the Effective
Date or, in the case of additional actions required by Section 7.12, such date
as is provided in said Section 7.12)), or exemption by, any governmental or
public body or authority, or any subdivision thereof or any other Person, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Document or (ii) the legality, validity, binding
effect or enforceability of any such Document.
6.07 Investment Company Act. Neither Workflow nor any of its Subsidiaries
is an "investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
6.08 Public Utility Holding Company Act. Neither Workflow nor any of its
Subsidiaries is a "holding company," or a "subsidiary company" of a "holding
company," or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company," within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
6.09 True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of any Credit
Party in writing to the Agent or any Lender (including, without limitation, all
information contained in the Documents and in the Confidential Information
Memorandum) for purposes of or in connection with this Agreement or any
transaction contemplated herein is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of any officer of
Workflow or the president or chief financial officer of DBF in writing to the
Agent or any Lender will be, true and accurate in all material respects on the
date as of which such information is dated or certified and not incomplete by
omitting to state any material fact necessary to make such information (taken as
a whole) not misleading at such time in light of the circumstances under which
such information was provided. The projections and pro forma financial
information contained in such materials are reasonable and attainable and are
based on good faith estimates and assumptions believed by such Persons to be
reasonable at the time made, it being recognized by the Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results.
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6.10 Financial Condition; Financial Statements. (a) On and as of the
Effective Date, on a pro forma basis after giving effect to the execution,
delivery and performance of this Agreement and the other Documents and the
consummation of the Transaction and to all Indebtedness incurred, and to be
incurred, and Liens created, and to be created, by each Credit Party in
connection therewith, and with respect to each Borrower on a stand-alone basis
and each Borrower and its Subsidiaries taken as a whole, (x) the sum of their
assets, at a fair valuation, will exceed their debts, (y) they have not incurred
nor intend to, nor believe that they will, incur debts beyond their ability to
pay such debts as such debts mature and (z) they will have sufficient capital
with which to conduct their business. For purposes of this Section 6.10, "debt"
means any liability on a claim, and "claim" means (i) right to payment whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured; or (ii) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.
(b) The separate and combined balance sheets of Workflow and its
Subsidiaries for the fiscal year and nine month period ended on April 26, 1997
and January 24, 1998, respectively, and the related separate and combined
statements of income, cash flows and shareholders' equity of Workflow and its
Subsidiaries for the fiscal year or nine month period, as the case may be, ended
on such dates, copies of which have been furnished to the Lenders prior to the
Effective Date, present fairly in all material respects the separate and
combined financial position of Workflow and its Subsidiaries at the dates of
such balance sheets and the separate and combined results of the operations of
Workflow and its Subsidiaries for the periods covered thereby. All of the
foregoing historical financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied. The pro forma
consolidated financial statements of Workflow and its Subsidiaries as of April
26, 1997 and January 24, 1998, in each case after giving effect to the
Transaction and the financing therefor, copies of which have been furnished to
the Lenders prior to the Effective Date, present fairly in all material respects
the pro forma consolidated financial position of Workflow and its Subsidiaries
as of April 26, 1997 and January 24, 1998 and the pro forma consolidated results
of operations of Workflow and its Subsidiaries for the twelve month and nine
month periods covered thereby, as the case may be.
(c) After giving effect to the Transaction (but for this purpose assuming
that the Transaction and the related financing had occurred prior to April 26,
1997), since April 26, 1997, nothing shall have occurred that has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
(d) Except as fully reflected in the financial statements described in
Section 6.10(b) or in the footnotes thereto and the Indebtedness incurred under
this Agreement, there were as of the Effective Date (and after giving effect to
any Loans made on such date), no liabilities or obligations with respect to
Workflow or any of its Subsidiaries of any nature whatsoever (whether absolute,
accrued, contingent or otherwise and whether or not due) which, either
individually or in aggregate, could reasonably be expected to be material to
Workflow and
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its Subsidiaries taken as a whole. As of the Effective Date, no Borrower knows
of any basis for the assertion against it or any of its Subsidiaries of any
liability or obligation of any nature whatsoever that is not disclosed in the
financial statements delivered pursuant to Section 6.10(b) which, either
individually or in the aggregate, could reasonably be expected to be material to
Workflow and its Subsidiaries taken as a whole.
6.11 Security Interests. Each of the Security Agreements and Mortgages are
effective to create, upon the filing of Form UCC-1 Financing Statements (or the
appropriate equivalent, Canadian or otherwise) and the Mortgages (which filings,
if this representation and warranty is being made more than 10 days after the
Effective Date, have been made) and each of the Pledge Agreements are effective
to create, in each case as security for the obligations purported to be secured
thereby, a valid and enforceable perfected security interest in and Lien on all
of the Collateral subject thereto, superior to and prior to the rights of all
third Persons and subject to no other Liens (except that the Security Agreement
Collateral may be subject to the security interests evidenced by Permitted Liens
relating thereto and each Mortgaged Property may be subject to the Permitted
Encumbrances relating thereto) in favor of the Collateral Agent (or such other
trustee as may be required or desired under local law), and the Collateral
Agent, for the benefit of the Secured Creditors, has a fully perfected lien on,
and security interest in, all Collateral. No filings or recordings are required
in order to perfect (or maintain the perfection or priority of) the security
interests created under the Pledge Agreements.
6.12 Tax Returns and Payments. Each of Workflow and each of its
Subsidiaries has filed all United States federal income tax returns and all
other material tax returns, domestic and foreign, required to be filed by it
(giving effect to any filing extension duly obtained in connection therewith)
and has paid all material taxes and assessments payable by it which have become
due, except for those contested in good faith and adequately disclosed and fully
provided for on the financial statements of Workflow and its Subsidiaries in
accordance with GAAP. Workflow and each of its Subsidiaries have at all times
paid, or have provided adequate reserves (in the good faith judgment of the
management of Workflow) for the payment of, all United States federal, state and
foreign income taxes applicable for all prior fiscal years and for the current
fiscal year to date. There is no material action, suit, proceeding,
investigation, audit or claim now pending or, to the knowledge of any Borrower,
threatened by any authority regarding any taxes relating to Workflow or any of
its Subsidiaries. As of the Effective Date, neither Workflow nor any of its
Subsidiaries has entered into an agreement or waiver or been requested to enter
into an agreement or waiver extending any statute of limitations relating to the
payment or collection of taxes of Workflow or any of its Subsidiaries, or is
aware of any circumstances that would cause the taxable years or other taxable
periods of Workflow or any of its Subsidiaries not to be subject to the normally
applicable statute of limitations. Neither Workflow nor any of its Subsidiaries
will incur any taxes in connection with the Transaction.
6.13 Compliance with ERISA. Each Plan (and each related trust, insurance
contract or fund) is in substantial compliance with its terms and with all
applicable laws, including, without limitation, ERISA and the Code; except for
the Plans set forth on Annex X, each Plan (and each related trust, if any) which
is intended to be qualified under Section 401(a) of the Code has received a
determination letter from the Internal Revenue Service to the effect
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that it meets the requirements of Sections 401(a) and 501(a) of the Code; no
Reportable Event has occurred; no Plan which is a multiemployer plan (as defined
in Section 4001(a)(3) of ERISA) is insolvent or in reorganization; no Plan has
an Unfunded Current Liability; no Plan which is subject to Section 412 of the
Code or Section 302 of ERISA has an accumulated funding deficiency, within the
meaning of such sections of the Code or ERISA, or has applied for or received a
waiver of an accumulated funding deficiency or an extension of any amortization
period, within the meaning of Section 412 of the Code or Section 303 or 304 of
ERISA; all contributions required to be made with respect to a Plan have been
timely made; neither Workflow nor any Subsidiary of Workflow nor any ERISA
Affiliate has incurred any material liability (including any indirect,
contingent or secondary liability) to or on account of a Plan pursuant to
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971 or 4975 of the Code or expects to incur any
such material liability under any of the foregoing sections with respect to any
Plan; no condition exists which presents a material risk to Workflow or any
Subsidiary of Workflow or any ERISA Affiliate of incurring a material liability
to or on account of a Plan pursuant to the foregoing provisions of ERISA and the
Code; no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan which is subject to Title IV of ERISA; no material action,
suit, proceeding, hearing, audit or investigation with respect to the
administration, operation or the investment of assets of any Plan (other than
routine claims for benefits) is pending, expected or threatened; using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
Title IV of ERISA, the aggregate liabilities of Workflow and its Subsidiaries
and its ERISA Affiliates to all Plans which are multiemployer plans (as defined
in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom,
as of the close of the most recent fiscal year of each such Plan ended prior to
the date of the most recent Credit Event, would not exceed $1,000,000; each
group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2)
of the Code) which covers or has covered employees or former employees of
Workflow, any Subsidiary of Workflow or any ERISA Affiliate has at all times
been operated in material compliance with the provisions of Part 6 of subtitle B
of Title I of ERISA and Section 4980B of the Code; no lien imposed under the
Code or ERISA on the assets of Workflow or any Subsidiary of Workflow or any
ERISA Affiliate exists or is likely to arise on account of any Plan; and
Workflow and its Subsidiaries may cease contributions to or terminate any
employee benefit plan maintained by any of them without incurring any material
liability.
(b) Each Foreign Pension Plan has been maintained in material compliance
with its terms and with the requirements of any and all applicable laws,
statutes, rules, regulations and orders and has been maintained, where required,
in good standing with applicable regulatory authorities. All contributions
required to be made with respect to a Foreign Pension Plan have been timely
made. Neither Workflow nor any of its Subsidiaries has incurred any material
obligation in connection with the termination of or withdrawal from any Foreign
Pension Plan. The present value of the accrued benefit liabilities (whether or
not vested) under each Foreign Pension Plan, determined as of the end of
Workflow's most recently ended fiscal year on the basis of actuarial
assumptions, each of which is reasonable, did not exceed the current value of
the assets of such Foreign Pension Plan allocable to such benefit liabilities.
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6.14 Ownership; Subsidiaries. On the Effective Date, the corporations
listed on Annex IV are all of the Subsidiaries of Workflow. Annex IV correctly
sets forth, as of the Effective Date, the percentage ownership (direct and
indirect) of Workflow in each class of capital stock of each of its respective
Subsidiaries and also identifies the direct owner thereof and the jurisdiction
of organization of such Subsidiaries.
6.15 Capitalization. On the Effective Date and after giving effect to the
Transaction and the other transactions contemplated hereby, the authorized
capital stock of Workflow shall consist of (i) 150,000,000 shares of common
stock, $.001 par value per share, and (ii) 1,000,000 shares of preferred stock,
$.001 par value per share, of which no shares of such preferred stock shall be
issued and outstanding. All outstanding shares of capital stock of Workflow have
been duly and validly issued and are fully paid and non-assessable. Workflow
does not have outstanding any securities convertible into or exchangeable for
its capital stock or outstanding any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreement providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock, except for options and warrants to
purchase shares of Workflow's common stock which may be issued from time to
time.
6.16 Intellectual Property. Each of Workflow and each of its Subsidiaries
owns or holds a valid license to use all the patents, trademarks, permits,
service marks, trade names, technology, know-how, copyrights, licenses,
franchises, proprietary information (including, but not limited to, rights in
computer programs and databases) and formulas or rights with respect to the
foregoing, that are used in the operation of the business of Workflow and each
of its Subsidiaries as presently conducted and as proposed to be conducted and
are necessary to such business, except where the failure to own or hold a valid
license with respect to any of the foregoing intellectual property could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
6.17 Compliance with Statutes, etc. Each of Workflow and each of its
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as could not, individually or in aggregate, reasonably be
expected to have a Material Adverse Effect.
6.18 Environmental Matters. (a) Each of Workflow and each of its
Subsidiaries has complied with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws. There are no
pending or, to the best knowledge of any Borrower, past or threatened
Environmental Claims against Workflow or any of its Subsidiaries or any Real
Property at any time owned, leased or operated by Workflow or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences
concerning any business or operations of Workflow or any of its Subsidiaries or
any Real Property at any time owned, leased or operated by Workflow or any of
its Subsidiaries or, to the best knowledge of any Borrower, any property
adjoining or in the vicinity of any such Real Property that could
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reasonably be expected (i) to form the basis of an Environmental Claim against
Workflow or any of its Subsidiaries or any currently owned Real Property of
Workflow or any of its Subsidiaries or (ii) to cause any such currently owned
Real Property to be subject to any material restrictions on the ownership,
occupancy, use or transferability of such Real Property by Workflow or any of
its Subsidiaries under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated, used, treated
or stored on, or transported to or from, or Released on or from, any Real
Property at any time owned, leased or operated by Workflow or any of its
Subsidiaries where such generation, use, treatment, storage, transportation or
Release has violated or could reasonably be expected to violate any
Environmental Law. There are not now any underground storage tanks located on
any Real Property owned, leased or operated by Workflow or any of its
Subsidiaries.
(c) Notwithstanding anything to the contrary in this Section 6.18, the
representations made in this Section 6.18 shall only be untrue if the effect of
any or all failures, noncompliances, Environmental Claims, Hazardous Materials,
Releases and presence of underground storage tanks, in each case of the types
described above, either individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
6.19 Real Properties. All Real Property owned or leased by Workflow or any
of its Subsidiaries as of the Effective Date, and the nature of the interest
therein, is correctly set forth in Annex V. Workflow and each of its
Subsidiaries have good and marketable title to, or a validly subsisting
leasehold interest in, all material properties owned or leased by it, including
all Real Property reflected in Annex V and in the financial statements referred
to in Section 6.10(b), free and clear of all Liens, other than Permitted Liens.
6.20 Labor Relations. Neither Workflow nor any of its Subsidiaries is
engaged in any unfair labor practice that could reasonably be expected to have a
Material Adverse Effect. There is (i) no unfair labor practice complaint pending
against Workflow or any of its Subsidiaries or, to the best knowledge of any
Borrower, threatened against any of them, before the National Labor Relations
Board, and no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against Workflow or any of its
Subsidiaries or, to the best knowledge of any Borrower, threatened against any
of them, (ii) no strike, labor dispute, slowdown or stoppage pending against
Workflow or any of its Subsidiaries or, to the best knowledge of any Borrower,
threatened against Workflow or any of its Subsidiaries and (iii) no union
representation question exists with respect to the employees of Workflow or any
of its Subsidiaries and, no union organizing activities are taking place, except
(with respect to any matter specified in clause (i), (ii) or (iii) above, either
individually or in the aggregate) such as could not reasonably be expected to
have a Material Adverse Effect.
6.21 Indebtedness. Annex VI sets forth a true and complete list of all
Indebtedness of Workflow and its Subsidiaries as of the Effective Date and which
is to remain outstanding after giving effect to the Transaction (excluding the
Obligations, the "Existing Debt"), in each case showing the aggregate principal
amount thereof and the name of the respective borrower and any other entity
which directly or indirectly guaranteed such debt.
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6.22 Other Documents. All representations and warranties set forth in the
Spin-off Documents and in the IPO Documents were true and correct in all
material respects on the effective date on which such representations and
warranties were made and shall be true and correct in all material respects on
and as of the Effective Date (or, in the case of the IPO Documents to the extent
entered into after the Effective Date, as of the date on which such IPO
Documents are entered into) as if such representations and warranties were made
on and as of such date.
6.23 Insurance. Annex VII sets forth a true and complete listing of all
insurance maintained by Workflow and its Subsidiaries as of the Effective Date,
and with the amounts insured (and any deductibles) set forth therein.
SECTION 7. Affirmative Covenants. Each Borrower hereby covenants and agrees
that as of the Effective Date and thereafter for so long as this Agreement is in
effect and until the Commitments have terminated, no Letters of Credit or Notes
are outstanding and the Loans and Unpaid Drawings, together with interest, Fees
and all other Obligations incurred hereunder, are paid in full:
7.01 Information Covenants. Workflow will furnish to each Lender:
(a) Annual Financial Statements. Within 90 days after the close of each
fiscal year of Workflow, (i) the consolidated balance sheets of each of Workflow
and its Subsidiaries (both with and without the Canadian Parents and their
Subsidiaries) and each Canadian Parent and its respective Subsidiaries, in each
case as at the end of such fiscal year and the related consolidated statements
of income and stockholders' equity and of cash flows for such fiscal year and
setting forth comparative figures for the preceding fiscal year and comparable
budgeted figures for such fiscal year and certified by the chief financial
officer or another Authorized Financial Officer of Workflow or DBF, as
appropriate, that such statements fairly present the consolidated financial
condition of Workflow and its Subsidiaries (both with and without the Canadian
Parents and their Subsidiaries) and each Canadian Parent and its respective
Subsidiaries, as the case may be, as of the dates indicated and the results of
their operations and changes in their cash flows for the periods indicated and
examined by independent certified public accountants of recognized national
standing as shall be acceptable to the Agent, whose opinion shall not be
qualified as to the scope of audit or as to the status of Workflow and its
Subsidiaries or each Canadian Parent and its respective Subsidiaries, each as a
going concern, together with a certificate of such accounting firm stating that
in the course of its regular audit of the business of each such Person and its
Subsidiaries, which audit was conducted in accordance with generally accepted
auditing standards, no Default or Event of Default which has occurred and is
continuing has come to their attention or, if such a Default or Event of Default
has come to their attention a statement as to the nature thereof and (ii)
management's discussion and analysis of the material operational and financial
developments during such fiscal year.
(b) Quarterly Financial Statements. Within 45 days after the close of each
of the first three quarterly accounting periods in each fiscal year of Workflow,
(i) the consolidated balance sheets of each of Workflow and its Subsidiaries
(both with and without the Canadian
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Parents and their Subsidiaries) and each Canadian Parent and its respective
Subsidiaries, in each case as at the end of such quarterly accounting period and
the related consolidated statements of income and stockholders' equity and of
cash flows for such quarterly accounting period, and for the elapsed portion of
the fiscal year ended with the last day of such quarterly accounting period, in
each case setting forth comparative figures for the related periods in the prior
fiscal year and comparable budgeted figures for such quarterly accounting
period, all of which shall be in reasonable detail and certified by the chief
financial officer or another Authorized Financial Officer of Workflow or DBF, as
appropriate, that they fairly present the consolidated financial condition of
Workflow and its Subsidiaries (both with and without the Canadian Parents and
their Subsidiaries) and each Canadian Parent and its respective Subsidiaries as
of the dates indicated and the results of their operations and changes in their
cash flows for the periods indicated, subject to normal year-end audit
adjustments, and (ii) management's discussion and analysis of the material
operational and financial developments during such quarterly accounting period.
(c) Monthly Reports. Within 30 days after the end of each fiscal month of
Workflow (commencing with its fiscal month ending closest to July 31, 1998), the
consolidated balance sheet of Workflow and its Subsidiaries at the end of such
fiscal month and the related consolidated statements of income, stockholders'
equity and statement of cash flows for such fiscal month and for the elapsed
portion of the fiscal year ended with the last day of such fiscal month, in each
case setting forth comparative figures for the corresponding fiscal month in the
prior fiscal year and comparable budgeted figures for such fiscal month.
(d) Budgets, etc. Not more than 45 days after the commencement of each
fiscal year of Workflow, budgets in form reasonably satisfactory to the Agent
(including, in any event, budgeted statements of income and sources and uses of
cash and balance sheets) for (x) such fiscal year and for each of the monthly
and quarterly accounting periods in such fiscal year, in each case prepared in
detail and (y) each of the five years immediately following such fiscal year
prepared in summary form, of Workflow and its Subsidiaries, in each case as
customarily prepared by management for its internal use setting forth, with
appropriate discussion, the principal assumptions upon which such budgets are
based.
(e) Officer's Certificates. At the time of the delivery of the financial
statements provided for in Sections 7.01(a) and (b), a certificate of the chief
financial officer or another Authorized Financial Officer of Workflow to the
effect that no Default or Event of Default exists or, if any Default or Event of
Default does exist, specifying the nature and extent thereof, which certificate
shall set forth (in reasonable detail) the calculations required to establish
whether Workflow and its Subsidiaries were in compliance with the provisions of
Sections 7.12(a), 7.12(b), 8.04, 8.05, 8.09 and 8.10, as at the end of such
fiscal quarter or year, as the case may be.
(f) Notice of Default or Litigation. Promptly, and in any event within five
Business Days after any officer of Workflow or any of its Subsidiaries obtains
knowledge thereof, notice of (x) the occurrence of any event which constitutes a
Default or an Event of Default, which notice shall specify the nature thereof,
the period of existence thereof and what action the Borrowers propose to take
with respect thereto and (y) the commencement of, or threat
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of, or any significant development in, any litigation or governmental proceeding
pending against Workflow or any of its Subsidiaries which could reasonably be
expected to have a Material Adverse Effect.
(g) Auditors' Reports. Promptly upon receipt thereof, a copy of each report
or "management letter" submitted to Workflow or any of its Subsidiaries by its
independent accountants in connection with any annual, interim or special audit
made by them of the books of Workflow or any of its Subsidiaries.
(h) Environmental Matters. Promptly after any officer of Workflow or any of
its Subsidiaries obtains knowledge of any of the following environmental
matters, unless such environmental matters could not, individually or when
aggregated with all other such environmental matters, be reasonably expected to
have a Material Adverse Effect:
(i) any pending or threatened Environmental Claim against Workflow or
any of its Subsidiaries or any Real Property owned, operated or leased by
Workflow or any of its Subsidiaries;
(ii) any condition or occurrence that (x) results in noncompliance by
Workflow or any of its Subsidiaries with any applicable Environmental Law,
or (y) could reasonably be anticipated to form the basis of an
Environmental Claim against Workflow or any of its Subsidiaries or any Real
Property owned, operated or leased by Workflow or any of its Subsidiaries;
(iii) any condition or occurrence on any Real Property owned, operated
or leased by Workflow or any of its Subsidiaries that could reasonably be
anticipated to cause such Real Property to be subject to any restrictions
on the ownership, occupancy, use or transferability by Workflow or its
Subsidiary, as the case may be, of its interest in such Real Property under
any Environmental Law; and
(iv) the taking of any material removal or remedial action in response
to the actual or alleged presence of any Hazardous Material on any Real
Property owned, operated or leased by Workflow or any of its Subsidiaries.
All such notices shall describe in reasonable detail the nature of the claim,
investigation, condition, occurrence or removal or remedial action and
Workflow's or such Subsidiary's response thereto. In addition, each Borrower
agrees to provide the Lenders with copies of all material communications with
any government or governmental agency relating to Environmental Laws, all
material communications with any person relating to Environmental Claims, and
such detailed reports of any Environmental Claim as may reasonably be requested
by the Agent or the Required Lenders.
(i) Permitted Acquisition Reports. (A) Within 30 days after the date of the
consummation of a Permitted Acquisition in which the Acquired Business had
annual revenues of $10,000,000 or more for the most recently ended fiscal year
of such Acquired Business, an
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audit of such Acquired Business prepared by Workflow's independent certified
public accountants.
(B) Within 30 days after the date of the consummation of a Permitted
Acquisition in which the Acquired Business had annual revenues of less than
$10,000,000 for the most recently ended fiscal year of such Acquired Business,
an unaudited report of such Acquired Business prepared by Workflow's independent
certified public accountants.
(j) Acquisition Loans and Working Capital Loans. Within 15 days after the
end of each month, a certificate of an Authorized Financial Officer of Workflow
setting forth the aggregate outstanding principal amount of Working Capital
Loans and Acquisition Loans as of the last day of such month.
(k) Other Information. Promptly upon transmission thereof, copies of any
filings and registrations with, and reports to, the SEC by Workflow or any of
its Subsidiaries and copies of all financial statements, proxy statements,
notices and reports as Workflow or any of its Subsidiaries shall send to the
holders of their publicly held capital stock (in each case to the extent not
theretofore delivered to the Lenders pursuant to this Agreement) and, with
reasonable promptness, such other information or documents (financial or
otherwise) as the Agent or any Lenders may reasonably request from time to time.
7.02 Books, Records and Inspections; Annual Meetings. (a) Each Borrower
will, and will cause each of its Subsidiaries to, permit, upon reasonable prior
notice to any officer of such Borrower, officers and designated representatives
of the Agent or any Lender to visit and inspect any of the properties or assets
of such Borrower or any of its Subsidiaries in whomsoever's possession, and to
examine the books of account of such Borrower or any of its Subsidiaries and
discuss the affairs, finances and accounts of such Borrower of any of its
Subsidiaries with, and be advised as to the same by, their officers and
independent accountants, all at such reasonable times and intervals and to such
reasonable extent as the Agent or such Lender may desire.
(b) At a date to be mutually agreed upon between the Agent and Workflow
occurring on or prior to the 120th day after the close of each fiscal year of
Workflow, Workflow shall, at the request of the Agent, hold a meeting with all
of the Lenders at which meeting shall be reviewed the financial results of
Workflow and its Subsidiaries for the previous fiscal year and the budgets
presented for the current fiscal year of Workflow (it being understood that
Workflow shall not be responsible for paying the travel and lodging expenses of
the Lenders in connection with their attending any such meeting).
7.03 Maintenance of Property; Insurance. (a) Each Borrower will, and will
cause each of its Subsidiaries to, at all times maintain in full force and
effect insurance with reputable and solvent insurers in such amounts, covering
such risks and liabilities and with such deductibles or self-insured retentions
as are in accordance with normal industry practice. Workflow will furnish on the
Effective Date and annually thereafter to the Agent a summary of the insurance
carried in respect of Workflow and its Subsidiaries and the assets of Workflow
and its Subsidiaries together with certificates of insurance and other evidence
of such insurance, if
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any, naming the Collateral Agent as an additional insured (in the case of
liability policies) and/or loss payee (in the case of casualty policies), to the
extent of its interests therein.
(b) If any Borrower or any of its Subsidiaries shall fail to maintain all
insurance in accordance with this Section 7.03, or if any Borrower or any of its
Subsidiaries shall fail to so endorse and deposit all policies or certificates
with respect thereto, the Agent and/or the Collateral Agent shall have the right
(but shall be under no obligation) to procure such insurance and each Borrower
agrees to reimburse the Agent or the Collateral Agent as the case may be, for
all costs and expenses of procuring such insurance.
7.04 Payment of Taxes. Each Borrower will pay and discharge, and will cause
each of its Subsidiaries to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims for sums that have become due and payable which,
if unpaid, might become a Lien not otherwise permitted under Section 8.03(a) or
charge upon any properties of such Borrower or any of its Subsidiaries provided
that neither Borrower nor any of its Subsidiaries shall be required to pay any
such tax, assessment, charge, levy or claim which is being contested in good
faith and by proper proceedings if it has maintained adequate reserves with
respect thereto in accordance with GAAP.
7.05 Corporate Franchises. Each Borrower will do, and will cause each of
its Subsidiaries to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its existence, and its rights, franchises and
authority to do business to the extent material to such Borrower or such
Subsidiary, provided that any transaction permitted by Section 8.02 will not
constitute a breach of this Section 7.05.
7.06 Compliance with Statutes, etc. Each Borrower will, and will cause each
of its Subsidiaries to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property other than those the non-compliance with which, either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.
7.07 Good Repair. Each Borrower will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business are kept in good repair, working order and condition,
normal wear and tear excepted, and, subject to Section 8.05, that from time to
time there are made in such properties and equipment all needful and proper
repairs, renewals, replacements, extensions, additions, betterments and
improvements thereto, to the extent and in the manner useful or customary for
companies in similar businesses.
7.08 Compliance with Environmental Laws. (a) Except where the failure to do
so could not, either individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect, each Borrower: (i) will comply, and will cause
each of its Subsidiaries to comply, with all Environmental Laws applicable to
the operation of their business and the ownership or use of any Real Property;
(ii) will pay, and will cause each of its Subsidiaries to pay, all costs and
expenses incurred in such compliance; (iii) will keep or cause to be kept all
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Real Properties owned, operated or leased by such Borrower or any of its
Subsidiaries free and clear of any Liens imposed pursuant to such Environmental
Laws; and (iv) will not, and will not permit any of its subsidiaries to,
generate, use, treat, store, release or dispose of, or permit the generation,
use, treatment, storage, release or disposal of, Hazardous Materials on any such
Real Property, or transport or permit the transportation of Hazardous Materials
to or from any such Real Property except in compliance with applicable law. If
any Borrower or any of its Subsidiaries, or any tenant or occupant of any such
Real Property, causes or permits any intentional or unintentional act or
omission resulting in the material presence or release of any Hazardous Material
(except in compliance with applicable Environmental Laws), such Borrower agrees
to undertake, and/or to cause any of its Subsidiaries, tenants or occupants to
undertake, at their sole expense, any clean up, removal, remedial or other
action required pursuant to Environmental Laws to remove and clean up any
Hazardous Materials from any such Real Property, provided that neither Borrower
nor any of its Subsidiaries shall be required to comply with any such order or
directive which is being contested in good faith and by proper proceedings so
long as it has maintained adequate reserves with respect to such compliance to
the extent required in accordance with GAAP.
(b) At the written reasonable request of the Agent or the Required Lenders,
at any time when any Borrower is required to give the Agent notice under Section
7.01(h) of any event specified in such Section 7.01(h), such Borrower will
provide, at such Borrower's sole cost and expense, an environmental site
assessment report concerning any Real Property the subject of such notice,
prepared by an environmental consulting firm approved by the Agent, indicating
the presence or absence of Hazardous Materials and the potential cost of any
removal or remedial action in connection with any Hazardous Materials on such
Real Property. If any Borrower fails to provide the same 90 days after such
request was made, the Agent may order the same, and such Borrower shall grant
and hereby grants to the Agent and its agents access to such Real Property and
specifically grants the Agent an irrevocable non-exclusive license, subject to
the rights of tenants, to undertake such an assessment, all at the Borrowers'
expense.
7.09 ERISA. As soon as possible and, in any event, within ten (10) days
after Workflow, any Subsidiary of Workflow or any ERISA Affiliate knows or has
reason to know of the occurrence of any of the following, Workflow will deliver
to each of the Lenders a certificate of an Authorized Financial Officer of
Workflow setting forth the full details as to such occurrence and the action, if
any, that Workflow, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by Workflow, any Subsidiary, any ERISA Affiliate, the PBGC, any
other governmental agency, a Plan participant or the Plan administrator with
respect thereto: that a Reportable Event has occurred (except to the extent that
Workflow has previously delivered to the Lenders a certificate and notices (if
any) concerning such event pursuant to the next clause hereof); that a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA is subject to the advance reporting requirement of
PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof),
and an event described in subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC
Regulation Section 4043 is reasonably expected to occur with respect to such
Plan within the following 30 days; that an accumulated funding deficiency,
within the meaning of Section 412 of the Code or Section 302
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of ERISA, has been incurred or an application is reasonably likely to be or has
been made for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code or Section 303 or 304 of ERISA
with respect to a Plan; that any contribution required to be made with respect
to a Plan or Foreign Pension Plan has not been timely made; that a Plan has been
or may be terminated, reorganized, partitioned or declared insolvent under Title
IV of ERISA; that a Plan has an Unfunded Current Liability; that proceedings are
reasonably likely to be or have been instituted to terminate or appoint a
trustee to administer a Plan which is subject to Title IV of ERISA; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; that Workflow, any Subsidiary of Workflow or
any ERISA Affiliate will or may incur any material liability (including any
indirect, contingent, or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Section 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29),
4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of ERISA or with
respect to a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code; or that Workflow or
any Subsidiary of Workflow may incur any material liability pursuant to any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any Plan or any Foreign Pension Plan.
Workflow will deliver to each of the Lenders (i) a complete copy of the annual
report (on Internal Revenue Service Form 5500-series) of each Plan (including,
to the extent required, the related financial and actuarial statements and
opinions and other supporting statements, certifications, schedules and
information) required to be filed with the Internal Revenue Service and (ii)
copies of any records, documents or other information that must be furnished to
the PBGC with respect to any Plan pursuant to Section 4010 of ERISA. In addition
to any certificates or notices delivered to the Lenders pursuant to the first
sentence hereof, copies of annual reports and any records, documents or other
information required to be furnished to the PBGC, and any material notices
received by Workflow, any Subsidiary of Workflow or any ERISA Affiliate with
respect to any Plan or Foreign Pension Plan shall be delivered to the Lenders no
later than ten (10) days after the date such annual report has been filed with
the Internal Revenue Service or such records, documents and/or information has
been furnished to the PBGC or such notice has been received by Workflow, any
Subsidiary or any ERISA Affiliate, as applicable. Workflow and each of its
applicable Subsidiaries shall ensure that all Foreign Pension Plans administered
by it or into which it makes payments obtains or retains (as applicable)
registered status under and respects in compliance with all applicable laws
except where the failure to do any of the foregoing could not reasonably be
expected to result in a Material Adverse Effect.
7.10 Performance of Obligations. Each Borrower will, and will cause each of
its Subsidiaries to, perform all of its obligations under the terms of each
mortgage, indenture, security agreement, loan agreement or credit agreement and
each other agreement, contract or instrument by which it is bound, except such
non-performances as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
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7.11 End of Fiscal Years; Fiscal Quarters. Each Borrower will, for
financial reporting purposes, cause (i) each of its, and each of its
Subsidiaries', fiscal years to end on the last Saturday in April of each year
and (ii) each of its, and each of its Subsidiaries', fiscal quarters to end on
dates which are consistent with a fiscal year end as provided above in this
Section 7.11.
7.12 Additional Security; Further Assurances. (a) At the time any Person
which does not constitute a Material Subsidiary on the date on which such Person
is acquired pursuant to a Permitted Acquisition becomes a Material Subsidiary
thereafter (whether by acquisition, merger or otherwise), Workflow shall give
prompt notice thereof to the Agent. As soon as possible after such notice has
been given, but in no event later than 60 days after such notice, Workflow shall
cause such Subsidiary to (x) execute a counterpart of the applicable Pledge
Agreement and Security Agreement (or another pledge agreement or security
agreement, as the case may be, in substantially similar form if needed), and (y)
execute and deliver, or cause to be executed and delivered, all other relevant
documentation of the type described in Section 5 as such Subsidiary would have
had to deliver if such Subsidiary were granting a security interest in its
assets on the Effective Date, in each case, in form and substance satisfactory
to the Agent.
(b) As soon as possible, but in any event within 60 days following the
Effective Date, Workflow and its Subsidiaries, to the extent reasonably
requested by the Agent, shall take all actions necessary and as are required by
law to establish, perfect, preserve and protect the Collateral Agent's security
interest in any Collateral located in Puerto Rico.
(c) As soon as possible, but in any event within 30 days following the
Effective Date, Workflow shall have caused DBF and the Canadian Parents (and DBF
hereby agrees) to deliver to the Collateral Agent, with respect to Mortgaged
Properties located in Canada, title opinions issued by Canadian counsel
reasonably satisfactory to the Agent assuring the Collateral Agent that DBF has
good and marketable title to the Mortgaged Property and that the Mortgages on
such Mortgaged Properties are valid and enforceable first priority mortgage
liens on the respective Mortgaged Properties, free and clear of all defects and
encumbrances except Permitted Encumbrances and such title opinions shall
otherwise be in form and substance reasonably satisfactory to the Agent.
(d) At the time any Credit Party shall acquire after the Effective Date an
ownership or Leasehold interest in any Material Real Property (or at the time of
the acquisition or creation, after the Effective Date, of any Credit Party
having an ownership or Leasehold interest in any Material Real Property),
Workflow shall give prompt notice thereof to the Agent. Upon the request of the
Agent or the Required Lenders, such Borrower shall, or shall cause such
Subsidiary Guarantor to, execute a Mortgage with respect to such Material Real
Property reasonably satisfactory in form and substance to the Agent and such
Mortgage shall constitute a valid and enforceable perfected mortgage superior to
and prior to the rights of all third Persons and subject to no other Liens
except for Permitted Liens. The Mortgages or instruments related thereto
delivered pursuant to this Section 7.12 shall have been duly recorded or filed
in such manner and in such places as are required by law to establish, perfect,
preserve and protect the
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Liens in favor of the Collateral Agent required to be granted pursuant to such
Mortgages and all taxes, fees and other charges payable in connection therewith
shall have been paid in full.
(e) Each Borrower will, and will cause each other Credit Party to, at the
expense of the Credit Parties, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such vouchers, invoices,
schedules, confirmatory assignments, conveyances, financing statements, transfer
endorsements, powers of attorney, certificates, real property surveys, reports
and other assurances or instruments and take such further steps relating to the
collateral covered by any of the Security Documents as the Collateral Agent may
reasonably require. Furthermore, each Borrower shall cause to be delivered to
the Collateral Agent such opinions of counsel, real estate appraisals satisfying
the requirements of applicable law, mortgage policies, title insurance and other
related documents as may be reasonably requested by the Collateral Agent to
assure itself that this Section 7.12 has been complied with.
(f) Each Borrower agrees that each action required above by Sections
7.12(d) and (e) shall be completed as soon as possible, but in no event later
than 75 days after such action is requested to be taken by the Agent or the
Required Lenders.
7.13 Foreign Subsidiaries Security. If following a change in the relevant
sections of the Code or the regulations, rules, rulings, notices or other
official pronouncements issued or promulgated thereunder, counsel for Workflow
reasonably acceptable to the Agent does not within 30 days after a request from
the Agent or the Required Lenders deliver evidence, in form and substance
mutually satisfactory to the Agent and Workflow, with respect to any Foreign
Subsidiary which has not already had all of its stock pledged pursuant to the
U.S. Pledge Agreement that (i) a pledge of 66-2/3% or more of the total combined
voting power of all classes of capital stock of such Foreign Subsidiary entitled
to vote, (ii) the entering into by such Foreign Subsidiary of a security
agreement in substantially the form of the U.S. Security Agreement and (iii) the
entering into by such Foreign Subsidiary of a guaranty in substantially the form
of the U.S. Subsidiaries Guaranty, in any such case could reasonably be expected
to cause (I) the undistributed earnings of such Foreign Subsidiary as determined
for United States federal income tax purposes to be treated as a deemed dividend
to such Foreign Subsidiary's United States parent for United States federal
income tax purposes which would not be substantially offset by a foreign tax
credit or other similar benefit of such United States parent or (II) other
material adverse United States federal income tax consequences to the Credit
Parties, then in the case of a failure to deliver the evidence described in
clause (i) above, that portion of such Foreign Subsidiary's outstanding capital
stock so issued by such Foreign Subsidiary not theretofore pledged pursuant to
the U.S. Pledge Agreement shall be pledged to the Collateral Agent for the
benefit of the Secured Creditors pursuant to the U.S. Pledge Agreement (or
another pledge agreement in substantially similar form, if needed), and in the
case of a failure to deliver the evidence described in clause (ii) above, such
Foreign Subsidiary shall execute and deliver the U.S. Security Agreement (or
another security agreement in substantially similar form, if needed), granting
the Collateral Agent for the benefit of the Secured Creditors a security
interest in all of such Foreign Subsidiary's assets, and in the case of a
failure to deliver the evidence described in clause (iii) above, such Foreign
Subsidiary shall execute and deliver the U.S. Subsidiaries Guaranty (or another
guaranty in substantially similar form, if needed), guaranteeing the
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Obligations of Workflow under the Credit Documents and under any Interest Rate
Protection Agreement or Other Hedging Agreement, and with all documents
delivered pursuant to this Section 7.13 to be in form and substance reasonably
satisfactory to the Agent.
7.14 Landlord Waivers and Estoppel Certificates. Within 75 days following
the Effective Date, the Borrowers shall use their reasonable best efforts to
deliver to the Agent the following:
(i) such landlord waivers and/or estoppel certificates as the Agent
may have reasonably requested with respect to each Leasehold of Workflow
and each other Credit Party designated as such on Annex V, which landlord
waivers and/or estoppel certificates shall be in form and substance
reasonably satisfactory to the Agent;
(ii) fully executed counterparts of a Mortgage, in form and substance
satisfactory to the Agent, which Mortgage shall cover the Real Property
owned by the respective Credit Party in Mt. Pocono in the Commonwealth of
Pennsylvania, together with evidence that counterparts of such Mortgage
have been delivered to the title insurance company insuring the Lien of
such Mortgage for recording in all places to the extent necessary or, in
the reasonable opinion of the Collateral Agent desirable, to effectively
create a valid and enforceable second priority mortgage lien on such Real
Property in favor of the Collateral Agent (or such other trustee as may be
required or desired under local law) for the benefit of the applicable
Secured Creditors;
(iii) a mortgagee title insurance policy on the Real Property referred
to in clause (ii) above issued by a title insurer reasonably satisfactory
to the Agent in an amount satisfactory to the Agent assuring the Collateral
Agent that the Mortgage on such Real Property is a valid and enforceable
second priority mortgage lien on such Real Property, free and clear of all
defects and encumbrances except Permitted Encumbrances and such policy
shall otherwise be in form and substance reasonably satisfactory to the
Agent and shall include, as appropriate, an endorsement for future advances
under this Agreement and the Notes and for any other matter that the Agent
in its discretion may reasonably request, shall not include an exception
for mechanics' liens, and shall provide for affirmative insurance and such
reinsurance as the Agent in its discretion may reasonably request; and
(iv) a survey, in form and substance reasonably satisfactory to the
Agent of the Real Property referred to in clause (ii) above, certified by a
licensed professional surveyor reasonably satisfactory to the Agent.
SECTION 8. Negative Covenants. Each Borrower hereby covenants and agrees
that as of the Effective Date, and thereafter for so long as this Agreement is
in effect and until the Commitments have terminated, no Letters of Credit or
Notes are outstanding and the Loans, together with interest, Fees and all other
Obligations incurred hereunder, are paid in full:
8.01 Changes in Business. No Borrower will, nor will any Borrower permit
any of its Subsidiaries to, engage directly or indirectly in any business other
than the businesses
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engaged in by Workflow and its Subsidiaries as of the Effective Date (including
the graphic arts business and the office products business) and reasonable
extensions thereof and business complimentary thereto.
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc. No Borrower
will, nor will any Borrower permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets (other than sales of inventory and obsolete or worn-out equipment, in
each case in the ordinary course of business), or enter into any partnerships,
joint ventures or sale-leaseback transactions, or purchase or otherwise acquire
(in one or a series of related transactions) any part of the property or assets
(other than purchases or other acquisitions of inventory, materials and
equipment in the ordinary course of business) of any Person, except that the
following shall be permitted:
(a) Consolidated Capital Expenditures by Workflow and its Subsidiaries
to the extent not in violation of Section 8.05, and Workflow and its
Subsidiaries may enter into operating leases as lessee with respect to real
or personal property in the ordinary course of business and otherwise in
compliance with this Agreement;
(b)(i) Workflow and the U.S. Subsidiary Guarantors (other than
Specified Subsidiaries and any U.S. Subsidiary Guarantors that are not
required to execute and deliver, and have not executed and delivered, the
respective Security Documents) may transfer assets among themselves and
(ii) DBF and the other Canadian Credit Parties (other than Specified
Subsidiaries and any Canadian Credit Parties that are not required to
execute and deliver, and have not executed and delivered, the respective
Security Documents) may transfer assets among themselves and to Workflow
and the U.S. Subsidiary Guarantors (other than Specified Subsidiaries and
any U.S. Subsidiary Guarantors that are not required to execute and
deliver, and have not executed and delivered, the respective Security
Documents);
(c) Investments permitted pursuant to Section 8.06;
(d) Workflow and its Subsidiaries may sell or discount, in each case
without recourse, accounts receivables arising in the ordinary course of
business, but only in connection with the compromise or collection thereof
and not as part of any financing transaction;
(e) Workflow and its Subsidiaries may sell or otherwise dispose of
assets for cash and at fair market value (as determined in good faith by
Workflow or such Subsidiary), provided that the aggregate cash proceeds
from all such sales pursuant to this clause (e) shall not exceed, in the
aggregate, $10,000,000 in any two consecutive fiscal year period of
Workflow;
(f) the Credit Parties may acquire all or substantially all of the
assets of any Acquired Business (or all or substantially all of the assets
of a product line or division of
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any Acquired Business) or 100% of the capital stock of any Acquired
Business (including by merger of the Acquired Business with a Credit Party
so long as the survivor of such merger is, or becomes at such time, a
Credit Party although in the case of any such merger which involves any
Borrower, such Borrower shall be the surviving corporation) (any such
acquisition, a "Permitted Acquisition" and the date of consummation of any
such Permitted Acquisition, an "Acquisition Date"), provided that (i) the
sum of the aggregate cash consideration plus the aggregate fair market
value of all other consideration paid by the Credit Parties (including any
Indebtedness issued, incurred and/or assumed by the Credit Parties and any
capital stock issued by Workflow, but excluding any amounts paid through an
earn-out formula based on earnings) in connection with any Permitted
Acquisition shall not exceed $35,000,000 (except that the total
consideration for each of two Permitted Acquisitions during the term of
this Agreement may be up to $50,000,000), provided that the Credit parties
may consummate Permitted Acquisitions in which the aggregate consideration
is greater than $35,000,000 but less than or equal to $50,000,000 so long
as least 90% of such aggregate consideration shall consist of
non-redeemable common stock and/or Qualified Preferred Stock of Workflow
(although the proviso contained in this clause (i) shall not apply to the
two $50,000,000 Permitted Acquisitions referred to above in this clause
(i)), (ii) no Default or Event of Default exists at the time of such
Permitted Acquisition or will exist as a result thereof, (iii) all of the
representations and warranties set forth in this Agreement are true and
correct in all material respects, both before and after giving effect to
any such Permitted Acquisition, (iv) in respect of each Permitted
Acquisition (or of all Permitted Acquisitions closing on the same date),
Workflow shall have delivered to the Agent an officer's certificate
executed by an Authorized Financial Officer of Workflow demonstrating (in
reasonable detail) that on a pro forma basis determined as if such
Permitted Acquisition (or Acquisitions) had been consummated on the first
day of the last Test Period of Workflow then ended (and assuming that any
Indebtedness incurred, issued or assumed in connection therewith had been
incurred, issued or assumed on the first day of, and had remained
outstanding throughout, such Test Period), Workflow would have been in
compliance with Sections 8.09 and 8.10 for such Test Period, (v) each such
Acquired Business shall be in a line of business permitted under Section
8.01, (vi) each such Acquired Business shall be domiciled in the United
States (including Puerto Rico) or Canada and shall derive at least 51% of
its revenues from its operations in the United States (including Puerto
Rico) and/or Canada, and (vii) immediately after giving effect to any such
Permitted Acquisition, the Unutilized Total Commitment shall be equal to at
least $5,000,000;
(g)(x) any Domestic Subsidiary (other than a Specified Subsidiary) of
Workflow may be merged with or into, or be dissolved or liquidated, into
Workflow or any U.S. Subsidiary Guarantor (other than a Specified
Subsidiary and a U.S. Subsidiary Guarantor that is not required to execute
and deliver, and has not executed and delivered, the respective Security
Documents), provided that (i) the resulting entity must be a U.S.
Subsidiary Guarantor unless such merger, dissolution or liquidation
involves Workflow, in which case Workflow must be the resulting entity, and
(ii) a Specified Subsidiary that is a Domestic Subsidiary may be merged
with or into, or be dissolved or liquidated into, a
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U.S. Subsidiary Guarantor so long as the Indebtedness (if any) of, and/or
Liens (if any) on the property of, such Specified Subsidiary would be
permitted to be incurred by such Subsidiary Guarantor under the provisions
hereof at the time of such merger, dissolution or liquidation and (y) any
Foreign Subsidiary (other than a Specified Subsidiary) may be merged with
or into, or be dissolved or liquidated into, DBF or any other Canadian
Credit Party (other than a Specified Subsidiary and a Canadian Credit Party
that is not required to execute and deliver, and has not executed and
delivered, the respective Security Documents), provided that (i) the
resulting entity must be a Canadian Credit Party and in the event that any
such merger, dissolution or liquidation involves DBF, DBF must be the
resulting entity, (ii) a Specified Subsidiary that is a Foreign Subsidiary
may be merged with or into, or be dissolved or liquidated into, a Canadian
Credit Party so long as (x) the Indebtedness (if any) of, and/or Liens (if
any) and the property of, such Specified Subsidiary would be permitted to
be incurred by such Canadian Credit Party under the provisions hereof at
the time of such merger, dissolution or liquidation and (y) the resulting
entity must be a Canadian Credit Party and in the event that any such
merger, dissolution or liquidation involves DBF, DBF must be the resulting
entity, and (iii) if any stock of any Foreign Subsidiary involved in such
merger, dissolution or liquidation was pledged under the U.S. Pledge
Agreement prior to such merger, dissolution or liquidation, at least 65% of
the total combined voting power of all classes of capital stock of the
surviving Foreign Subsidiary, and 100% of all other classes of capital
stock of such surviving Foreign Subsidiary in each case shall be pledged
pursuant to the U.S. Pledge Agreement; and
(h) each of Workflow and its Subsidiaries may grant leases or
subleases to other Persons not materially interfering with the conduct of
the business of Workflow or any of its Subsidiaries.
To the extent the Required Lenders waive the provisions of this Section 8.02
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 8.02 (and such Collateral is released (or permitted to
be released) from the Liens created by the respective Security Document), such
Collateral in each case shall be sold free and clear of the Liens created by the
Security Documents and the Agent shall take such actions (including, without
limitation, directing the Collateral Agent to take such actions) as the Agent
deems appropriate, or as any Borrower may reasonably request, in connection
therewith.
8.03 Liens. No Borrower will, nor will any Borrower permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of such Borrower or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes) or assign any right
to receive income, except (Liens described below are herein referred to as
"Permitted Liens"):
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(a) Liens for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves have
been established in accordance with GAAP;
(b) Liens in respect of property or assets of Workflow and its
Subsidiaries imposed by law which were incurred in the ordinary course of
business and which have not arisen to secure Indebtedness for borrowed
money, such as carriers', warehousemen's and mechanics' Liens, statutory
landlord's Liens, and other similar Liens arising in the ordinary course of
business, and which either (x) do not in the aggregate materially detract
from the value of such property or assets or materially impair the use
thereof in the operation of the business of Workflow or any of its
Subsidiaries or (y) are being contested in good faith by appropriate
proceedings, which proceedings have the effect of preventing the forfeiture
or sale of the property or asset subject to such Lien;
(c) Liens created by or pursuant to this Agreement or the Security
Documents;
(d) Liens in existence on the Effective Date, and which are to
continue in effect after the Effective Date which are listed, and the
property subject thereto described, in Annex VIII, without giving effect to
any extensions or renewals thereof;
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.09,
provided that no cash or property is deposited or delivered to secure the
respective judgment or award (or any appeal bond in respect thereof);
(f) Liens incurred or deposits made (x) in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security obligations, or to secure the
performance of tenders, statutory obligations, surety bonds, bids,
contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business (exclusive of
obligations in respect of the payment for borrowed money) and (y) to secure
the performance of leases of Real Property to the extent incurred or made
in the ordinary course of business consistent with past practices;
(g) licenses, leases or subleases granted to third Persons not
interfering in any material respect with the business of Workflow or any of
its Subsidiaries;
(h) Liens arising from precautionary UCC financing statements
regarding operating leases permitted by this Agreement;
(i) Liens created pursuant to Capital Leases permitted pursuant to
Section 8.04(b);
(j) Liens arising pursuant to purchase money mortgages or security
interests securing Indebtedness representing the purchase price (or
financing of the purchase price within 90 days after the respective
purchase) of assets acquired after the Effective Date,
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provided, that (i) any such Liens attach only to the assets so purchased,
(ii) the Indebtedness secured by any such Lien does not exceed 100%, nor is
less than 80%, of the lesser of the fair market value or the purchase price
of the property being purchased at the time of the incurrence of such
Indebtedness, and (iii) the Indebtedness secured thereby is permitted to be
incurred pursuant to Section 8.04(b);
(k) Liens existing with respect to specific assets at the time
acquired pursuant to a Permitted Acquisition in compliance with Section
8.02(f) (and not to all such assets generally), provided that (x) any such
Liens, and the Indebtedness secured thereby, were not created at the time
of or in contemplation or anticipation of the acquisition of such assets by
the respective Credit Party, (y) the Indebtedness secured by any such Lien
does not exceed 100% of the fair market value of the asset to which such
Lien relates, determined at the time of the acquisition of such asset, and
(z) the Indebtedness secured thereby is permitted by Section 8.04(e);
(l) Permitted Encumbrances;
(m) Liens arising in the ordinary course of business in favor of
customs and revenue authorities which secure payment of customs duties in
connection with the importation of goods; and
(n) easements, rights-of-way, restrictions, encroachments and other
similar charges or encumbrances, and minor title deficiencies, in each case
not securing Indebtedness and not materially interfering with the conduct
of the business of Workflow or any of its Subsidiaries.
8.04 Indebtedness. No Borrower will, nor will any Borrower permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(b) Capitalized Lease Obligations and Indebtedness incurred pursuant
to purchase money Liens permitted by Section 8.03(j), provided, that the
sum of all such Capitalized Lease Obligations outstanding at any time plus
the aggregate principal amount of all such purchase money Indebtedness
outstanding at such time shall not exceed $5,000,000;
(c) Existing Debt listed on Annex VI, but only to the respective date,
if any, set forth on such Annex VI with respect to any particular issue of
Existing Debt, without giving effect to any subsequent extension, renewal
or refinancing thereof;
(d) Indebtedness (i) between and among Workflow and the U.S.
Subsidiary Guarantors (other than Specified Subsidiaries) and (ii) between
and among DBF and the other Canadian Credit Parties (other than Specified
Subsidiaries), provided, that if any such Indebtedness is evidenced by a
note, such note shall be in the form of an
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Intercompany Note that is pledged and delivered pursuant to the applicable
Pledge Agreement;
(e) Indebtedness of a Person outstanding at the time it is first
acquired by any Credit Party in a Permitted Acquisition pursuant to Section
8.02(f), provided that (A) any such Indebtedness was not created at the
time of or in contemplation or in anticipation of such Permitted
Acquisition and (B) the aggregate principal amount of all Indebtedness
permitted pursuant to this clause (e) in connection with any Permitted
Acquisition shall not exceed 10% of the aggregate purchase price of the
Person so acquired or of the assets so acquired, as the case may be, in
connection with such Permitted Acquisition;
(f) Indebtedness of any Borrower under Interest Rate Protection
Agreements entered into with respect to other Indebtedness of such Borrower
otherwise permitted under this Section 8.04;
(g) Indebtedness of Workflow or any of its Subsidiaries under Other
Hedging Agreements providing protection against fluctuations in currency
prices in connection with Workflow's or any of its Subsidiaries' ordinary
business operations so long as management of Workflow or such Subsidiary
has determined that the entering into of such Other Hedging Agreements are
bona fide hedging activities (and are not for speculative purposes)
relating to the ordinary business operations of Workflow or such
Subsidiary; and
(h) unsecured Indebtedness of Workflow and its Subsidiaries not
otherwise permitted by the foregoing clauses (a) through (g), provided that
the aggregate principal amount of all Indebtedness incurred pursuant to
this clause (h) shall not exceed $7,000,000 at any time outstanding.
8.05 Capital Expenditures. (a) No Borrower will, nor will any Borrower
permit any of its Subsidiaries to, make Consolidated Capital Expenditures,
provided that Workflow and its Subsidiaries may make Consolidated Capital
Expenditures so long as the aggregate amount of Consolidated Capital
Expenditures made during (x) the period (taken as one accounting period)
commencing on the Effective Date and ending with the last day of Workflow's
fiscal year ending closest to April 30, 1999 does not exceed $10,000,000 and (y)
each fiscal year (taken as one accounting period) thereafter commencing with the
fiscal year ending closest to April 30, 2000, does not exceed the Capital
Expenditure Amount for such fiscal year.
(b) In addition to the foregoing, the Credit Parties may make Consolidated
Capital Expenditures to the extent that same constitute a Permitted Acquisition
pursuant to Section 8.02(f) (it being understood that any Consolidated Capital
Expenditures made pursuant to this clause (b) will not reduce the amount of
Consolidated Capital Expenditures permitted to be made under clause (a) of this
Section 8.05).
(c) In addition to the foregoing, Workflow and its Subsidiaries may make
Consolidated Capital Expenditures with the Net Cash Proceeds of Asset Sales to
the extent such
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proceeds are not required to be applied to reduce the Total Commitment pursuant
to Section 3.03(c).
(d) In addition to the foregoing, Workflow and its Subsidiaries may make
Consolidated Capital Expenditures with the Net Insurance Proceeds received by
Workflow or any of its Subsidiaries from any Recovery Event so long as such
Consolidated Capital Expenditures are to replace or restore any properties or
assets in respect of which such proceeds were paid within one year following the
date of the receipt of such insurance proceeds to the extent such Net Insurance
Proceeds are not required to be applied to reduce the Total Commitment pursuant
to Section 3.03(d).
8.06 Advances, Investments and Loans. No Borrower will, nor will any
Borrower permit any of its Subsidiaries to, directly or indirectly, lend money
or credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents (each of the foregoing an "Investment" and,
collectively, "Investments"), except that the following shall be permitted:
(a) Workflow and its Subsidiaries may invest in cash and Cash
Equivalents;
(b) Workflow and its Subsidiaries may acquire and hold receivables
owing to it, if created or acquired in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms of
Workflow or such Subsidiary, as the case may be;
(c) Workflow and its Subsidiaries may acquire and own investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in
the ordinary course of business;
(d) transactions permitted by Sections 8.02(b) and/or 8.04(d);
(e) Investments in existence on the Effective Date and listed on Annex
IX without giving effect to any additions thereto or replacements thereof;
(f) deposits made in the ordinary course of business consistent with
past practices to secure the performance of leases of Real Property;
(g) loans and advances to employees for moving and travel expenses and
other similar expenses, in each case incurred in the ordinary course of
business, in an aggregate outstanding principal amount not to exceed
$500,000 at any time (determined without regard to any write-down or
write-offs thereof);
(h) Permitted Acquisitions allowed pursuant to Section 8.02(f);
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(i) each Borrower may enter into Interest Rate Protection Agreements
to the extent permitted by Section 8.04(f);
(j) Workflow and its Subsidiaries may enter into Other Hedging
Agreements to the extent permitted by Section 8.04(g); and
(k) Investments not otherwise permitted by the foregoing clauses (a)
through (j), inclusive, provided that the aggregate amount of all
Investments made pursuant to this clause (k) shall not exceed $6,000,000 at
any time (determined without regard to any write-downs or write-offs
thereof).
8.07 Dividends, etc. (a) No Borrower will, nor will any Borrower permit any
of its Subsidiaries to, declare or pay any dividends (other than dividends
payable solely in common stock of such Borrower or any such Subsidiary, as the
case may be) or return any capital to, its stockholders or authorize or make any
other distribution, payment or delivery of property or cash to its stockholders
as such, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, for a consideration, any shares of any class of its capital stock
(other than the issuance of common stock of Workflow upon conversion of any
convertible preferred stock that may be issued by Workflow in accordance with
this Agreement), now or hereafter outstanding (or any warrants for or options or
stock appreciation rights in respect of any of such shares), or set aside any
funds for any of the foregoing purposes, and Workflow will not permit any of its
Subsidiaries to purchase or otherwise acquire for consideration any shares of
any class of the capital stock of the Borrower or any other Subsidiary, as the
case may be, now or hereafter outstanding (or any options or warrants or stock
appreciation rights issued by such Person with respect to its capital stock)
(all of the foregoing "Dividends"), except that: (x) any Subsidiary of Workflow
may pay Dividends to Workflow or any other Subsidiary of Workflow and (y)
repurchases may be made by Workflow of its capital stock and/or options or
warrants to purchase its capital stock from management or directors of Workflow
and its Subsidiaries so long as (i) no Default or Event of Default exists at the
time of such purchase and (ii) the aggregate amount paid by Workflow in
connection with all such repurchases does not exceed (x) $2,000,000 in the
aggregate for Workflow's fiscal years 1998 and 1999 taken together and (y)
$500,000 for each fiscal year of Workflow thereafter.
(b) No Borrower will, nor will any Borrower permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist any encumbrance or restriction
which prohibits or otherwise restricts (A) the ability of any such Subsidiary to
(a) pay dividends or make other distributions or pay any Indebtedness owed to
the Borrower or any Subsidiary Guarantor, (b) make loans or advances to Workflow
or any Subsidiary of Workflow or (c) transfer any of its properties or assets to
Workflow or any Subsidiary of Workflow, or (B) the ability of Workflow or any
Subsidiary of Workflow, to create, incur, assume or suffer to exist any Lien
upon its property or assets to secure the Obligations, other than prohibitions
or restrictions existing under or by reason of: (i) this Agreement and the other
Credit Documents; (ii) applicable law; (iii) customary non-assignment provisions
entered into in the ordinary course of business and consistent with past
practices; and (iv) Liens permitted under Sections 8.03(i) and (j), and any
documents or instruments governing the terms of any Indebtedness or other
obligations secured
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by any such Liens, provided that such prohibitions or restrictions apply only to
the assets subject to such Liens.
8.08 Transactions with Affiliates. No Borrower will, nor will any Borrower
permit any of its Subsidiaries to, enter into any transaction or series of
transactions with any Affiliate of such Borrower or any such Subsidiary other
than in the ordinary course of business and on terms and conditions
substantially as favorable to such Borrower or such Subsidiary as would be
obtainable by such Borrower or such Subsidiary at the time in a comparable
arm's-length transaction with a Person other than an Affiliate, provided that
(i) Dividends may be paid to the extent permitted by Section 8.03, (ii)
transactions between or among Workflow and its Subsidiaries pursuant to (and in
accordance with the terms of) Sections 8.02, 8.04 and 8.06 shall be permitted
and (iii) Workflow may enter into the Spinoff Documents.
8.09 Leverage Ratio. The Borrowers will not permit the Leverage Ratio of
Workflow at any time to be greater than 3.5:1.0.
8.10 Consolidated Interest Coverage Ratio. The Borrowers will not permit
the Consolidated Interest Coverage Ratio of Workflow for any Test Period ending
on the last day of a fiscal quarter of Workflow to be less than 2.0:1.0.
8.11 Limitation on Modifications of Certificate of Corporation, By-Laws and
Spinoff Documents; etc. (a) No Borrower will, nor will any Borrower permit any
of its Subsidiaries to:
(i) amend, modify or change in any manner adverse to the interests of
the Lenders, any of the Spinoff Documents, the certificate or articles of
incorporation (including, without limitation, by the filing of any
certificate of designation) or by-laws (or equivalent organizational
documents) of such Borrower or any of its Subsidiaries, as the case may be,
or any other agreement entered into by such Borrower or any of its
Subsidiaries with respect to its capital stock, or enter into any new
agreement with respect to the capital stock of such Borrower (to the extent
adverse to the interests of the Lenders) or any of its Subsidiaries; or
(ii) issue any class of capital stock other than (x) issuances of
non-redeemable common stock and (y) issuances by Workflow of Qualified
Preferred Stock.
(b) Workflow will not permit any of its Subsidiaries to issue any capital
stock (including by way of sales of treasury stock) or any options or warrants
to purchase, or securities convertible into, capital stock, except (i) for
transfers and replacements of then outstanding shares of capital stock, (ii) for
stock splits, stock dividends and issuances which do not decrease the percentage
ownership of Workflow or any of its Subsidiaries in any class of the capital
stock of such Subsidiary, (iii) to qualify directors to the extent required by
applicable law, and (iv) for issuances by newly created or acquired Subsidiaries
in accordance with the terms of this Agreement.
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(c) In addition, Workflow will not issue any capital stock (including
pursuant to the exercise of options) on or after the Effective Date to the
extent that the issuance thereof would result, or could reasonably be expected
to result, in the Spinoff not qualifying as a tax free spin-off under Section
355 of the Code.
8.12 Limitation on the Creation of Subsidiaries. Notwithstanding anything
to the contrary contained in this Agreement, no Borrower will, nor will any
Borrower permit any of its Subsidiaries to, establish, create or acquire any
Subsidiary; provided that Wholly-Owned Subsidiaries may be established, created
or acquired in connection with a Permitted Acquisition so long as (i) in the
case of a Wholly-Owned Subsidiary created in order to effect a Permitted
Acquisition, such Subsidiary has no assets except those contributed
substantially contemporaneously with such Permitted Acquisition, (ii) the
capital stock of each such new Subsidiary is promptly pledged pursuant to, and
to the extent required by, the applicable Pledge Agreement and the certificates
representing such stock, together with stock powers duly executed in blank, are
delivered to the Collateral Agent, (iii) such new Subsidiary promptly executes a
counterpart of the applicable Guaranty (or another guaranty in substantially
similar form if needed), in each case on the same basis (and to the same extent)
as such Subsidiary would have executed such Guaranties if it were a Credit Party
on the Effective Date, (iv) such new Subsidiary, to the extent that is a
Material Subsidiary, executes a counterpart of the applicable Pledge Agreement
and Security Agreement (or another pledge agreement or security agreement, as
the case may be, in substantially similar form if needed), in each case on the
same basis (and to the same extent) as such Subsidiary would have executed such
Credit Documents if it were a Credit Party on the Effective Date, and (v) to the
extent requested by the Agent or the Required Lenders, any such new Subsidiary,
to the extent that it is a Material Subsidiary, takes all actions required
pursuant to Section 7.12.
SECTION 9. Events of Default. Upon the occurrence of any of the following
specified events (each an "Event of Default"):
9.01 Payments. Any Borrower shall (i) default in the payment when due of
any principal of (or any Face Amount of, as the case may be) the Loans or (ii)
default, and such default shall continue for three or more days, in the payment
when due of any Unpaid Drawing, any interest on the Loans or any Fees or any
other amounts owing hereunder or under any other Credit Document; or
9.02 Representations, etc. Any representation, warranty or statement made
or deemed made by any Borrower or any other Credit Party herein or in any other
Credit Document or in any written statement or certificate delivered pursuant
hereto or thereto shall prove to be untrue in any material respect on the date
as of which made or deemed made; or
9.03 Covenants. Any Credit Party shall (a) default in the due performance
or observance by it of any term, covenant or agreement contained in Section
7.01(f)(x), 7.11 or 8, or (b) default in the due performance or observance by it
of any term, covenant or agreement (other than those referred to in Section
9.01, 9.02 or clause (a) of this Section 9.03) contained in this
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Agreement and such default shall continue unremedied for a period of at least 30
days after notice to the defaulting party by the Agent or the Required Lenders;
or
9.04 Default Under Other Agreements. (a) Any Borrower or any of its
Subsidiaries shall (i) default in any payment with respect to any Indebtedness
(other than the Obligations) beyond the period of grace, if any, provided in the
instrument or agreement under which Indebtedness was created or (ii) default in
the observance or performance of any agreement or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition exist, the effect
of which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause any such Indebtedness to become due prior to its
stated maturity; or (b) any Indebtedness (other than the Obligations) of any
Borrower or any of its Subsidiaries shall be declared to be due and payable, or
shall be required to be prepaid other than by a regularly scheduled required
prepayment or as a mandatory prepayment, in each case prior to the stated
maturity thereof, provided that it shall not constitute an Event of Default
pursuant to clause (a) or (b) of this Section 9.04 unless the principal amount
of all such Indebtedness referred to in clauses (a) and (b) above equals or
exceeds $1,000,000 at any one time; or
9.05 Bankruptcy, etc. Any Borrower or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against any
Borrower or any of its Subsidiaries and the petition is not controverted within
10 days, or is not dismissed within 60 days, after commencement of the case; or
a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or substantially all of the property of any Borrower or any of
its Subsidiaries; or commences any other proceeding under any bankruptcy,
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law of any jurisdiction whether now or
hereafter in effect relating to any Borrower or any of its Subsidiaries; or
there is commenced against any Borrower or any of its Subsidiaries any such
proceeding which remains undismissed for a period of 60 days; or any Borrower or
any of its Subsidiaries is adjudicated insolvent or bankrupt; or an order for
relief or other order approving any such case or proceeding is entered; or any
Borrower or any of its Subsidiaries suffers any appointment of any custodian,
receiver, trustee or the like for it or any substantial part of its property to
continue undischarged or unstayed for a period of 60 days; or any Borrower or
any of its Subsidiaries makes a general assignment for the benefit of creditors;
or any corporate action is taken by any Borrower or any of its Subsidiaries for
the purpose of effecting any of the foregoing; or
9.06 ERISA. (a) Any Plan shall fail to satisfy the minimum funding standard
required for any plan year or part thereof under Section 412 of the Code or
Section 302 of ERISA or a waiver of such standard or extension of any
amortization period is sought or granted under Section 412 of the Code or
Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a
contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan
subject to Title IV of ERISA shall be subject to the advance reporting
requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph
(b)(1) thereof) and an event described in
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subsection .62, .63, .64, .65, .66, .67 or .68 of PBGC Regulation Section 4043
shall be reasonably expected to occur with respect to such Plan within the
following 30 days, any Plan which is subject to Title IV of ERISA shall have had
or is likely to have a trustee appointed to administer such Plan, any Plan which
is subject to Title IV of ERISA is, shall have been or is likely to be
terminated or to be the subject of termination proceedings under ERISA, any Plan
shall have an Unfunded Current Liability, a contribution required to be made
with respect to a Plan or a Foreign Pension Plan has not been timely made,
Workflow or any Subsidiary of Workflow or any ERISA Affiliate has incurred or is
likely to incur any liability to or on account of a Plan under Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health
plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code)
under Section 4980B of the Code, or Workflow or any Subsidiary of Workflow has
incurred or is likely to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) that provide
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) or Plans or Foreign Pension Plans; (b) there shall
result from any such event or events the imposition of a lien, the granting of a
security interest, or a liability or a material risk of incurring a liability;
and (c) such lien, security interest or liability, individually and/or in the
aggregate, in the reasonable opinion of the Required Lenders, has had, or could
reasonably be expected to have, a Material Adverse Effect; or
9.07 Security Documents. (a) Except in each case to the extent resulting
from the negligent or willful failure of the Collateral Agent to retain
possession of the applicable Pledged Securities, any Security Document shall
cease to be in full force and effect, or shall cease to give the Collateral
Agent the Liens, rights, powers and privileges purported to be created
thereby in favor of the Collateral Agent (or such other trustee as may be
required and desired under local law), or (b) any Credit Party shall default
in the due performance or observance of any term, covenant or agreement on
its part to be performed or observed pursuant to any such Security Document
and such default shall continue unremedied for a period of at least 30 days;
or
9.08 Guaranties. Any Guaranty or any provision thereof shall cease to be in
full force and effect, or any Guarantor or any Person acting by or on behalf of
such Guarantor shall deny or disaffirm such Guarantor's obligations under its
Guaranty or any Guarantor shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to its Guaranty; or
9.09 Judgments. One or more judgments or decrees shall be entered against
Workflow or any of its Subsidiaries involving a liability (to the extent not
paid or covered by a reputable and solvent insurance company) of $1,000,000 or
more (or, in the case of currencies other than Dollars, the Dollar Equivalent
thereof) for all such judgments and decrees and all such judgments or decrees
shall not have been vacated, paid, discharged or stayed or bonded pending appeal
within 30 days from the entry thereof; or
9.10 Change of Control. A Change of Control shall occur;
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then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent shall, upon the written request of the
Required Lenders, by written notice to the Borrowers, take any or all of the
following actions, without prejudice to the rights of the Agent or any Lender to
enforce its claims against any Guarantor or any Borrower (provided, that if an
Event of Default specified in Section 9.05 shall occur with respect to a
Borrower, the result which would occur upon the giving of written notice by the
Agent as specified in clauses (i) and (ii) below shall occur automatically
without the giving of any such notice): (i) declare the Total Commitment
terminated, whereupon the Commitment of each Lender shall forthwith terminate
immediately and any accrued Commitment Fees shall forthwith become due and
payable without any other notice of any kind; (ii) declare the principal of, the
Face Amount of and any accrued interest in respect of all Loans and all other
Obligations owing hereunder (including Unpaid Drawings) to be, whereupon the
same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrowers; (iii) enforce, as Collateral Agent (or direct the Collateral Agent to
enforce), any or all of the Liens and security interests created pursuant to the
Security Documents; (iv) terminate any Letter of Credit which may be terminated
in accordance with its terms; (v) direct Workflow to pay (and Workflow hereby
agrees upon receipt of such notice, or upon the occurrence of any Event of
Default specified in Section 9.05, to pay) to the Collateral Agent at the
appropriate Payment Office such additional amounts of cash, to be held as
security for Workflow's reimbursement obligations in respect of Letters of
Credit then outstanding, equal to the aggregate Stated Amount of all Letters of
Credit then outstanding; (vi) apply any cash collateral held pursuant to Section
4.02 to the repayment of the Obligations; and (vii) direct the appropriate
Borrowers to pay (and each Borrower agrees that upon receipt of such notice, or
upon the occurrence of an Event of Default specified in Section 9.05 with
respect to any Borrower, it will pay) to the Agent (without duplication) all
amounts required to be paid pursuant to clause (j) of Schedule III.
SECTION 10. Definitions. As used herein, the following terms shall have the
meanings herein specified unless the context otherwise requires. Defined terms
in this Agreement shall include in the singular number the plural and in the
plural the singular:
"Absolute Rate" shall mean an interest rate (rounded to the nearest .0001)
expressed as a decimal.
"Acceptance Fee" shall mean, in respect of a Bankers' Acceptance, a fee
calculated on the Face Amount of such Bankers' Acceptance at a rate per annum
equal to the Applicable Eurodollar Margin that would be payable with respect to
a Eurodollar Loan drawn on the Drawing Date of such Bankers' Acceptance.
"Acquired Business" shall mean each individual set of assets and/or Person
acquired pursuant to a Permitted Acquisition.
"Acquisition Date" shall have the meaning provided in Section 8.02(f).
"Acquisition Loan" shall mean any Revolving Loan or Competitive Bid Loan
incurred by any Borrower to finance a Permitted Acquisition.
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"Acquisition Sub-Limit" shall mean, at any time, (x) $125,000,000 less (y)
17% of the aggregate reductions to the Total Commitment theretofore effected .
"Adjustment Date" shall have the meaning provided in Section 1.17(b).
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a corporation if
such Person possesses, directly or indirectly, the power (i) to vote 5% or more
of the securities having ordinary voting power for the election of directors of
such corporation or (ii) to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
"Agent" shall have the meaning provided in the first paragraph of this
Agreement and shall include any successor to the Agent appointed pursuant to
Section 11.10.
"Aggregate Revolving Credit Exposure" shall mean, at any time, the sum of
(I) the aggregate principal amount of all Revolving Loans then outstanding (for
this purpose, (x) at all times prior to the occurrence of a Sharing Event and
the automatic conversion of Canadian Revolving Loans to Dollar Revolving Loans
pursuant to Section 1.16, using the Dollar Equivalent of the principal amount or
Face Amount, as the case may be, of each Canadian Revolving Loan then
outstanding and (y) at all times after any occurrence as described in preceding
clause (x), giving effect to the conversions to Dollar obligations required by
Section 1.16) plus (II) the aggregate principal amount of all Swingline Loans
and Competitive Bid Loans then outstanding plus (III) the aggregate amount of
all Letter of Credit Outstandings at such time.
"Agreement" shall mean this Credit Agreement, as the same may be from time
to time modified, amended and/or supplemented.
"Anticipated Reinvestment Amount" shall mean, with respect to any
Reinvestment Election, the amount specified in the Reinvestment Notice delivered
by Workflow in connection therewith as (x) the amount of the Net Cash Proceeds
from the related Asset Sale that Workflow and/or its Subsidiaries intend to use
to purchase, construct or otherwise acquire Reinvestment Assets or (y) the
amount of the Net Insurance Proceeds from the related Recovery Event that
Workflow and/or its Subsidiaries intend to use to purchase or construct
Reinvestment Assets in respect of the asset subject to such Recovery Event.
"Applicable Base Rate/Canadian Prime Rate Margin" shall mean the margin
determined in accordance with the schedule below based on the Leverage Ratio of
Workflow for the Test Period then last ended and as determined from the most
recent financial statements of Workflow (and related compliance certificate)
timely delivered to the Lenders pursuant to Section 7.01(a) or (b), as the case
may be, provided that (x) so long as any Default or Event of Default then
exists, the Applicable Base Rate/Canadian Prime Rate Margin shall be equal to
the highest percentage set forth in the table below and (y) to the extent that,
on the date of the consummation by Workflow or any of its Subsidiaries of any
Permitted Acquisition, the Leverage Ratio of Workflow is increased (after giving
effect to such Permitted Acquisition) and such
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increase would result in a higher Applicable Base Rate/Canadian Prime Rate
Margin in accordance with the schedule below, such increase in the Applicable
Base Rate/Canadian Prime Rate Margin shall take effect from such date until the
next date upon which the financial statements referred to above are required to
be delivered to the Lenders:
<TABLE>
<CAPTION>
Applicable
Base Rate/Canadian
Leverage Ratio Prime Rate Margin
- -------------- -----------------
<S> <C>
Greater than or equal to 3.0:1 .500%
Less than 3.0:1 but greater than or equal to 2.5:1 .250%
Less than 2.5:1 .0%
</TABLE>
; provided further, that, notwithstanding the foregoing, (i) for the period from
the Effective Date through (but not including) the date of delivery of the first
set of financial statements pursuant to Section 7.01(a) or (b), as the case may
be, the Applicable Base Rate/Canadian Prime Rate Margin shall be .250% (as such
percentage may be increased as a result of clause (x) or (y) of the preceding
proviso) and (ii) at no time during the period beginning on the Effective Date
and ending with the delivery of the financial statements pursuant to Section
7.01(b) in respect of Workflow's fiscal quarter ending closest to October 31,
1998, shall the Applicable Base Rate Margin be less than .250%.
"Applicable Commitment Fee Percentage" shall mean the percentage determined
in accordance with the schedule below based on the Leverage Ratio of Workflow
for the Test Period then last ended and as determined from the most recent
financial statements of Workflow (and related compliance certificate) timely
delivered to the Lenders pursuant to Section 7.01(a) or (b), as the case may be,
provided that (x) so long as any Default or Event of Default then exists, the
Applicable Commitment Fee Percentage shall be equal to the highest percentage
set forth in the table below and (y) to the extent that, on the date of the
consummation by Workflow or any of its Subsidiaries of any Permitted
Acquisition, the Leverage Ratio of Workflow is increased (after giving effect to
such Permitted Acquisition) and such increase would result in a higher
Applicable Commitment Fee Percentage in accordance with the below schedule, such
increase in the Applicable Commitment Fee Percentage shall take effect from such
date until the next date upon which the financial statements referred to above
are required to be delivered to the Lenders:
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<TABLE>
<CAPTION>
Applicable
Leverage Ratio Commitment Fee Percentage
-------------- -------------------------
<S> <C>
Greater than or equal to 3.0:1 .470%
Less than 3.0:1 but greater than or equal to 2.5:1 .400%
Less than 2.5:1 but greater than or equal to 2.0:1 .300%
Less than 2.0:1 .250%
</TABLE>
; provided further, that, notwithstanding the foregoing, for the period from the
Effective Date through (but not including) the date of delivery of the first set
of financial statements pursuant to Section 7.01(a) or (b), as the case may be,
the Applicable Commitment Fee Percentage shall be .250% (as such percentage may
be increased as a result of clause (x) or (y) of the preceding proviso).
"Applicable Currency" shall mean, with respect to any Obligations, Dollars
or, to the extent relating to Canadian Revolving Loans, Canadian Dollars.
"Applicable Eurodollar Margin" shall mean the margin determined in
accordance with the schedule below based on the Leverage Ratio of Workflow for
the Test Period then last ended and as determined from the most recent financial
statements of Workflow (and related compliance certificate) timely delivered to
the Lenders pursuant to Section 7.01(a) or (b), as the case may be, provided
that (x) so long as any Default or Event of Default then exists, the Applicable
Eurodollar Margin shall be equal to the highest percentage set forth in the
table below and (y) to the extent that, on the date of the consummation by of
Workflow or any of its Subsidiaries of any Permitted Acquisition, the Leverage
Ratio of Workflow is increased (after giving effect to such Permitted
Acquisition) and such increase would result in a higher Applicable Eurodollar
Margin in accordance with the schedule below, such increase in the Applicable
Eurodollar Margin shall take effect from such date until the next date upon
which the financial statements referred to above are required to be delivered to
the Lenders:
<TABLE>
<CAPTION>
Applicable
Eurodollar
Leverage Ratio Rate Margin
-------------- -----------
<S> <C>
Greater than or equal to 3.0:1 1.500%
Less than 3.0:1 but greater than or equal to 2.5:1 1.250%
Less than 2.5:1 but greater than or equal to 2.0:1 1.000%
Less than 2.0:1 but greater than or equal to 1.0:1 .750%
Less than 1.0:1 .625%
</TABLE>
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; provided further, that, notwithstanding the foregoing, (i) for the period from
the Effective Date through (but not including) the date of delivery of the first
set of financial statements pursuant to Section 7.01(a) or (b), as the case may
be, the Applicable Eurodollar Margin shall be 1.250% (as such percentage may be
increased as a result of clause (x) or (y) of the preceding proviso) and (iii)
at no time during the period beginning on the Effective Date and ending with the
delivery of the financial statements pursuant to Section 7.01(b) in respect of
Workflow's fiscal quarter ending closest to October 31, 1998, shall the
Applicable Eurodollar Margin be less than 1.250%.
"Asset Sale" shall mean the sale, transfer or other disposition (or series
of related sales, transfers or dispositions) by Workflow or any Subsidiary of
Workflow after the Effective Date to any Person other than Workflow or any
Subsidiary of Workflow of any asset of Workflow or such Subsidiary (other than
sales, transfers or other dispositions (x) in the ordinary course of business of
inventory and/or obsolete or worn-out equipment or (y) the proceeds of which do
not exceed $1,000,000 in any fiscal year of Workflow).
"Assignment and Assumption Agreement" shall have the meaning provided in
Section 12.04(b).
"Authorized Financial Officer" shall mean the chief financial officer, the
treasurer, any assistant treasurer or the corporate controller of Workflow or
DBF, as appropriate.
"BA Discount Proceeds" shall mean, in respect of any Bankers Acceptance to
be purchased by a Canadian Lender on any date pursuant to Section 1.01 and Annex
III, an amount rounded to the nearest whole Canadian cent, and with one-half of
one Canadian cent being rounded up, calculated on such day by dividing:
(a) the Face Amount of such Banker's Acceptance; by
(b) the sum of one plus the product of:
(i) the respective Canadian Lender's Discount Rate (expressed as a
decimal) applicable to such Bankers' Acceptance; and
(ii) a fraction, the numerator of which is the number of days in the
term of maturity of such Banker's Acceptance and the denominator of which
is 365;
with such product rounded up or down to the fifth decimal place and
with .000005 being rounded up.
"Bankers' Acceptance" shall mean a Draft accepted by a Canadian Lender
pursuant to Section 1.01 and Annex III.
"Bankers' Acceptance Loans" shall mean the creation and discount of
Bankers' Acceptances as contemplated in Section 1.01 and Annex III.
"Bankruptcy Code" shall have the meaning provided in Section 9.05.
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"Base Rate" shall mean, at any time, the higher of (x) the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate and (y) the Prime
Lending Rate.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) each Dollar
Revolving Loan designated or deemed designated as such by Workflow at the time
of the incurrence thereof or conversion thereto.
"Benefited Lender" shall have the meaning provided in Section 12.06(b).
"Bidder Lender" shall mean each Lender that has informed the Agent and
Workflow in writing (which has not been retracted) that such Lender desires to
participate generally in the bidding arrangements relating to Competitive Bid
Borrowings.
"Borrower" shall have the meaning provided in the first paragraph of this
Agreement.
"Borrowing" shall mean and include (i) the incurrence of Swingline Loans
from BTCo on a certain date, (ii) the incurrence of one Type of Dollar Revolving
Loan by Workflow from all of the Lenders on a pro rata basis on a given date (or
resulting from conversions on a given date), having in the case of Eurodollar
Loans the same Interest Period, provided, that Base Rate Loans incurred pursuant
to Section 1.11(b) shall be considered part of any related Borrowing of
Eurodollar Loans, (iii) the incurrence of one Type of Canadian Revolving Loan by
DBF from all of the Canadian Lenders on a pro rata basis on a given date, having
in the case of Bankers' Acceptance Loans, underlying Bankers' Acceptances with
the same maturities and (iv) a Competitive Bid Borrowing.
"BTCo" shall mean Bankers Trust Company and any successor corporation
thereto by merger, consolidation or otherwise.
"Business Day" shall mean (i) for all purposes other than as covered by
clauses (ii) and (iii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close, (ii)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) above and which is also a day for trading by and between
banks in U.S. dollar deposits in the interbank Eurodollar market and (iii) with
respect to all notices and determinations in connection with, and payments of
principal and interest on, Canadian Revolving Loans made to DBF, any day which
is a Business Day described in clauses (i) and, if relevant, (ii) above and
which is also a day which is not a legal holiday or a day on which banking
institutions are authorized or required by law or other government action to
close in Toronto, Ontario and, if different, in the city where the applicable
Payment Office of the Agent is located in respect of Canadian Revolving Loans.
"Canadian Credit Party" shall mean DBF, each Canadian Parent and each other
Subsidiary of Workflow organized under the laws of Canada or any province
thereof.
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"Canadian Dollar Equivalent" shall mean, at any time for the determination
thereof, the amount of Canadian Dollars which could be purchased with the amount
of Dollars involved in such computation at the spot rate of exchange therefor as
quoted by the Agent as of 11:00 A.M. (New York time) on the date two Business
Days prior to the date of any determination thereof for purchase on such date.
"Canadian Dollars" and "Cdn" shall mean freely and transferable lawful
money of Canada.
"Canadian General Guaranty" shall have the meaning provided in Section
5.10(b).
"Canadian Guaranty" shall mean and include each of the Canadian General
Guaranty and the Canadian Parent Guaranty.
"Canadian Lender" shall mean (i) each Lender listed on Annex I-B, and (ii)
each additional Person that becomes a Canadian Lender party hereto in accordance
with Section 1.14 or 12.04(b). A Canadian Lender shall cease to be a "Canadian
Lender" when it has assigned all of its Canadian Sub-Commitment in accordance
with Section 1.14 and/or 12.04(b). For purposes of this Agreement, the term
"Lender" includes each Canadian Lender unless the context otherwise requires.
"Canadian Parent" shall mean each of 3303471 Canada, Inc., a Canadian
federal corporation and the direct parent company of DBF and 1186202 Ontario
Limited, a Canadian federal corporation and the direct parent company of 3303471
Canada, Inc.
"Canadian Parent Guaranty" shall have the meaning provided in Section
5.10(b).
"Canadian Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Canadian
Sub-Commitment of such Lender at such time and the denominator of which is the
aggregate amount of Canadian Sub-Commitments of all Canadian Lenders at such
time, provided that if the Canadian Percentage of any Canadian Lender is to be
determined after the Total Commitment has been terminated, then the Canadian
Percentage of the Canadian Lenders shall be determined immediately prior (and
without giving effect) to such termination.
"Canadian Pledge Agreement" shall have the meaning provided in Section
5.11(b).
"Canadian Prime Rate" shall mean, at any time, the greater of (i) the per
annum rate of interest quoted, published and commonly known as the "prime rate"
of BT Bank of Canada which BT Bank of Canada establishes at its main office in
Toronto, Ontario, Canada as the reference rate of interest in order to determine
interest rates for loans in Canadian Dollars to its Canadian borrowers, adjusted
automatically with each quoted or published change in such rate, all without
necessity of any notice to any Borrower or any other Person and (ii) the sum of
(I) the average of the rates per annum for Canadian Dollar bankers' acceptances
having a term of 30 days that appears on the Reuters Screen CDOR Page as of
10:00 A.M. (Toronto time) on the
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<PAGE>
date of determination, as reported by BT Bank of Canada (and if such screen is
not available, any successor or similar services may be selected by BT Bank of
Canada), plus (II) 0.75%.
"Canadian Prime Rate Loans" shall mean any Canadian Revolving Loan
designated or deemed designated as such by DBF at the time of the incurrence
thereof or conversion thereto.
"Canadian Revolving Loan" shall have the meaning provided in Section
1.01(a).
"Canadian Revolving Note" shall have the meaning provided in Section
1.06(a).
"Canadian Security Agreement" shall have the meaning provided in Section
5.11(c).
"Canadian Sub-Commitment" shall mean, as to any Canadian Lender, (i) the
amount, if any, set forth opposite such Lender's name in Annex I-B directly
below the column entitled "Canadian Sub-Commitment", as same may be (x) reduced
from time to time pursuant to Sections 3.02, 3.03 and/or 9 or (y) adjusted from
time to time as a result of assignments to or from such Lender pursuant to
Section 1.14 or 12.04(b). The Canadian Sub-Commitment of each Canadian Lender is
a sub-limit of the Commitment of the respective Canadian Lender (or its
respective Affiliate which is a Lender with the related Commitment) and not an
additional commitment and, in no event, may exceed at any time, the Commitment
of such Canadian Lender (or its respective Affiliate which is a Lender with the
related Commitment).
"Capital Expenditure Amount" shall mean, for any fiscal year of Workflow
set forth in Section 8.05(a)(y), the sum of (x) $6,000,000 plus (y) 15% of the
Consolidated EBITDA of Workflow for the immediately preceding fiscal year.
"Capital Lease," as applied to any Person, shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"Capitalized Lease Obligations" shall mean all obligations under Capital
Leases of Workflow or any of its Subsidiaries in each case taken at the amount
thereof accounted for as liabilities in accordance with GAAP.
"Cash Equivalents" shall mean (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided, that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than six months from the date of acquisition, (ii) Dollar denominated time
deposits, certificates of deposit and bankers acceptances of (x) any Lender or
(y) any bank whose short-term commercial paper rating from Standard & Poor's
Ratings Service ("S&P") is at least A-1 or the equivalent thereof or from
Moody's Investors Service, Inc. ("Moody's") is at least P-1 or the equivalent
thereof (any such bank or Lender, an "Approved Lender"), in each case with
maturities of not more than six months from the date of acquisition, (iii)
commercial paper issued by any Approved Lender or by the parent company of any
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Approved Lender and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or A2, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing within six months after
the date of acquisition, (iv) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within six months from the date
of acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either S&P or Moody's, (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the type described in clause (i) above and entered into with any Approved
Lender, (vi) investments in money market funds substantially all the assets of
which are comprised of securities of the types described in clauses (i) through
(v) above and (vii) in the case of any Subsidiary of Workflow organized under
the laws of Canada or any province thereof, (A) government obligations of Canada
having maturities of not more than six months from the date of acquisition and
(B) Canadian Dollar denominated time deposits, certificates of deposit and
banker's acceptances of any Approved Lender, in each case with maturition of not
more than six months from the date of acquisition.
"Cash Proceeds" shall mean, (i) with respect to any Asset Sale, the
aggregate cash payments (including any cash as and when received by way of
deferred payment pursuant to a promissory note, receivable or otherwise)
received by Workflow and/or any Subsidiary of Workflow from such Asset Sale and
(ii) with respect to any Recovery Event, the aggregate cash payments received by
Workflow and/or any Subsidiary of Workflow from such Recovery Event.
"Change of Control" shall mean if (a) any "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act) (i) is or shall
become the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the
Exchange Act), directly or indirectly, of 20% or more on a fully diluted basis
of the voting and economic interests of Workflow or (ii) shall have obtained the
power (whether or not exercised) to elect a majority of Workflow's directors or
(b) the Board of Directors of Workflow shall cease to consist of a majority of
Continuing Directors.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and rulings issued thereunder. Section
references to the Code are to the Code, as in effect at the date of this
Agreement and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Collateral as defined in (or subject to
the security interest of) each of the Security Documents, as well as all cash
and Cash Equivalents delivered as collateral pursuant to this Agreement.
"Collateral Agent" shall mean the Agent acting as collateral agent for the
Secured Creditors.
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"Commitment" shall mean, at any time and with respect to each Lender, the
amount set forth opposite such Lender's name in Annex I-A directly under the
column entitled "Commitment," as the same may be reduced from time to time
pursuant to Section 3.02, 3.03 or 9 or adjusted from time to time as a result of
assignments to or from such Lender as provided for in Sections 1.14 and 12.04.
"Commitment Expiration Date" shall mean July 20, 1998.
"Commitment Fee" shall have the meaning provided in Section 3.01(a).
"Competitive Bid Borrowing" shall mean each borrowing of any Competitive
Bid Loan.
"Competitive Bid Loan" shall have the meaning provided in Section 1.01(d)
"Competitive Bid Loan Maturity Date" shall have the meaning provided in
Section 1.04(a).
"Competitive Bid Notes" shall have the meaning provided in Section 1.06(a).
"Confidential Information Memorandum" shall mean the Confidential
Information Memorandum, dated May 1998, distributed to the Lenders prior to the
Effective Date in connection with this Agreement.
"Consolidated Capital Expenditures" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including in all events all amounts expended or capitalized under Capital
Leases but excluding any amount representing capitalized interest) by Workflow
and its Subsidiaries during that period that, in conformity with GAAP, are or
are required to be included in the property, plant or equipment reflected in the
consolidated balance sheet of Workflow and its Subsidiaries, provided that
Consolidated Capital Expenditures shall in any event include the purchase price
paid in connection with the acquisition of any Person (including through the
purchase of all of the capital stock or other ownership interests of such Person
or through merger or consolidation) to the extent allocable to property, plant
and equipment.
"Consolidated EBIT" shall mean, for any period with respect to any Person,
Consolidated Net Income of such Person, before (i) interest income, (ii)
Consolidated Interest Expense, and (iii) provision for taxes and without giving
effect to any extraordinary gains or extraordinary losses or gains from sales of
assets (other than sales of inventory in the ordinary course of business).
"Consolidated EBITDA" shall mean, for any period with respect to any
Person, Consolidated EBIT of such Person for such period, adjusted by adding
thereto the amount of all depreciation expense and amortization expense deducted
in determining such Consolidated EBIT for such period, provided that there shall
be included in determining Consolidated EBITDA of Workflow and its Subsidiaries
for any period, the Consolidated EBITDA for each Acquired
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Business acquired by Workflow or any Subsidiary of Workflow during such period
for the portion of such period prior to such acquisition but excluding, in a
manner and to the extent satisfactory to the Agent, (i) any non-recurring
charges (as determined pursuant to GAAP) incurred in connection with the
Transaction and the IPO otherwise included in the computation of Consolidated
EBITDA and (ii) from the computation of Consolidated EBITDA of such Acquired
Business, any non-recurring charges (as determined pursuant to GAAP) otherwise
included in such computation.
"Consolidated Interest Coverage Ratio" shall mean, for any period, the
ratio of Consolidated EBITDA to Consolidated Interest Expense for such period.
"Consolidated Interest Expense" shall mean, for any period with respect to
any Person, the total interest expense (including that attributable to Capital
Leases in accordance with GAAP) of such Person determined on a consolidated
basis with respect to all outstanding Indebtedness of such Person, including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, but
excluding, however, amortization of deferred financing costs to the extent
included in total interest expense, provided that there shall be included in
determining Consolidated Interest Expense of Workflow and its Subsidiaries for
any period, (x) the Consolidated Interest Expense for each Acquired Business
acquired by Workflow or any Subsidiary of Workflow during such period for the
portion of such period prior to such acquisition and (y) the additional interest
that would have been paid on all Indebtedness incurred by Workflow and its
Subsidiaries to finance each Permitted Acquisition effected during such period
if, in each such case, such Indebtedness had been incurred on the first day of
such period, as reasonably determined by Workflow in a manner satisfactory to
the Agent.
"Consolidated Net Income" shall mean, for any period with respect to any
Person, the net income (or loss), after provision for taxes, of such Person on a
consolidated basis (but after deduction for minority interests) for such period
taken as a single accounting period, provided that (i) the net income (but not
loss) of any Person that is not a Subsidiary of Workflow or that is accounted
for by Workflow by the equity method of accounting shall be included only to the
extent of such amount of cash dividends or distributions paid to Workflow or a
Wholly-Owned Subsidiary thereof, (ii) the net income of any Subsidiary of
Workflow shall be excluded to the extent that the declaration or payment of
dividends or distributions by such Subsidiary of that net income is not as at
the date of determination permitted by operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, law, rule or
governmental regulation and (iii) the net income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded.
"Contingent Obligations" shall mean, as to any Person, any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (x) for the
purchase or payment of any
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such primary obligation or (y) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.
"Continuing Directors" shall mean the directors of Workflow on the
Effective Date and each other director thereof if such director's nomination for
the election to the Board of Directors of Workflow is recommended by a majority
of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, each Note, each Bankers'
Acceptance, each Guaranty, and each Security Document.
"Credit Event" shall mean (i) the occurrence of the Effective Date and (ii)
the making of a Loan or the issuance of a Letter of Credit.
"Credit Party" shall mean each U.S. Credit Party, each Canadian Credit
Party and each other Foreign Subsidiary of Workflow that is required to execute
a Credit Document pursuant to this Agreement.
""DBF" shall have the meaning provided in the introductory paragraph of
this Agreement.
"Default" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a Lender
Default is in effect.
"Discount Rate" shall mean, in respect of any Bankers' Acceptances to be
purchased by a Canadian Lender pursuant to Section 1.01 and Annex III, the
discount rate (calculated on an annual basis and rounded to the nearest 1/100 of
1%, with 5/1000 of 1% being rounded up) quoted by such Canadian Lender at 10:00
A.M. (Toronto time) as the discount rate at which such Canadian Lender would
purchase, on the relevant Drawing Date, its own bankers' acceptances having an
aggregate Face Amount equal to and with a term to maturity the same as the
Bankers' Acceptances to be acquired by such Canadian Lender on such Drawing
Date.
"Dividends" shall have the meaning provided in Section 8.07.
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"Documents" shall mean the Spinoff Documents, the Credit
Documents and, after the execution thereof, the IPO Documents (it being
understood that nothing in this Agreement shall require Workflow to consummate
the IPO).
"Dollar Equivalent" of an amount denominated in Canadian Dollars shall
mean, at any time for the determination thereof, the amount of Dollars which
could be purchased with the amount of Canadian Dollars involved in such
computation at the spot exchange rate therefor as quoted by the Agent as of
11:00 A.M. (New York time) on the date two Business Days prior to the date of
any determination thereof for purchase on such date; provided that (1) for
purposes of Section 1.16, the Dollar Equivalent of any amount expressed in
Canadian Dollars shall be the amount of Dollars that the Agent determines, based
upon the actual exchange rates which the Agent believes can be obtained on the
date of conversion pursuant to Section 1.16, would be required to be paid in
Dollars to purchase such amount of Canadian Dollars and (2) for purposes of (x)
determining compliance with Sections 1.01, 2.01(c) and 4.02(a) and (y)
calculating Fees pursuant to Section 3.01, the Dollar Equivalent of any amounts
outstanding in a currency other than Dollars shall be revalued on a monthly
basis using the spot exchange rate therefor quoted in the Wall Street Journal on
the last Business Day of each month, provided that, at any time during a month,
if the full principal amount of Canadian Revolving Loans permitted to be
incurred pursuant to this Agreement (i.e., up to the full amount of the
respective Canadian Sub-Commitments as then in effect) were incurred, and if the
Dollar Equivalent as recalculated based on the exchange rate therefor quoted in
the Wall Street Journal on the respective date of determination pursuant to this
exception would result in an increase in the Dollar Equivalent as then in effect
of such amounts of 5% or more, then at the discretion of the Agent or at the
request of the Required Lenders, the Dollar Equivalent shall be reset based upon
the exchange rates quoted on such date in the Wall Street Journal, which rates
shall remain in effect until the last Business Day of such month or such earlier
date, if any, as the rate is reset pursuant to this proviso. Notwithstanding
anything to the contrary contained in this definition, at any time that a
Default or an Event of Default then exists, the Agent may revalue the Dollar
Equivalent of any amounts outstanding under the Credit Documents in a currency
other than Dollars in its sole discretion.
"Dollar Loan" shall mean each Dollar Revolving Loan, each Competitive Bid
Loan and each Swingline Loan.
"Dollar Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Dollar Sub-Commitment
of such Lender at such time and the denominator of which is the aggregate amount
of Dollar Sub-Commitments of all Lenders at such time. Notwithstanding anything
to the contrary contained above, if the Dollar Percentage of any Lender is to be
determined after the Total Commitment has been terminated, then the Dollar
Percentages of the Lenders shall be determined immediately prior (and without
giving effect) to such termination.
"Dollar Revolving Loan" shall have the meaning provided in Section 1.01(a).
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"Dollar Revolving Note" shall have the meaning provided in Section 1.06(a).
"Dollar Sub-Commitment" shall mean, for any Lender at any time, such
Lender's Commitment at such time minus, in the case of a Lender that is, or
whose Affiliate is, a Canadian Lender, such Canadian Lender's Canadian
Sub-Commitment at such time.
"Dollars" and the sign "$" shall each mean freely transferable lawful money
of the United States.
"Domestic Subsidiary" shall mean each Subsidiary of Workflow which is not a
Foreign Subsidiary.
"Draft" shall mean, at any time, a blank bill of exchange, within the
meaning of the Bills of Exchange Act (Canada), drawn by any Borrower on Canadian
Lender and bearing such distinguishing letters and numbers as such Canadian
Lender may determine, but which at such time has not been completed or accepted
by such Canadian Lender.
"Drawing Date" shall mean any Business Day fixed pursuant to Annex III for
the creation and purchase of Bankers' Acceptances by a Canadian Lender.
"Effective Date" shall have the meaning provided in Section 12.10.
"Eligible Transferee" shall mean and include a commercial bank, financial
institution, any fund that invests in loans or any other "accredited investor"
(as defined in SEC Regulation D).
"Environmental Claims" shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings relating in any way
to any Environmental Law (hereafter "Claims") or any permit issued under any
such law, including, without limitation, (a) any and all Claims by governmental
or regulatory authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Environmental Law, and
(b) any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law" shall mean any federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, policy or rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to the
environment, health, safety or Hazardous Materials, including, without
limitation, CERCLA, RCRA, the Federal Water Pollution Control Act, as
amended, 33 U.S.C. Section 1251 et seq., the Toxic Substances Control Act, 15
U.S.C. Section 7401 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et
seq., the Safe Drinking Water Act, 42 U.S.C. Section 3808 et seq., the Oil
Pollution Act of 1990, 33 U.S.C. Section 2701 et seq., the Emergency Planning
and the Community Right-to-Know Act of 1986, 42 U.S.C. Section 11001 et seq.,
the Hazardous Material Transportation Act, 49 U.S.C. Section 1801 et seq.,
the Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq., and
any applicable state and local or foreign counterparts or equivalents.
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"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the date
of this Agreement and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9) of
ERISA) which together with Workflow or a Subsidiary of Workflow would be deemed
to be a "single employer" (i) within the meaning of Section 414(b), (c), (m) or
(o) of the Code or (ii) as a result of Workflow or a Subsidiary of Workflow
being or having been a general partner of such person.
"Eurodollar Loans" shall mean each Dollar Revolving Loan designated as such
by Workflow of the time of incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean, with respect to each Interest Period for a
Eurodollar Loan, (i) the arithmetic average (rounded to the nearest 1/100 of 1%)
of the offered quotations to first-class banks in the interbank Eurodollar
market by the Agent for Dollar deposits of amounts in same day funds comparable
to the outstanding principal amount of the Eurodollar Loan of the Agent for
which an interest rate is then being determined with maturities comparable to
the Interest Period to be applicable to such Eurodollar Loan, determined as of
10:00 A.M. (New York time) on the date which is two Business Days prior to the
commencement of such Interest Period divided (and rounded upward to the next
whole multiple of 1/16 of 1%) by (ii) a percentage equal to 100% minus the then
stated maximum rate of all reserve requirements (including, without limitation,
any marginal, emergency, supplemental, special or other reserves) applicable to
any member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D (or any successor category of liabilities
under Regulation D).
"Event of Default" shall have the meaning provided in Section 9.
"Existing Debt" shall have the meaning provided in Section 6.21.
"Existing Indebtedness Agreements" shall have the meaning provided in
Section 5.15(vi).
"Face Amount" shall mean, in respect of a Bankers' Acceptance, the amount
payable to the holder thereof on its maturity. The Face Amount of any Bankers'
Acceptance Loan shall be equal to the Face Amounts of the underlying Bankers'
Acceptances.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Federal Funds Effective Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Lender of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
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transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.
"Final Maturity Date" shall mean June 10, 2003.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by Workflow or any one or more
of its Subsidiaries primarily for the benefit of employees of Workflow or such
Subsidiaries residing outside the United States of America, which plan, fund or
other similar program provides, or results in, retirement income, a deferral of
income in contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean each Subsidiary of Workflow that is
incorporated under the laws of any jurisdiction other than the United States of
America or any State thereof.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time; it being understood and agreed
that determinations in accordance with GAAP for purposes of Section 8, including
defined terms as used therein, are subject (to the extent provided therein) to
Section 12.07(a).
"Guarantor" shall mean and include Workflow, in is capacity as a Guarantor
under the Canadian General Guaranty, and each Subsidiary Guarantor.
"Guaranty" shall mean and include each of the U.S. Subsidiaries Guaranty,
the Canadian General Guaranty, the Canadian Parent Guaranty and each other
guaranty required to be executed pursuant to Section 8.12.
"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas, (b) any chemicals, materials or substances defined as or included in
the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any applicable Environmental Law and (c) any other chemical,
material or substance, the Release of which is prohibited, limited or regulated
by any applicable Environmental Law.
"Indebtedness" shall mean, as to any Person, without duplication, (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services payable to the sellers thereof or any of such seller's
assignees which in accordance with GAAP would be shown on the liability side of
the balance sheet of such Person, (iii) the face amount of
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all letters of credit, bankers' acceptances and similar obligations issued and
outstanding for the account of such Person and, without duplication, all drafts
drawn thereunder, (iv) all Indebtedness of a second Person secured by any Lien
on any property owned by such first Person, whether or not such Indebtedness has
been assumed (provided that if such Indebtedness has not been assumed, such
amount shall be equal to the fair market value of the property subject to such
Lien), (v) all Capitalized Lease Obligations of such Person, (vi) all
obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted, i.e., take-or-pay and similar
obligations, (vii) all obligations of such Person under Interest Rate Protection
Agreements and Other Hedging Agreements and (viii) all Contingent Obligations of
such Person; provided, that Indebtedness shall not include trade payables and
accrued expenses, in each case arising in the ordinary course of business.
"Indemnitee" shall have the meaning provided in Section 12.01.
"Intercompany Note" shall mean a promissory note substantially in the form
of Exhibit L.
"Interest Period" shall mean, with respect to any Eurodollar Loan, the
interest period applicable thereto, as determined pursuant to Section 1.10.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement, interest
rate hedging agreement or other similar agreement or arrangement.
"Investment" shall have the meaning provided in Section 8.06.
"IPO" shall mean the initial registered public offering by Workflow of its
common stock.
"IPO Documents" shall mean the registration statement of Workflow relating
to the registration of its common stock in connection with the IPO, and all
other documents or agreements related to the consummation of the IPO, including,
without limitation, all underwriting or similar agreements and all documents
related thereto filed with the SEC.
"Judgment Currency" shall have the meaning provided in Section 12.18(a).
"Judgment Currency Conversion Date" shall have the meaning provided in
Section 12.18(a).
"Leasehold" of any Person shall mean all of the right, title and interest
of such Person as lessee or licensee in, to and under leases or licenses of
land, improvements and/or fixtures.
"Lender" shall mean each lender listed on Annex I-A, as well as each Person
which becomes a "Lender" hereunder pursuant to Section 1.14 or 12.04(b). Unless
the context otherwise requires, each reference in this Agreement to a Lender
includes each Canadian Lender
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and shall include references to any Affiliate of any such Lender which is acting
as a Canadian Lender.
"Lender Default" shall mean (i) the refusal (which has not been retracted)
of a Lender to make available its portion of any incurrence of Loans or to fund
its portion of any unreimbursed payment under Section 2.04(c) or (ii) a Lender
having notified the Agent and/or the Borrower that it does not intend to comply
with the obligations under Section 1.01 or under Section 2.04(c).
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section 3.01(b).
"Letter of Credit Issuer" shall mean BTCo.
"Letter of Credit Outstandings" shall mean, at any time, the sum of,
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a).
"Leverage Ratio" shall mean, as at any date with respect to any Person, the
ratio of Total Indebtedness at such date to Consolidated EBITDA for the Test
Period then last ended (including on such date), in each case of such Person; it
being understood and agreed that for any determination of the Leverage Ratio of
Workflow on or prior to April 24, 1999, Consolidated EBITDA of Workflow for the
fiscal quarter ended (i) July 26, 1997 shall be $7,489,000, (ii) October 25,
1997 shall be $7,270,000, (iii) January 24, 1998 shall be $6,727,000 and (iv)
April 29, 1998 shall be $7,162,000 (which amount represents the average
Consolidated EBITDA for the prior 3 fiscal quarters), provided that Consolidated
EBITDA for the fiscal quarter ended closest to April 30, 1998 shall be restated
once the financial results for such fiscal quarter are available and reported to
the Agent.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or otherwise) preference, priority, charge or other
security arrangement of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any similar
recording or notice statute, and any lease having substantially the same effect
as the foregoing).
"Loan" shall mean each Revolving Loan, each Swingline Loan and each
Competitive Bid Loan.
"Management Agreements" shall have the meaning provided in Section
5.15(iv).
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(c)(C).
"Margin Stock" shall have the meaning provided in Regulation U.
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"Material Adverse Effect" shall mean a material adverse effect on (i) the
business, assets, properties, operations, condition (financial or otherwise),
liabilities or prospects of any Borrower or any Borrower and its Subsidiaries
taken as a whole, (ii) the rights or remedies of the Lenders under the Credit
Documents or (iii) the ability of any Borrower or any other Credit Party to
perform its respective obligations to the Lenders under the Credit Documents .
"Material Real Property" shall mean any Real Property owned by Workflow or
any Subsidiary Guarantor having a fair market value of $500,000 or more.
"Material Subsidiary" shall mean and include (x) each Subsidiary of
Workflow which owns any capital stock of another Subsidiary of Workflow, (y)
each Subsidiary of Workflow which owns a Material Real Property and (z) any
other Subsidiary of Workflow having total assets the value of which equals or
exceeds $3,000,000 at any time.
"Maximum Swingline Amount" shall mean $5,000,000.
"Minimum Borrowing Amount" shall mean (i) for Revolving Loans that are
maintained as Base Rate Loans, $1,000,000; (ii) for Revolving Loans that are
maintained as Eurodollar Loans, $2,500,000; (iii) for Swingline Loans, $250,000;
(iv) for Revolving Loans that are maintained as Canadian Prime Rate Loans, Cdn
$1,000,000; (v) in the case of Bankers' Acceptance Loans, the amount specified
in Annex III; and (vi) in the case of Competitive Bid Loans, $5,000,000.
"Mortgage" shall mean each mortgage, deed to secure debt, debenture,
hypothec, deed of trust or similar agreement pursuant to which any Credit Party
shall have granted to the Collateral Agent a mortgage lien on such Credit
Party's Mortgaged Property.
"Mortgage Policies" shall have the meaning provided in Section 5.12 (ii).
"Mortgaged Property" shall mean each parcel of Real Property owned or
leased by any Credit Party which is encumbered by a Mortgage.
"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the Cash
Proceeds resulting therefrom net of expenses of sale (including payment of
principal, premium and interest of other Indebtedness secured by the assets the
subject of such Asset Sale and required to be, and which is, repaid under the
terms thereof as a result of such Asset Sale), and incremental taxes paid or
payable as a result thereof.
"Net Insurance Proceeds" shall mean, with respect to any Recovery Event,
the Cash Proceeds (net of reasonable costs and taxes incurred in connection with
such Recovery Event) received in connection with the respective Recovery Event.
"Non-Defaulting Lender" shall mean each Lender other than a Defaulting
Lender.
"Note" shall mean each Dollar Revolving Note, each Canadian Revolving Note,
the Swingline Note and each Competitive Bid Note.
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"Notice of Borrowing" shall have the meaning provided in Section 1.03(a).
"Notice of Competitive Bid Borrowing" shall have the meaning provided in
Section 1.04(a).
"Notice of Conversion" shall have the meaning provided in Section 1.07.
"Notice Office" shall mean the office of the Agent located at 130 Liberty
Street, Commercial Loan Division, 14th Floor, New York, New York 10006,
Attention: Chris DiBiase, provided that with respect to Notices of Borrowing for
Canadian Prime Rate Loans and Bankers' Acceptance Loans, a copy thereof also
shall be sent by DBF to BT Bank of Canada, Royal Bank Plaza, North Tower, Suite
1700, Toronto, Ontario, Canada M5J2J2, Attention: _________, or such other
office as the Agent may designate to the Borrowers and the Lenders from time to
time.
"Obligation Currency" shall have the meaning provided in Section 12.18(a).
"Obligations" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing to the
Agent, the Collateral Agent, the Letter of Credit Issuer or any Lender pursuant
to the terms of this Agreement or any other Credit Document.
"Other Hedging Agreement" shall mean any foreign exchange contracts,
currency swap agreements, commodity agreements or other similar agreements or
arrangements designed to protect against the fluctuation in currency values.
"Participant" shall have the meaning provided in Section 2.04(a).
"Payment Office" shall mean (i) in respect of Dollar Loans, incurred by
Workflow, Letters of Credit, Fees and, except as provided in clause (ii) below,
all other amounts owing under this Agreement and the other Credit Documents, the
office of the Agent located at 130 Liberty Street, 14th Floor, Commercial Loan
Division New York, New York 10006, ABA Number: 021001033, Credit to Commercial
Loan Division, Reference: Workflow Management, Account Number: 99401268, and
(ii) in respect of Canadian Revolving Loans incurred by DBF, to [ ____________,
Account Number: ________, Account Name: __________, Reference: ______________
or in each case such other office as the Agent may hereafter designate in
writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Percentage" of any Lender at any time shall mean a fraction (expressed as
a percentage) the numerator of which is the Commitment of such Lender at such
time and the denominator of which is the Total Commitment at such time.
Notwithstanding anything to the contrary contained above, if the Percentage of
any Lender is to be determined after the Total
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Commitment has been terminated, then the Percentages of the Lenders shall be
determined immediately prior (and without giving effect) to such termination.
"Permitted Acquisition" shall have the meaning provided in Section 8.02(f).
"Permitted Encumbrance" shall mean, with respect to any Mortgaged Property,
such exceptions to title as are set forth in the Mortgage Policy delivered with
respect thereto, all of which exceptions must be acceptable, on the date of
delivery of such Mortgage Policy, to the Agent.
"Permitted Liens" shall have the meaning provided in Section 8.03.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Plan" shall mean any pension plan as defined in Section 3(2) of ERISA,
which is maintained or contributed to by (or to which there is an obligation to
contribute of) Workflow or a Subsidiary of Workflow or an ERISA Affiliate, and
each such plan for the five year period immediately following the latest date on
which Workflow, or a Subsidiary of Workflow or an ERISA Affiliate maintained,
contributed to or had an obligation to contribute to such plan.
"Pledge Agreement" shall mean and include each of the U.S. Pledge
Agreement, each Canadian Pledge Agreement and each other pledge agreement
required to be executed pursuant to Section 8.12.
"Pledged Securities" shall mean all the Pledged Securities as defined in
the applicable Pledge Agreement.
"Prime Lending Rate" shall mean the rate which the Agent announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. The Agent may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"PSD Interest Period" shall mean an Interest Period commenced prior to the
Syndication Date, each of which Interest Periods must satisfy the requirements
of Section 1.10(v).
"Qualified Preferred Stock" shall mean any preferred stock of Workflow so
long as the terms of any such preferred stock (i) do not provide any collateral
security, (ii) do not provide any guaranty or other support by any Subsidiary of
Workflow, (iii) do not require the cash payment of dividends, (iv) do not
contain any mandatory put, redemption, repayment, sinking fund or other similar
provision, (v) do not contain any covenants other than periodic reporting
requirements, (vi) do not grant the holders thereof any voting rights except for
(x) voting rights required to be granted to such holders under applicable law
and (y) limited
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customary voting rights on fundamental matters such as mergers, consolidations,
sales of all or substantially all of the assets of Workflow or liquidations
involving Workflow, (vii) do not provide for the conversion into, or the
exchange for (unless at the sole discretion of the issuer thereof), debt
securities and (viii) are otherwise reasonably satisfactory to the Agent.
"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by Workflow or any of its
Subsidiaries of any cash insurance proceeds or condemnation awards payable (i)
by reason of theft, loss, physical destruction, damage, taking or any other
similar event with respect to any property or assets of Workflow or any of its
Subsidiaries and (ii) under any policy of insurance required to be maintained
under Section 7.03.
"Register" shall have the meaning provided in Section 12.17.
"Regulation D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"Regulation T" shall mean Regulation T of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successors to all
or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"Regulation X" shall mean Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof.
"Reinvestment Assets" shall mean (i) in the case of any Asset Sale, any
assets to be employed in, and/or the capital stock of any Person engaged in, the
business of Workflow and its Subsidiaries and (ii) in the case of any Recovery
Event, any assets purchased or constructed in replacement of the assets subject
to such Recovery Event.
"Reinvestment Election" shall have the meaning provided in Section 3.03(c).
"Reinvestment Notice" shall mean a written notice signed by the president,
any vice-president or an Authorized Financial Officer of Workflow stating that
Workflow, in good faith, intends and expects to use all or a specified portion
of (i) the Net Cash Proceeds of an Asset Sale to purchase, construct or
otherwise acquire Reinvestment Assets or (ii) the Net Insurance Proceeds of a
Recovery Event to purchase or construct Reinvestment Assets, which Reinvestment
Notice also shall set forth (in each case) in reasonable detail the approximate
amount of the transaction costs and incremental taxes incurred or payable in
connection with any such Asset Sale or Recovery Event.
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"Reinvestment Reduction Amount" shall mean, with respect to any
Reinvestment Election, the amount, if any, on the Reinvestment Reduction Date
relating thereto by which (x) the Anticipated Reinvestment Amount in respect of
such Reinvestment Election exceeds (y) the aggregate amount thereof expended by
Workflow and its Subsidiaries to acquire or construct Reinvestment Assets.
"Reinvestment Reduction Date" shall mean, with respect to any Reinvestment
Election, the earliest of (i) the date, if any, upon which a Default or an Event
of Default shall have occurred, (ii) the date occurring one year after the
making of such Reinvestment Election and (iii) the date on which Workflow or the
respective Subsidiary shall have determined not to, or shall have otherwise
ceased to, proceed with the purchase, construction or other acquisition of
Reinvestment Assets with the related Anticipated Reinvestment Amount.
"Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing or
migration into the environment.
"Replaced Lender" shall have the meaning provided in Section 1.14.
"Replacement Lender" shall have the meaning provided in Section 1.14.
"Reply Date" shall have the meaning provided in Section 1.04(b).
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"Required Lenders" shall mean Non-Defaulting Lenders the sum of whose
Commitments (or after the termination thereof, outstanding Revolving Loans,
Competitive Bid Loans and Percentages of outstanding Swingline Loans and Letter
of Credit Outstandings) represent an amount greater than 50% of the Total
Commitment less the Commitments of Defaulting Lenders (or after the termination
of the Total Commitment, the sum of the then total outstanding Revolving Loans
and Competitive Bid Loans of Non-Defaulting Lenders and the aggregate
Percentages of all Non-Defaulting Lenders in outstanding Swingline Loans and
Letter of Credit Outstandings at such time). For purposes of determining
Required Lenders, all outstanding Loans and Commitments, as the case may be,
that are denominated in Dollars will be calculated in Dollars and all Loans and
Commitments, as the case may be, denominated in Canadian Dollars will be
calculated according to the Dollar Equivalent thereof.
"Revolving Credit Exposure" shall mean, for any Lender at any time, the sum
of (i) the aggregate principal amount of all Revolving Loans made by such Lender
(and its Affiliates, if any, acting as a Canadian Lender, and, for this purpose,
(x) at all times prior to the occurrence of any Sharing Event and automatic
conversion of all Canadian Revolving Loans to Dollar Revolving Loans pursuant to
Section 1.16, using the Dollar Equivalent of the principal amount or Face
Amount, as the case may be, of all Canadian Revolving Loans then outstanding
from such Lender or any Affiliate thereof acting as a Canadian Lender and (y) at
all times after
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the occurrence of any Sharing Event, giving effect to the conversions required
by Section 1.16 and to all participations purchased by such Lender pursuant to
Section 1.16) plus (ii) the product of (A) such Lender's Dollar Percentage (or,
after the occurrence of a Sharing Event, its Percentage) and (B) the sum of (x)
the aggregate amount of all Letter of Credit Outstandings at such time and (y)
the aggregate principal amount of all Swingline Loans then outstanding.
"Revolving Loan" shall have the meaning provided in Section 1.01(a).
"SEC" shall mean the Securities and Exchange Commission or any successor
thereto.
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b).
"Secured Creditors" shall have the meaning assigned in the respective
Security Documents.
"Security Agreement" shall mean and include each of the U.S. Security
Agreement, each Canadian Security Agreement and each other security agreement
required to be executed pursuant to Section 8.12.
"Security Agreement Collateral" shall mean all "Collateral" as defined in
the applicable Security Agreement.
"Security Documents" shall mean and include each Security Agreement, the
Mortgages and each Pledge Agreement.
"Shareholders' Agreements" shall have the meaning provided in Section
5.15(iii).
"Sharing Event" shall mean (i) the occurrence of any Event of Default with
respect to any Borrower pursuant to Section 9.05, (ii) the declaration of the
Total Commitment terminated, or the acceleration of the maturity of any Loans,
in each case pursuant to the last paragraph of Section 9 or (iii) the failure of
any Borrower to pay any principal of, Face Amount of, or interest on, Loans or
any Letter of Credit Outstandings on the Final Maturity Date.
"Specified Subsidiaries" shall mean each Subsidiary of Workflow acquired
after the Effective Date as permitted pursuant to this Agreement, which, at the
time of the acquisition thereof, was the obligor with respect to Indebtedness
and/or the property of which was subject to Liens securing Indebtedness, in each
case, incurred other than pursuant to this Agreement and the other Credit
Documents and that will remain outstanding after giving effect to such
acquisition.
"Spinoff" shall mean the distribution of the shares of common stock of
Workflow held by U.S. Office Products to its shareholders as set forth in the
Spinoff Documents.
"Spinoff Distribution Agreement" shall mean the Agreement and Plan of
Distribution, dated as of June 9, 1989, among U.S. Office Products, Workflow,
School Specialty, Inc., Aztec Technology Partners, Inc. and Navigant
International, Inc.
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"Spinoff Documents" shall mean the Spinoff Distribution Agreement, the
Spinoff Employee Benefits Agreement, the Spinoff Registration Statement, the
Spinoff Tax Allocation Agreement and the Spinoff Tax Indemnification Agreement
and all other agreements and documents relating to the Spinoff.
"Spinoff Employee Benefits Agreement" shall mean the Employee Benefits
Agreement, dated as of June 9, 1998, among U.S. Office Products, Workflow,
School Specialty, Inc., Aztec Technology Partners, Inc. and Navigant
International, Inc.
"Spinoff Registration Statement" shall mean the Registration Statement on
Form S-1 prepared in connection with the Spinoff.
"Spinoff Tax Allocation Agreement" shall mean the Tax Allocation Agreement,
dated as of June 9, 1998, among U.S. Office Products, Workflow, School
Specialty, Inc., Aztec Technology Partners, Inc. and Navigant International,
Inc.
"Spinoff Tax Indemnification Agreement" shall mean the Tax Indemnification
Agreement, dated as of June 9, 1998, among U.S. Office Products, Workflow,
School Specialty, Inc., Aztec Technology Partners, Inc. and Navigant
International, Inc.
"Stated Amount" of each Letter of Credit shall mean the maximum amount
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Subsidiary" of any Person shall mean and include (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture, limited liability or other entity in which such Person directly or
indirectly through Subsidiaries, has more than a 50% equity interest at the
time.
"Subsidiary Guarantor" shall mean, at any time, each U.S. Subsidiary
Guarantor and each Foreign Subsidiary of Workflow required to execute and
deliver the U.S. Subsidiaries Guaranty, the Canadian Guaranty and/or any other
guaranty required to be executed pursuant to Section 8.12, as the case may be.
"Swingline Expiry Date" shall mean the date which is five Business Days
prior to the Final Maturity Date.
"Swingline Loan" shall have the meaning provided in Section 1.01(c).
"Swingline Note" shall have the meaning provided in Section 1.06(a).
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"Syndication Date" shall mean the earlier of (x) the date which is 90 days
after the Effective Date and (y) the date upon which the Agent determines in its
sole discretion (and notifies Workflow) that the primary syndication of the
Total Commitment (and the resulting addition of institutions as Lenders pursuant
to Section 12.04) has been completed.
"Taxes" shall have the meaning provided in Section 4.04.
"Tax Sharing Agreements" shall have the meaning provided in Section
5.15(iii).
"Test Period" shall mean, with respect to any Person, (i) for any
determination of the Consolidated Interest Coverage Ratio of Workflow made on or
prior to the last day of Workflow's fiscal year ending closest to April 30,
1999, the period from the Effective Date through and including the last day of
Workflow's most recently ended fiscal quarter (in each case taken as one
accounting period) and (ii) for any period thereafter and for any determination
of the Leverage Ratio of Workflow, a period of four consecutive fiscal quarters
of such Person ended on the last day of the then most recently ended fiscal
quarter of such Person.
"Total Canadian Sub-Commitment" shall mean, at any time, but otherwise
subject to the provisions of Section 1.17, the sum of the Canadian
Sub-Commitments of all Canadian Lenders at such time; provided, that in no event
shall the Total Canadian Sub-Commitment exceed at any time the lesser of (x)
$50,000,000 and (y) the Total Commitment at such time.
"Total Commitment" shall mean the sum of the Commitments of each of the
Lenders.
"Total Dollar Sub-Commitment" at any time shall mean the sum of the Dollar
Sub-Commitments of all of the Lenders at such time; provided that at no time
shall the Total Dollar Sub-Commitment exceed the Total Commitment as then in
effect.
"Total Indebtedness" shall mean, at any time with respect to any Person,
all (i) indebtedness of such Person and its Subsidiaries for borrowed money at
such time, (ii) all Indebtedness of such Person and its Subsidiaries the type
described in clauses (iii), (iv) and (v) of the definition of Indebtedness at
such time and (iii) all Contingent Obligations and its Subsidiaries in respect
of Indebtedness of the type described in preceding clauses (i) and (ii) at such
time, in each case determined on a consolidated basis.
"Transaction" shall mean and include (i) the Spinoff and (ii) the entering
into of this Agreement and the other Credit Documents.
"Type" shall mean the type of Loan determined with respect to the interest
option applicable thereto, i.e., whether a Base Rate Loan, a Canadian Prime Rate
Loan, a Eurodollar Loan or a Bankers' Acceptance Loan.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time
in the relevant jurisdiction.
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"Unfunded Current Liability" of any Plan shall mean the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan, determined on a plan termination basis in accordance with actuarial
assumptions at such time consistent with those prescribed by the PBGC for
purposes of Section 4044 of ERISA, exceeds the fair market value of all plan
assets allocable to such liabilities under Title IV of ERISA (excluding accrued
but unpaid contributions).
"Unpaid Drawing" shall have the meaning provided in Section 2.03(a).
"Unutilized Acquisition Sub-Limit" shall mean, at any time, (i) the
Acquisition Sub-Limit at such time less (ii) the sum of the aggregate
outstanding principal amount of all Acquisition Loans at such time.
"Unutilized Commitment" with respect to any Lender, at any time, shall mean
an amount equal to the remainder of (x) the Commitment of such Lender at such
time less (y) the sum of (I) the aggregate principal amount of all Revolving
Loans made by such Lender (including any Affiliate of any such Lender acting as
a Canadian Lender) and then outstanding (taking the Dollar Equivalent of the
principal amount or Face Amount, as the case may be, in the case of Canadian
Revolving Loans then outstanding) plus (II) such Lender's Dollar Percentage (or,
after a Sharing Event has occurred, its Percentage) of the Letter of Credit
Outstandings at such time plus (III) the product of (A) the aggregate principal
amount of all Competitive Bid Loans made by such Lender and then outstanding and
(B) such Lender's Dollar Percentage (or, after a Sharing Event has occurred, its
Percentage) of the Total Commitment.
"Unutilized Total Commitment" shall mean, at any time, an amount equal to
the remainder of (x) the Total Commitment at such time less (y) the sum of (I)
the aggregate outstanding principal amount or Face Amount, as the case may be,
of all Revolving Loans at such time (for this purpose, taking the Dollar
Equivalent thereof in the case of Canadian Revolving Loans then outstanding)
plus (II) the aggregate principal amount of all Swingline Loans then outstanding
plus (III) the then aggregate amount of all Letter of Credit Outstandings plus
(IV) the aggregate principal amount of all Competitive Bid Loans then
outstanding.
"U.S. Credit Party" shall mean and include Workflow and each U.S.
Subsidiary Guarantor.
"U.S. Office Products" shall mean U.S. Office Products Company, a Delaware
corporation.
"U.S. Pledge Agreement" shall have the meaning provided in Section 5.11(a).
"U.S. Security Agreement" shall have the meaning provided in Section
5.11(c).
"U.S. Subsidiary Guarantor" shall mean each Domestic Subsidiary of
Workflow.
"U.S. Subsidiaries Guaranty" shall have the meaning provided in Section
5.10(a).
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"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any corporation
100% of whose capital stock (other than directors qualifying shares) is at the
time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such
Person and (ii) any partnership, association, joint venture or other entity in
which such Person and/or one or more Wholly-Owned Subsidiaries of such Person
has a 100% equity interest at such time.
"Workflow" shall have the meaning provided in the first paragraph of this
Agreement.
"Working Capital Loan" shall mean each Loan incurred by any Borrower
hereunder which does not constitute an Acquisition Loan.
"Written" or "in writing" shall mean any form of written communication or a
communication by means of telex, facsimile device, telegraph or cable.
SECTION 11. The Agent.
11.01 Appointment. Each Lender hereby irrevocably designates and appoints
BTCo as Agent of such Lender (such term to include for purposes of this Section
11, BTCo acting as Collateral Agent) to act as specified herein and in the other
Credit Documents, and each such Lender hereby irrevocably authorizes BTCo as the
Agent to take such action on its behalf under the provisions of this Agreement
and the other Credit Documents and to exercise such powers and perform such
duties as are expressly delegated to the Agent by the terms of this Agreement
and the other Credit Documents, together with such other powers as are
reasonably incidental thereto. The Agent agrees to act as such upon the express
conditions contained in this Section 11. Notwithstanding any provision to the
contrary elsewhere in this Agreement or in any other Credit Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein or in the other Credit Documents, or any fiduciary relationship with any
Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or otherwise exist
against the Agent. The provisions of this Section 11 are solely for the benefit
of the Agent and the Lenders, and neither the Borrowers nor any of their
respective Subsidiaries shall have any rights as a third party beneficiary of
any of the provisions hereof. In performing its functions and duties under this
Agreement, the Agent shall act solely as agent of the Lenders and the Agent does
not assume and shall not be deemed to have assumed any obligation or
relationship of agency or trust with or for any Borrower or any of their
respective Subsidiaries.
11.02 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Credit Document (including any Security Document) by
or through agents, sub-collateral agents or attorneys-in-fact (each of whom
shall be entitled to the benefits of this Section 11 to the same extent as the
Agent) and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Agent shall not be responsible for the negligence
or misconduct of any agents, sub-collateral agents or attorneys-in-fact selected
by it with reasonable care.
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11.03 Exculpatory Provisions. Neither the Agent nor any of its officers,
directors, employees, agents, sub-collateral agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Credit Documents (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrowers,
any of their respective Subsidiaries or any of their respective officers
contained in this Agreement or the other Credit Documents or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement or any other Credit
Document or for any failure of any Borrower or any of their respective
Subsidiaries or any of their respective officers to perform its obligations
hereunder or thereunder. The Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or the other
Credit Documents, or to inspect the properties, books or records of the
Borrowers or any of their respective Subsidiaries. The Agent shall not be
responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any other
Credit Document or for any representations, warranties, recitals or statements
made herein or therein or made in any written or oral statement or in any
financial or other statements, instruments, reports, certificates or any other
documents in connection herewith or therewith furnished or made by the Agent to
the Lenders or by or on behalf of the Borrowers or any of their respective
Subsidiaries to the Agent or any Lender or be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any Default
or Event of Default.
11.04 Reliance by Agent. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, facsimile, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrowers or any of their respective
Subsidiaries), independent accountants and other experts selected by the Agent.
The Agent shall be fully justified in failing or refusing to take any action
under this Agreement or any other Credit Document unless it shall first receive
such advice or concurrence of the Required Lenders as it deems appropriate or it
shall first be indemnified to its satisfaction by the Lenders against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Lenders, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders.
11.05 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless the
Agent has actually received notice from a Lender or any Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." In the event
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that the Agent receives such a notice, the Agent shall give prompt notice
thereof to the Lenders. The Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
11.06 Non-Reliance on Agent and other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its respective officers,
directors, employees, agents, sub-collateral agents, attorneys-in-fact or
affiliates have made any representations or warranties to it and that no act by
the Agent hereinafter taken, including any review of the affairs of the
Borrowers or any of their respective Subsidiaries, shall be deemed to constitute
any representation or warranty by the Agent to any Lender. Each Lender
represents to the Agent that it has, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, assets, operations, property, financial and other condition, prospects
and creditworthiness of the Borrowers and their respective Subsidiaries and made
its own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other condition, prospects
and creditworthiness of the Borrowers and their respective Subsidiaries. The
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the business, operations, assets,
property, financial and other condition, prospects or creditworthiness of any
Borrower or any of their respective Subsidiaries which may come into the
possession of the Agent or any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates.
11.07 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such ratably according to their respective "percentages" as used in
determining the Required Lenders at such time, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against the Agent in its
capacity as such in any way relating to or arising out of this Agreement or any
other Credit Document, or any documents contemplated by or referred to herein or
the transactions contemplated hereby or any action taken or omitted to be taken
by the Agent under or in connection with any of the foregoing, but only to the
extent that any of the foregoing is not paid by the Borrowers or any of their
respective Subsidiaries; provided, that no Lender shall be liable to the Agent
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the gross negligence or willful misconduct of the Agent
(as finally determined by a court of competent jurisdiction). To the extent any
Lender would be required to indemnify the Agent pursuant to the immediately
preceding sentence but for the fact that it is a Defaulting Lender, such
Defaulting Lender shall not be
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entitled to receive any portion of any payment or other distribution hereunder
until each other Lender shall have been reimbursed for the excess, if any, of
the aggregate amount paid by such Lender under this Section 11.07 over the
aggregate amount such Lender would have been obligated to pay had such first
Lender not been a Defaulting Lender. If any indemnity furnished to the Agent for
any purpose shall, in the opinion of the Agent be insufficient or become
impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this Section 11.07 shall survive the payment of all
Obligations.
11.08 Agent in its Individual Capacity. The Agent and its affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with any Borrower and any of their respective Subsidiaries and Affiliates as
though the Agent were not the Agent hereunder. With respect to the Loans made by
it and all Obligations owing to it, the Agent shall have the same rights and
powers under this Agreement as any Lender and may exercise the same as though it
were not the Agent and the terms "Lender" and "Lenders" shall include the Agent
in its individual capacity.
11.09 Holders. The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes hereof unless and until a written notice of the
assignment, transfer or endorsement thereof, as the case may be, shall have been
filed with the Agent. Any request, authority or consent of any Person or entity
who, at the time of making such request or giving such authority or consent, is
the holder of any Note shall be conclusive and binding on any subsequent holder,
transferee, assignee or indorsee, as the case may be, of such Note or of any
Note or Notes issued in exchange therefor.
11.10 Resignation of the Agent; Successor Agent. (a) The Agent may resign
from the performance of all its respective functions and duties hereunder and/or
under the other Credit Documents at any time by giving 15 Business Days' prior
written notice to the Lenders. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation by the Agent, the Required Lenders
shall appoint a successor Agent hereunder or thereunder who shall be a
commercial bank or trust company reasonably acceptable to Workflow.
(c) If a successor Agent shall not have been so appointed within such 15
Business Day period, the Agent with the consent of Workflow (which consent shall
not be unreasonably withheld or delayed), shall then appoint a successor Agent
who shall serve a successor Agent as provided above.
(d) If no successor Agent has been appointed pursuant to clause (b) or (c)
above by the 20th Business Day after the date such notice of resignation was
given by the Agent, the Required Lenders shall thereafter perform all the duties
of the Agent hereunder and/or under any other Credit Document until such time,
if any, as the Required Lenders appoint a successor Agent as provided above.
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SECTION 12. Miscellaneous.
12.01 Payment of Expenses, etc. The Borrowers jointly and severally agree
to: (i) whether or not the transactions herein contemplated are consummated, pay
all reasonable out-of-pocket costs and expenses of the Agent (including, without
limitation, the reasonable fees and disbursements of White & Case LLP,
Stikemann, Elliott and local counsel) in connection with the negotiation,
preparation, execution and delivery of the Credit Documents and the documents
and instruments referred to therein and any amendment, waiver or consent
relating thereto and in connection with the Agent's syndication efforts with
respect to this Agreement; (ii) pay all reasonable out-of-pocket costs and
expenses of the Agent and each of the Lenders in connection with the enforcement
of the Credit Documents and the documents and instruments referred to therein
and, after an Event of Default shall have occurred and be continuing, the
protection of the rights of the Agent and each of the Lenders thereunder,
including in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings (including, without
limitation, in each case the reasonable fees and disbursements of counsel
(including in-house counsel) for the Agent and for each of the Lenders); (iii)
pay and hold each of the Lenders harmless from and against any and all present
and future stamp and other similar taxes with respect to the foregoing matters
and save each of the Lenders harmless from and against any and all liabilities
with respect to or resulting from any delay or omission (other than to the
extent attributable to such Lender) to pay such taxes; and (iv) indemnify the
Agent, the Collateral Agent and each Lender, its officers, directors, employees,
representatives, agents and sub-collateral agents (each an "Indemnitee") from
and hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses incurred by any of them as a result of, or arising out of,
or in any way related to, or by reason of (a) any investigation (other than
those undertaken pursuant to Section 7.02), litigation or other proceeding
(whether or not the Agent, the Collateral Agent or any Lender is a party
thereto) related to the entering into and/or performance of this Agreement or
any other Credit Document or the use of the proceeds of any Loans hereunder or
the consummation of any other transactions contemplated in any Credit Document,
or (b) the actual or alleged presence of Hazardous Materials in the air, surface
water or groundwater or on the surface or subsurface of any Real Property owned,
leased or at any time operated by any Borrower or any of their respective
Subsidiaries, the Release, generation, storage, transportation, handling or
disposal of Hazardous Materials at any location, whether or not owned, leased or
operated by such Borrower or any of its Subsidiaries, the non-compliance by any
Borrower or any of their respective Subsidiaries of any Real Property with
foreign, federal, state and local laws, regulations, ordinances or Environmental
Laws (including applicable permits thereunder) applicable to any Real Property,
or any Environmental Claim relating to any Borrower or any of their respective
Subsidiaries or any Real Property owned, leased or at any time operated by any
Borrower or any of their respective Subsidiaries, including, in each case,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified (as finally determined by the court of competent
jurisdiction). To the extent that the undertaking to indemnify, pay or hold
harmless any Person set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the
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Borrowers shall make the maximum contribution to the payment and satisfaction of
each of the indemnified liabilities which is permissible under applicable law.
12.02 Right of Setoff. In addition to any rights now or hereafter granted
under applicable law or otherwise, and not by way of limitation of any such
rights, upon the occurrence and during the continuance of an Event of Default,
each Lender is hereby authorized at any time or from time to time, without
presentment, demand, protest or other notice of any kind to any Borrower or any
of their Subsidiaries or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and apply any and all deposits
(general or special) and any other Indebtedness at any time held or owing by
such Lender (including, without limitation, by branches, agencies and affiliates
of such Lender wherever located) to or for the credit or the account of any
Borrower or any Subsidiary Guarantor against and on account of the Obligations
and liabilities of any Borrower or any Subsidiary Guarantor to such Lender under
this Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of the Borrowers or any of their
Subsidiaries purchased by such Lender pursuant to Section 12.06(b), and all
other claims of any nature or description arising out of or connected with this
Agreement or any other Credit Document, irrespective of whether or not such
Lender shall have made any demand hereunder and although said Obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
12.03 Notices. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing (including
telegraphic, telex, facsimile or cable communication) and mailed, telegraphed,
telexed, telecopied, cabled or delivered, if to any Credit Party, at the address
specified opposite its signature below or in the other relevant Credit
Documents, as the case may be; if to any Lender, at its address specified for
such Lender on Annex II; or, at such other address as shall be designated by any
party in a written notice to the other parties hereto. All such notices and
communications shall, when mailed, telegraphed, telexed, telecopied, or cabled
or sent by overnight courier, be effective (x) three Business Days after
deposited in the mails, (y) one Business Day after delivered to the telegraph
company, cable company or a recognized overnight courier, as the case may be, or
(z) when sent by telex or telecopier, except that notices and communications to
the Agent shall not be effective until received by the Agent.
12.04 Benefit of Agreement. (a) This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, that no Borrower may assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Lenders and, provided further, that, although any Lender may transfer,
assign or grant participations in its rights hereunder, such Lender shall remain
a "Lender" for all purposes hereunder and the transferee, assignee or
participant, as the case may be, shall not constitute a "Lender" hereunder and,
provided further, that no Lender shall transfer or grant any participation under
which the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Credit Document except to the extent such amendment
or waiver would (i) extend the final scheduled maturity of any Loan or Letter of
Credit (unless such Letter of Credit is not extended beyond the Final Maturity
Date) in which such participant is participating, or reduce the rate or extend
the time of payment of interest or
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Fees (except in connection with a waiver of applicability of any post-default
increase in interest rates) or reduce the principal amount thereof (it being
understood that any amendment or modification to the financial definitions in
this Agreement or to Section 12.07(a) shall not constitute a reduction in the
rate of interest or Fees for the purposes of this clause (i)), or increase the
amount of the participant's participation over the amount thereof then in effect
(it being understood that a waiver of any Default or Event of Default or of a
mandatory reduction in the Total Commitment shall not constitute a change in the
terms of such participation, and that an increase in any Commitment or Loan
shall be permitted without the consent of any participant if the participant's
participation is not increased as a result thereof), (ii) consent to the
assignment or transfer by any Borrower of any of its rights and obligations
under this Agreement to the extent relating to such participation or (iii)
release all or substantially all of the Collateral under all of the Security
Documents (except as expressly provided in the Credit Documents). In the case of
any such participation, the participant shall not have any rights under this
Agreement or any of the other Credit Documents (the participant's rights against
such Lender in respect of such participation to be those set forth in the
agreement executed by such Lender in favor of the participant relating thereto)
and all amounts payable by the Borrowers hereunder shall be determined as if
such Lender had not sold such participation.
(b) Notwithstanding the foregoing, any Lender may (x) assign all or a
portion of its Commitment (and related outstanding Obligations hereunder) to any
Affiliate of such Lender or to one or more Lenders or (y) assign all, or if less
than all, a portion equal to at least $5,000,000 in the aggregate for the
assigning Lender, of its Commitment (and related outstanding Obligations
hereunder) to one or more Eligible Transferees, provided that (i) the assignment
by any Lender of its Canadian Sub-Commitment (or any portion thereof) shall
constitute the assignment of a like amount of such Lender's (or its respective
Affiliate's) Commitment, (ii) any assignment of all or any portion of the
Commitment of any Lender shall be required to be accompanied by the assignment
of all or such portions of the Canadian Sub-Commitment and/or Dollar
Sub-Commitment of such Lender (or its respective Affiliate) as is equal, in the
aggregate, to the amount of the Commitment being so assigned, (iii) any
assignment of all or any portion of the Commitment and related outstanding
Obligations shall be made on a basis such that the respective assignee
participates in Revolving Loans and in Letter of Credit Outstandings, in
accordance with the Commitment (and Canadian Sub-Commitment described above) so
assigned, (iv) at such time Annexes I-A and I-B shall be deemed modified to
reflect the Commitments and, if applicable, Canadian Sub-Commitments of such new
Lender and of the existing Lenders, (v) upon surrender of the old Notes (if
any), new Notes will be issued, at the Borrower's expense, to such new Lender
and to the assigning Lender upon the request of such new Lender and such new
Notes to be in conformity with the requirements of Section 1.06 to the extent
needed to reflect the revised Commitments, (vi) the consent of Workflow (so long
as no Default or Event of Default then exists) and the Agent shall be required
in connection with any such assignment pursuant to clause (y) above (each of
which consents shall not be unreasonably withheld or delayed), (vii) the Agent
shall receive at the time of each such assignment, from the assigning or
assignee Lender, the payment of a non-refundable assignment fee of $3,500 and
(viii) no assignment shall be effective until recorded by the Agent on the
Register pursuant to Section 12.17. If any Lender so sells or assigns all or a
part of its rights hereunder or under the Notes, any reference in this Agreement
or the Notes to such assigning Lender shall thereafter
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refer to such Lender and to the respective assignee to the extent of their
respective interests and the respective assignee shall have, to the extent of
such assignment (unless otherwise provided therein), the same rights and
benefits as it would if it were such assigning Lender. Each assignment pursuant
to this Section 12.04(b) shall be effected by the assigning Lender and the
assignee Lender executing an Assignment and Assumption Agreement substantially
in the form of Exhibit K, appropriately completed (each, an "Assignment and
Assumption Agreement"). To the extent of any assignment pursuant to this Section
12.04(b), the assigning Lender shall be relieved of its obligations hereunder
with respect to its assigned Commitment. At the time of each assignment pursuant
to this Section 12.04(b) to a Person which is not already a Lender hereunder and
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for Federal income tax purposes, the respective
assignee Lender shall, to the extent legally entitled to do so, provide to
Workflow the appropriate Internal Revenue Service Forms (and, if applicable, a
Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To the extent
that an assignment of all or any portion of a Lender's Commitments and related
outstanding Obligations pursuant to Section 1.14 or this Section 12.04(b) would,
at the time of such assignment, result in increased costs under Sections 1.11,
2.05 or 4.04 from those being charged by the respective assigning Lender prior
to such assignment, then Workflow shall not be obligated to pay such increased
costs (although Workflow, in accordance with and pursuant to the other
provisions of this Agreement, shall be obligated to pay any other increased
costs of the type described above resulting from changes after the date of the
respective assignment).
(c) Nothing in this Agreement shall prevent or prohibit any Lender from
pledging its Loans and Notes hereunder to a Federal Reserve Lender in support of
borrowings made by such Lender from such Federal Reserve Lender.
12.05 No Waiver; Remedies Cumulative. No failure or delay on the part of
the Agent, the Collateral Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between any Credit Party and the Agent, the Collateral Agent or any Lender shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, power or privilege hereunder or under any other Credit Document preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder or thereunder. The rights and remedies herein expressly
provided are cumulative and not exclusive of any rights or remedies which the
Agent, the Collateral Agent or any Lender would otherwise have. No notice to or
demand on any Credit Party in any case shall entitle any Credit Party to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent, the Collateral Agent or the
Lenders to any other or further action in any circumstances without notice or
demand.
12.06 Payments Pro Rata. (a) The Agent agrees that promptly after its
receipt of each payment from or on behalf of any Credit Party in respect of any
Obligations of such Credit Party, it shall, except as otherwise provided in this
Agreement, distribute such payment to the Lenders (other than any Lender that
has consented in writing to waive its pro rata share of such payment) pro rata
based upon their respective shares, if any, of the Obligations with respect to
which such payment was received.
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(b) Except to the extent that this Agreement provides for payments to be
allocated to the Lenders with particular Obligations, prior to the occurrence of
a Sharing Event, if any Lender (a "Benefitted Lender") shall at any time receive
any payment of all or part of its Loans or the other Obligations owing to it, or
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 9.05, pursuant to any Security Document or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the other Obligations owing to such other Lender, or interest thereon, such
Benefitted Lenders shall purchase for cash from the other Lenders a
participating interest in such portion of each such other Lender's Loans and/or
other Obligations owning to each such other Lenders, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such Benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such Benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
12.07 Calculations; Computations. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by Workflow to the Lenders); provided, that (i) for purposes of determining
compliance with any incurrence tests set forth in Section 8 (excluding Sections
8.09 and 8.10), any amounts so incurred or expended (to the extent incurred or
expended in a currency other than Dollars) shall be converted into Dollars on
the basis of the Dollar Equivalent of the respective amounts as in effect on the
date of such incurrence or expenditure under any provision of any such Section
that has an aggregate Dollar limitation provided for therein (and to the extent
the respective incurrence test regulates the aggregate amount outstanding at any
time and it is expressed in terms of Dollars, all outstanding amounts originally
incurred or spent in currencies other than Dollars shall be converted into
Dollars on the basis of the Dollar Equivalent of the respective amounts as in
effect on the date any new incurrence or expenditures made under any provision
of any such Section that regulates the Dollar amount outstanding at any time)
and (ii) except as otherwise specifically provided herein, all computations
determining compliance with Section 8, including definitions used therein, shall
utilize accounting principles and policies in effect at the time of the
preparation of, and in conformity with those used to prepare, the year end
financial statements delivered to the Lenders pursuant to Section 6.10(b).
(b) All computations of interest on Base Rate Loans, Canadian Prime Rate
Loans, Eurodollar Loans and Fees (including Letter of Credit Fees and Facing
Fees, but excluding Acceptance Fees) hereunder shall be made on the basis of the
actual number of days elapsed over a year of 360 days. Acceptance Fees shall be
calculated on the basis of the term of maturity of the Bankers' Acceptance and a
year of 365 days.
(c) For purposes of the Interest Act (Canada), (i) whenever any interest or
fee under this Agreement is calculated using a rate based on a year of 360 or
365 days, as the case may be, the rate determined pursuant to such calculation,
when expressed as an annual rate, is
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equivalent to (x) the applicable rate based on a year of 360 or 365 days, as the
case may be, (y) multiplied by the actual number of days in the calendar year in
which the period for which such interest or fee is payable (or compounded) ends,
and (z) divided by 360 or 365, as the case may be, (ii) the principle of deemed
reinvestment of interest does not apply to any interest calculation under this
Agreement, and (iii) the rates of interest stipulated in this Agreement are
intended to be nominal rates and not effective rates or yields.
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE. (A) THIS AGREEMENT
AND THE OTHER CREDIT DOCUMENTS (EXCEPT, IN THE CASE OF CERTAIN OF THE SECURITY
DOCUMENTS AND THE CANADIAN PARENT GUARANTY, AS SPECIFICALLY OTHERWISE PROVIDED
THEREIN) AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF
NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR
OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH BORROWER HEREBY IRREVOCABLY ACCEPTS FOR
ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH BORROWER HEREBY FURTHER IRREVOCABLY
WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL JURISDICTION OVER IT, AND
AGREES NOT TO PLEAD OR CLAIM, IN ANY LEGAL ACTION PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENTS BROUGHT IN ANY OF THE
AFOREMENTIONED COURTS, THAT SUCH COURTS LACK PERSONAL JURISDICTION OVER IT. EACH
BORROWER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH BORROWER, AT
ITS ADDRESS FOR NOTICES PURSUANT TO SECTION 12.03, SUCH SERVICE TO BECOME
EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH BORROWER HEREBY IRREVOCABLY WAIVES
ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR
UNDER ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID
OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY LENDER
OR THE HOLDER OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW
OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN
ANY OTHER JURISDICTION.
(B) EACH BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN THE
FIRST SENTENCE OF CLAUSE (A) ABOVE
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AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
12.09 Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts executed by all the parties hereto shall be lodged with each
Borrower and the Agent.
12.10 Effectiveness. This Agreement shall become effective on the date (the
"Effective Date") on which (i) the Borrowers, the Agent and each of the Lenders
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered the same to the Agent at the Notice
Office or, in the case of the Lenders, shall have given to the Agent telephonic
(confirmed in writing), written or telex notice (actually received) at such
office that the same has been signed and mailed to it and (ii) the conditions
set forth in Section 5 are met to the satisfaction of the Agent and the Required
Lenders. Unless the Agent has received actual notice from any Lender that the
conditions contained in Section 5 have not been met to its satisfaction, upon
the satisfaction of the condition described in clause (i) of the immediately
preceding sentence and upon the Agent's good faith determination that the
conditions described in clause (ii) of the immediately preceding sentence have
been met, then the Effective Date shall have been deemed to have occurred,
regardless of any subsequent determination that one or more of the conditions
thereto had not been met. The Agent will give each Borrower and each Lender
prompt written notice of the occurrence of the Effective Date.
12.11 Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.12 Amendment or Waiver. (a) Neither this Agreement nor any other Credit
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by the Required Lenders and the Borrowers; provided, that no such change,
waiver, discharge or termination shall, without the consent of each Lender
(other than a Defaulting Lender) being directly affected thereby, (i) extend the
final scheduled maturity of any Loan or Note or extend the stated expiration
date of any Letter of Credit beyond the Final Maturity Date, or reduce the rate
or extend the time of payment of interest thereon (other than as a result of
waiving the applicability of any post-default increase in interest rates) or
Fees, or reduce the principal amount thereof (it being understood that any
amendment or modification to the financial definitions in this Agreement or to
Section 12.07(a) shall not constitute a reduction in the rate of interest or
Fees for the purposes of this clause (i)), (ii) release all or substantially all
of the Collateral (except as expressly provided in the Credit Documents) under
all of the Security Documents, or release any Guarantor from its obligations
under any Guaranty to which it is a party (except (in each case) as expressly
provided in the Credit Documents), (iii) amend, modify or waive any provision of
this
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Section 12.12 to the extent that any such amendment, modification or waiver
would alter any of the voting provisions set forth in the other provisions of
this Section 12.12, (iv) reduce the percentage specified in the definition of
Required Lenders (it being understood that, with the consent of the Required
Lenders, additional extensions of credit pursuant to this Agreement may be
included in the determination of the Required Lenders on substantially the same
basis as the extensions of Commitments are included on the Effective Date) or
(v) consent to the assignment or transfer by any Borrower of any of its rights
and obligations under this Agreement or any other Credit Document except in
accordance with the terms hereof or thereof; provided further, that no such
change, waiver, discharge or termination shall (w) increase the Commitment (or
Canadian Sub-Commitment) of any Lender over the amount thereof then in effect
without the consent of such Lender (it being understood that waivers or
modifications of conditions precedent, covenants, Defaults or Events of Default
or of a mandatory reduction in the Total Commitment shall not constitute an
increase of the Commitment (or Canadian Sub-Commitment) of any Lender, and that
an increase in the available portion of any Commitment (or Canadian
Sub-Commitment) of any Lender shall not constitute an increase in the Commitment
(or Canadian Sub-Commitment) of such Lender), (x) without the consent of the
Letter of Credit Issuer, amend, modify or waive any provision of Section 2 or
alter its rights or obligations with respect to Letters of Credit, (y) without
the consent of BTCo, amend or modify the obligation of BTCo to make Swingline
Loans, the terms of any such Swingline Loans or the obligations of the Lenders
to fund Mandatory Borrowings, or (z) without the consent of the Agent, amend,
modify or waive any provision of Section 11 as same applies to the Agent or any
other provision as same relates to the rights or obligations of the Agent.
(b) If, in connection with any proposed change, waiver, discharge or
termination with respect to any of the provisions of this Agreement as
contemplated by clauses (i) through (v), inclusive, of the first proviso to
Section 12.12(a), the consent of the Required Lenders is obtained but the
consent of one or more of such other Lenders whose consent is required is not
obtained, then Workflow shall have the right, to replace each such
non-consenting Lender or Lenders (so long as all non-consenting Lenders are so
replaced) with one or more Replacement Lenders pursuant to Section 1.14 so long
as at the time of such replacement, each such Replacement Lender consents to the
proposed change, waiver, discharge or termination, provided that Workflow shall
not have the right to replace a Lender solely as a result of the exercise of
such Lender's rights (and the withholding of any required consent by such
Lender) pursuant to the second proviso to Section 12.12(a).
12.13 Survival. All indemnities set forth herein including, without
limitation, in Section 1.11, 1.12, 2.05, 4.04, 11.07 or 12.01, shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans.
12.14 Domicile of Loans. Each Lender may transfer and carry its Loans at,
to or for the account of any branch office, Subsidiary or Affiliate of such
Lender provided that no Borrower shall be responsible for costs arising under
Section 1.11, 2.05 or 4.04 resulting from any such transfer (other than a
transfer pursuant to Section 1.13) to the extent such costs would not otherwise
be applicable to such Lender in the absence of such transfer.
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12.15 Confidentiality. (a) Each of the Lenders agrees that it will use its
best efforts not to disclose without the prior consent of Workflow (other than
to its employees, auditors, counsel or other professional advisors, to
affiliates or to another Lender if the Lender or such Lender's holding or parent
company in its sole discretion determines that any such party should have access
to such information) any information with respect to Workflow or any of its
Subsidiaries which is furnished pursuant to this Agreement and which is
designated by Workflow to the Lenders in writing as confidential provided that
any Lender may disclose any such information (a) as has become generally
available to the public, (b) as may be required or appropriate in any report,
statement or testimony submitted to any municipal, state or Federal regulatory
body having or claiming to have jurisdiction over such Lender or to the Federal
Reserve Board or the Federal Deposit Insurance Corporation or similar
organizations (whether in the United States or elsewhere) or their successors,
(c) as may be required or appropriate in response to any summons or subpoena or
in connection with any litigation, (d) in order to comply with any law, order,
regulation or ruling applicable to such Lender, and (e) to any prospective
transferee in connection with any contemplated transfer of any of the Loans or
Notes or any interest therein by such Lender provided that such prospective
transferee agrees to be bound by the provisions of this Section. In connection
with any disclosure by a Lender pursuant to clause (c) of the immediately
preceding sentence, such Lender agrees to use its best efforts to give Workflow
prior notice of such disclosure to the extent such prior notice is practicable
or permitted under the circumstances, although the failure to give any such
notice shall not result in any liability of such Lender to Workflow or any of
its Subsidiaries. No Lender shall be obligated or required to return any
materials furnished by any Borrower or any Subsidiary of any Borrower. The
Borrowers hereby agree that the failure of a Lender to comply with the
provisions of this Section 12.15 shall not relieve any Borrower of any of its
obligations to such Lender under this Agreement and the other Credit Documents.
(b) Each of the Borrowers hereby acknowledges and agrees that each Lender
may, in connection with the Transaction or the participation of such Lender
pursuant to this Agreement and the other Credit Documents, share with any of its
affiliates any information related to Workflow or any of its Subsidiaries
(including, without limitation, any nonpublic customer information regarding the
creditworthiness of Workflow and its Subsidiaries, provided such Persons shall
be subject to the provisions of this Section 12.15 to the same extent as such
Lender).
12.16 Waiver of Jury Trial. Each of the parties to this Agreement hereby
irrevocably waives all right to a trial by jury in any action, proceeding or
counterclaim arising out of or relating to this Agreement, the other Credit
Documents or the transactions contemplated hereby or thereby.
12.17 Register. The Borrowers hereby designate the Agent to serve as the
Borrowers' agent, solely for purposes of this Section 12.17, to maintain a
register (the "Register") on which it will record the Commitments from time to
time of each of the Lenders, the Loans made by each of the Lenders and each
repayment in respect of the principal amount of the Loans of each Lender.
Failure to make any such recordation, or any error in such recordation, shall
not affect the Borrowers' obligations in respect of such Loans. With respect to
any Lender, the
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transfer of the Commitments of such Lender and the rights to the principal of,
and interest on, any Loan made pursuant to such Commitments shall not be
effective until such transfer is recorded on the Register maintained by the
Agent with respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such Commitments
and Loans shall remain owing to the transferor. The registration of assignment
or transfer of all or part of any Commitments and Loans shall be recorded by the
Agent on the Register only upon the acceptance by the Agent of a properly
executed and delivered Assignment and Assumption Agreement pursuant to Section
12.04(b). Coincident with the delivery of such an Assignment and Assumption
Agreement to the Agent for acceptance and registration of assignment or transfer
of all or part of a Loan, or as soon thereafter as practicable, the assigning or
transferor Lender shall surrender the Note (if any) evidencing such Loan, and
thereupon one or more new Notes in the same aggregate principal amount shall be
issued to the assigning or transferor Lender and/or the new Lender upon the
request of any such Lender. The Borrowers jointly and severally agree to
indemnify the Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Agent in performing its duties under this Section 12.17.
12.18 Judgment Currency. (a) The Credit Parties' obligations hereunder and
under the other Credit Documents to make payments in the respective Applicable
Currency (the "Obligation Currency") shall not be discharged or satisfied by any
tender or recovery pursuant to any judgment expressed in or converted into any
currency other than the Obligation Currency, except to the extent that such
tender or recovery results in the effective receipt by the Agent, the Collateral
Agent or the respective Lender of the full amount of the Obligation Currency
expressed to be payable to the Agent, the Collateral Agent or such Lender under
this Agreement or the other Credit Documents. If for the purpose of obtaining or
enforcing judgment against any Credit Party in any court or in any jurisdiction,
it becomes necessary to convert into or from any currency other than the
Obligation Currency (such other currency being hereinafter referred to as the
"Judgment Currency") an amount due in the Obligation Currency, the conversion
shall be made, at the Canadian Dollar Equivalent or the Dollar Equivalent
thereof, as the case may be, and, in the case of other currencies, the rate of
exchange (as quoted by the Agent or if the Agent does not quote a rate of
exchange on such currency, by a known dealer in such currency designated by the
Agent) determined, in each case, as of the day immediately preceding the day on
which the judgment is given (such Business Day being hereinafter referred to as
the "Judgment Currency Conversion Date").
(b) If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, the Borrowers covenant and agree to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate or exchange prevailing on the Judgment Currency Conversion
Date.
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(c) For purposes of determining the Canadian Equivalent or the Dollar
Equivalent or any other rate of exchange for this Section, such amounts shall
include any premium and costs payable in connection with the purchase of the
Obligation Currency.
12.19 Authorization for Quebec Security. For greater certainty, and without
limiting the powers of the Agent hereunder or under any of the Security
Documents, DBF hereby acknowledges that the Agent shall, for purposes of holding
any security granted by DBF on DBF's property pursuant to the laws of the
Province of Quebec, be the holder of an irrevocable power of attorney (within
the meaning of the Civil Code of Quebec) for all present and future Lenders, and
in particular for all present and future holders of any debenture described in
Exhibit I-4. Each of the Lenders hereby irrevocably constitutes, to the extent
necessary, the Agent as the holder of an irrevocable power of attorney (within
the meaning of Article 2692 of the Civil Code of Quebec) in order to hold
security granted by DBF in the Province of Quebec. Any assignee of any Lender
shall be deemed to have confirmed and ratified the constitution of the Agent as
the holder of such irrevocable power of attorney by execution of the relevant
Assignment and Assumption agreement. Notwithstanding the provisions of Section
32 of the Special Corporate Powers Act (Quebec), the Agent may acquire and be
the holder of any debenture issued by DBF as contemplated under any of the
Security Documents at any time and from time to time. DBF hereby acknowledges
that any such debenture constitutes a title of indebtedness, as such term is
used in Article 2692 of the Civil Code of Quebec.
* * *
113
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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
Address: WORKFLOW MANAGEMENT, INC.
230 Royal Palm Way
Suite 408
Palm Beach, FL 33480
(561) 659-6551 By
--------------------------------
Name:
Title:
DATA BUSINESS FORMS LIMITED
By
--------------------------------
Name:
Title:
BANKERS TRUST COMPANY,
Individually and as Agent
By
--------------------------------
Name:
Title:
<PAGE>
BANKBOSTON, N.A.
By
--------------------------------
Name: Jorge A. Schwarz
Title: Director
BANK OF MONTREAL
By
--------------------------------
Name: Robert Sadokierski
Title: Senior Manager, Corporate Finance
By
--------------------------------
Name: Gary E. Kelley
Title: Vice-President
COMERICA BANK
By
--------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
--------------------------------
Name: Jeffrey C. Lynch
Title: Vice-President
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By
--------------------------------
Name: Gaye C. Plunkett
Title: Vice-President
THE FUJI BANK AND TRUST COMPANY
By
--------------------------------
Name: Raymond Ventura
Title: Vice-President
NATIONAL BANK OF CANADA
By
--------------------------------
Name: James Drum
Title: Vice-President
By
--------------------------------
Name: Gaetan Frosina
Title: Vice-President
NATIONSBANK, N.A.
By
--------------------------------
Name: Eileen M. Mayette
Title: Commercial Banking Officer
<PAGE>
PNC BANK, N.A.
By
--------------------------------
Name: James D. Neil
Title: Vice-President
WACHOVIA BANK, N.A.
By
--------------------------------
Name: Tammy F. Hughes
Title: Vice-President
<PAGE>
ANNEX II
<TABLE>
<CAPTION>
<S> <C> <C>
BANK ADDRESSES
Bankers Trust Company 130 Liberty Street same
New York, New York 10006
Tel. No.: (212) 250-9535
Fax No.: (212) 669-1533
Attention: Keith Stimson
BankBoston, N.A. 100 Federal Street same
Boston, MA 02110
Tel. No.: (617) 434-4195
Fax No.: (617) 434-1574
Attention: Fred Myers
Bank of Montreal First Canadian Place c/o Harris Trust &
11th Floor Savings Trust
Corporate Finance 115 South La Salle St.
Personal and Commercial 12th Floor
Financial Services Chicago, IL 60603
Toronto, Ontario M5X1A1
Tel. No.: (416) 643-2562 First Canadian Place
Fax No.: (416) 360-7168 Concourse Level
Attention: Robert Sadokierski P.O. Box 3
Toronto, Ontario M5X1A1
Comerica Bank 500 Woodward Avenue same
Detroit, MI 48226-3280
Tel. No.: (313) 222-6122
Fax No.: (313) 222-3330
Attention: Marty Ellis
The First National Bank of Chicago One First National Plaza First Chicago NBD
Chicago, IL 60670 Bank, Canada
Tel. No.: (312) 732-1601 BCE Place
Fax No.: (312) 732-5435 P.O. Box 613
Attention: Gaye Plunkett 161 Bay Street
Suite 4240
Toronto, Ontario
M5J 2S1
Fleet National Bank One Federal Street same
M/S: MA of D07L
Boston, MA 02211
Tel. No.: (617) 346-5061
Fax No.: (617) 346-0575
Attention: Jeffrey C. Lynch
</TABLE>
<PAGE>
ANNEX II
Page 2
<TABLE>
<CAPTION>
<S> <C> <C>
The Fuji Bank and Trust Company Two World Trade Center same
New York, NY 10048
Tel. No.: (212) 898-2062
Fax No.: (212) 321-9407
Attention: Raymond Ventura
National Bank of Canada 125 West 55th Street 350 West Burnham-thorpe Road
23rd Floor Suite 305
New York, NY 10019-5366 Mississaugua, Ontario
Tel. No.: (212) 632-8523 L5B3J1
Fax No.: (212) 632-8616
Attention: James Drum
NationsBank, N.A. One Commercial Place same
3rd Floor
Norfolk, VA 23510-2103
Tel. No.: (757) 624-2956
Fax No.: (757) 441-8599
Attention: Eileen Mayette
PNC Bank, N.A. 500 West Jefferson Street One PNC Plaza
Louisville, KY 40202 2nd Floor
Tel. No.: (502) 581-3242 249 Fifth Avenue
Fax No.: (502) 581-2303 Pittsburgh, PA 15222-2707
Attention: James Neil
Wachovia Bank, N.A. 191 Peachtree Street, N.E. same
Atlanta, GA 30303
Tel. No.: (404) 332-5134
Fax No.: (404) 332-5016
Attention: Tammy F. Hughes
</TABLE>
<PAGE>
ANNEX III
CERTAIN PROVISIONS RELATING TO BANKERS' ACCEPTANCES
This Annex III sets forth certain terms and conditions relating to the
obligation of the Canadian Lenders to make loans to DBF pursuant to Section
1.01(a)(iii) of the Credit Agreement by way of Bankers' Acceptances. Capitalized
terms used herein shall have the meanings assigned to such terms in the Credit
Agreement.
(a) Availability. All notices of borrowings, conversions or continuations
for Bankers' Acceptances shall be in a minimum aggregate Face Amount of Cdn
$2,500,000 or a multiple of Cdn $100,000 in excess thereof, and a Canadian
Lender shall not be obliged to accept any bill of exchange which:
(i) is drawn on or which matures on a day which is not a Business Day;
(ii) matures on a day subsequent to the Final Maturity Date;
(iii) has a term other than approximately 30, 60, 90 or 180 days;
(iv) is denominated in any currency other than Canadian Dollars;
(v) is not in a form satisfactory to such Canadian Lender or the
Agent;
(vi) has a Face Amount of less than Cdn. $1,000,000 or the Face Amount
is not an integral multiple of Cdn. $100,000; or
(vii) in respect of which DBF has not then paid the applicable
Acceptance Fee.
(b) Grace. DBF hereby renounces, and shall not claim or request or require
any Canadian Lender to claim, any days of grace for the payment of any Bankers'
Acceptance.
(c) Bankers' Acceptances in Blank. To facilitate the acceptance by the
Canadian Lenders of Drafts as contemplated by the Credit Agreement and this
Annex III, DBF shall, on the Effective Date and from time to time as required,
supply each Canadian Lender with such numbers of Drafts as it may request, each
executed and endorsed in blank by DBF. Each Canadian Lender shall exercise such
care in the custody and safekeeping of such bills as they give to similar
property owned by them. Each Canadian Lender is hereby authorized to issue such
Bankers' Acceptances endorsed in blank in such Face Amounts as may be determined
by such Canadian Lender, provided that the aggregate amount thereof is equal to
the aggregate amount of Bankers' Acceptances required to be accepted by such
Canadian Lender. No Canadian Lender shall be responsible or liable for its
failure to accept a Bankers' Acceptance if the cause of such failure is, in
whole or in part, due to the failure of DBF to provide duly executed and
endorsed drafts to such Canadian Lender on a timely basis, nor shall any
Canadian Lender be liable for any damage, loss or other claim arising by reason
of any loss or improper use of any such instrument except loss or improper use
to the extent same has been finally judicially determined to have arisen by
reason of the gross negligence or willful misconduct of
<PAGE>
ANNEX III
Page 2
such Canadian Lender, its officers, employees, agents or representatives.
Each Canadian Lender shall maintain a record with respect to Bankers'
Acceptances (i) received by it from DBF in blank hereunder, (ii) voided by it
for any reason, (iii) accepted by it hereunder, (iv) purchased by it
hereunder, and (v) canceled at their respective maturity dates.
(d) Execution of Bankers' Acceptances. Upon the request of any Canadian
Lender, DBF shall provide to such Canadian Lender a power of attorney to
complete, sign, endorse and issue Bankers' Acceptances on behalf of DBF in form
and substance satisfactory to such Canadian Lender. Notwithstanding that any one
or more of the individuals whose manual or facsimile signature appears on any
bill as a signatory on behalf of DBF may no longer hold office at the date of
such bill or at the date of its acceptance by any Canadian Lender hereunder, or
at any time thereafter, any Bankers' Acceptance signed as aforesaid on behalf of
DBF shall be valid and binding upon DBF.
(e) Issuance of Bankers' Acceptances. Promptly following receipt of a
notice of borrowing, conversion or continuation by way of Bankers' Acceptances,
the Agent shall so advise the Canadian Lenders and shall advise each Canadian
Lender of the Face Amount of each Bankers' Acceptance to be accepted by it and
the term thereof. The aggregate Face Amount of Bankers' Acceptances to be
accepted by an Canadian Lender shall be determined by the Agent by reference to
the respective Canadian Percentages of the Canadian Lenders, except that, if the
Face Amount of the Bankers' Acceptance, that would otherwise be accepted by an
Canadian Lender, would not be Cdn. $100,000 or a multiple thereof, such Face
Amount shall be increased or reduced by the Agent in its sole discretion to the
nearest multiple of Cdn. $100,000.
Notwithstanding the foregoing, if by reason of any increase or reduction
described in the immediately preceding sentence, any Canadian Lender shall have
aggregate Bankers' Acceptances and Canadian Revolving Loans in excess of its
respective Canadian Percentage of the total outstanding Bankers' Acceptances and
Canadian Revolving Loans for all the Canadian Lenders (any such Lender being
herein called an "Over-Allotted Lender"), then at any time following the
occurrence and during the continuance of an Event of Default, each other
Canadian Lender agrees, upon request of the Over-Allotted Lender, to promptly
purchase from such Over-Allotted Lender participations in (or, if and to the
extent specified by any such purchasing Lender, direct interests in) the
Bankers' Acceptances and Canadian Revolving Loans owing to the Over-Allotted
Lender (and in interest due thereon, as the case may be) in such amounts, and to
make such other adjustments from time to time as shall be equitable, to the end
that all the Canadian Lenders shall hold the Bankers' Acceptances and Canadian
Revolving Loans ratably according to their respective Canadian Percentages.
(f) Purchase of Bankers' Acceptances: Continuations as and Conversions into
Bankers' Acceptance Loans. Subject to clause (k) below, upon the acceptance of a
Bankers' Acceptance by an Canadian Lender, such Canadian Lender shall purchase,
or arrange the purchase of, each Bankers' Acceptance from DBF at a price
determined by the Discount Rate of such Bankers' Acceptance and provide to the
Agent at the relevant Payment Office the BA Discount Proceeds for the account of
DBF. The BA Discount Proceeds so received by the Agent from the Canadian Lenders
shall be retained by the Agent and applied as follows: (i) remitted to
<PAGE>
ANNEX III
Page 3
DBF, (ii) to the prepayment of Canadian Prime Rate Loans (which shall
constitute a conversion of the Canadian Revolving Loans from Canadian Prime Rate
Loans to Bankers' Acceptance Loans) or (iii) to the payment of Bankers'
Acceptances maturing on such date (which shall constitute a continuation of
Bankers' Acceptance Loans to new Bankers' Acceptance Loans), provided that in
the case of any such conversion or continuation of Loans, DBF shall pay to the
Agent for account of the respective Canadian Lenders such additional amounts, if
any, as shall be necessary to effect the prepayment in full of the respective
Canadian Prime Rate Loans being prepaid, or the Bankers' Acceptances maturing,
on such date.
On any date on which a conversion or continuation described in the
preceding paragraph shall occur, the Agent shall be entitled to net all amounts
payable on such date by the Agent to an Canadian Lender against all amounts
payable on such date by such Canadian Lender to the Agent. Similarly, on any
such date, DBF hereby authorizes each Canadian Lender to net all amounts payable
on such date by such Canadian Lender to the Agent for the account of DBF,
against all amounts payable on such date by DBF to such Canadian Lender in
accordance with the Agent's calculations.
(g) Acceptance Fees. DBF shall pay to the Agent, in advance, for
distribution to each Canadian Lender which accepts a Bankers' Acceptance (based
on their respective Canadian Percentages), an Acceptance Fee in respect of the
Face Amount of such Bankers' Acceptance, which shall be payable on or before the
date of acceptance of such Bankers' Acceptance.
(h) Prepayments. Subject to clause (j) of this Annex III, and except as
otherwise expressly provided under the Credit Agreement, no prepayment of any
Bankers' Acceptances shall be made by DBF prior to the maturity date of such
Bankers' Acceptance.
(i) Payment; Conversion or Renewal of Bankers' Acceptances. Upon maturity
of a Bankers' Acceptance, DBF may (i) elect to issue a replacement Bankers'
Acceptance by giving a notice of continuation prior to 11:00 A.M. (New York
time) at least three Business Days prior to the maturity date thereof, which
notice shall comply with the requirements of clause (a) of this Annex III; (ii)
elect to have all or a portion of the Face Amount of the Bankers' Acceptance
converted to a Canadian Prime Rate Loan by giving a Notice of Borrowing in
accordance with Section 1.03 of the Credit Agreement; or (iii) pay to the Agent,
on or before 10:00 A.M. (New York time) on the maturity date for the Bankers'
Acceptance, an amount in Canadian Dollars equal to the Face Amount of the
Bankers' Acceptance (notwithstanding that the Canadian Lender may be the holder
of it at maturity). Unless a Bankers' Acceptance is paid in full at the maturity
thereof, or continued as another Canadian Revolving Loan by way of Bankers'
Acceptances, the obligation of DBF to any Canadian Lender in respect of a
maturing Bankers' Acceptance accepted by such Canadian Lender shall be deemed to
be converted automatically into a Canadian Prime Rate Loan in an amount equal to
the full Face Amount of the maturing Bankers' Acceptance. Such Canadian Prime
Rate Loan shall be subject to all of the provisions of the Credit Agreement
applicable to a Canadian Prime Rate Loan, including in particular the obligation
to pay interest, from and after the maturity date of such Bankers' Acceptance.
<PAGE>
ANNEX III
Page 4
(j) Default. Upon the acceleration of the Canadian Revolving Loans to be
due and payable pursuant to Section 9 of the Credit Agreement (whether by action
of the Agent or the Required Lenders, or automatically by reason of the
occurrence of an Event of Default referred to in Section 9.05 with respect to
any Borrower), DBF shall pay to the Agent in satisfaction of the obligations of
DBF to the Canadian Lenders in respect of then-outstanding Bankers' Acceptances,
and there shall become immediately due and payable, an amount equal to:
(i) the aggregate Face Amount of all outstanding Bankers' Acceptances
thereof; and
(ii) all unpaid Acceptance Fees, if any.
(k) Circumstances Making Bankers' Acceptances Unavailable. If the Agent
shall have reasonably determined (which determination shall be conclusive and
binding upon all parties hereto) and notified DBF and each of the Canadian
Lenders that, by reason of circumstances arising after the Effective Date and
affecting the Canadian money market (i) there is no market for Bankers'
Acceptances or (ii) the demand for Bankers' Acceptances is insufficient to allow
the sale or trading of the Bankers' Acceptances created and purchased hereunder,
then the right of DBF to request that any Canadian Lender accept a Bankers'
Acceptance shall be suspended until the Agent determines that the circumstances
giving rise to such suspension no longer exist and the Agent so notifies DBF.
(l) Indemnification in Respect of Bankers' Acceptances. In addition to any
liability of DBF to any Lender or the Agent under any other provision hereof,
DBF shall indemnify each Lender and the Agent and hold each of them harmless
against any reasonable loss or expense incurred by such Lender or the Agent as a
result of (x) any failure by DBF to fulfill any of its obligations hereunder
including, without limitation, any cost or expense incurred by reason of the
liquidation or re-employment in whole or in part of deposits or other funds
required by any Lender to fund any Bankers' Acceptance as a result of the
failure of DBF to make any payment, repayment or prepayment on the date required
hereunder or specified by it in any notice given hereunder; or (y) DBF's failure
to provide for the payment to the Agent, for the account of each of the Canadian
Lenders, of the full Face Amount of each Bankers' Acceptance on its maturity
date.
(m) Bankers' Acceptances purchased by a Canadian Lender may be held by it
for its own account until the maturity date or sold by it at any time prior to
that date in any relevant Canadian market in such Canadian Lender's sole
discretion.
<PAGE>
ANNEX IV
SUBSIDIARIES
<PAGE>
ANNEX V
REAL PROPERTY
<PAGE>
ANNEX VI
EXISTING DEBT
<PAGE>
ANNEX VII
INSURANCE
<PAGE>
ANNEX VIII
EXISTING LIENS
<TABLE>
<CAPTION>
Filing Location Debtor Secured Party File Number Original Filing Date Type
- --------------- ------ ------------- ----------- -------------------- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
ANNEX IX
EXISTING INVESTMENTS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
SECTION 1. Amount and Terms of Credit...........................................................................1
1.01 Commitments..........................................................................................1
1.02 Minimum Borrowing Amounts, etc.......................................................................4
1.03 Notice of Borrowing..................................................................................4
1.04 Competitive Bid Borrowings...........................................................................5
1.05 Disbursement of Funds................................................................................7
1.06 Notes; etc...........................................................................................8
1.07 Conversions.........................................................................................10
1.08 Pro Rata Borrowings.................................................................................10
1.09 Interest............................................................................................11
1.10 Interest Periods....................................................................................12
1.11 Increased Costs, Illegality, etc....................................................................13
1.12 Compensation........................................................................................15
1.13 Lending Offices; Changes Thereto....................................................................16
1.14 Replacement of Lenders..............................................................................16
1.15 Bankers Acceptance Provisions.......................................................................17
1.16 Special Provisions Regarding Canadian Revolving Loans...............................................17
1.17 Certain Override Provisions Regarding Utilizations of the Total Canadian Sub-Commitment.............20
SECTION 2. Letters of Credit...................................................................................21
2.01 Letters of Credit...................................................................................21
2.02 Letter of Credit Requests; Notices of Issuance......................................................23
2.03 Agreement to Repay Letter of Credit Drawings........................................................23
2.04 Letter of Credit Participations.....................................................................24
2.05 Increased Costs.....................................................................................26
SECTION 3. Fees; Adjustments of Commitments....................................................................27
3.01 Fees................................................................................................27
3.02 Voluntary Reduction of Commitments..................................................................28
3.03 Mandatory Adjustments of Commitments, etc...........................................................28
SECTION 4. Payments............................................................................................30
4.01 Voluntary Prepayments...............................................................................30
4.02 Mandatory Prepayments...............................................................................30
4.03 Method and Place of Payment.........................................................................33
4.04 Net Payments........................................................................................33
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SECTION 5. Conditions Precedent................................................................................35
5.01 Execution of Agreement..............................................................................35
5.02 Notes...............................................................................................35
5.03 No Default; Representations and Warranties..........................................................35
5.04 Officers Certificate................................................................................35
5.05 Opinions of Counsel.................................................................................36
5.06 Corporate Proceedings...............................................................................36
5.07 Consummation of the Transaction.....................................................................36
5.08 Adverse Change; Approvals...........................................................................37
5.09 Litigation..........................................................................................37
5.10 Guaranties..........................................................................................37
5.11 Pledge Agreements; Security Agreements..............................................................38
5.12 Mortgages; Title Insurance; Surveys...............................................................39
5.13 Financial Statements; Pro Forma Balance Sheet; Projections..........................................39
5.14 Solvency Certificate; Environmental Analyses; Insurance Certificates................................40
5.15 Plans; Shareholders Agreements; Management Agreements; Collective Bargaining Agreements;
Tax Sharing Agreements; Existing Indebtedness Agreements ..........................................40
5.16 Payment of Fees.....................................................................................41
5.17 Notice of Borrowing; Letter of Credit Request.......................................................41
SECTION 6. Representations, Warranties and Agreements..........................................................41
6.01 Status..............................................................................................42
6.02 Power and Authority.................................................................................42
6.03 No Violation........................................................................................42
6.04 Litigation..........................................................................................43
6.05 Use of Proceeds; Margin Regulations.................................................................43
6.06 Approvals...........................................................................................43
6.07 Investment Company Act..............................................................................43
6.08 Public Utility Holding Company Act..................................................................43
6.09 True and Complete Disclosure........................................................................43
6.10 Financial Condition; Financial Statements...........................................................44
6.11 Security Interests..................................................................................45
6.12 Tax Returns and Payments............................................................................45
6.13 Compliance with ERISA...............................................................................46
6.14 Ownership; Subsidiaries.............................................................................47
6.15 Capitalization......................................................................................47
6.16 Intellectual Property...............................................................................47
6.17 Compliance with Statutes, etc.......................................................................47
6.18 Environmental Matters...............................................................................47
6.19 Real Properties.....................................................................................48
6.20 Labor Relations.....................................................................................48
6.21 Indebtedness........................................................................................48
6.22 Other Documents.....................................................................................49
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6.23 Insurance...........................................................................................49
SECTION 7. Affirmative Covenants...............................................................................49
7.01 Information Covenants...............................................................................49
7.02 Books, Records and Inspections; Annual Meetings.....................................................52
7.03 Maintenance of Property; Insurance..................................................................52
7.04 Payment of Taxes....................................................................................53
7.05 Corporate Franchises................................................................................53
7.06 Compliance with Statutes, etc.......................................................................53
7.07 Good Repair.........................................................................................53
7.08 Compliance with Environmental Laws..................................................................53
7.09 ERISA...............................................................................................54
7.10 Performance of Obligations...................................................................... ..55
7.11 End of Fiscal Years; Fiscal Quarters................................................................55
7.12 Additional Security; Further Assurances.............................................................56
7.13 Foreign Subsidiaries Security.......................................................................57
7.14 Landlord Waivers and Estoppel Certificates.........................................................57
SECTION 8. Negative Covenants..................................................................................58
8.01 Changes in Business.................................................................................58
8.02 Consolidation, Merger, Sale or Purchase of Assets, etc..............................................58
8.03 Liens...............................................................................................61
8.04 Indebtedness........................................................................................63
8.05 Capital Expenditures................................................................................64
8.06 Advances, Investments and Loans.....................................................................64
8.07 Dividends, etc......................................................................................65
8.08 Transactions with Affiliates........................................................................66
8.09 Leverage Ratio......................................................................................66
8.10 Consolidated Interest Coverage Ratio................................................................67
8.11 Limitation on Modifications of Certificate of Corporation, By-Laws and Spinoff Documents; etc.......67
8.12 Limitation on the Creation of Subsidiaries..........................................................67
SECTION 9. Events of Default...................................................................................68
9.01 Payments............................................................................................68
9.02 Representations, etc................................................................................68
9.03 Covenants...........................................................................................68
9.04 Default Under Other Agreements......................................................................68
9.05 Bankruptcy, etc.....................................................................................69
9.06 ERISA...............................................................................................69
9.07 Security Documents..................................................................................70
9.08 Guaranties..........................................................................................70
9.09 Judgments...........................................................................................70
9.10 Change of Control...................................................................................70
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SECTION 10. Definitions.........................................................................................71
SECTION 11. The Agent...........................................................................................97
11.01 Appointment.........................................................................................97
11.02 Delegation of Duties................................................................................97
11.03 Exculpatory Provisions..............................................................................98
11.04 Reliance by Agent...................................................................................98
11.05 Notice of Default...................................................................................98
11.06 Non-Reliance on Agent and other Lenders.............................................................99
11.07 Indemnification.....................................................................................99
11.08 Agent in its Individual Capacity...................................................................100
11.09 Holders............................................................................................100
11.10 Resignation of the Agent; Successor Agent..........................................................100
SECTION 12. Miscellaneous......................................................................................101
12.01 Payment of Expenses, etc...........................................................................101
12.02 Right of Setoff....................................................................................102
12.03 Notices............................................................................................102
12.04 Benefit of Agreement...............................................................................102
12.05 No Waiver; Remedies Cumulative.....................................................................104
12.06 Payments Pro Rata..................................................................................104
12.07 Calculations; Computations.........................................................................105
12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE...................................................106
12.09 Counterparts.......................................................................................107
12.10 Effectiveness......................................................................................107
12.11 Headings Descriptive...............................................................................107
12.12 Amendment or Waiver................................................................................107
12.13 Survival...........................................................................................108
12.14 Domicile of Loans..................................................................................108
12.15 Confidentiality....................................................................................108
12.16 Waiver of Jury Trial...............................................................................109
12.17 Register...........................................................................................109
12.18 Judgment Currency..................................................................................110
12.19 Authorization for Quebec Security..................................................................110
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ANNEX I-A Commitments
ANNEX I-B Canadian Sub-Commitments
ANNEX II Bank Addresses; Applicable Lending Offices
ANNEX III Certain Provisions Relating to Bankers' Acceptances
ANNEX IV Subsidiaries
ANNEX V Real Property
ANNEX VI Existing Debt
ANNEX VII Insurance
ANNEX VIII Existing Liens
ANNEX IX Existing Investments
ANNEX X ERISA Matters
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Letter of Credit Request
EXHIBIT B -- Form of Notice of Competitive Bid Borrowing
EXHIBIT C-1 -- Form of Dollar Revolving Note
EXHIBIT C-2 -- Form of Canadian Revolving Note
EXHIBIT C-3 -- Form of Swingline Note
EXHIBIT D -- Form of Section 4.04(b)(ii) Certificate
EXHIBIT E-1 -- Form of Opinion of Kaufman & Canoles
EXHIBIT E-2 -- Form of Opinion of Goodman, Phillips & Vineberg
EXHIBIT F -- Form of Officers' Certificate
EXHIBIT G-1 -- Form of U.S. Subsidiaries Guaranty
EXHIBIT G-2 -- Form of Canadian General Guaranty
EXHIBIT G-3 -- Form of Canadian Parent Guaranty
EXHIBIT H-1 -- Form of U.S. Pledge Agreement
EXHIBIT H-2 -- Form of Canadian Pledge Agreement
EXHIBIT I-1 -- Form of U.S. Security Agreement
EXHIBIT I-2 -- Form of Canadian Security Agreement
EXHIBIT I-3 -- Form of Canadian Security Agreement (Hypothec)
EXHIBIT I-4 -- Form of Canadian Debenture and Debenture Pledge Agreement
EXHIBIT J -- Form of Solvency Certificate
EXHIBIT K -- Form of Assignment and Assumption Agreement
EXHIBIT L -- Form of Intercompany Note
(v)
<PAGE>
/__/ Employee's Copy
/__/ Employer's Copy
[FORM OF]
WORKFLOW MANAGEMENT, INC.
EMPLOYMENT AGREEMENT
To Jonathan J. Ledecky:
This Agreement establishes the terms of your employment with Workflow
Management, Inc., a Delaware corporation (the "Company"), as of June
10, 1998. This Agreement is contingent on and subject to the closing of the
distribution (the "Distribution") to the U.S. Office Products Company
("USOP") stockholders of the Company's stock. If the Distribution does not
close by September 30, 1998, this Agreement will have no force or effect.
Duties You agree to serve as a senior consultant to the Company
providing strategic business advice and high level
acquisition negotiations. In that capacity, you will report
to the Company's senior management and its Board of Directors
(the "Board"). The Board can require such reports of your
activities on the Company's behalf as it reasonably deems
appropriate. It can require your services to the extent
consistent with your other contractual employment obligations
to Consolidation Capital Corporation ("CCC"), USOP, and the
other subsidiaries ("Other Spincos") of USOP whose common
stock will be distributed to the USOP stockholders concurrent
with the Company's stock, with the specific timing of your
services to be mutually agreed. You agree to comply with the
Company's generally applicable personnel policies to the
extent applicable to a person working on your schedule and
consistent with your obligations in this Agreement.
Term The term of this Agreement runs from the day following the
effective date of the Distribution (the "Closing Date")
through June 30, 2000, unless earlier terminated as provided
in this Agreement.
Salary You will receive an annual salary of $48,000 from the Closing
Date, payable in accordance with the Company's payroll
policies.
Benefits You are eligible for participation in the Company's generally
applicable benefit plans and programs (including its 401(k)
Plan) to the extent you satisfy their terms for
participation.
Employment Agreement between Workflow Management and Jonathan J. Ledecky
<PAGE>
Expenses The Company will make available to you, on an as needed and
as mutually agreed basis, office space, secretarial
assistance, and supplies for the direct performance of your
services to the Company. It will pay or reimburse you for
reasonable business expenses relating to the direct
performance of such services, to limits to be mutually agreed
in advance, upon proper and timely substantiation.
Options You are receiving options for the Common Stock of the Company
in consideration for services as an employee of the Company.
Option Your options will cover 7.5% of the Company's
outstanding common stock determined as of the
Distribution Date (excluding the stock under the
Company's initial public offering), with no
anti-dilution provisions in the event of issuance of
additional shares of common stock (other than with
respect to stock splits or reverse stock splits).
Term Your option will expire ten years from the Closing Date.
Price Your option will have a per share exercise price equal
to the offering price in the Company's initial public
offering, or if no initial public offering commences
on the Closing Date, at the fair market value of the
Company's common stock, as determined under the
Company's option plan, for the date of grant.
Schedule Your option will be fully vested when granted, but may
not be exercised until the first anniversary of the
Closing Date.
Your option will become exercisable before that first
anniversary if and to the extent that the Company
accelerates the exercisability of the options for
substantially all management optionholders.
All unexercised portions of your options will expire if,
as finally determined by a court, you violate the No
Competition provision.
Disgorging If a court finds that you violated the No Competition
Option provision, you agree that your unexercised options are
Gain retroactively forfeited as of the date of the violation
and that, if you have exercised the options since the
violation began, you will promptly pay the Company any
Option Gain, net of any taxes actually paid on the
options. For purposes of this Agreement, the "Option
Gain" per share you received on exercise of options on
or after the violation is
Stock for stock you have sold, the greater of (i) the spread
Sold between closing price on the date of exercise and the
exercise price paid ("Exercise Spread") and (ii) the
spread between the price at which you sold the stock and
the exercise price paid, and
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 2 of 10
<PAGE>
Stock for stock you have retained, the greater of (i) Exercise
Retained Spread and (ii) the spread between the closing price on
the date of the court's final determination and the
exercise price paid.
All unexpired options will vest and be exercisable at your
death.
Termination The Company can terminate your employment under this
Agreement only for "cause." "Cause" means your (i) conviction
of or guilty or nolo contendere plea to a felony demonstrably
and materially injurious to the Company's business, and
resulting in a sentence of imprisonment, or (ii), as finally
determined by a court, violation of the No Competition
provision as it applies to the Company, provided that the
Company will give you 10 days to resolve the violation before
attempting to invoke this termination provision. For a
termination under (ii), you agree to repay any salary you
received from the Company between the date of the violation
and the date of the court's determination.
Severance If your employment ends because you resign or are properly
terminated for cause, you will not receive severance or
termination pay and your salary will end. Except to the
extent the law or the terms of an applicable plan requires
otherwise, neither you nor your beneficiary or estate will
have any rights or claims under this Agreement or otherwise
to receive severance or any other compensation or to
participate in any other plan, arrangement, or benefit, after
your termination of employment, other than with respect to
your options.
No Competition Consistent with certain of your prior obligations to USOP,
you will not, until after the end of the Restricted Period,
for any reason whatsoever, directly or indirectly, for
yourself or on behalf of or in conjunction with any other
person, persons, company, partnership, corporation, or
business of whatever nature:
Competition (i) engage, as an officer, director, shareholder, owner,
partner, joint venturer, or in a managerial capacity,
whether as an employee, independent contractor,
consultant, or advisor, or as a sales representative, in
any business (other than an Excluded Business, as
defined below) selling any products or services in
direct competition with the Company within 100 miles of
where the Company or where any of the Company's
subsidiaries or affiliates regularly maintains any of
its or their offices with employees (the "Territory"),
where "products or services" are determined for this
clause with respect to products or services offered on
or before January 13, 1998 by the Company and/or any of
its subsidiaries or
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 3 of 10
<PAGE>
the predecessor companies combined to form the Company
in connection with Distribution and where the geographic
limitation is determined with reference to the Company
and its subsidiaries and not to USOP or the other
Spincos (e.g., competition with respect to the
Company is determined by reference to the location
where the Company or its subsidiary has an office
with employees and not to the locations of offices of
other Spincos);
Employees (ii) call upon any person who is, at that time, within
the Territory, an employee of the Company (including the
respective subsidiaries and/or affiliates thereof) in a
managerial capacity for the purpose or with the intent
of enticing such employee away from or out of the
Company's employ (including the respective subsidiaries
and/or affiliates thereof) other than a member of your
immediate family; or
Customers (iii) call upon any person or entity that is, at that
time, or that has been, within one year prior to that
time, a customer of the Company (including the
respective subsidiaries and/or affiliates thereof)
within the Territory for the purpose of soliciting or
selling products or services in direct competition with
the Company (including the respective subsidiaries
and/or affiliates thereof) within the Territory other
than on behalf of an Excluded Business.
For purposes of this Agreement, the "Restricted Period"
ends, on the later of the second anniversary of the
Closing Date and the date one year after you leave
employment with the Company and its subsidiaries and
affiliates.
For purposes of this Agreement, the "Excluded
Businesses" are the following:
(i) any electrical contracting business that, at
the time of its creation or acquisition and at
all later times, derives more than 50% of its
revenues from electrical contracting and
maintenance services, without regard to whether
it would otherwise violate the No Competition
clause because it is engaged in a business
directly competitive with Aztec Technology
Partners, Inc. or any of its subsidiaries
(together, "Aztec"), provided that this
exclusion does not permit the business
to engage in any of the lines of business
described under "Consulting and Engineering
Services," "Systems and Network Design and
Implementation Services," and "Software
Development and Implementation Services" in the
Aztec Form S-1 filed on June 3, 1998 (the "Aztec
Specified Businesses") other than as provided
under (ii) or (vi) in the Excluded Businesses;
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 4 of 10
<PAGE>
(ii) any business whose revenue from activities
that compete with Aztec and its subsidiaries, at
the time of the business's creation or
acquisition and at all later times, is less than
$15 million per year, provided that this
exclusion does not permit the business to engage
in the Aztec Specified Businesses other than (i)
as provided under (vi) in the Excluded
Businesses or (ii) through the pending CCC
acquisitions of National Network Systems in
Denver, Colorado and of Chamber Electronics
Communications in Phoenix, Arizona
(iv) any business engaged, and only to the extent
that it is so engaged, in the business of selling,
supplying, or distributing janitorial or sanitary
products or services;
(v) any business engaged, and only to the extent
it is so engaged, in the managing or servicing of
office equipment (other than computers);
(vi) any business engaged, and only to the extent
it is so engaged, in providing internet access
services and activities supportive of such
services;
(vii) UniCapital Corporation's business as
described in its prospectus as of the date of
this Agreement; and
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 5 of 10
<PAGE>
(viii) U.S. Marketing Services Inc's ("USM")
shelf-stocking and merchandising, and point of
purchase display creation and incentive
marketing businesses, as described in its
registration statement filed on the date of this
Agreement, so long as you are solely an investor
in USM and not an officer, director, or employee
of, or consultant to, USM; provided, however,
that your service as a director will not violate
the foregoing requirement as long as you cease
to be a director no later than the 90th day
after the effective date of the registration of
USM's initial public offering;
provided, that in each case you are engaged in such
business only in a policy making role and not in the
entity's business in a manner that would involve you in
direct personal competition with the Company (and its
subsidiaries), provided further that this proviso does
not prevent your activities in furtherance of
acquisitions of Excluded Businesses, and provided
further that you will comply with your fiduciary
duties as a director of the Company in connection
with the Excluded Businesses.
To the extent permitted by your obligations to the relevant
Excluded Business, as an employee and/or director of the
Company (or its subsidiaries), you will inform the relevant
entity of any opportunities for it associated with any of the
Excluded Businesses.
In addition to (and not in lieu of) the restriction contained
in the Employees clause above, you agree that, during the
period that the restrictions contained in this No Competition
provision remain in effect, and so long as you are employed
by, or otherwise affiliated with, CCC, you will not, directly
or indirectly, offer employment with CCC to, or otherwise
allow CCC to employ, any person who
is employed by the Company or a subsidiary of the
Company at the time; or
was so employed by the Company or a subsidiary of the
Company within one year prior to such time.
Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit you from acquiring capital stock
in CCC or any Excluded Business or serving as an officer,
director or employee or consultant to CCC, or acquiring as
an investment not more than one percent (1%) of the
capital stock of a competing business, whose stock is
traded on a national securities exchange or
over-the-counter, provided that such actions do not
otherwise breach your obligations hereunder; and provided
further that actions of CCC after you have ceased to be a
director, officer, and employee of CCC will not constitute
a breach of this covenant, despite your continued stock
ownership, so long as you are not then directly assisting
any competitive actions.
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that
could be caused to the Company for which it would have no
other adequate remedy, you agree that the Company may enforce
the No Competition provisions by injunctions and restraining
orders.
You and the Company agree that you will not be in
violation of the No Competition provisions by virtue of
your investment in or other relationship to USOP, any of
the Spincos, or their respective subsidiaries, even if one
of those entities engages in direct competition with
another. You and the Company agree that CCC's acquisition
or retention of Wilson Electric Company, Inc. ("Wilson")
and Wilson's engaging in any lines of business in place as
of the Closing Date do not violate the No Competition
provision.
You and the Company agree that the No Competition provisions
impose a reasonable restraint on you in light of the
Company's activities and
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 6 of 10
<PAGE>
business (including the Company's subsidiaries and/or
affiliates) on the date of the execution of this Agreement.
The Company agrees to consider reasonably and within two
weeks of receipt any requests you make for a waiver from the
No Competition provisions for a particular acquisition.
You and the Company further agree that, if you enter into a
business or pursue other activities not in competition with
the Company (including the Company's subsidiaries), or
similar activities or business in locations the operation of
which, under such circumstances, does not violate the
Competition clause of this No Competition provision, and in
any event such new business, activities, or location is not
in violation of this No Competition provision or of your
obligations under this No Competition provision, if any, you
will not be chargeable with a violation of this provision if
the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar, or a competitive (i)
business, (ii) course of activities, or (iii) location, as
applicable.
The covenants in this No Competition provision are severable
and separate, and the unenforceability of any specific
covenant does not affect the provisions of any other
covenant. Moreover, if any court of competent jurisdiction
shall determine that the scope, time, or territorial
restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced
to the fullest extent which the court deems reasonable, and
the Agreement shall thereby be reformed.
All of the covenants in this No Competition provision shall
be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim
or cause of action by you against the Company, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the Restricted
Period, during which your agreements and covenants made in
this provision shall be effective, is computed by excluding
from such computation any time during which you are in
violation of any provision of the No Competition provision.
Notwithstanding any of the foregoing, if any applicable law
reduces the time period during which you are prohibited from
engaging in any competitive activity described in this
provision, you agree that the period for prohibition shall be
the maximum time permitted by law.
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 7 of 10
<PAGE>
You specifically agree that USOP and the Company have
provided you with sufficient consideration for the
enforcement of the No Competition obligations for the
Restricted Period and for the assumption of such benefits by
the Company. You specifically consent to USOP's assignment to
the Company of the right to enforce the No Competition
provisions of the Amended Ledecky Services Agreement, as
those provisions are incorporated in this Agreement.
Other The Company acknowledges that you are also employed by CCC,
Employment USOP, and the Other Spincos, and agrees that such dual
employment does not breach this Agreement, unless and to the
extent that you thereby violate the No Competition
provisions.
Return of All records, designs, patents, business plans, financial
Company statements, manuals, memoranda, lists and other property
Property delivered to or compiled by you by or on behalf of the
Company (including the respective subsidiaries thereof) or
their representatives, vendors, or customers that pertain to
the business of the Company (including the respective
subsidiaries thereof) shall be and remain the property of the
Company, and be subject at all times to its discretion and
control. Likewise, you will make reasonably available at the
Company's request during business hours all correspondence,
reports, records, acquisition materials, charts, advertising
materials and other similar data pertaining to the business,
activities, or future plans of the Company that you have
collected or obtained.
Trade Secrets You agree that you will not, during or after the term of this
Agreement with the Company, disclose the specific terms of
the Company's (including the respective subsidiaries thereof)
relationships or agreements with its or their respective
significant vendors or customers or any other significant and
material trade secret of the Company (including the
respective subsidiaries thereof) whether in existence or
proposed, to any person, firm, partnership, corporation or
business for any reason or purpose whatsoever. For CCC or any
other businesses with which you are affiliated or in which
you are a stockholder, you may reach agreement on comparable
terms with significant vendors to the Company, so long as you
do not provide copies of or otherwise disclose the specific
terms of the Company's relationships or agreements.
Indemnification If you are made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an
action by the Company against you), by reason of the fact
that you are or were performing services under this Agreement
then the Company must indemnify you against all expenses
(including attorneys'
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 8 of 10
<PAGE>
fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by you in connection
therewith to the fullest extent provided by Delaware law and
in accordance with the Company's Bylaws.
No Prior You hereby represent and warrant to the Company that your
Agreements execution of this Agreement, your services to the Company,
and the performance of your agreements hereunder will not
violate or be a breach of any agreement with a former or
current employer, client, or any other person or entity.
Further, you agree to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses
of investigation, by any such third party that such third
party may now have or may hereafter come to have against the
Company based upon or arising out of any non-competition
agreement, invention, or secrecy agreement between you and
such third party that was in existence as of the date of this
Agreement.
Complete This Agreement is not a promise of future employment. You
Agreement have no oral representations, understandings, or agreements
with the Company or any of its officers, directors, or
representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete, and
exclusive statement and expression of the agreement between
the Company and you with respect to all the terms of this
Agreement, and it cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral
or written agreements. This written Agreement may not be
later modified except by a further writing signed by a duly
authorized officer of the Company and you, and no term of
this Agreement may be waived except by writing signed by the
party waiving the benefit of such term.
Notice Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: Workflow Management, Inc.
Attention: Chief Executive Officer
240 Royal Palm Way
Palm Beach, Florida 33480
To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three days after
the deposit in the U.S. mail of a writing addressed as above
and sent first class mail, certified, return receipt
requested, or when actually received. Either party
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 9 of 10
<PAGE>
may change the address for notice by notifying the other
party of such change in accordance with this Notice
provision.
Severability If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and
possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. This severability
provision shall be in addition to, and not in place of, the
comparable provisions in the No Competition provision.
Governing Law This Agreement shall in all respects be construed
according to the laws of the State of Delaware, other than
those relating to conflicts of laws. Any decision as to
breaches of this Agreement or any provision herein shall be
made pursuant to a final, nonappealable decision of a court.
Binding Effect This Agreement binds and benefits the Company, each of its
and Assignment successors or assigns, and your heirs and the personal
representatives of your estate. Without the Company's prior
written consent, you may not assign or delegate this
Agreement or any or all rights, duties, obligations, or
interests under it.
Superseding Contingent upon the Closing and effective only in that event,
Effect this Agreement supersedes any prior oral or written
employment or severance agreements between you and the
Company (specifically excluding your options to purchase
Company stock). Except as set forth above, this Agreement
supersedes all prior or contemporaneous negotiations,
commitments, agreements, and writings with respect to the
subject matter of this Agreement. All such other
negotiations, commitments, agreements, and writings will have
no further force or effect; and the parties to any such other
negotiation, commitment, agreement, or writing will have no
further rights or obligations thereunder.
Negotiated You agree that you have consulted with counsel of your own
Agreement selection and have negotiated the terms of this Agreement
with the Company. You and the Company agree that this
Agreement should not be construed against either party as the
"drafter."
WORKFLOW MANAGEMENT, INC.
Date: By:
-------------------- -----------------------------------
Thomas B. D'Agostino
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 10 of 10
<PAGE>
President and Chief Executive Officer
I agree to and accept these terms, specifically including the assignment of the
No Competition provision.
Date:
-------------------- -----------------------------------
Jonathan J. Ledecky
Employment Agreement between Workflow Management and Jonathan J. Ledecky
Page 11 of 10
<PAGE>
/__/ Employee's Copy
/__/ Company's Copy
AMENDED SERVICES AGREEMENT
To Jonathan J. Ledecky:
This Agreement, amended as of June 8, 1998, establishes the terms of your
continuing employment with U.S. Office Products Company, a Delaware
corporation (the "Company"), and replaces your amended and restated
employment agreement with the Company dated as of November 4, 1997 (the "1997
Agreement"), as amended. This Agreement is contingent on and subject to the
closing of the distributions (the "Distributions") to the Company's
stockholders of the stock of Aztec Technology Partners, Inc., Navigant
International, Inc., School Speciality, Inc., and Workflow Management, Inc.
(the "Spincos"). If the Distributions do not close by September 30, 1998,
this Agreement will have no force or effect and your 1997 Agreement will
remain in place and in effect. You are resigning from the Board effective as
of and contingent on the Distributions.
Duties You agree to serve as a senior consultant to the Company
providing strategic business advice and high level
acquisition negotiations. In that capacity, you will report
to the Company's Board of Directors (the "Board"). The Board
can require such reports of your activities on the Company's
behalf as it reasonably deems appropriate. It can require
your services to the extent consistent with your other
contractual employment obligations to Consolidation Capital
Corporation ("CCC") and the Spincos, with the specific timing
of your services to be mutually agreed. You agree to comply
with the Company's generally applicable personnel policies to
the extent applicable to a person working on your schedule
and consistent with your obligations in this Agreement.
Term The term of this Agreement runs from the day following the
effective date of the Distributions (the "Closing Date")
through June 30, 2001, unless earlier terminated as provided
in this Agreement.
Salary You will receive an annual salary of $48,000 from the Closing
Date, payable in accordance with the Company's payroll
policies.
Company Your Company options will continue to vest and be exercisable
on their
<PAGE>
Options current schedules unless and until the Company properly
terminates your employment for Cause under this Agreement.
The Company will adjust the exercise price of your options
consistent with adjustments for substantially all of the
other optionholders' options.
Your existing Company options will not convert into Spinco
options.
The Company will accelerate your options if and to the extent
that the Company accelerates the exercisability of options
for substantially all management optionholders.
You waive any claim to participate in any matching or reload
program that may apply to other employees of the Company.
The unexercised portions of your Company options will expire
under their current terms or if, as finally determined by a
court, you violate the No Competition provision as it applies
to the Company.
Disgorging If a court finds that you violated the No
Option Competition provision, you agree that your
Gain unexercised options are retroactively
forfeited as of the date of the violation and
that, if you have exercised the options since
the violation began, you will promptly pay the
Company any Option Gain, net of any taxes
actually paid on the options. For purposes
of this Agreement, the "Option Gain" per share
you received on exercise of options on or
after the violation is
Stock for stock you have sold, the greater
Sold of (i) the spread between closing price
on the date of exercise and the exercise
price paid ("Exercise Spread") and (ii)
the spread between the price at which you
sold the stock and the exercise price
paid, and
Stock for stock you have retained, the greater
Retained of (i) Exercise Spread and (ii) the
spread between the closing price on the
date of the court's final determination
and the exercise price paid.
Benefits You are eligible for participation in the Company's generally
applicable benefit plans and programs (including its 401(k)
Plan) to the extent you satisfy their terms for
participation.
Expenses The Company will make available to you, on an as needed and
as mutually agreed basis, office space, secretarial
assistance, and supplies for the direct performance of your
services to the Company. It will pay or reimburse
Amended Services Agreement with Jonathan J. Ledecky Page 2 of 12
<PAGE>
you for reasonable business expenses relating to the
direct performance of such services to the Company
(including expenses incurred before the date of this
Agreement but not previously submitted, as long as you
submit the expenses by June 30, 1998), subject to limits
to be mutually agreed in advance, upon proper and timely
substantiation.
Amended Services Agreement with Jonathan J. Ledecky Page 3 of 12
<PAGE>
Spinco You will receive options in the Spincos in consideration for
Compensation your services as an employee of each Spinco.
Option Your Spinco options will cover 7.5% of the
outstanding common stock of each Spinco
determined as of the Distribution Date
(excluding the stock under the Spinco's
initial public offering), with no
anti-dilution provisions in the event of
issuance of additional shares of common stock
(other than with respect to stock splits or
reverse stock splits).
Term Each Spinco option will expire ten years from
the Closing Date.
Price Each Spinco option will have a per share
exercise price equal to the offering price in
the initial public offerings for each
Spinco or, if no initial public offering
commences on the Closing Date, at the fair
market value of the Spinco's common stock,
as determined under the Spinco's option
plan, for the date of the grant.
Schedule Each Spinco option will be fully vested when
granted, but may not be exercised until the
first anniversary of the Closing Date.
Your Spinco options with respect to a
particular Spinco will become exercisable
before that first anniversary if and to the
extent the relevant Spinco accelerates the
options for substantially all management
optionholders.
All unexercised portions of Spinco options
with respect to a particular Spinco will
expire if, as finally determined by a court,
you violate the No Competition provision as it
applies to the respective Spinco.
If a court finds that you violated the No
Competition provision with respect to a
particular Spinco, you agree that your
unexercised options from that Spinco are
retroactively forfeited as of the date of the
violation and that, if you have exercised the
options from that Spinco since the violation
began, you will promptly pay that Spinco any
Option Gain, net of any taxes actually paid
on the options.
All unexpired options will vest and be
exercisable at your death.
Termination The Company can terminate your employment under this
Agreement only for "cause." "Cause" means your (i) conviction
of or guilty or nolo contendere plea to a felony demonstrably
and materially injurious to the Company's business, and
resulting in a sentence of imprisonment, or (ii), as finally
determined by a court, violation of the No Competition
provision as it applies to the Company, provided that the
Company will give you 10 days to resolve the violation before
attempting to invoke this termination provision. For a
termination under (ii), you agree to repay any
Amended Services Agreement with Jonathan J. Ledecky Page 4 of 12
<PAGE>
salary you received from the Company between the date of the
violation and the date of the court's determination.
Severance If your employment ends because you resign or are properly
terminated for cause, you will not receive severance or
termination pay, your salary will end, and your Company
options will cease vesting. Except to the extent the law or
the terms of an applicable plan requires otherwise, neither
you nor your beneficiary or estate will have any rights or
claims under this Agreement or otherwise to receive severance
or any other compensation or to participate in any other
plan, arrangement, or benefit, after your termination of
employment, other than with respect to your options.
No Competition The Company hereby releases you, effective for acts or
omissions after the Closing Date, from any obligation under
your 1997 Agreement to notify the Company regarding corporate
opportunities.
Consistent with certain of your prior obligations under the
1997 Agreement, you will not, until after the end of the
Restricted Period, for any reason whatsoever, directly or
indirectly, for yourself or on behalf of or in conjunction
with any other person, persons, company, partnership,
corporation, or business of whatever nature:
Competition (i) engage, as an officer, director,
shareholder, owner, partner, joint venturer,
or in a managerial capacity, whether as an
employee, independent contractor, consultant,
or advisor, or as a sales representative, in
any business (other than an Excluded Business,
as defined below) selling any products or
services in direct competition with the
Company within 100 miles of where the Company
or where any of the Company's subsidiaries or
affiliates regularly maintains any of its or
their offices with employees (the
"Territory"), where "products or services" are
determined for this clause with respect to
products or services offered on or before
January 13, 1998 by the Company and/or any of
the Spincos and where the geographic
limitation is determined with reference to the
applicable entity and its subsidiaries (e.g.,
competition with respect to a Spinco is
determined by reference to the location where
that Spinco has an office with employees and
not to the locations of others);
Employees (ii) call upon any person who is, at that
time, within the Territory, an employee of the
Company (including the respective subsidiaries
and/or affiliates thereof) in a managerial
capacity for the purpose
Amended Services Agreement with Jonathan J. Ledecky Page 5 of 12
<PAGE>
or with the intent of enticing such employee
away from or out of the Company's employ
(including the respective subsidiaries and/or
affiliates thereof) other than a member of
your immediate family; or
Customers (iii) call upon any person or entity that is,
at that time, or that has been, within one
year prior to that time, a customer of the
Company (including the respective subsidiaries
and/or affiliates thereof) within the
Territory for the purpose of soliciting or
selling products or services in direct
competition with the Company (including the
respective subsidiaries and/or affiliates
thereof) within the Territory other than on
behalf of an Excluded Business.
For purposes of this Agreement, the
"Restricted Period" ends, for the Company and
its subsidiaries and affiliates after the
Closing Date, on the second anniversary of the
Closing Date, and ends, for each Spinco and
its subsidiaries and affiliates after the
Closing Date, on the later of the second
anniversary of the Closing Date and the date
one year after you leave employment with the
Spinco and its subsidiaries and affiliates.
For purposes of this Agreement, the "Excluded
Businesses" are the following
(i) any electrical contracting
business that, at the time of its
creation or acquisition and at all
later times, derives more than 50% of
its revenues from electrical
contracting and maintenance services,
without regard to whether it would
otherwise violate the No Competition
clause because it is also engaged in a
business directly competitive with
Aztec Technology Partners, Inc. or any
of its subsidiaries (together,
"Aztec"), provided that this exclusion
does not permit the business to engage
in any of the lines of business
described under "Consulting and
Engineering Services," "Systems and
Network Design and Implementation
Services" and "Software Development
and Implementation Services" in the
Aztec Form S-1 filed on June 3, 1998
(the "Aztec Specified Businesses")
other than as provided under (ii) or (vi)
in the Excluded Businesses;
Amended Services Agreement with Jonathan J. Ledecky Page 6 of 12
<PAGE>
(ii) any business whose revenue from
activities that compete with Aztec and
its subsidiaries, at the time of the
business's creation or acquisition and
at all later times, is less than $15
million per year, provided that this
exclusion does not permit the business
to engage in the Aztec Specified
Businesses other than (i) as provided
under (vi) in the Excluded Businesses
or (ii) through the pending CCC
acquisitions of National Network
Systems in Denver, Colorado and of
Chambers Electronics Communications in
Phoenix, Arizona;
(iii) any business engaged, and only to
the extent it is so engaged, in computer
monitoring for facilities management;
(iv) any business engaged, and only to
the extent that it is so engaged, in the
business of selling, supplying, or
distributing janitorial or sanitary
products or services;
(v) any business engaged, and only to
the extent it is so engaged, in the
managing or servicing of office
equipment (other than computers);
(vi) any business engaged, and only to
the extent it is so engaged, in providing
internet access services and
activities supportive of such services;
(vii) UniCapital Corporation's
business as described in its prospectus
as of the date of this Agreement; and
(viii) U.S. Marketing Services Inc.'s
("USM") shelf-stocking and merchandising,
and point of purchase display creation
and incentive marketing businesses,
as described in its registration
statement filed on the date of this
Agreement, so long as you are solely
an investor in USM and not an officer,
director, or employee of or consultant
to, USM; provided however, that your
service as a director will not violate
the foregoing requirement as long as
you cease to be a director no later
than the 90th day after the effective
date of USM's initial public offering;
Amended Services Agreement with Jonathan J. Ledecky Page 7 of 12
<PAGE>
provided, that in each case you are engaged in
such business only in a policy making role and
not in the entity's business in a manner that
would involve you in direct personal
competition with the Company (and its
subsidiaries) or the applicable Spinco (and
its subsidiaries), provided further that
this proviso does not prevent your
activities in furtherance of acquisitions
of Excluded Businesses, and provided further
that you will comply with your fiduciary
duties as a director of each of the Spincos
in connection with the Excluded Businesses.
To the extent permitted by your obligations to the relevant
Excluded Business, as an employee and/or director of the
Company and each Spinco (or their subsidiaries), you will
inform the relevant entity of any opportunities for it
associated with any of the Excluded Businesses.
In addition to (and not in lieu of) the restriction contained
in the Employees clause above, you agree that, during the
period that the restrictions contained in this No Competition
provision remain in effect, and so long as you are employed
by, or otherwise affiliated with, CCC, you will not, directly
or indirectly, offer employment with CCC to, or otherwise
allow CCC to employ, any person who
is employed by the Company or a subsidiary of the
Company at the time; or
was so employed by the Company or a subsidiary of the
Company within one year prior to such time; or
provides (or within the prior year provided) substantial
service to the Company or a subsidiary of the Company as
part of an entity that is or was a vendor or other
outside service provider to the Company or any
subsidiary; provided, however, that this provision
regarding vendors and outside service providers will not
apply after the Closing Date. In addition, the Company
specifically agrees that you may hire Jackie Scott and
Amy Blodgett, notwithstanding anything to the contrary
in the 1997 Agreement.
Notwithstanding the above, the foregoing covenant shall
not be deemed to prohibit you from acquiring capital stock
in CCC or any Excluded Business or serving as an officer,
director or employee or consultant to CCC, or acquiring as
an investment not more than 4.9% of the capital stock of a
competing business, whose stock is traded on a national
securities exchange or over-the-counter, provided that
such actions do not otherwise breach your obligations
hereunder; and provided further that actions of CCC after
you have ceased to be a director, officer, and employee of
CCC will not constitute a breach of this covenant despite
your continued stock ownership, so long as you are not
then directly assisting any competitive actions.
Amended Services Agreement with Jonathan J. Ledecky Page 8 of 12
<PAGE>
Because of the difficulty of measuring economic losses to the
Company as a result of a breach of the foregoing covenant,
and because of the immediate and irreparable damage that
could be caused to the Company for which it would have no
other adequate remedy, you agree that the Company may enforce
the No Competition provisions by injunctions and restraining
orders.
You and the Company agree that you will not be in
violation of the No Competition provisions by virtue of
your investment in or other relationship to the Company,
any of the Spincos, or their respective subsidiaries, even
if one of those entities engages in direct competition
with another. You and the Company agree that CCC's
acquisition or retention of Wilson Electric Company, Inc.
("Wilson") and Wilson's engaging in any lines of business
in place as of the Closing Date do not violate the No
Competition provision.
You and the Company agree that the No Competition provisions
impose a reasonable restraint on you in light of the
Company's activities and business (including the Company's
subsidiaries and/or affiliates) on the date of the execution
of this Agreement.
The Company agrees to consider reasonably and within two
weeks of receipt any requests you make for a waiver from the
No Competition provisions for a particular acquisition.
You and the Company further agree that, if you enter into a
business or pursue other activities not in competition with
the Company (including the Company's subsidiaries), or
similar activities or business in locations the operation of
which, under such circumstances, does not violate the
Competition clause of this No Competition provision, and in
any event such new business, activities, or location is not
in violation of this No Competition provision or of your
obligations under this No Competition provision, if any, you
will not be chargeable with a violation of this provision if
the Company (including the Company's subsidiaries) shall
thereafter enter the same, similar, or a competitive (i)
business, (ii) course of activities, or (iii) location, as
applicable.
The covenants in this No Competition provision are severable
and separate, and the unenforceability of any specific
covenant does not affect the provisions of any other
covenant. Moreover, if any court of competent jurisdiction
shall determine that the scope, time, or territorial
restrictions set forth are unreasonable, then it is the
intention of the parties that such restrictions be enforced
to the fullest extent which the court deems reasonable, and
the Agreement shall thereby be reformed.
All of the covenants in this No Competition provision shall
be construed as an agreement independent of any other
provision in this Agreement, and the existence of any claim
or cause of action by you against the Company, whether
predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Company of
such covenants. It is specifically agreed that the Restricted
Period, during which your
Amended Services Agreement with Jonathan J. Ledecky Page 9 of 12
<PAGE>
agreements and covenants made in this provision shall be
effective, is computed by excluding from such computation any
time during which you are in violation of any provision of
the No Competition provision.
Notwithstanding any of the foregoing, if any applicable law
reduces the time period during which you are prohibited from
engaging in any competitive activity described in this
provision, you agree that the period for prohibition shall be
the maximum time permitted by law.
You specifically agree that the Company and the Spincos have
provided you with sufficient consideration for the
enforcement of the No Competition obligations for the
Restricted Period and for the assignment of this provision to
the Spincos.
After the Distributions, you agree that the Company will
assign to each Spinco the ability to enforce the
noncompetition provisions as to its own business.
Other The Company acknowledges that you are also employed by CCC
Employment and the Spincos, and agrees that such dual employment does
not breach this Agreement, unless and to the extent that you
thereby violate the No Competition provisions.
Return of All records, designs, patents, business plans, financial
Company statements, manuals, memoranda, lists and other property
Property delivered to or compiled by you by or on behalf of the
Company (including the respective subsidiaries thereof) or
their representatives, vendors, or customers that pertain to
the business of the Company (including the respective
subsidiaries thereof) shall be and remain the property of the
Company, and be subject at all times to its discretion and
control. Likewise, you will make reasonably available at the
Company's request during business hours all correspondence,
reports, records, acquisition materials, charts, advertising
materials and other similar data pertaining to the business,
activities, or future plans of the Company that you have
collected or obtained.
Trade You agree that you will not, during or after the term of this
Secrets Agreement with the Company, disclose the specific terms of
the Company's (including the respective subsidiaries thereof)
relationships or agreements with its or their respective
significant vendors or customers or any other significant and
material trade secret of the Company (including the
respective subsidiaries thereof) whether in existence or
proposed, to any person, firm, partnership, corporation or
business for any reason or
Amended Services Agreement with Jonathan J. Ledecky Page 10 of 12
<PAGE>
purpose whatsoever. For CCC or any other businesses with
which you are affiliated or in which you are a stockholder,
you may reach agreement on comparable terms with significant
vendors to the Company, so long as you do not provide copies
of or otherwise disclose the specific terms of the Company's
relationships or agreements.
Indemnification If you are made a party to any threatened, pending, or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an
action by the Company against you), by reason of the fact
that you are or were performing services under this Agreement
or the 1997 Agreement then the Company must indemnify you
against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, as actually and
reasonably incurred by you in connection therewith to the
fullest extent provided by Delaware law and in accordance
with the Company's Bylaws. Further, while you are expected at
all times to use your best efforts to faithfully discharge
your duties under this Agreement, the Company will not hold
you liable to itself or its subsidiaries or affiliates for
errors or omissions made in good faith where you have not
exhibited gross, willful, or wanton negligence or misconduct
or performed criminal or fraudulent acts that materially
damage the business of the Company; provided, however, that
this sentence shall not apply to acts or omissions between
the effective date of the 1997 Agreement and the Closing
Date.
No Prior You hereby represent and warrant to the Company that your
Agreements execution of this Agreement, your services to the Company,
and the performance of your agreements hereunder will not
violate or be a breach of any agreement with a former or
current employer, client, or any other person or entity.
Further, you agree to indemnify the Company for any claim,
including, but not limited to, attorneys' fees and expenses
of investigation, by any such third party that such third
party may now have or may hereafter come to have against the
Company based upon or arising out of any non-competition
agreement, invention, or secrecy agreement between you and
such third party that was in existence as of the date of this
Agreement.
Complete This Agreement is not a promise of future employment. You
Agreements have no oral representations, understandings, or agreements
with the Company or any of its officers, directors, or
representatives covering the same subject matter as this
Agreement. This written Agreement is the final, complete, and
exclusive statement and expression of the agreement between
the Company and you with respect to all the terms of this
Agreement, and it
Amended Services Agreement with Jonathan J. Ledecky Page 11 of 12
<PAGE>
cannot be varied, contradicted, or supplemented by evidence
of any prior or contemporaneous oral or written agreements.
This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the
Company and you, and no term of this Agreement may be waived
except by writing signed by the party waiving the benefit of
such term.
Notice Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
Attention: General Counsel
To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three days after
the deposit in the U.S. mail of a writing addressed as above
and sent first class mail, certified, return receipt
requested, or when actually received. Either party may change
the address for notice by notifying the other party of such
change in accordance with this Notice provision.
Severability If any portion of this Agreement is held invalid or
inoperative, the other portions of this Agreement shall be
deemed valid and operative and, so far as is reasonable and
possible, effect shall be given to the intent manifested by
the portion held invalid or inoperative. This severability
provision shall be in addition to, and not in place of, the
comparable provisions in the No Competition provision.
Governing Law This Agreement shall in all respects be construed according
to the laws of the State of Delaware, other than those
relating to conflicts of laws. Any decision as to breaches of
this Agreement or any provision herein shall be made pursuant
to a final, nonappealable decision of a court.
Binding Effect This Agreement binds and benefits the Company and each of the
and Assignment Spincos, each of their respective successors or assigns, and
your heirs and the personal representatives of your estate.
Without the Company's prior written consent, you may not
assign or delegate this Agreement or any or
Amended Services Agreement with Jonathan J. Ledecky Page 12 of 12
<PAGE>
all rights, duties, obligations, or interests under it. You
specifically agree that the Company may assign its rights
under No Competition, in whole or in part, to each Spinco
with respect to such Spinco's business.
Superseding Contingent upon the Closing and effective only in that event,
Effect this Agreement supersedes any prior oral or written
employment or severance agreements between you and the
Company (including specifically your 1997 Agreement
(including but not limited to its Change of Control
provisions) but specifically excluding your options to
purchase Company stock). Contingent upon the Closing and
effective only in that event, the 1997 Agreement will
terminate as of the Closing Date. Except as set forth above,
this Agreement supersedes all prior or contemporaneous
negotiations, commitments, agreements, and writings with
respect to the subject matter of this Agreement. All such
other negotiations, commitments, agreements, and writings
will have no further force or effect; and the parties to any
such other negotiation, commitment, agreement, or writing
will have no further rights or obligations thereunder.
Negotiated You agree that you have consulted with counsel of your own
Agreement selection and have negotiated the terms of this Agreement
with the Company. You and the Company agree that this
Agreement should not be construed against either party as the
"drafter."
U.S. OFFICE PRODUCTS COMPANY
Date: By: /s/ Thomas Morgan
-------------------- -----------------------------------
Thomas Morgan
President and Chief Executive Officer
I agree to and accept these terms:
Date: /s/ Jonathan J. Ledecky
-------------------- -----------------------------------
Jonathan J. Ledecky
Amended Services Agreement with Jonathan J. Ledecky Page 13 of 12
<PAGE>
FORM OF SOFTWARE SOURCE CODE LICENSE AGREEMENT
THIS SOFTWARE SOURCE CODE LICENSE AGREEMENT ("License Agreement"), made
this ___ day of ________, 1998, between DATA BUSINESS FORMS, LTD., a Canadian
corporation ("Licensor"), and U.S. OFFICE PRODUCTS COMPANY, a Delaware
corporation ("Licensee");
W I T N E S S E T H:
For and in consideration of the mutual promises and covenants set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Definitions
The following definitions apply to this License Agreement:
(a) "Software" means the computer program owned by Licensor or a
subsidiary or affiliate of Licensor known as "Imagenet Document Manager".
(b) "Source Code" means all or any part of the program listings used by
Licensor or any subsidiary or affiliate of Licensor for the creation and
execution of the Software as of the date of this Agreement, as described in
Exhibit A.
(c) "Derived Applications" mean executable binaries, developed in whole
or in part by Licensee from the Source Code.
(d) "Derived Applications Source Code" means all or any part of the
program listing and other source materials for Derived Applications which are
created or derived in whole or in part from the Software, the Source Code, any
Derived Application or any other Derived Applications Source Code.
2. License
(a) Subject to the terms and conditions of this License Agreement,
Licensor grants Licensee a non-transferable, nonexclusive license to use the
Source Code for the sole purpose of developing and creating Derived
Applications. Licensee shall hold and keep the Source Code in strictest
confidence and disclose the Source Code to, and permit its use by, only those of
its employees who (i) need to know and use the Source Code for such purpose, and
(ii) have been informed of and agreed to the restrictions on disclosure and use
of the Source Code contained in this License Agreement.
(b) Licensee shall own only the magnetic or other physical media on
which the Source Code is recorded or fixed. Licensor retains all ownership
rights in and to the Source Code and all copies of the Source Code, regardless
of the form or media in or on which the original and such copies may
subsequently exist. This license is not a sale of the Source Code or any copy
thereof. Licensee acknowledges and agrees that it has no license or other
rights, pursuant to this License Agreement or otherwise in or to the Software or
(except as specifically provided in this License Agreement) the Source Code.
<PAGE>
(c) Licensor has no obligation to provide to Licensee any revised,
enhanced, improved, or updated versions of the Source Code. Licensee agrees to
return to Licensor (or, at Licensor's direction, destroy) the original and all
existing copies of the Source Code after receiving notice of Licensor's
termination of this License Agreement.
(d) Unless earlier terminated by Licensor in accordance with its terms,
this License Agreement shall be deemed effective from the date Licensee receives
all or any part of the Source Code and shall continue for so long as Licensee or
any successor of Licensee continues to use or possess the Source Code and/or any
Derived Applications.
3. Restrictions on Use and Disclosure
(a) Licensee shall use the Source Code for the purpose set forth in
paragraph 2(a) above and for no other purpose, and shall at all times take all
necessary steps to protect the Source Code and Derived Applications Source Code
from distribution, theft or use contrary to the terms of this License Agreement.
In extension, and not limitation, of this obligation:
(i) Licensee shall protect and safeguard the Source Code and
Derived Applications Source Code in the same manner and to at least the same
extent as Licensee protects and safeguards its own proprietary trade secret
information, and take all additional measures and precautions requested by
Licensor to maintain the secrecy of the Source Code and Derived Applications
Source Code;
(ii) Licensee shall disseminate the Source Code within
Licensee's organization only on a "need to know" basis, and only to the extent
required for the permitted use of the Source Code specified in paragraph 2(a);
(iii) Licensee shall not disclose all or any part of the
Source Code or any Derived Applications Source Code to any subsidiary or parent
company or other affiliate of Licensee, or to any customer or potential
customer, or to any other third party in any manner, without first obtaining the
specific prior written consent of Licensor, which may be granted or withheld by
Licensor in its sole discretion; and
(iv) Licensee shall be fully responsible for any loss or
damage suffered by Licensor as a result of misuse or unauthorized disclosure of
all or any part of the Source Code or any Derived Applications Source Code by
Licensee or any party whose knowledge or possession of the same came from or
through Licensee.
(b) Upon receiving notice of any legal demand, request or requirement
for disclosure of all or any part of the Source Code or any Derived Applications
Source Code, Licensee shall: (i) immediately notify Licensor of the existence,
terms and circumstances of such demand, request or requirements; (ii) consult
with Licensor on the advisability of taking legally available steps to resist or
narrow such demand, request or requirement; and (iii) assist Licensor in taking
any such steps Licensor deems to be advisable. If any Source Code or Derived
Applications Source Code must be disclosed as a result of any such demand,
request or requirement, Licensee shall disclose only that portion of the same
which it is advised by qualified legal counsel is legally required to be
disclosed, and exert its best efforts to obtain written assurance acceptable to
Licensor that confidential treatment will be accorded to the Source Code or
Derived Applications Source Code disclosed.
2
<PAGE>
(c) For a period of 30 months following the date hereof, Licensee shall
not use or permit use of the Source Code or any Derived Applications or Derived
Applications Source Code for the sale, distribution or management of business
forms, envelopes, commercial printing or print-on-demand services (collectively,
"Restricted Purposes"). During such 30-month period, Licensee may use the Source
Code to develop Derived Applications for Restricted Purposes, but may not offer
such Derived Applications to customers or otherwise use such Derived
Applications until after such 30-month period.
(d) Licensee shall not duplicate, disassemble, decompile, or otherwise
reverse engineer, or, other than the Derived Applications, create any derivative
works from, the Source Code or Software or use or attempt to obtain any
techniques, algorithms, processes, trade secrets, or proprietary information
contained in the Source Code or Software.
(e) Licensee shall own and retain all ownership rights in and to
Derived Applications and Derived Applications Source Code, except for ownership
rights in portions of the Source Code incorporated into or made part of Derived
Applications Source Code, which shall at all times be and remain the sole
property of Licensor or the subsidiary or affiliate of Licensor owning the
Source Code. Except as aforesaid, Licensor acknowledges and agrees that it has
no license or other rights, pursuant to this License Agreement or otherwise, in
or to the Derived Applications or the Derived Applications Source Code. In no
event shall Licensee incorporate any portion of the Software or Source Code into
any Derived Application. Licensee shall ensure that all Derived Applications
Source Code and media and packaging for it bears a legend acceptable to Licensor
acknowledging use of the Source Code therein.
4. Possession and Copying
(a) Licensee agrees that the Source Code will only be displayed on, or
used on, computers under the direct control and use of Licensee as specified on
Exhibit B. Licensee agrees to keep the original and all backup copies of the
Source Code in the possession or direct control of Licensee. Any backup copies
made by Licensee shall be complete copies of the entire Source Code. Partial
duplication or copying is not permitted.
(b) Licensee agrees to place a label on the outside of the physical
media containing backup copies showing the program name and Licensor's copyright
and trademark notices, in the same form as they appear on the original Source
Code media furnished by Licensor. All originals and copies of Derived
Applications and Derived Applications Source Code shall be clearly labeled to
indicate that they were created in whole or part from the Software and that
certain portions of them are subject to Licensor's copyright and other
proprietary rights.
(c) Licensee shall (i) notify Licensor in writing of all copies made of
the Source Code and by whom held and where used, and (ii) provide to Licensor a
description of all Derived Applications and Derived Applications Source Code
created from the Source Code, or any portion thereof.
(d) Licensor shall have the right at all reasonable times to enter
Licensee's facility and interview Licensee's officers and employees, for the
purpose of verifying Licensee's compliance with this License Agreement, and
Licensee shall provide access to its facilities and personnel, and otherwise
cooperate fully with any efforts by Licensor to verify Licensee's compliance
with this License Agreement.
3
<PAGE>
5. Transfer or Reproduction
Licensee shall not sublicense, rent, lease, transfer, reproduce,
display or otherwise distribute the Source Code, or any portion thereof, except
as specifically provided in this License Agreement. Licensee may not transfer
any copy of the Source Code, or any portion thereof, to another person or entity
outside of the Licensee's immediate organization, on either a permanent or a
temporary basis. Licensee understands that unauthorized reproduction of copies
of the Source Code or unauthorized transfer of any copy of the Source Code may
subject Licensee to criminal and civil actions and liability, including, without
limitation, suit for damages, injunctive relief, and attorney fees.
6. Default
Licensor shall be entitled to immediately terminate this License
Agreement and all rights of Licensee herewith, in addition to all other rights
and remedies at law or in equity it may have, said rights and remedies being
cumulative, in the event Licensee (i) violates any provision of this License
Agreement and such violation continues for a period of ten (10) days following
the earlier of (A) Licensor providing Licensee written notice of such violation
and of Licensor's intention to terminate in the event such violation is not
remedied, or (B) Licensee or Licensee's employees having actual knowledge of
such violation, or (ii) becomes insolvent or initiates or has initiated against
it a bankruptcy or other insolvency proceeding.
7. Price and Payment
Licensee shall make payment to Licensor for the license and other
rights granted to it by this License Agreement pursuant to the fees and payment
`terms set forth on Exhibit C. In addition to license fees, Licensee shall pay
all taxes (including but not limited to, sales, use, privilege, ad valorem and
excise taxes, but excluding income taxes of Licensor) and duties paid or payable
by Licensor , however designated, levied or based on amounts payable to
Licensor, under this Agreement. Unless expressly modified in writing, all
payments hereunder shall be made in U.S. dollars and shall be payable within
thirty (30) days of the date due or receipt of any pertinent invoice. On any
invoice not paid within such thirty (30) day period, Licensee shall pay a
service charge accruing thereafter until the date of payment equal to the lesser
of (i) the rate of eighteen percent (18%) per annum, or (ii) the maximum lawful
interest rate applicable.
8. Patent/Copyright Infringement
If, as a result of any claim of infringement against any patent,
copyright, license or other property right, Licensee is prohibited from using
the Source Code, or if the Source Code becomes, or Licensor believes it is
likely to become, the subject of a claim of infringement, Licensee shall cease
use of the Source Code in its entirety and Licensor may, at Licensor's option,
either (i) procure or offer Licensee the opportunity to procure the additional
rights necessary to continue to use the Source Code for the purpose permitted by
this License Agreement; (ii) offer to replace or modify the Source Code, at
Licensor's cost and expense, so as to make it non-infringing; or (iii) terminate
this License Agreement on thirty (30) days' written notice. Licensee shall
notify Licensor promptly in writing of any claim or action of infringement of
which it has knowledge. The foregoing states the entire liability of Licensor
with respect to infringement of any copyrights, patents, licenses, trade secrets
or other property rights relating to the Source Code.
4
<PAGE>
9. Warranty Limitation and Disclaimer of Liability
Licensor has no control over the conditions under which Licensee uses
the Source Code and does not warrant the performance or results that may be
obtained by its use. Licensor shall have no obligation to correct any
deficiency. The parties understand and agree that this License Agreement does
not include any upgrades, enhancements, updates, new versions or the like of the
Source Code, or any obligation on the Licensor's part to perform any
maintenance. LICENSEE ACCEPTS THE SOURCE CODE "AS IS" AND THERE ARE NO
WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF
TITLE OR AGAINST INFRINGEMENT OF PATENT, COPYRIGHT OR OTHER RIGHTS OF THIRD
PARTIES. LICENSOR SHALL HAVE NO LIABILITY FOR SPECIAL, INDIRECT, DIRECT,
CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL DAMAGES OR FOR ANY DAMAGES WHATSOEVER
RESULTING FROM BREACH OF WARRANTY, LOSS OF USE, DATA OR PROFITS, OR FOR CLAIMS
BY THIRD PARTIES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR THE USE
OR PERFORMANCE OF THE SOFTWARE, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES. NOTWITHSTANDING ANY PROVISION IN THIS AGREEMENT TO THE
CONTRARY, IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY BREACH OF THIS AGREEMENT
OR NEGLIGENCE. Licensee shall indemnify and hold Licensor harmless against any
claims, causes of action, damages, liabilities, or demands that stem from, or
are related to, Licensee's use of the Source Code, and/or the use by Licensee or
any third parties of any Derived Applications or Derived Applications Source
Code.
10. U.S. Government Rights
If any Derived Application or Derived Applications Source Code, or any
portion thereof, is acquired by or on behalf of the U.S. Government, Licensee
shall assure that (i) it is so acquired as restricted computer software as
defined at FAR 52.227-19(a), or as commercial computer software or commercial
computer software documentation as defined at DFARS 252.227-7014(a); and (ii) it
is acquired subject to the terms of this License Agreement and to the
restrictions on use, duplication and disclosure as set forth in FAR
52.227-19(c)(1) and (2), DFARS 252.227-7202-3(a), or FAR 12.212, as applicable.
11. Notices
All communications or notices permitted or required to be given or
served under this License Agreement shall be in writing, shall be delivered to
the appropriate party's address as set forth below, and shall be deemed to have
been duly given or served if delivered in person or within three (3) days of
being deposited in the United States mail, certified mail, return receipt
requested as follows:
If to Licensor: Workflow Management, Inc.
240 Royal Palm Way
Palm Beach, Florida 33480
(561) 659-6551
Attn: Claudia S. Amlie, Esq.
Vice President and General Counsel
5
<PAGE>
If to Licensee:
--------------------
--------------------
--------------------
--------------------
12. Arbitration
Except for the right of either party to apply to a court of competent
jurisdiction for a temporary restraining order, injunction or other provisional
remedy or equitable relief to preserve the status quo or prevent irreparable
harm pending the selection and confirmation of a panel of arbitrators, any
controversy or claim arising out of or relating to this Agreement shall be
settled by arbitration in Norfolk, Virginia in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court in the City of
Norfolk, Virginia having jurisdiction thereof. Arbitration shall be conducted by
a panel of three members. Licensor and Licensee each shall select one member and
the third member, who shall be the chairman, shall be selected by agreement
between the other two members. The chairman shall be an attorney at law, and the
other members shall have a background or training in computer law, computer
science or marketing of computer products. The arbitrators shall include in any
award the prevailing party's reasonable attorneys' fees and costs, and the
prevailing party in any legal action to enforce its rights under this or any
other provision of this License Agreement shall likewise be entitled to recover
its reasonable attorney's fees and costs from the other party.
13. General Conditions
This License Agreement shall be governed by, and construed in
accordance with, the substantive laws of the Commonwealth of Virginia. Licensee
and Licensor irrevocably submit to jurisdiction in, and agree that any action
brought by Licensee arising out of this License Agreement shall be brought in,
the Circuit Court or Federal District Court, as the case may be, in Norfolk,
Virginia. The delay or failure of either party to enforce any of the provisions
of this License Agreement shall not be construed to be a waiver of any right of
that party. The termination of this License Agreement shall not affect the
provisions of this License Agreement, which by their terms and meaning are of a
continuing nature. This License Agreement sets forth the entire understanding
and agreement between Licensor and Licensee with respect to its subject matter
and merges any and all prior oral or written communications and agreements
between them with respect to the Source Code. If any provision of this License
Agreement shall be held illegal, invalid, or unenforceable, the remaining
provisions shall remain in full force and effect. Licensee may not assign or
transfer any of its rights or obligations under this License Agreement without
the express written consent of Licensor. This License Agreement shall be binding
upon and inure to the benefit of Licensor and Licensee and their respective
successors and permitted assigns. The paragraph headings in this License
Agreement are for convenience only, form no part of this License Agreement, and
do not affect its interpretation.
6
<PAGE>
WITNESS the following signatures, thereunto duly authorized:
LICENSOR:
WORKFLOW MANAGEMENT, INC.,
a Delaware corporation
By:
-----------------------------------------
Its:
LICENSEE:
U.S. OFFICE PRODUCTS COMPANY,
a Delaware corporation
By:
-----------------------------------------
Its:
7
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION
OF INCORPORATION OR
NAME ORGANIZATION
---------------------------------- ------------------------------
<S> <C> <C>
1. SFI of Delaware, LLC Delaware
2. United Envelope, LLC Delaware
3. Data Business Forms Limited Canada
4. Hano Document Printers, Inc. Virginia
5. Huxley Envelope Corp. New York
6. Pocono Envelope Corp. Pennsylvania
7. Rex Envelope Co., Inc. New York
8. Astrid Offset Corp. New York
9. 3303471 Canada Limited Canada
10. 1186202 Ontario Limited Canada
11. SFI of Puerto Rico, Inc. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 10, 1998 (except
for Note 1 and the last paragraph of Note 3 which are as of May 14, 1998),
relating to the financial statements of Workflow Management, Inc. at April 30,
1996 and April 26, 1997 and for the year ended December 31, 1995, the four
months ended April 30, 1996 and the fiscal year ended April 26, 1997, which
appears in such Prospectus. We also consent to the application of such report to
the Financial Statement Schedule for the year ended April 30, 1995, the four
month period ended April 30, 1996 and the year ended April 26, 1997 listed as
Exhibit 99.1 of this Registration Statement when such schedule is read in
conjunction with the financial statements referred to in our report. The audits
referred to in such report also included this schedule. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Minneapolis, MN
June 3, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Workflow Management, Inc.:
The audit referred to in our report dated February 17, 1998, included the
related financial statement schedule for the year ended December 31, 1994,
included in the registration statement. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit. In our opinion,
based on our audit and the report of other auditors, such financial statement
schedule, when considered in relation to the basic consolidated statements of
income, stockholders' equity and cash flows taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to the use of our reports included herein, with respect to the
consolidated statements of income, stockholders' equity and cash flows of
Workflow Management, Inc. and subsidiaries for the year ended December 31, 1994
and the related financial statement schedule and to the reference to our firm
under the heading "Experts" included herein.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
June 3, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Workflow Management, Inc. of our report
dated March 6, 1996, relating to the combined financial statements of United
Envelope Co., Inc. and its affiliate Rex Envelope Co., Inc., and our report
dated March 4, 1996 relating to the financial statements of Huxley Envelope
Corporation, which reports appear in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedule for the two years
ended December 31, 1995 listed as Exhibit 99.1 of this Registration Statement
when such schedule is read in conjunction with the financial statements referred
to in our report. The audits referred to in such report also include this
schedule. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
HERTZ, HERSON & COMPANY, LLP
New York, New York
June 3, 1998
<PAGE>
EXHIBIT 23.5
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Workflow Management, Inc.:
We consent to the use of our report included herein, with respect to the
balance sheet of Hano Document Printers, Inc. as of December 31, 1995 and the
related statements of income, stockholders' equity and cash flows for the year
then ended and to the reference to our firm under the heading "Experts" included
herein.
KPMG PEAT MARWICK LLP
Norfolk, Virginia
June 3, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 6, 1998,
relating to the financial statements of Astrid Offset Corporation which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Minneapolis, MN
June 3, 1998
