<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 4, 1998.
REGISTRATION NO. 333-53411
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
PRE-EFFECTIVE
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
OFFICE CENTRE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 5112 04-3341936
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------
38 EAST 32ND STREET
4TH FLOOR
NEW YORK, NEW YORK 10016
(212) 779-6700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
------------------
ROBERT J. GILLON, JR.
CHIEF EXECUTIVE OFFICER
OFFICE CENTRE CORPORATION
38 EAST 32ND STREET
4TH FLOOR
NEW YORK, NEW YORK 10016
(212) 779-6700
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies to:
<TABLE>
<S> <C>
Floyd I. Wittlin, Esq. John A. Good, Esq.
Richards & O'Neil, LLP Baker, Donelson, Bearman & Caldwell
885 Third Avenue 2000 First Tennessee Building, 20th Floor
New York, New York 10022-4802 Memphis, Tennessee 38103
(212) 207-1200 (901) 526-2000
</TABLE>
------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
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, 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 same 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. [ ]
------------------
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 OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED AUGUST 4, 1998
PROSPECTUS
4,000,000 SHARES
[OFFICE CENTRE LOGO]
COMMON STOCK
------------------
Of the 4,000,000 shares of common stock, par value $.001 per share (the
"Common Stock"), of Office Centre Corporation (the "Company") being offered
hereby (the "Offering"), 3,575,000 shares are being offered by the Company and
425,000 shares are being offered by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price per
share will be between $10 and $12. For factors considered in determining the
initial public offering price, see "Underwriting." The Common Stock has been
approved for quotation on The Nasdaq Stock Market's National Market (the "Nasdaq
National Market") under the symbol "OCCI."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
------------------
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 PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share..................
- ---------------------------------------------------------------------------------------------------------------------------
Total(4)...................
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</TABLE>
(1) See "Underwriting" for a description of the indemnification arrangements
with the Underwriters.
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $ .
(3) Before deducting expenses of the Offering payable by the Selling
Shareholders estimated to be $ .
(4) The Company and one of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 600,000 additional shares of
Common Stock solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts,
Proceeds to the Company and Proceeds to Selling Stockholders will be
$ , $ , $ , and $ , respectively. See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if issued to and accepted by them,
and subject to the Underwriters' right to withdraw, cancel, or modify such Offer
and reject any order in whole or in part. It is expected that delivery of the
shares of Common Stock will be made on or about , 1998.
MORGAN KEEGAN & COMPANY, INC.
MCDONALD & COMPANY SECURITIES, INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
[A MAP OF THE UNITED STATES WITH THE OFFICE CENTRE LOGO IN THE MIDDLE,
CONTAINING STARS AND DOTS SHOWING THE COMPANY'S CENTRES AND SATELLITES
AND A SQUARE SHOWING THE HEADQUARTERS OF THE COMPANY'S BUYING GROUP,
WITH PICTURES OF A COMPUTER, AN OFFICE CENTRE DELIVERY TRUCK,
AN EMPLOYEE HOLDING A BOX OF SUPPLIES, AND A CERTAIN STOCK ITEM.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES OF COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SHARES OF COMMON
STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent accountants.
<PAGE> 4
PROSPECTUS SUMMARY
Simultaneously with and conditioned on the closing of the Offering, Office
Centre Corporation will acquire in separate transactions (the "Acquisitions") in
exchange for cash and shares of Common Stock, twelve commercial office products
businesses (collectively, the "Founding Companies"). Unless otherwise indicated,
all references herein to the "Company" mean Office Centre Corporation after
consummation of the Acquisitions and include the Founding Companies, and
references herein to "Office Centre Corporation" shall mean Office Centre
Corporation and its wholly-owned subsidiary prior to consummation of the
Acquisitions.
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus, including the information set forth under "Risk Factors" and in the
financial statements, including the notes thereto. Unless otherwise indicated,
all share (including the number of options granted at the time of the Offering
and shares issued in connection with the Acquisitions), per share and financial
information set forth herein has been adjusted to give effect to (i) a one-for-
3.36 reverse stock split effective as of the closing of the Offering (the
"Reverse Split"), and (ii) the Acquisitions and assumes an initial public
offering price of $11 per share, the midpoint of the range set forth on the
cover page of this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of the Underwriters'
over-allotment option. In addition, all references to years, unless otherwise
noted, refer to the Company's fiscal year which ends on December 31 of each
year.
Certain statements contained in this Prospectus, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," "estimates" and words of similar import, constitute
"forward-looking statements" and involve known and unknown risks, uncertainties
and other factors set forth under "Risk Factors" and elsewhere in this
Prospectus, that may cause the actual results, performance or achievements of
the Company or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These statements appear under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in this
Prospectus. Given these uncertainties, prospective investors are cautioned not
to place undue reliance on such forward-looking statements.
THE COMPANY
Office Centre Corporation has been established for the purpose of becoming
a nationwide office products supplier that serves primarily small and
medium-sized corporate customers. The Founding Companies serve the New York
City; Los Angeles; Atlanta; Dallas/Fort Worth; Boston; Baltimore; Sacramento;
Richmond, Virginia; Grand Rapids, Michigan; and Montgomery, Alabama metropolitan
areas. Following the Acquisitions, the Company believes that it will be one of
the 20 largest office products suppliers in the United States in terms of sales.
The Company, through its wholly-owned subsidiary, UDI Corp. ("UDI"), also
operates one of the largest office products buying groups in the United States,
with approximately 1,100 office products stationers and office furniture dealers
as members. In addition to selling office supplies, the Company also sells
office furniture and technology supplies, performs and outsources printing
services and conducts limited retail operations. The Company had pro forma
revenues and operating income for the year ended December 31, 1997 of
approximately $126.8 million and $5.2 million, respectively, and for the three
months ended March 31, 1998 of approximately $33.8 million and $1.6 million,
respectively.
In 1996, the office products industry generated approximately $125 billion
in revenues, and the Company estimates that the segment supplying the small and
medium-sized corporate customer (i.e., companies with 20 to 250 employees)
represented approximately $18 billion of such revenues. Historically, the
distribution of office products to the corporate segment has been fragmented and
served by numerous stationers, most of which operated in only one metropolitan
area and had annual sales of less than $15 million. In recent years, large
consolidators have grown rapidly through acquisitions of medium and large-sized
contract stationers, which primarily serve companies with more than 250
employees.
The Company is considered a "commercial stationer," rather than a contract
stationer, and its typical customer is the 20 to 250 employee company. This
segment of the industry remains highly fragmented, as much
3
<PAGE> 5
of the consolidation in the industry has involved contract stationers. There are
approximately 3,200 independent commercial stationers with estimated aggregate
1996 sales of $18 billion. To successfully compete with other suppliers, most
commercial stationers have "partnered" with national wholesalers in order to be
more efficient with warehousing and distribution and have joined industry buying
groups such as UDI in order to offer more competitive prices and marketing
programs.
The Company has adopted an integrated operating and acquisition strategy
designed to provide superior localized service to small and medium-sized
companies, and to achieve growth internally as well as through the acquisition
of other commercial stationers.
The key elements of the Company's operating strategy are as follows:
- Focus on Serving Small and Medium-Sized Companies. The Company
believes that small and medium-sized companies will be the fastest
growing sector of the economy in the United States in terms of
revenues over the next three to five years, and that these companies
tend to be very loyal customers, generally purchasing office
products from one primary supplier. The Company believes that this
market segment is more fragmented and offers better margins than the
large company (over 250 employees) segment.
- Leverage Wholesaler Resources. The Company intends to leverage the
resources of two national wholesalers, S.P. Richards and United
Stationers, as well as regional and niche wholesalers. Such
resources include custom catalogs, electronic ordering, wrap and
label capabilities and national distribution. The Company believes
that this will allow it to (i) reduce inventory, warehousing and
distribution costs; and (ii) minimize the need to build an extensive
distribution system.
- Achieve Operating Efficiencies and Economies of Scale. The Company
will seek to achieve operating efficiencies and economies of scale
through: (i) volume purchasing of office products; (ii) combining
certain administrative functions at the corporate level; (iii)
implementing a centre/satellite strategy and eliminating redundant
facilities and services; (iv) implementing Company-wide integrated
technology and operating systems; (v) providing a Company-wide
proprietary catalog to increase advertising rebates from
manufacturers; and (vi) increasing sales volumes by broadening the
complement of products and services its stationers offer. The
Company intends to combine the buying power of UDI with that of the
Company's stationers in order to obtain more favorable prices and
rebates, which office product manufacturers and wholesalers have
historically offered only to high volume purchasers.
- Capitalize on Private Brand Image. The Company has developed a
private brand image program that includes Office Centre brand
products, retail store signage, proprietary catalogs and a web site.
The Company believes this three-year old program enhances its name
recognition with commercial stationers and customers and offers a
significant profit opportunity.
- Operate with Decentralized Management. The Company intends to
operate with decentralized management, and has entered into
long-term employment contracts with senior management employees at
each of the Founding Companies and intends to continue to enter into
such contracts in connection with future acquisitions. Under the
Company's "centre and satellite" strategy, experienced local
management will make decisions relating to the day-to-day operations
of a particular centre and its related satellites and will be
responsible for the profitability and growth of that operation. The
Company believes that the operating autonomy provided by this
decentralized structure, together with the implementation of
reporting systems and financial controls at the corporate level,
will enable it to combine the superior customer service and
responsiveness of a locally-oriented stationer with the resources
and economies of scale of a large company.
The Company will face several risks in implementing its operating strategy.
First, the Founding Companies have been operated independently and there can be
no assurance that the Company will be able to successfully integrate their
businesses on a profitable basis. Second, the Company may experience
unanticipated delays, complications or expenses in implementing, integrating and
operating its technology and operating systems at all of its locations. Third,
the Company is dependent upon S.P. Richards and United Stationers to supply it
with
4
<PAGE> 6
products and the loss of either of these two national wholesalers as a source of
product could adversely affect the Company. Fourth, some of the Founding
Companies were marginally profitable or operated at a loss during the fiscal
year ended December 31, 1997, and there can be no assurance that management of
those companies will be able to operate these locations profitably within the
Company's decentralized management structure. See "Risk Factors."
The key elements of the Company's acquisition strategy are as follows:
- Target Major Metropolitan Areas. The Company intends to expand
aggressively through acquisitions into an additional 35 major
metropolitan areas throughout the country. The Company will first
seek to make a centre acquisition in a targeted area by acquiring an
established, high quality commercial stationer with revenues of $7
million to $20 million. It will then seek to acquire additional,
smaller synergistic commercial stationers, or satellites, typically
with revenues of $5 million or less, within the metropolitan market
surrounding the centre stationers. The Company intends to
substantially integrate the operations of acquired satellites with
the centre stationers in order to leverage more effectively the
Company's distribution capabilities, thereby eliminating a
substantial portion of the operating expenses of the acquired
satellites and increasing the Company's margins.
- Leverage UDI Membership and Exclusivity Agreements. Through UDI,
the Company maintains relationships with a large network of
stationers that are potential acquisition candidates for the
Company. Ten of the Founding Companies are members of UDI. In order
to strengthen its acquisition pipeline, the Company has entered into
exclusivity agreements with approximately 60 UDI members, which the
Company believes collectively had 1997 revenues in excess of $120
million. The exclusivity agreements provide that, at the Company's
request, the acquisition candidates will engage in good faith
discussions with the Company with respect to the sale of their
respective companies and that they will not solicit offers from, or
engage in any such discussions with, any other party for a period of
six to nine months. In addition, the exclusivity agreements permit
the Company to conduct due diligence on the acquisition candidates.
- Retain Local Management and Image. The Company intends to acquire
successful commercial stationers with strong management in its
targeted centre locations. In most instances, the Company expects to
retain the management, sales personnel and name of the acquired
centre stationer. To preserve local market knowledge and customer
relationships, the Company has entered into long-term employment
contracts with senior management employees at each of the Founding
Companies and intends to continue to do so in connection with
stationers acquired in the future.
The Company will face several risks in implementing its acquisition
strategy. These risks include diversion of management's attention and resources
to acquisitions, competition among large consolidators of office products
companies to acquire independent stationers, thus possibly limiting the number
of acquisitions targets and increasing the cost of purchasing them, and the risk
that the acquired companies will not be managed profitably or successfully
integrated. Moreover, there can be no assurance that the Company will be able to
obtain the additional debt or equity financing necessary to implement its
acquisition strategy on favorable terms, if at all. See "Risk Factors."
5
<PAGE> 7
The following chart sets forth the corporate structure of the Company after
the Acquisitions:
Office Centre
- ------------------------------- Corporation -------------------------------
--------------
- ------------- ------------ ----------- ------------ -----------------
The Supply New England King Office Sierra Office Office Solutions
Room Companies Office Supply Supply, Inc. Systems and Business Products
Inc. Inc. Products, Inc. and Services, Inc
- ------------- ------------ ----------- ------------- -----------------
- ------------- ------------ ----------- ------------- -----------------
UDI Corp. Office Centre "SOS" Office Office Centre Office Express,
- ------------- Fort Worth, Inc Supply Company Georgia, Inc. Inc.
(d/b/a Greenwood -------------- (d/b/a Georgia --------------
Outfitters, BCB Impression Products
Office Products, and Southern Office
BCB Specialists and Centre)
Metro Data Supply) ------------------
-------------------
- ------------------ ------------------ --------------- -----------------
The Office Channel UDI Office Centre Art Retailers King Office Supply
Broadcasting Canada, Ltd. Together, Inc. Co., Inc.
Network, Inc. ------------------ --------------- ------------------
- ------------------
Office Centre Corporation, a Delaware corporation, was incorporated in
October 1996. Its principal executive offices are located at 38 East 32nd
Street, New York, New York 10016 and its telephone number is (212) 779-6700.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by Office Centre Corporation....... 3,575,000 shares
Common Stock offered by the Selling Stockholders........ 425,000 shares(1)
Common Stock to be outstanding after the Offering....... 8,500,000 shares(2)
Use of proceeds......................................... To pay the cash portion of the purchase
price for the Founding Companies, to repay
certain indebtedness and to pay certain
obligations due upon consummation of the
Offering and for working capital and general
corporate purposes, including possible
future acquisitions. The Company will not
receive any proceeds from the sale of shares
by the Selling Stockholders. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.................. OCCI
</TABLE>
- ---------------
(1) See "Principal and Selling Stockholders."
(2) Includes 3,354,482 shares of Common Stock to be issued in connection with
the Acquisitions. See Note 1 to the Unaudited Pro Forma Combined Financial
Statements of the Company. Excludes shares issuable upon exercise of
currently outstanding options, options to be granted upon the closing of the
Offering and options to be granted in connection with the Acquisitions. See
"Management -- Employment Agreements; Covenants Not To Compete" and
"Management -- Director Compensation," and "Business -- Current
Business -- The Acquisitions of the Founding Companies."
6
<PAGE> 8
SUMMARY COMBINED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ------------------------
PRO PRO FORMA
FORMA ------------------------
1995 1996 1997 1997(1) 1997(1) 1998(1)
------- -------- -------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF
OPERATIONS DATA:
Revenues................ $88,639 $104,151 $118,952 $ 126,846 $ 29,806 $ 33,814
Gross margin............ $27,921 $ 33,499 $ 38,667 41,035 9,994 10,948
======= ======== ========
Operating expenses...... 34,454(2) 8,331(2) 9,020(2)
Goodwill amortization... 1,419(3) 323(3) 332(3)
---------- ---------- ----------
Operating income........ 5,162 1,340 1,596
Other income (expense),
net(4)................ (79) (70) (77)
---------- ---------- ----------
Income before income
taxes................. $ 5,083 $ 1,270 $ 1,519
========== ========== ==========
Net Income(5)........... $ 2,482 $ 633 $ 779
========== ========== ==========
Net income per share
Basic and Diluted..... $ .29 $ .07 $ .09
========== ========== ==========
Shares used in computing
pro forma net income
per share(6)
Basic and Diluted..... 8,500,000 8,500,000 8,500,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
-----------------------------
PRO FORMA
PRO FORMA(7) AS ADJUSTED(8)
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
COMBINED BALANCE SHEET DATA:
Total assets(9)............................................. $97,782 $99,664
Total short-term debt....................................... 9,221 202
Total long-term debt........................................ 2,122 708
Stockholders' equity........................................ 36,982 66,886
</TABLE>
- ---------------
(1) The combined pro forma statement of operations data assume that the
Acquisitions and the Offering were consummated on January 1, 1997 and assume
the acquisition of Total Office Products by The Supply Room Companies, Inc.
on January 1, 1997. These results are not necessarily indicative of the
results the Company would have obtained had these events actually then
occurred or of the Company's future results.
(2) Adjusted to reflect the acquisition of the Founding Companies and
adjustments to salaries, bonuses and benefits of certain owners and officers
of the Founding Companies and Office Centre Corporation pursuant to
employment agreements ("Compensation Differential").
(3) Includes $1.2 million, $300,000 and $300,000 of additional goodwill
amortization attributable to the Acquisitions for the year ended December
31, 1997, and the three months ended March 31, 1997 and 1998, respectively.
(4) Includes a pro forma adjustment to reflect the elimination of interest
expense resulting from the repayment of certain debt paid from the net
proceeds of the Offering. See "Use of Proceeds."
(5) Assumes all income is subject to a corporate income tax rate of 40% and that
all goodwill amortization is nondeductible for income tax purposes.
(6) Includes (i) 1,434,155 shares outstanding prior to the Acquisitions and the
Offering; (ii) 3,354,482 shares to be issued to the stockholders of the
Founding Companies in connection with the Acquisitions; (iii) 136,363 shares
to be issued to certain consultants of the Company; and (iv) 3,575,000
shares to be issued by the Company in the Offering. Outstanding options have
no material dilutive effect.
(7) The combined pro forma balance sheet data assumes the Acquisitions were
consummated on March 31, 1998.
(8) Adjusted for the sale of 3,575,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $11 per share and the
application of the net proceeds therefrom and the repayment of certain
indebtedness. See "Use of Proceeds."
(9) Includes $47.2 million of additional goodwill attributable to the
Acquisitions.
7
<PAGE> 9
SUMMARY HISTORICAL STATEMENT OF OPERATIONS DATA
FOR THE FOUNDING COMPANIES
The following table presents summary historical statement of operations
data for the Founding Companies for each of the three most recent calendar years
and for the three months ended March 31, 1997 and 1998, respectively. Each
Founding Company has a fiscal year ending December 31, or has been converted to
a December 31 year end for purposes of the following table. Operating expenses
and operating income (loss) have not been adjusted for the Compensation
Differential, goodwill amortization, or costs associated with the Company's new
corporate management and with being a public company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operation -- Introduction."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
THE SUPPLY ROOM COMPANIES, INC. ("TSR")
Revenues.......................................... $19,950 $26,997 $29,953 $ 7,090 $7,814
Gross margin...................................... 6,534 8,258 9,175 2,404 2,575
Operating expenses(1)............................. 6,253 7,962 8,723 2,095 2,188
Operating income.................................. 281 296 452 309 387
NEW ENGLAND OFFICE SUPPLY, INC. ("NEW ENGLAND")
Revenues.......................................... $ 8,161 $11,733 $14,665 $ 3,547 $4,132
Gross margin...................................... 2,062 2,859 3,690 950 1,058
Operating expenses(1)............................. 1,823 2,662 3,373 869 850
Operating income.................................. 239 197 317 81 208
KING OFFICE SUPPLY, INC. AND SUBSIDIARY ("KING")
Revenues.......................................... $11,757 $12,443 $13,893 $ 3,481 $3,870
Gross margin...................................... 4,419 4,565 5,113 1,282 1,409
Operating expenses(1)............................. 4,131 4,341 4,736 1,165 1,240
Operating income.................................. 288 224 377 117 169
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
("SIERRA")
Revenues.......................................... $ 8,991 $11,090 $12,215 $ 2,924 $3,459
Gross margin...................................... 2,806 3,588 4,120 945 1,063
Operating expenses................................ 2,624 3,416 3,829 936 1,063
Operating income.................................. 182 172 291 9 0
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES,
INC. ("OFFICE SOLUTIONS")
Revenues.......................................... $ 5,397 $ 7,367 $10,879 $ 2,275 $3,339
Gross margin...................................... 1,459 2,105 2,908 628 883
Operating expenses................................ 1,053 1,728 2,653 646 698
Operating income (loss)........................... 406 377 255 (18) 185
GREENWOOD OUTFITTERS, INC. ("GREENWOOD")
Revenues.......................................... $ 5,915 $ 7,296 $ 8,920 $ 2,051 $2,718
Gross margin...................................... 1,889 2,490 3,035 723 980
Operating expenses................................ 1,812 2,183 2,652 582 701
Operating income.................................. 77 307 383 141 279
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
"SOS" OFFICE SUPPLY COMPANY ("SOS")
Revenues.......................................... $ 5,010 $ 5,290 $ 5,484 $ 1,334 $1,526
Gross margin...................................... 1,708 1,785 1,889 452 464
Operating expenses................................ 1,586 1,667 1,994 514 383
Operating income (loss)........................... 122 118 (105) (62) 81
GEORGIA IMPRESSION PRODUCTS, INC. ("GEORGIA
IMPRESSION")
Revenues.......................................... $ 3,467 $ 3,279 $ 3,642 $ 752 $ 836
Gross margin...................................... 725 724 993 195 252
Operating expenses................................ 630 631 811 161 153
Operating income.................................. 95 93 182 34 99
OFFICE EXPRESS, INC. ("OFFICE EXPRESS")
Revenues.......................................... $ 1,802 $ 2,313 $ 2,856 $ 703 $ 796
Gross margin...................................... 542 691 915 237 243
Operating expenses................................ 501 604 785 185 207
Operating income.................................. 41 87 130 52 36
SOUTHERN OFFICE CENTRE, INC. ("SOUTHERN OFFICE
CENTRE")
Revenues.......................................... $ 2,729 $ 2,562 $ 2,531 $ 592 $ 618
Gross margin...................................... 722 710 602 139 140
Operating expenses................................ 664 672 653 160 159
Operating income (loss)........................... 58 38 (51) (21) (19)
METRO DATA SUPPLY, INC. ("METRO DATA")
Revenues.......................................... $ 1,593 $ 1,899 $ 2,167 $ 502 $ 546
Gross margin...................................... 333 406 473 110 136
Operating expenses................................ 309 356 452 97 129
Operating income.................................. 24 50 21 13 7
BCB OFFICE PRODUCTS COMPANY AND BCB SPECIALTIES,
INC. ("BCB")
Revenues.......................................... $ 883 $ 951 $ 745 $ 201 $ 223
Gross margin...................................... 353 319 241 68 77
Operating expenses................................ 324 343 281 57 71
Operating income (loss)........................... 29 (24) (40) 11 6
</TABLE>
- ---------------
(1) Includes historical goodwill amortization.
9
<PAGE> 11
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. Prospective investors should carefully consider the specific risk factors
set forth below as well as the other information set forth in this Prospectus in
evaluating an investment in the Common Stock.
ABSENCE OF COMBINED OPERATING HISTORY
Office Centre Corporation was founded in October 1996 and has been a
holding company for UDI since May 1997. Office Centre Corporation has entered
into agreements to acquire the Founding Companies simultaneously with and
conditioned on the closing of the Offering. The Founding Companies have been
operating independently and there can be no assurance that the Company will be
able to successfully integrate these businesses on a profitable basis. The
Company's management group has been assembled only recently, and there can be no
assurance that the management group will be able to oversee the combined entity
and effectively implement the Company's operating or acquisition strategies. The
pro forma financial data included in this Prospectus cover periods during which
Office Centre Corporation and the Founding Companies were not under common
control and are not necessarily indicative of the combined results which would
have been achieved had Office Centre Corporation and the Founding Companies been
under common control during such periods. See "Business -- Current
Business -- The Acquisitions of the Founding Companies" and "Management."
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to grow significantly through the acquisition of
additional office products stationers. This strategy will entail reviewing and
potentially reorganizing acquired business operations, corporate infrastructure
and systems and financial controls. Acquisitions may involve a number of special
risks, including adverse short-term effects on the Company's reported operating
results, diversion of management's attention and resources to acquisitions,
dependence on retention, hiring and training of key personnel, the possible loss
of acquired customer bases, possible adverse effects on earnings resulting from
amortization of goodwill created in purchase transactions and the risks
associated with the past operations and other unanticipated problems arising in
the acquired companies, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The success of the Company's acquisition strategy will depend on the extent to
which it is able to identify, acquire, profitably manage and successfully
integrate additional companies, and there can be no assurance that the Company's
strategy will succeed. There also can be no assurance that the Company will seek
to acquire, or that it will be successful in acquiring, any of the acquisition
candidates who have entered into exclusivity agreements with the Company. In
addition, there can be no assurance that companies acquired in the future will
achieve sales and profitability that justify the Company's investment in them.
The Company believes that during the next few years competing sellers of office
products will continue the recent trend of consolidation. The Company believes
there is likely to be significant competition among the large consolidators of
office products companies to acquire independent stationers, which could limit
the Company's ability to locate suitable acquisition targets and could increase
the cost of purchasing such acquisition targets. See "-- Substantial
Competition," "Industry Overview," "Business -- Acquisition Strategy," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Historical Combined Operating Data -- Combined Liquidity and
Capital Resources."
RISKS RELATED TO ACQUISITION FINANCING
The Company currently intends to finance possible future acquisitions using
a combination of cash and shares of Common Stock. The Company will need
additional debt or equity financing in order to implement fully its acquisition
strategy. There can be no assurance that the Company will be able to obtain such
financing if and when it is needed or that, if available, such financing will be
available on terms the Company deems acceptable. If the Company does not have
sufficient cash resources, the Common Stock does not maintain sufficient value,
or potential acquisition candidates are unwilling to accept the Common Stock as
part of the consideration for the sale of their businesses, the Company may be
unable to implement its acquisition strategy. The Company has obtained a $35
million revolving credit facility from First Union National Bank ("First Union")
secured by substantially all assets of the Company, including receivables and
inventory. The facility is available for
10
<PAGE> 12
acquisitions, refinancing of existing indebtedness, working capital and other
general corporate purposes. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Historical Combined
Operating Data -- Combined Liquidity and Capital Resources" and "Business --
Acquisition Strategy."
PRIOR OPERATING LOSSES OF CERTAIN FOUNDING COMPANIES
Certain of the Founding Companies incurred losses or were marginally
profitable during 1996, 1997 and for the three months ended March 31, 1998.
Future losses at any of the Founding Companies or at other companies acquired by
the Company in the future could have an adverse effect on the results of
operations, cash flows and financial condition of the Company. The Company's
prospects for increased revenue and profitability are dependent upon the
successful implementation of its operating and acquisition strategies. There can
be no assurance that these strategies will be implemented successfully, that the
Company's revenues will increase or that the Company will be operated
profitably.
GEOGRAPHIC CONCENTRATION
Commercial stationers generally serve customers located in the geographic
areas surrounding their facilities. For the year ended December 31, 1997,
approximately 23.6%, 11.5%, 10.9% and 9.5% of the Company's pro forma combined
revenues were attributable to TSR (located in Richmond, Virginia), New England
(located in Boston, Massachusetts), King (located in New York City) and Sierra
(located in Sacramento, California), respectively. For the three months ended
March 31, 1998, approximately 23.1%, 12.3%, 11.4% and 10.2% of the Company's pro
forma combined revenues were attributable to TSR, New England, King and Sierra,
respectively. As a result of the concentration of more than one-half of the
Company's pro forma revenues in four geographic areas, any significant economic
downturn in the Richmond, Boston, New York or Sacramento markets generally, or
any significant economic downturn in these markets that affects small and
mid-sized companies in particular, could have a material adverse effect on the
Company. See "Business -- Geographic Concentration."
POTENTIAL FOR NEGATIVE IMPACT ON UDI MEMBERSHIP
If the Company acquires commercial stationers that serve the same markets
as those served by members of UDI, certain UDI members may withdraw from UDI due
to this competition. Such withdrawals could adversely affect the revenues of
UDI.
DEPENDENCE ON TWO NATIONAL WHOLESALERS
The operations of the Company depend to a great degree on two national
wholesalers, S.P. Richards and United Stationers. For the fiscal year ended
December 31, 1997, these two national wholesalers accounted for approximately
60% of the products purchased by the Founding Companies. Although alternative
wholesalers may exist for products distributed by the Company, the loss of
either of the two national wholesalers as a source of product could have a
material adverse effect on the Company. See "Business -- Operating Strategy."
DEPENDENCE ON IMPLEMENTATION AND OPERATION OF SYSTEMS
The Company believes that the successful implementation of its technology
and operating systems at additional locations will enhance customer service,
improve inventory management and increase the speed and accuracy of order
fulfillment at such locations. However, the Company may experience unanticipated
delays, complications or expenses in implementing, integrating and operating
these systems, which could have a material adverse effect on the Company's
operations and financial performance. In addition, interruptions or disruptions
in system operations could adversely affect operations and financial performance
at some or all locations. Although the Company believes that its technology and
operating systems will be adequate for its current needs, such systems will
require modification, improvement or replacement as the Company expands or as
new technologies make the Company's systems obsolete. Such modifications,
improvements or replacements may require substantial expenditures and may
interfere with operations during periods of implementation, any of which could
11
<PAGE> 13
have a material adverse effect on the Company's financial performance. See
"Business -- Operating Strategy" and "Business -- Business After Acquisitions
and the Offering."
SUBSTANTIAL COMPETITION
The office products industry is highly competitive. The Company competes
with small commercial office products stationers who sell to customers in a
limited geographic area and several large retailers, mail order companies and
contract stationers, a number of which have greater financial resources than the
Company. In addition, the Company intends to enter new markets by acquiring
existing commercial stationers and expects that one or more of these competitors
will have a presence in each of these new markets. As a result of this
competition, the Company may lose customers or have difficulty in acquiring new
customers. In addition, the Company's revenues and/or margins may decline as a
result of lower pricing in response to competitive pressures on pricing of
products. Moreover, UDI competes with other industry buying groups for members.
See "Business -- Competition."
The Company may compete with the large consolidators of office products
companies to acquire independent stationers, which could lead to higher prices
being paid for such stationers. See "-- Risks Related to the Company's
Acquisition Strategy" and "Business -- Acquisition Strategy."
ABSENCE OF OR CHANGE IN CONTRACTUAL RELATIONSHIPS WITH CUSTOMERS
Companies in the office products industry generally do not enter into sales
contracts with their customers requiring them to make any specific volume of
purchases over any specific term. Instead, sales are generally made pursuant to
purchase orders or similar documentation with respect to specific sales. As a
result of these practices, the Company's customers generally have the right to
terminate their relationships with the Company without penalty and with little
or no notice. Accordingly, a customer from which the Company generates
substantial revenue in one period may not be a substantial customer in a
subsequent period. If the Company's customers elect to reduce or cease purchases
from the Company, the Company could experience a material adverse effect on its
business, financial condition or results of operations. Two of the Founding
Companies are currently certified as women-owned and/or minority-owned small
businesses. These Founding Companies are required to notify certain customers
that are state agencies and other customers of any changes in ownership or
control. Such customers could elect to reduce or cease purchases from these
Founding Companies after the consummation of the Acquisitions based on the loss
of their women-owned or minority-owned status. See "Business -- Customers."
ACQUISITION PRICE FOR FOUNDING COMPANIES EXCEEDS ASSET VALUE
Valuations of the Founding Companies have not been established by
independent appraisals, but, other than with respect to King, have been
determined through arm's-length negotiations between representatives of Office
Centre Corporation and representatives of the Founding Companies. The
consideration being paid for each of the Founding Companies, including Founding
Companies whose stockholders will become affiliates of the Company upon
consummation of the Offering, is based primarily on the value of such Founding
Company as a going concern and not on the value of the acquired assets. The
purchase price for King was not determined by arm's length negotiations but was
determined using a valuation methodology consistent with that used in setting
the purchase price for the four largest Acquisitions besides King. No assurance
can be given that the future performance of the Founding Companies will be
commensurate with the consideration to be paid to acquire the Founding Companies
or the price of the Common Stock offered hereby. See "Business -- Current
Business -- The Acquisitions of the Founding Companies" and "Certain
Transactions." See "Business -- Current Business -- The Acquisitions of the
Founding Companies" for a discussion of the principles followed in determining
the consideration being paid for each Founding Company.
EFFECT OF GOODWILL AMORTIZATION ON NET INCOME
The Company's balance sheet immediately following the Offering and
consummation of the Acquisitions of the Founding Companies will include an
amount designated as "goodwill" that represents, on a pro forma
12
<PAGE> 14
combined basis, 49.2% of assets and 73.3% of stockholders' equity at March 31,
1998. Goodwill arises when an acquirer pays more for a business than the fair
value of the tangible and separately measurable intangible net assets. Generally
accepted accounting principles require that this and all other intangible assets
be amortized over the period benefited. Management has determined that period to
be no less than 40 years.
If management were not to separately recognize a material intangible asset
having a benefit period less than 40 years, or were not to give effect to
shorter benefit periods of factors giving rise to a material portion of the
goodwill, earnings reported in periods immediately following the acquisition
would be overstated. In later years, the Company would be burdened by a
continuing charge against earnings without the associated benefit to income
valued by management in arriving at the consideration paid for the business.
Earnings in later years also could be significantly affected if management
determined then that the remaining balance of goodwill was impaired.
Management has reviewed with its independent accountants all of the factors
and related future cash flows which it considered in arriving at the amount
incurred to acquire each of the Founding Companies. Management concluded that
the anticipated future cash flows associated with intangible assets recognized
in the Acquisitions will continue for 40 years and there is no persuasive
evidence that any material portion will dissipate over a period shorter than 40
years.
The amount of goodwill amortized in a particular period is reported as an
expense that reduces the Company's net income for that period. The amount
amortized, however, may not give rise to a deduction for tax purposes. In
addition, the Company will be required to amortize the goodwill, if any, from
future acquisitions. A reduction in net income resulting from the amortization
of goodwill may have an adverse impact upon the market price of the Company's
Common Stock. The Company plans to amortize goodwill associated with the
acquisitions of the Founding Companies over a period of 40 years. The Company
plans to evaluate continually whether events or circumstances have occurred that
may warrant revisions to the remaining useful life of goodwill, and any
shortening of such useful life may have a material adverse effect on the
Company's results of operations.
PROCEEDS OF OFFERING PAYABLE FOR EXISTING OBLIGATIONS AND TO AFFILIATES
Approximately $17.1 million of the net proceeds of the Offering will be
used to pay the cash portion of the purchase price for the Founding Companies.
Approximately $2.0 million of such amount will be paid to Yancey S. Jones, a
director of the Company, and/or M. Addison Jones, the brother of Yancey Jones,
both of whom are principal stockholders of one of the Founding Companies. Under
the merger agreement for the Acquisition of TSR, Office Centre Corporation may
substitute $1 million of cash consideration for $1 million of Common Stock
valued at the initial public offering price per share otherwise deliverable in
connection with such Acquisition. If this election is made, the amount of the
proceeds of the Offering paid to Mr. Yancey Jones and Mr. M. Addison Jones, in
the aggregate, will increase by $1 million. Approximately $1 million of such
amount will be paid to Robert J. Gillon, Jr., the Chairman, Chief Executive
Officer and President of the Company and a principal stockholder of one of the
Founding Companies. Approximately $7.8 million of the net proceeds of the
Offering will be used to repay debt of the Founding Companies, approximately
$1.7 million of which will be used to repay debt that is payable to, or
guaranteed by, shareholders of the Founding Company who are executive officers
and/or directors of Office Centre Corporation or members of their immediate
families. Approximately $8.0 million of the net proceeds of the Offering will be
used to repay debt of Office Centre Corporation. Approximately $4.3 million of
the net proceeds of the Offering will be received by the Selling Stockholders,
who together own approximately 91.2% of the Common Stock (prior to the
consummation of the Acquisitions and the Offering). Approximately $425,000 and
$587,500 of the net proceeds of the Offering will be used to pay the cash
portions of consideration for consulting services which become due upon
consummation of the Offering to (i) an affiliate of Richard T. Case, an
executive officer of the Company, and (ii) an affiliate of John D. Kaweske, a
founder of the Company, respectively. In addition to borrowings available under
the Company's credit facility with First Union, approximately $8.9 million in
cash and cash equivalents will remain available to the Company on a pro forma
basis, as adjusted for the Acquisitions and the Offering, at March 31, 1998 to
meet the Company's cash requirements following the closing of the Offering. See
"Use of Proceeds," "Business -- Current Business -- The Acquisitions of the
Founding Companies" and "Certain Transactions."
13
<PAGE> 15
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the continued efforts of Robert
J. Gillon, Jr., its Chief Executive Officer and Chairman of the Board, Joseph E.
Hajjar, its Senior Vice President, Chief Financial Officer, Treasurer and
Secretary, Mr. Case, its Senior Vice President of Corporate Development, and
senior management of the Founding Companies. Furthermore, the Company will
likely be dependent on the senior management of 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 management
employees, the Company's business could be adversely affected. The Company has
key man life insurance covering Mr. Gillon in the amount of $3 million.
CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS
Following the completion of the Offering, executive officers and directors
of the Company, and existing stockholders of the Company who are not executive
officers or directors of the Company, will beneficially own approximately 11.3%,
and 12.5%, respectively, of the then outstanding shares of Common Stock (10.8%,
and 9.7%, respectively, if the Underwriters' over-allotment option is exercised
in full). These stockholders are likely to continue to exercise substantial
control over the Company's affairs. Clifford M. Davie and a trust of Mr. Davie
(the "Davie Trust"), who, following the completion of the Offering, together
will own 6.7% of the then outstanding shares of Common Stock (6.4% if the
Underwriters' over-allotment option is exercised in full), have agreed with the
Company that following the completion of the Offering through December 31, 2002,
they will vote all shares of Common Stock owned by them in the same proportion
as all other outstanding shares of Common Stock are voted. They have irrevocably
authorized certain officers of the Company as their proxy to vote their shares
in accordance with such agreement. See "Principal and Selling
Stockholders -- Standstill Agreements with Founders."
HOLDING COMPANY STRUCTURE
The Company is a holding company, the principal assets of which are the
shares of the capital stock of its subsidiaries. As a holding company without
independent means of generating operating revenues, the Company depends on
dividends and other payments from its subsidiaries to fund its obligations and
meet its cash needs. Expenses of the Company include salaries of its executive
officers, insurance, professional fees and service of any indebtedness that may
be outstanding from time to time. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Introduction."
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
The 4,000,000 shares of Common Stock being sold in the Offering will be
freely tradeable unless acquired by affiliates of the Company. The market price
of the Common Stock could be adversely affected by the sale of substantial
amounts of Common Stock in the public market following the Offering, or the
perception that such sales could occur.
Simultaneously with the closing of the Offering, the stockholders of the
Founding Companies will receive, in the aggregate, 3,354,482 shares of Common
Stock as a portion of the consideration for their businesses, and two
consultants of Office Centre Corporation will receive, in the aggregate, 136,363
shares of Common Stock in exchange for services rendered. See
"Business -- Current Business -- The Acquisitions of the Founding Companies" and
"Certain Transactions." These shares are not being offered by this Prospectus.
Certain of the stockholders of the Founding Companies who will receive, in the
aggregate, 1,332,455 shares of Common Stock also have certain piggy-back
registration rights with respect to such shares. See "Shares Eligible for Future
Sale." Following the completion of the Offering, certain other stockholders of
Office Centre Corporation will beneficially own, in the aggregate, an additional
1,097,786 shares of Common Stock. See "Certain Transactions." None of these
4,500,000 shares were acquired in transactions registered under the Securities
Act of 1933, as amended (the "Securities Act"), and, accordingly, such shares
may not be sold except in transactions registered under the Securities Act or
pursuant to an exemption from registration, including the exemption provided by
Rule 144 ("Rule 144") under the Securities Act.
14
<PAGE> 16
The Company, all of its existing stockholders and all of the former
stockholders of the Founding Companies who will receive Common Stock in
connection with the Acquisitions, have agreed that they will not offer or sell
any shares of Common Stock for a period of 180 days (the "Lockup Period") after
the date of this Prospectus without the prior written consent of the
Underwriters, except that the Company may issue shares of Common Stock in
connection with acquisitions. Walter H. Gordenstein, Mr. Davie and the Davie
Trust have agreed with the Company that they will not sell or transfer more than
25% of the Common Stock owned by them during each six month period in the two
years following the Lockup Period. After the Lockup Period (or such longer
period to which a shareholder has agreed), such shares may be sold in accordance
with Rule 144 promulgated under the Securities Act, subject to the volume,
holding period, and other limitations of Rule 144. See "Underwriting."
Upon the consummation of the Offering, the Company will have outstanding
options to purchase 1,124,600 shares of Common Stock, of which 824,600 will be
exercisable at the initial public offering price per share, and 300,000 of which
will be exercisable at $9.12 per share. The Company has granted or is committed
to grant 560,000 of these options to current employees of Office Centre
Corporation and UDI and is committed to grant 40,000 of these options to
independent directors of Office Centre Corporation. The remaining 524,600
options will be granted to certain employees of the Founding Companies who will
become employees of the Company upon consummation of the Acquisitions. The
Company expects to file a registration statement on Form S-8 under the
Securities Act to register 1,500,000 shares of Common Stock issuable upon
exercise of options to be granted under the Company's 1998 Stock Option Plan.
Accordingly, such shares will be freely tradeable by holders who are not
affiliates of the Company and, subject to the volume and manner of sale
limitations of Rule 144, by holders who are affiliates of the Company.
The effect, if any, of the availability for sale, or sale, of the shares of
Common Stock available for future sale on the market price of the Common Stock
prevailing from time to time is unpredictable, and no assurance can be given
that the effect will not be adverse.
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined by
negotiations between the Company and the Underwriters and may bear no relation
to the market price for the Common Stock after the Offering. (See "Underwriting"
for factors considered in determining the initial public offering price.) There
can be no assurance that the price so determined is representative of the
current or future market value of the Common Stock offered hereby. Although the
Common Stock has been approved for quotation on the Nasdaq National Market,
there can be no assurance that an active public market for the Common Stock will
develop or continue after the Offering. The market price of the Common Stock
after the Offering may be subject to significant fluctuations from time to time
in response to numerous factors, including the depth and liquidity of the market
for the Common Stock, variations in the reported financial results of the
Company, investor perception of the Company, and changes in conditions in the
economy in general and the office products industry in particular.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the net tangible book value of their shares of $8.90 per
share. After giving effect to the Acquisitions of the Founding Companies, the
total consideration paid to the Company by its existing stockholders (which
consideration represents the combined stockholders' equity before the Offering,
adjusted to reflect the payment of approximately $17.1 million in cash in
connection with the Acquisitions) will be $38.6 million. See "Dilution." In the
event the Company issues additional shares of Common Stock in the future,
including shares which may be issued in connection with possible future
acquisitions, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
The Amended and Restated Certificate of Incorporation and Amended and
Restated By-Laws of the Company contain various provisions that may discourage
future takeover attempts which the Company's stockholders may deem to be in
their best interests and perpetuating the Company's existing management. Among
other things, such provisions: (i) provide the Board of Directors with broad
discretion to issue preferred
15
<PAGE> 17
stock; (ii) provide for three year terms for the directors of the Company and
the election of such directors on a staggered basis; (iii) prohibit certain
business combinations without the affirmative vote of the holders of at least
80% of the then outstanding shares of Common Stock and at least 66% of each
series of preferred stock then outstanding; and (iv) require the approval of 80%
of all shares of Common Stock eligible to vote for any proposed amendment to the
Certificate of Incorporation or By-Laws that seeks to modify or remove the
foregoing provisions. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibit the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder," unless the
business combination is approved in a prescribed manner. Further, pursuant to
the Company's 1998 Stock Option Plan, in the event of a change in control of the
Company, all stock options and stock appreciation rights ("SARs") granted under
the Plan will automatically vest and become exercisable. These provisions could
delay or hinder the removal of incumbent directors and could discourage or make
more difficult a proposed merger, tender offer or proxy contest involving the
Company or may otherwise adversely affect the market price of the Common Stock.
See "Description of Capital Stock -- Certain Provisions of Delaware Law and the
Company's Certificate of Incorporation and By-Laws" and "Management -- 1998
Stock Option Plan."
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,575,000 shares of
Common Stock offered hereby by the Company, assuming an initial public offering
price at the midpoint of the range set forth on the cover page of this
Prospectus, after deducting underwriting discounts and other Offering expenses
(estimated to be approximately $3.5 million (excluding amounts of approximately
$5.2 million previously paid), all of which are payable by the Company), are
estimated to be approximately $35.9 million. The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders. The net proceeds
to the Company of the Offering are expected to be applied as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
Cash portion of acquisition consideration for the Founding
Companies(1).............................................. $17,110
Payment of debt of the Founding Companies(2)(3)............. 7,819
Payment of debt of Office Centre Corporation(4)............. 8,000
Cash consideration to consultants and financial
advisers(5)............................................... 1,113
Working capital and general corporate purposes, including
possible future acquisitions.............................. 1,813
-------
Total............................................. $35,855
=======
</TABLE>
- ---------------
(1) See "Business -- Current Business -- The Acquisitions of the Founding
Companies" for a discussion of the principles followed in determining the
consideration paid for each Founding Company and a description of the
aggregate consideration to be paid for each Founding Company. Includes the
cash portion of consideration for King and TSR, of which $3,026,867 will be
paid to affiliates of the Company as follows: (i) $1,000,000 to Mr. Gillon;
(ii) $1,520,150 to Mr. Yancey Jones; and (iii) $506,717 to Mr. M. Addison
Jones. Under the merger agreement for the Acquisition of TSR, Office Centre
Corporation may substitute $1 million of cash consideration for $1 million
of Common Stock otherwise deliverable in connection with such Acquisition.
If this election is made, the amount of the proceeds of the Offering paid to
Mr. Yancey Jones and Mr. M. Addison Jones, in the aggregate, will increase
by $1 million.
(2) Includes $2,710,000 and $2,374,000 of the indebtedness of TSR and King,
respectively, to be repaid from the proceeds of the Offering, of which
approximately $665,000, plus certain interest and costs, is personally
guaranteed by Mr. Gillon, $750,000 is personally guaranteed by Mr. Yancey
Jones and/or Mr. M. Addison Jones and $290,000 is payable to Mr. Yancey
Jones and/or Mr. M. Addison Jones. See "Certain Transactions."
(3) All indebtedness of the Founding Companies will be repaid by Office Centre
Corporation in connection with the Acquisitions. The terms of the material
indebtedness of the Founding Companies to be repaid from the proceeds of the
Offering are as follows: (i) as of March 31, 1998, approximately $1,589,000
was outstanding under TSR's revolving line of credit with a bank which bears
interest at the lower of LIBOR plus 3.75% or the prime rate plus 1.50% and
expires on February 28, 1999; (ii) an earnout payment of $450,000 incurred
by TSR in connection with the acquisition of Total Office Products which
bears no interest and is payable in semi-annual installments through August
2002; (iii) as of March 31, 1998, approximately $636,800 was outstanding
pursuant to New England's note to a bank, which note is payable in sixty
monthly principal payments of $12,736 and which bears interest at a rate of
1% above the prime rate and matures in May 2002; (iv) as of March 31, 1998,
approximately $1,839,800 was outstanding under King's line of credit with a
financial institution which bears annual interest of 2.5% above the prime
rate and expires in August 1998; (v) as of March 31, 1998, approximately
$290,423 was outstanding under a purchase money note payable by King in
monthly installments of $12,433, which note bears annual interest of 12% and
matures in June, 2000; and (vi) as of March 31, 1998, approximately
$1,083,800 was outstanding under Sierra's revolving line of credit with a
bank which bears interest of 7% above the prime rate for balances up to
$1,000,000 and 10% above the prime rate for balances in excess of $1,000,000
and expires in March 1999. The other indebtedness of the Founding Companies
to be repaid from the proceeds of the Offering bears interest at rates
ranging from 0% to 16% per annum, with a weighted average interest rate of
8.63% per annum. Such indebtedness would otherwise mature at various dates
from the date hereof through 2002.
(4) The Company's existing revolving credit facility with First Union allows the
Company to borrow up to a maximum of $35 million to be used for
acquisitions, refinancing of existing indebtedness, working capital and
other general corporate purposes. Borrowings under this facility bear
interest at the prime lending rate plus an applicable margin of up to .75%
or LIBOR plus an applicable margin of up to 2.5%. Borrowings under this
facility are secured by substantially all of the Company's assets.
(5) Consists of cash consideration of $587,500 payable to a consultant which is
an affiliate of a founder of the Company, cash consideration of $425,000
payable to a consultant which is an affiliate of an executive officer of the
Company and cash consideration of $100,000 payable to one of the
Underwriters. See "Certain Transactions" and "Underwriting."
Pending such uses, the net proceeds will be invested in short-term,
interest-bearing investment grade securities or government issued securities.
The Company has no agreement or letter of intent to acquire any company
other than the Founding Companies. The Company intends to finance possible
future acquisitions using a combination of cash and shares of Common Stock. The
Company will need additional debt or equity financing in order to fully
implement its acquisition strategy. There can be no assurance that the Company
will be able to obtain such financing if and when it is needed or that, if
available, such financing will be available on terms the Company deems
acceptable. See "Risk Factors -- Risks Related to Acquisition Financing."
17
<PAGE> 19
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on the Common
Stock in the foreseeable future because it intends to retain its earnings, if
any, to finance the expansion of its business and for general corporate
purposes. Any payment of future dividends will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions, covenants under existing credit facilities with respect to the
payment of dividends and other factors that the Company's Board of Directors
deems relevant. Under the Company's revolving credit facility with First Union,
the Company is prohibited from paying dividends or making distributions.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on a pro forma combined basis to reflect the Acquisitions;
and (ii) on a pro forma combined basis to reflect the Acquisitions and, as
adjusted to give effect to the sale of 3,575,000 shares of Common Stock offered
hereby by the Company, assuming an initial public offering price of $11 per
share, the midpoint of the range set forth on the cover page of this Prospectus,
and the application of the estimated net proceeds therefrom. For a description
of the adjustments, see Notes to the Unaudited Pro Forma Combined Financial Data
included elsewhere in this Prospectus. The following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical and pro forma financial statements
of the Company and the related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
------------------------
PRO FORMA
COMBINED AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligations............................................... $ 9,221 $ 202
------- -------
Long-term debt and capital lease obligations, excluding
current portion........................................... 2,122 708
------- -------
Short and long-term amounts due to stockholders of Founding
Companies and related parties............................. 17,039 --
------- -------
Stockholders' equity:
Preferred Stock, $1.00 par value, 1,000 shares authorized;
no shares outstanding.................................. -- --
Common Stock, $0.001 par value, 50,000,000 shares
authorized; 4,812,000 shares issued and outstanding pro
forma combined and 8,500,000 shares issued and
outstanding pro forma as adjusted...................... 4 9
Additional paid-in capital.................................. 37,416 67,315
Retained earnings........................................... (438) (438)
------- -------
Total stockholders' equity.................................. 36,982 66,886
------- -------
Total capitalization........................................ $65,364 $67,796
======= =======
</TABLE>
18
<PAGE> 20
DILUTION
The pro forma net tangible book value of the Company at March 31, 1998 was
($12) million or a deficit of ($2.45) per share after giving effect to the
Acquisitions. "Pro forma net tangible book value per share" is the pro forma
tangible net worth (total tangible assets less total liabilities) of the Company
divided by the number of shares of Common Stock outstanding after giving effect
to the Acquisitions. After giving effect to the sale by the Company of 3,575,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $11 per share, the midpoint of the range set forth on the cover page of
this Prospectus (after deducting underwriting discounts and commissions and
estimated Offering expenses to be paid by the Company), the pro forma net
tangible book value of the Company at March 31, 1998, was $17.9 million or $2.10
per share, representing an immediate increase in net tangible book value of
$4.55 per share to existing stockholders and an immediate dilution of $8.90 per
share to the investors purchasing the shares in the Offering ("New Investors").
The following table illustrates per share dilution to New Investors:
<TABLE>
<S> <C> <C>
Initial public offering price............................... $11.00
Pro forma net tangible book value before the Offering....... $(2.45)
Increase attributable to the sale of shares offered
hereby.................................................... 4.55
------
Pro forma net tangible book value after the Offering........ 2.10
------
Dilution in net tangible book value to New Investors........ $ 8.90
======
</TABLE>
The following table sets forth at the date of this Prospectus the number of
shares of Common Stock acquired from the Company, the total consideration to the
Company and the average price per share paid by existing stockholders,
stockholders of the Founding Companies, consultants to the Company and New
Investors, after giving effect to the Acquisitions and the Offering, based on an
assumed initial public offering price of $11 per share, the midpoint of the
range set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
SHARES ACQUIRED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER % AMOUNT % PER SHARE
--------- ----- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 1,434,155 16.9% $ 256,000(1) 0.3% $ 0.15
Stockholders of the Founding
Companies(2).......................... 3,354,482 39.5 36,899,000 47.3 11.00
Consultants to the Company.............. 136,363 1.6 1,500,000 1.9 11.00
--------- ----- ----------- -----
4,925,000 58.0 38,655,000 49.5 7.85
New Investors........................... 3,575,000 42.0 39,325,000 50.5 11.00
--------- ----- ----------- -----
Total................................... 8,500,000 100.0% $77,980,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) Based on the net tangible book value of Office Centre Corporation at March
31, 1997.
(2) Represents the number of shares of Common Stock and the related fair value
of such shares to be issued in connection with the Acquisitions, but
excludes all contingent consideration. See "Business -- Current
Business -- The Acquisitions of the Founding Companies."
19
<PAGE> 21
SELECTED COMBINED PRO FORMA FINANCIAL DATA
In May 1997, Office Centre Corporation acquired UDI Corp. and UDI II Corp.
in a stock for stock exchange. For accounting purposes, the transaction was
accounted for as a reverse acquisition with the results of UDI's operations
presented on a historical basis as the results of Office Centre Corporation. UDI
II Corp. was subsequently merged with and into UDI Corp., with UDI Corp.
remaining as the surviving entity. Office Centre Corporation will acquire the
Founding Companies simultaneously with and conditioned on the consummation of
the Offering. The Acquisitions will be accounted for under the purchase method
of accounting, whereby their assets and liabilities are recorded at their
estimated fair market value.
The following table presents selected combined pro forma statement of
operations data for the year ended December 31, 1997 and the three months ended
March 31, 1997 and 1998, and selected combined pro forma and pro forma, as
adjusted, balance sheet data as of March 31, 1998. Each Founding Company has a
fiscal year ending December 31, or has been converted to a December 31 year end
for purposes of the following table.
The combined pro forma statement of operations data assume that the
Acquisitions and the Offering were consummated on January 1, 1997 (see notes
below). The combined pro forma balance sheet data assume that the Acquisitions
were consummated on March 31, 1998 and, as adjusted, reflect the consummation of
the Offering (see notes below).
The data presented below should be read in conjunction with the pro forma
financial statements of the Company and related notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
------------ PRO FORMA
PRO FORMA ----------------------
1997(1) 1997(1) 1998(1)
------------ --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
COMBINED PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues................................................ $ 126,846 $ 29,806 $ 33,814
Cost of revenues........................................ 85,811 19,812 22,866
---------- --------- ---------
Gross margin............................................ 41,035 9,994 10,948
Operating expenses...................................... 34,454(2) 8,331(2) 9,020(2)
Goodwill amortization................................... 1,419(3) 323(3) 332(3)
---------- --------- ---------
Operating income........................................ 5,162 1,340 1,596
Other income (expense), net(4).......................... (79) (70) (77)
---------- --------- ---------
Income before income taxes.............................. $ 5,083 $ 1,270 $ 1,519
========== ========= =========
Net Income(5)........................................... $ 2,482 $ 633 $ 779
========== ========= =========
Net income per share
Basic and Diluted..................................... $ .29 $ .07 $ .09
========== ========= =========
Shares used in computing pro forma net income per
share(6)
Basic and Diluted..................................... 8,500,000 8,500,000 8,500,000
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------
PRO FORMA
PRO FORMA(7) AS ADJUSTED(8)
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
COMBINED PRO FORMA BALANCE SHEET DATA:
Total assets(9)............................................. $97,782 $99,664
Total short-term debt....................................... 9,221 202
Total long-term debt........................................ 2,122 708
Stockholders' equity........................................ 36,982 66,886
</TABLE>
20
<PAGE> 22
- ---------------
(1) The combined pro forma statement of operations data assume that the
Acquisitions and the Offering were consummated on January 1, 1997 and assume
the acquisition of Total Office Products by The Supply Room Companies, Inc.
on January 1, 1997. These results are not necessarily indicative of the
results the Company would have obtained had these events actually then
occurred or of the Company's future results.
(2) Adjusted to reflect the acquisition of the Founding Companies and the
Compensation Differential.
(3) Includes $1.2 million, $300,000 and $300,000 of additional goodwill
amortization attributable to the Acquisitions for the year ended December
31, 1997, and the three months ended March 31, 1997 and 1998, respectively.
(4) Includes a pro forma adjustment to reflect the elimination of interest
expense resulting from the repayment of certain debt paid from the net
proceeds of the Offering. See "Use of Proceeds."
(5) Assumes all income is subject to a corporate income tax rate of 40% and that
all goodwill amortization is nondeductible for income tax purposes.
(6) Includes (i) 1,434,155 shares outstanding prior to the Acquisitions and the
Offering; (ii) 3,354,482 shares to be issued to the stockholders of the
Founding Companies in connection with the Acquisitions; (iii) 136,363 shares
to be issued to certain consultants of the Company; and (iv) 3,575,000
shares to be issued by the Company in the Offering. Outstanding options have
no material dilutive effect.
(7) The combined pro forma balance sheet data assume the Acquisitions were
consummated on March 31, 1998.
(8) Adjusted for the sale of 3,575,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $11 per share and the
application of the net proceeds therefrom and the repayment of certain
indebtedness. See "Use of Proceeds."
(9) Includes $47.2 million of additional goodwill attributable to the
Acquisitions.
21
<PAGE> 23
SELECTED FINANCIAL DATA OF OFFICE CENTRE CORPORATION
The following selected financial data of Office Centre Corporation, which
has been designated as the accounting acquirer of the Founding Companies, should
be read in conjunction with the consolidated financial statements of Office
Centre Corporation and related notes thereto and other financial data included
elsewhere in this Prospectus. The financial data set forth below as of and for
each of the periods ended December 31, 1995, 1996 and 1997 have been derived
from the audited consolidated financial statements of Office Centre Corporation
included elsewhere in this Prospectus. The financial data as of and for the
periods ended December 31, 1993 and 1994 have been derived from unaudited
financial statements of Office Centre Corporation not included in this
Prospectus. The financial data as of and for the three months ended March 31,
1997 and 1998 have been derived from the unaudited consolidated financial
statements included elsewhere in this Prospectus. In May 1997, Office Centre
Corporation acquired all of the outstanding shares of UDI Corp. and UDI II Corp.
(which were subsequently merged to form UDI) in exchange for shares of Office
Centre Corporation. The transaction was accounted for as a reverse acquisition
with the results of UDI's operations presented on a historical basis as the
results of Office Centre Corporation. Accordingly, this discussion relates to
the results of UDI as the only operating unit of the registrant. These
historical results are not indicative of the results that may be expected in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- ---------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ 4,573 $ 9,825 $ 12,984 $ 10,931 $ 11,002 $ 2,786 $ 2,600
Gross margin............... 2,181 4,021 4,369 5,000 5,513 1,382 1,293
Operating costs and
expenses................. 1,496 2,877 4,262 5,189 4,981 1,092 2,226
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).... $ 685 $ 1,144 $ 107 $ (189) $ 532 $ 290 $ (933)
========= ========= ========= ========= ========= ========= =========
Net income (loss).......... $ 404 $ 658 $ 81 $ (185) $ 183 $ 156 $ (716)
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share
Basic and Diluted........ $ .30 $ .49 $ .06 $ (.14) $ .13 $ .12 $ (.50)
========= ========= ========= ========= ========= ========= =========
Shares used in computing
net income (loss) per
share Basic and
Diluted.................. 1,355,091 1,355,091 1,355,091 1,355,091 1,371,758 1,355,091 1,434,155
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------- AS OF MARCH 31,
1993 1994 1995 1996 1997 1998
--------- --------- --------- --------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficiency)............. $ 349 $ 706 $ 416 $ (25) $ (4,354) $ (5,810)
Total assets............... 6,233 17,970 19,127 19,961 25,467 24,026
Total long-term debt....... -- -- 366 189 96 96
Stockholders' equity....... 432 858 285 100 393 (58)
</TABLE>
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is qualified in its entirety by, and should be
read in conjunction with, the financial statements and related notes thereto and
other financial data appearing elsewhere in this Prospectus.
INTRODUCTION
Office Centre Corporation was founded in October 1996 for the purpose of
becoming a nationwide office products supplier that serves primarily small and
medium-sized corporate customers. Upon acquiring the Founding Companies, the
Company believes that it will be one of the largest office products suppliers in
the United States. The Company, through its wholly-owned subsidiary, UDI, also
operates one of the largest office products buying groups in the United States,
with approximately 1,100 office products stationers and office furniture dealers
as members. Revenues of the Founding Companies are derived primarily from the
sale of a wide variety of office supplies, office furniture and other office
products to small and medium-sized corporate customers. Certain of the Founding
Companies also have limited retail operations. UDI's revenues primarily consist
of membership fees, fees received for the programs offered to members and volume
rebates received from national office products wholesalers and certain
manufacturers.
Revenues from the sale of office products are recognized upon shipment of
the product to customers, at the point of sale for retail operations and upon
delivery of the service provided in the case of printing and other services. UDI
recognizes revenues ratably throughout the year as membership fees and volume
rebates are earned. Cost of revenues includes the cost of the merchandise plus
the cost of in-bound freight and direct labor and other direct costs of printing
services. In the case of UDI, the cost of revenues includes the cost of programs
provided and the portion of rebates it will pass along to buying group members
who achieve specified volume requirements. Operating costs and expenses include
warehouse and customer delivery expenses, employee salaries, wages and benefits,
sales commissions, telephone expenses, promotional expenses, depreciation and
occupancy costs.
The Founding Companies have been operated historically as independent,
privately-owned entities, and their results of operations reflect varying tax
structures, including both S and C Corporations, which have influenced the
historical level of owners' compensation. Gross profit margins and operating
costs and expenses as a percentage of revenues may not be comparable among the
individual Founding Companies. Owners of certain of the Founding Companies have
agreed to certain reductions in their compensation and benefits commencing upon
the consummation of the Offering. The Compensation Differential of $3,141,000,
$570,000 and $1,311,000 for the year ended December 31, 1997 and the three
months ended March 31, 1997 and 1998, respectively, has been reflected as a pro
forma adjustment in the Unaudited Pro Forma Combined Statements of Operations.
The Company believes that, following the Acquisitions, it will be able to
realize operating efficiencies and achieve certain synergies among the Founding
Companies. In particular, with a larger operational scale, the Company believes
that it can obtain more favorable prices and other purchasing terms on office
products through volume purchasing and through the use of a Company-wide
proprietary catalog. The Company will also seek to reduce costs over time
through the implementation of its centre and satellite strategy and by combining
certain administrative functions at the corporate level, such as cash
management, insurance, payroll processing and employee benefits, marketing and
advertising, long distance services and a variety of professional services. The
Company anticipates that these savings will be offset to some extent by costs
and expenditures related to the Company's new corporate management, corporate
expenses relating to being a public company and systems integration. These
various costs and possible cost savings may make historical operating results
not comparable to, or indicative of, future performance.
Office Centre Corporation has been designated as the accounting acquirer of
the Founding Companies. The $47.2 million excess of merger consideration over
the estimated fair value of the net assets of the Founding Companies will be
recorded as goodwill and amortized over a 40-year period. The pro forma impact
of this amortization expense, which is not deductible for tax purposes, is $1.2
million per year.
23
<PAGE> 25
HISTORICAL COMBINED OPERATING DATA
The combined revenues, cost of revenues and gross margin of the Founding
Companies for the periods presented do not represent combined results presented
in accordance with generally accepted accounting principles, but are only a
summation of the revenues, cost of revenues, and gross margin of the individual
Founding Companies on an historical basis.
The following table sets forth certain combined revenues, cost of revenues
and gross margin of the Founding Companies on a historical basis and shows such
results as a percentage of revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------------------------------
1995 1996 1997 1997 1998
--------------- ---------------- ---------------- --------------- ---------------
(IN THOUSANDS, EXCEPT PERCENT DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $88,639 100.0% $104,151 100.0% $118,952 100.0% $28,238 100.0% $32,477 100.0%
Cost of revenues.......... 60,718 68.5 70,652 67.8 80,285 67.5 18,723 66.3 21,904 67.4
------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Gross margin.............. $27,921 31.5% $ 33,499 32.2% $ 38,667 32.5% $ 9,515 33.7% $10,573 32.6%
======= ===== ======== ===== ======== ===== ======= ===== ======= =====
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues. Revenues increased 15.0% from $28.2 million for the three months
ended March 31, 1997 to $32.5 million in the three months ended March 31, 1998.
The increase primarily reflects both internal growth attributable to volume
increases for substantially all the Founding Companies and growth through
acquisitions. Most notably, revenues for Office Solutions grew by 46.8%, aided
by the full quarter impact of the acquisition of a customer list in March 1997;
revenues for Greenwood grew by 32.5%, aided by additions of new customers; and
revenues for TSR grew by 10.2%, aided by the full quarter impact of the
acquisition of a printing operation acquired in the third quarter of 1997 and
the acquisition of TOP in March 1998. Other notable increases from internal
growth were experienced by New England, King, Sierra and SOS, whose revenues
grew 16.5%, 11.2%, 18.3% and 14.4%, respectively.
Gross Margin. Gross margin increased 11.1% from $9.5 million or 33.7% of
revenues for the three months ended March 31, 1997 to $10.6 million or 32.6% of
revenues for the three months ended March 31, 1998. As a percentage of revenue,
gross margin declined by 1.1%. This includes the impact of cost increases from
the national wholesalers, which have not yet been fully reflected in the selling
prices of the Founding Companies. In addition, certain of the Founding Companies
have experienced increased revenues in technology supplies, which carry lower
margins.
Year Ended 1997 Compared to 1996
Revenues. Revenues increased 14.2% from $104.2 million in 1996 to $119.0
million in 1997. The increase primarily reflects internal growth attributable to
volume increases for substantially all the Founding Companies and growth through
acquisitions. Most notably, revenues for Office Solutions grew by 47.7% aided by
the acquisition of a customer list in March 1997, and TSR by 10.9%, aided by the
acquisition of three office products businesses in the first quarter of 1996 and
a printing operation in the third quarter of 1997. Other notable increases from
internal growth were experienced by King, Sierra and Greenwood, whose revenues
grew 11.7%, 10.1% and 22.3%, respectively.
Gross Margin. Gross margin increased 15.4%, from $33.5 million or 32.2% of
revenues for the year ended December 31, 1996 to $38.7 million or 32.5% of
revenues for 1997. The increase in gross margin is consistent with the growth in
revenues and to a lesser extent to the increase in profit margin UDI realized on
the programs it provided members.
Year Ended 1996 Compared to 1995
Revenues. Revenues increased 17.5% from $88.6 million in 1995 to $104.2
million in 1996. The increase primarily reflects internal growth attributable to
volume increases at substantially all the Founding Companies
24
<PAGE> 26
and growth through acquisitions. Most notably, revenues for TSR grew 35.3% due
in part to the full year benefit of two office products businesses acquired in
the first quarter of 1995 and three acquired in the first quarter of 1996. The
increase in revenue from the Founding Companies was offset in part by a decrease
in UDI revenues of $2.1 million. In 1995, the stipulated rebate UDI received
from the two national wholesalers was increased by 1% of member purchases as an
incentive by the wholesalers to stimulate member volume. In 1996, the rebate was
reduced to the pre-1995 levels, resulting in the decrease in UDI revenues.
Gross Margin. Gross margin increased 20.0%, from $27.9 million or 31.5% of
revenues for the year ended December 31, 1995 to $33.5 million or 32.2% of
revenues for 1996. The increase in gross margin is consistent with the growth in
revenues. The UDI rebate decrease had an insignificant impact on gross margin
since the portion of the rebate retained by UDI and not passed along to UDI
members remained consistent with the 1995 level.
Combined Liquidity and Capital Resources
The Founding Companies' principal sources of liquidity have historically
been cash flows from operating activities and, to a lesser extent, borrowings.
Approximately $17.1 million of the proceeds from the Offering will be used to
fund the cash portion of the consideration to be paid in connection with the
Acquisitions, $7.8 million will be used to repay borrowings of the Founding
Companies, and $8 million will be used to repay amounts outstanding on the
Company's First Union revolving credit facility. As of March 31, 1998, on a pro
forma combined basis, after giving effect to the application of the proceeds of
the Offering (assuming net proceeds of the Offering of $35.9 million), the
Company would have cash and cash equivalents of approximately $8.9 million,
working capital of approximately $12.2 million, no debt outstanding (excluding
capital leases) and the borrowing capacity under the First Union credit
facility. Although there can be no assurance of its ability to do so, the
Company expects to fund its future cash requirements with funds generated from
operations, from borrowed funds and from other sources.
In July 1998, the Company obtained a $35 million revolving credit facility
from First Union which replaced a prior $10 million line with First Union.
Availability under the credit facility is based on 85% of eligible accounts
receivable plus 60% of eligible inventory. Amounts outstanding bear interest at
the prime lending rate plus an applicable margin of up to .75% or LIBOR plus an
applicable margin of up to 2.5%. The Company's obligations under the credit
facility are to be guaranteed by the current and future subsidiaries of the
Company and are secured by a security interest in substantially all assets of
the Company. The First Union credit facility contains customary covenants,
including restrictions on other indebtedness, approval of acquisitions in excess
of $20 million (and certain acquisitions greater than $5 million, depending on
the percentage of the consideration paid in cash or stock), limits on capital
expenditures, restrictions on transactions with affiliates and sales of assets,
as well as various financial covenants customary for transactions of this type.
The Company paid a financing fee of $150,000 for the credit facility and pays a
commitment fee of .375% per annum on the daily average of the unused portion of
the credit facility.
The Founding Companies' capital expenditures were $1.1 million, $1.8
million, and $1.4 million for the three years ended December 31, 1995, 1996 and
1997, respectively. These capital expenditures were primarily for office
equipment, delivery vehicles, computers and facility additions and improvements.
Office Centre Corporation does not currently have any commitments to make
significant capital expenditures in the next twelve months. Office Centre
Corporation believes that funds generated from operations, together with the
proceeds from the Offering and possible future sources of borrowings will be
sufficient to finance its current operations and planned capital expenditure
requirements at least through the twelve months following the Offering. Although
Office Centre Corporation is not currently involved in negotiations and has no
current commitments with respect to any acquisitions (other than the
Acquisitions), to the extent Office Centre Corporation is successful in
consummating possible future acquisitions, it may be necessary to finance such
acquisitions through the issuance of additional equity securities, incurrence of
indebtedness or a combination of both.
25
<PAGE> 27
RESULTS OF OPERATIONS OF OFFICE CENTRE CORPORATION
In May 1997, Office Centre Corporation acquired all of the outstanding
shares of UDI Corp. and UDI II Corp. (which were subsequently merged to form
UDI) in exchange for shares of Common Stock. The transaction was accounted for
as a reverse acquisition with the results of UDI's operations presented on a
historical basis as the results of Office Centre Corporation. Accordingly, this
discussion relates to the results of UDI as the only operating unit of the
registrant.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues. Revenues declined 6.7% from $2.8 million for the three months
ended March 31, 1997 to $2.6 million in the three months ended March 31, 1998.
This decline reflects the impact of lower volume in one of the wholesaler
programs offset in part by increases in direct manufacturer volume and program
revenue derived from OffiSat.
Gross Margin. Gross margin declined 6.4% from $1.4 million or 49.6% of
revenues for the three months ended March 31, 1997 to $1.3 million or 49.7% of
revenues for the three months ended March 31, 1998. Gross margin declined
primarily as a result of decreased revenue.
Operating Costs and Expenses. Operating costs and expenses increased
103.8% from $1.1 million or 39.2% of revenues for the three months ended March
31, 1997 to $2.2 million or 85.6% in the three months ended March 31, 1998. The
increase in operating expenses is primarily attributable to $1.3 million of
costs incurred in the operation of Office Centre Corporation's corporate
functions, which were initiated in May 1997. For the three months ended March
31, 1998, the increase in operating expenses includes non-recurring cash and
stock related compensation charges for awards to certain officers and
stockholders of Office Centre Corporation totalling $732,000, accounting and
administrative functions and audit and other costs associated with becoming a
public entity. These expenses were offset in part by decreases, of $127,000, in
compensation paid to officers of UDI and reductions in other selling, general
and administrative costs.
Year Ended 1997 Compared to 1996
Revenues. Revenues for 1997 remained constant with 1996 levels, increasing
by $71,000. The mix in revenues shows increases in income from UDI's
manufacturers' rebate programs and advertising and promotional income, which
more than offset the declines in income from UDI's wholesalers' rebate programs.
Gross Margin. Gross margin increased 10.3% from $5.0 million or 45.7% of
revenues for the year ended December 31, 1996 to $5.5 million or 50.1% of
revenues for 1997. Gross profit improved as higher margins were realized from
the growth in promotional fees from UDI's catalog and flyer programs.
Operating Costs and Expenses. Operating costs and expenses declined .04%
from $5.2 million or 47.4% of revenues in 1996 to $5.0 million or 45.3% of
revenues in 1997. This decline in operating expenses was primarily attributable
to a $554,000 decrease in compensation paid to the officers of UDI and
reductions in other selling, general and administrative costs. These were offset
in part by $649,000 of costs for the start up of Office Centre Corporation's
corporate function, which began in May 1997.
Year Ended 1996 Compared to 1995
Revenues. Revenues declined 15.8% or $2.1 million in 1996 from $13.0
million in 1995 to $10.9 million in 1996. The primary reason for the overall
revenue decline was the decrease in revenues from wholesalers rebates of $3.1
million. In 1995, the stipulated rebate UDI received from the two national
wholesalers was increased by 1% of member purchases as an incentive by the
wholesalers to stimulate member volume. In 1996, the rebate percentage was
reduced to the pre-1995 levels resulting in the decrease in UDI revenues.
Gross Margin. Gross margin increased $631,000 in 1996 from $4.4 million or
33.6% of revenues in 1995 to $5.0 million or 45.7% of revenues in 1996,
resulting from increases from membership fees and other programs. The revenue
decline associated with the wholesaler program did not impact gross margin
negatively because the
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<PAGE> 28
portion of the rebate retained by UDI and not passed along to UDI members
remained consistent with the 1995 level.
Operating Costs and Expenses. Operating costs and expenses increased 21.8%
from $4.3 million or 32.8% of revenues in 1995 to $5.2 million or 47.5% of
revenues in 1996. This increase resulted primarily from sales commissions and
bonuses paid to UDI's owners.
Liquidity and Capital Resources of Office Centre Corporation
At March 31, 1998, Office Centre Corporation had a working capital deficit
of $5.8 million. The primary capital requirements have been to fund Office
Centre Corporation's working capital throughout the year. In addition, Office
Centre Corporation has expended $649,000 in 1997 and $1.3 million for the three
months ended March 31, 1998, in costs associated with operating its corporate
functions and $4.0 million in costs associated with its initial public offering
and a $1.5 million investment in TSR which was made in 1997.
Net cash provided by (used in) operating activities for 1995, 1996, and
1997 was $(453,000), $77,000, and $444,000, respectively. The cash flow from
operations is primarily a result of the net income (loss) each year, adjusted
for non-cash charges, and has been impacted by increases in accounts receivable,
including rebates due from the wholesalers, offset by increases in accounts
payable and rebates due to members.
Net cash used in investing activities in 1995, 1996, and 1997 of $30,000,
$143,000 and $1.7 million, respectively, were primarily to fund capital
expenditures and, in 1997, to make an investment in TSR as part of the overall
consideration to be paid for the acquisition of that company.
Net cash provided by (used in) financing activities for 1995, 1996 and 1997
was $255,000, ($56,000) and $745,000, respectively. In 1997 and 1996, UDI repaid
loans to former stockholders of $564,000 and $126,000, respectively, and
incurred $2.9 million and $92,000, respectively, for initial public offering
costs.
NEW ACCOUNTING PRONOUNCEMENTS
In July 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income" ("SFAS No. 130") and Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS No.
131"). SFAS No. 130, which must be adopted by the Company in 1999, establishes
standards for the reporting and display of comprehensive income and its
components in a complete set of financial statements. SFAS No. 131, which must
also be adopted by the Company in fiscal year 1999, changes the way segment
information is reported and establishes standards for related disclosures about
products and services, geographic areas, and major customers.
The Company believes that the adoption of these new standards will not have
a material impact on the Company's financial position or results of operations.
Management is currently evaluating the effect of SFAS No. 131 on consolidated
financial statement disclosures.
INFLATION
Office Centre Corporation does not believe that inflation has had a
material impact on its operations or the operations of the Founding Companies
during 1995, 1996 or 1997.
SEASONALITY
The Company's revenues are generally not impacted by seasonal influences.
Quarterly results may be materially affected by the timing of acquisitions.
YEAR 2000
The Company relies on various computer applications for the operations of
its business, which are primarily purchased or licensed from third-party vendors
and software providers. The Company has received or expects to receive the
necessary modifications from these vendors to be year 2000 compliant by the end
of 1998 or the early
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<PAGE> 29
part of 1999. The Company believes that year 2000 compliance will not materially
impact its operations or result in a material expenditure and its software
vendors will absorb substantially all of the costs of becoming year 2000
compliant. Consequently, the Company will not be required to make material
expenditures to become year 2000 compliant. King's software vendor will not
absorb the cost of King becoming year 2000 compliant, but the Company believes
that the King software will be appropriately modified to be year 2000 compliant
without any material remediation cost being incurred by the Company.
The Company places orders by means of computerized information systems with
its two largest vendors, S.P. Richards and United Stationers. If either of these
wholesalers does not become year 2000 compliant, the Company may experience
delays in placing orders with, and having orders fulfilled by, these
wholesalers. Such delays could have an adverse effect on the future operating
results and cash flows of the Company. The Company believes that if other
vendors or third parties' computerized information systems do not become year
2000 compliant, the Company will be able to secure goods and services from other
independent providers without any material adverse effect on the future
operating results or cash flows of the Company.
The Company will continue to communicate with other entities that provide
and receive data from the Company to ensure they are aware of the year 2000
issues. There can be no assurance that such other entities will become year 2000
compliant.
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<PAGE> 30
INDUSTRY OVERVIEW
In 1996, the office products industry generated approximately $125 billion
in revenues, and the Company estimates that the industry segment supplying the
small and medium-sized corporate customer represented approximately $18 billion
of such revenues. Historically, the distribution of office products has been
fragmented and served by numerous stationers, most of which operated in only one
metropolitan area and had annual sales of less than $15 million. In recent
years, large consolidators have grown rapidly through acquisitions of medium and
large-sized contract stationers, which primarily serve companies with more than
250 employees. The commercial stationer segment of the industry supplying the 20
to 250 employee companies remains highly fragmented.
There are five primary types of suppliers in the office products industry:
contract stationers, retailers, national mail order houses, warehouse clubs/mass
marketers and commercial stationers.
Contract stationers focus principally on serving companies with 250 or more
employees. The four largest contract stationers (Boise Cascade, Corporate
Express, BT Office Products and U.S. Office Products) have grown rapidly,
primarily through acquisitions of medium and large contract stationers. These
large contract stationers have been rapidly building or acquiring warehouses to
provide nationwide product distribution to their corporate customers.
The large retailers (Office Max, Staples and Office Depot) or "superstores"
have rapidly built stores that provide availability of product primarily to the
retail consumer. Initially attracting a wide variety of customers through
advertising low prices, their competitive strength is the wide variety of
products offered and extended hours of operation which make their product
readily available. This is especially important to the small office and home
office market. Staples and Office Depot have also acquired contract stationers
and they now sell to all market segments. Staples also recently acquired Quill
Corporation, one of the largest mail order companies.
While not having grown historically through acquisitions, the mail order
companies (including Viking Office Supplies and Global Directmail) nonetheless
have capitalized on the growing acceptance in the United States of ordering
items by mail. Mail order companies have built a strong following by offering
outstanding service and reliability, especially to the home office and the
individual end-user in a company.
Viking Office Supplies recently announced that it had reached a definitive
agreement to merge with Office Depot. Consummation of that merger would join one
of the largest mail order companies with one of the largest office products
retailers.
Warehouse club/mass marketers (such as WalMart, Target and K-Mart)
represent a relatively small share of the office products industry and typically
carry only 200 to 500 stock keeping units ("SKUs") of office products.
Merchandise is purchased directly from the manufacturer and shipped directly to
stores for sale to the public.
The commercial stationers' typical customer is the 20 to 250 employee
company. This segment remains highly fragmented, with approximately 3,200
independent commercial stationers with estimated aggregate 1996 sales of $18
billion. To successfully compete with other suppliers, most commercial
stationers have "partnered" with national wholesalers in order to be more
efficient with warehousing and distribution and have joined industry buying
groups such as UDI in order to offer more competitive prices and marketing
programs. The Company is considered a commercial stationer.
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<PAGE> 31
BUSINESS
CURRENT BUSINESS
UDI. The current business of Office Centre Corporation consists
exclusively of the business of its wholly-owned subsidiary, UDI. UDI operates
one of the largest office products buying groups in the United States, with
approximately 1,100 office products stationers and office furniture dealers as
members servicing the United States and parts of Canada. The buying group allows
small and medium-sized office products stationers and office furniture dealers
to combine their buying power to negotiate better purchasing terms than they
would be able to obtain individually and to participate in a rebate program with
wholesalers and manufacturers, as well as other programs with manufacturers. In
addition, UDI offers its members access to a number of marketing programs
designed to improve their operations and profitability. As a for-profit operator
of a buying group, UDI retains a fee equal to approximately 1% to 2% of its
members' qualifying annual purchases, subject to certain exceptions, as well as
certain other fees, including fees received in connection with the marketing
programs UDI offers to it members.
The Company believes that the majority of UDI's members have annual sales
of $2 million to $7 million. Aggregated revenues of UDI's members are estimated
by the Company to be approximately $3 billion. Ten of the Founding Companies are
members of UDI. The Company intends to combine the purchasing power of UDI and
the Founding Companies and, as its revenues increase, the Company believes that
it will be able to increase the discounts and rebates received. There are other
buying groups in the office products industry, and the Company may, from time to
time, seek to acquire other buying groups.
Founding Companies. Office Centre Corporation presently does not operate
any commercial office products stationers, but has entered into agreements to
acquire, simultaneously with the closing of the Offering, twelve commercial
office products businesses comprising the Founding Companies. The Founding
Companies serve the New York City; Los Angeles; Atlanta; Dallas/Fort Worth;
Boston; Baltimore; Sacramento; Richmond, Virginia; Grand Rapids, Michigan; and
Montgomery, Alabama metropolitan areas. In addition to selling office products
supplies, the Founding Companies also sell office furniture and provide printing
services and conduct limited retail operations.
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<PAGE> 32
Each of the Founding Companies is a commercial stationer principally
serving small to mid-sized companies in its local market. The following table
sets forth certain information about the Founding Companies:
<TABLE>
<CAPTION>
PRINCIPAL LINES OF BUSINESS
---------------------------------------------------
OFFICE
PRODUCT RETAIL
SUPPLIES, OPERATIONS(1)
FURNITURE AND
AND ADVERTISING
NAME OF FOUNDING PRINTED OFFICE SPECIALTY
COMPANY MARKETS MATERIAL EQUIPMENT ITEMS PRINTING 1997 REVENUES
---------------- ---------------------- --------- --------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
TSR Virginia X X X X $29,953,000
Mid-Atlantic
Region
New England Massachusetts X X -- -- $14,665,000
Rhode Island
King New York X X X -- $13,893,000
Metropolitan Area
Sierra Northern California X -- -- X $12,215,000
Office Solutions Southern California X X -- -- $10,879,000
Greenwood Dallas/Fort Worth X X -- -- $ 8,920,000
SOS Western Michigan X X X -- $ 5,484,000
Georgia Impression Atlanta, Georgia X X -- -- $ 3,642,000
Office Express Montgomery, Alabama X X -- -- $ 2,856,000
Southern Office Atlanta, Georgia X X -- -- $ 2,531,000
Centre
Metro Data Dallas, Texas X X -- -- $ 2,167,000
BCB Dallas, Texas X X -- -- $ 745,000
</TABLE>
- ---------------
(1) At retail, TSR, King and SOS principally sell office product supplies, and
also have limited sales of furniture and office equipment.
For additional information concerning the Founding Companies, see the
Unaudited Pro Forma Combined Financial Statements and the notes thereto, as well
as the audited financial statements of certain Founding Companies, all contained
elsewhere in this Prospectus.
The Acquisitions of the Founding Companies. Simultaneously with the
Offering, Office Centre Corporation will acquire the Founding Companies. The
twelve Founding Companies were selected for acquisition by Office Centre
Corporation for several reasons. Office Centre Corporation believed that in
order to implement its acquisition and operating strategies it needed to have
total annual revenue of at least $100 million and net operating income in excess
of $4 million. The Company had pro forma revenues and operating income for the
year ended December 31, 1997 of approximately $126.8 million and $5.2 million,
respectively, and for the three months ended March 31, 1998 of approximately
$33.8 million and $1.6 million, respectively. Following the Acquisitions, the
Company believes that it will be one of the 20 largest office products suppliers
in the United States in terms of sales. The twelve Founding Companies also were
selected to give the Company a presence in several different geographical
markets. The larger Founding Companies provide the Company with strong
management teams which will be critical in integrating future acquisitions, as
well as strong relationships with national wholesalers of office products. None
of the Founding Companies is affiliated with one another.
The aggregate consideration to be paid by Office Centre Corporation for the
Founding Companies is approximately $55.5 million, subject to certain
adjustments, consisting of an aggregate of approximately $18.6 million in cash
and an aggregate of approximately $36.9 million in shares of Common Stock valued
at the initial public offering price per share. The Company will also repay
approximately $7.8 million in debt of the Founding Companies. See "Use of
Proceeds."
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<PAGE> 33
The following table sets forth the aggregate consideration being paid for
each Founding Company:
<TABLE>
<CAPTION>
VALUE OF
COMMON TOTAL DEBT
CASH STOCK OTHER CONSIDERATION REPAID
------- -------- -------------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
TSR........................................ $ 2,757 $ 8,107(1) $1,500(2) $12,364(3) $ 2,710
New England................................ 2,000 4,498(1) 6,498(4)(5) 1,125
King....................................... 2,937 3,629 6,566(5)(6) 2,374
Sierra..................................... 822 4,861 5,683(5) 1,309
Office Solutions........................... 3,826 3,825 7,651(7) --
Greenwood.................................. 2,650 6,550(1) 9,200(8) --
SOS........................................ 600 2,910 3,510(9) --
Georgia Impression......................... 325 977 1,302 24
Office Express............................. 195 1,107 1,302 17
Southern Office Centre..................... 300 -- 300 186
Metro Data................................. 531 435 966 25
BCB........................................ 167 -- 167(10) 49
------- ------- ------ ------- -------
TOTAL:..................................... $17,110 $36,899 $1,500 $55,509 $ 7,819
======= ======= ====== ======= =======
</TABLE>
- ---------------
(1) Pursuant to the definitive merger agreements, as amended, between the
Company and each of TSR, New England, and Greenwood, respectively, the
Company, in its sole discretion, may substitute cash in the amount of $1
million with respect to each such transaction as consideration in lieu of $1
million of Common Stock otherwise deliverable under each such agreement.
(2) Represents the purchase price for shares of TSR stock purchased in September
1997.
(3) Additional consideration may be payable in cash and shares of Common Stock,
based upon TSR's earnings before interest, taxes, depreciation and
amortization ("EBITDA") for 1998.
(4) Additional consideration may be payable in shares of Common Stock based upon
New England's EBITDA for 1998.
(5) Subject to adjustment based on the amount of outstanding liabilities at
closing.
(6) Additional consideration may be payable in cash and shares of Common Stock
based upon King's EBITDA for 1998.
(7) Additional consideration may be payable in shares of Common Stock based upon
Office Solution's EBITDA for the period January 1, 1998 through the closing
date and for the twelve months following the Offering.
(8) Additional consideration may be payable in cash and/or shares of Common
Stock, based upon Greenwood's EBITDA for 1998.
(9) Excludes ten-year options to purchase 25,000 shares of Common Stock at the
initial public offering price per share, which vest ratably over three
years.
(10) Subject to adjustment based upon liabilities and working capital at
closing.
The consideration to be paid for the Founding Companies other than King,
was determined through arm's-length negotiations between representatives of
Office Centre Corporation and representatives of each Founding Company. See
"Certain Transactions." The factors considered by Office Centre Corporation in
determining the consideration to be paid for the Founding Companies include,
among others, the historical operating results, the net worth, the levels and
type of indebtedness, and the future prospects of the Founding Companies.
Each acquisition has been structured as a merger under applicable state
law. Each merger agreement contains customary representations and warranties
with respect to the applicable Founding Company made by the selling stockholders
of such Founding Company, including, but not limited to, representations and
warranties as to due organization, capitalization, accuracy of financial
statements, good title to property, adequate insurance, compliance with laws
(including environmental laws) and contracts, rights to use intellectual
property, absence of litigation and undisclosed liabilities, and payment of
taxes. The representations and warranties contained in the merger agreements
survive the closing for periods ranging from approximately eight months through
the expiration of the applicable statute of limitations, and breaches of
representations and warranties are subject to indemnification by the selling
stockholders.
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<PAGE> 34
Under the merger agreements, the consummation of each Acquisition is
subject to customary conditions, none of which is in the control of the
stockholders of the Founding Companies. These conditions include, among others,
the continuing accuracy on the closing date of the Acquisitions of the
representations and warranties of the Founding Companies and of Office Centre
Corporation, the performance by each of them of all covenants included in the
agreements relating to the Acquisitions, and the nonexistence of a material
adverse change in the results of operations, financial condition or business of
each Founding Company. In addition, each Acquisition is subject to consummation
of the Offering.
In addition, set forth below is a summary of registration rights granted,
and employment agreements to be entered into in connection with the
Acquisitions.
TSR. Certain stockholders of TSR will have the right to participate in
certain registrations of Common Stock of Office Centre Corporation, beginning on
the first anniversary date of this Offering and ending on the third anniversary
date of this Offering. Upon consummation of the Offering, Office Centre
Corporation and TSR will enter into a three-year employment agreement under
which Yancey Jones will serve as President of TSR and will be paid an annual
base salary of $150,000. For a discussion of the other terms of Mr. Jones'
employment agreement see "Management -- Employment Agreements; Covenants Not to
Compete." Another stockholder of TSR, M. Addison Jones, the brother of Yancey
Jones, will enter into a three-year employment agreement with Office Centre
Corporation and TSR under which he will be paid an annual base salary of
$80,000, plus a bonus of up to 100% of his base salary subject to achieving
certain profitability objectives determined by Office Centre Corporation and
TSR. In addition, Office Centre Corporation will grant him ten-year options to
purchase 25,000 shares of Common Stock at the initial public offering price per
share, vesting ratably over a three-year period. Each of Yancey and M. Addison
Jones will agree not to compete with Office Centre Corporation in any state in
which Office Centre Corporation conducts business for a period of two years
following the termination of his employment. See "Certain Transactions."
New England. Indira Patel, the sole stockholder of New England, will enter
into a three-year employment agreement with Office Centre Corporation and New
England whereby she will be employed as the President of New England. Pursuant
to the employment agreement, she will be paid an annual base salary of $120,000,
plus a bonus of (i) up to 100% of her base salary subject to achieving certain
profitability objectives determined by Office Centre Corporation and New England
and (ii) if Ms. Patel actively assists in acquiring a target company, an amount
ranging from $5,000 -- $50,000, depending on the annualized sales of the target
company. Further, pursuant to the employment agreement, Office Centre
Corporation will grant her ten-year options to purchase 75,000 shares of Common
Stock at the initial public offering price per share, vesting ratably over a
three-year period. Office Centre Corporation and New England will enter into a
three-year employment agreement with Dennis McCarthy. Mr. McCarthy will be paid
an annual salary of $72,000 (to be increased to $100,000 in 1999), plus a bonus
of up to 100% of his base salary subject to achieving certain profitability
objectives determined by Office Centre Corporation and New England. Pursuant to
their employment agreements, each of Ms. Patel and Mr. McCarthy agrees not to
compete with Office Centre Corporation in certain northeast states for a period
of one year following his or her termination of employment.
King. Robert J. Gillon, a stockholder of King, has entered into a
three-year employment agreement with Office Centre Corporation under which he
will be paid an annual base salary of $250,000. For a discussion of the other
terms of Mr. Gillon's employment agreement see "Management -- Employment
Agreements; Covenants Not to Compete." See also "Management -- Executive
Compensation" and "Certain Transactions."
Sierra. One of the stockholders of Sierra, Michael Kipp, will enter into a
three-year employment agreement with Office Centre Corporation and Sierra
whereby he will be employed as President of Sierra. Pursuant to the employment
agreement, Mr. Kipp will be paid an annual base salary of $120,000, plus a bonus
of (i) up to 100% of his base salary subject to achieving certain profitability
objectives determined by Office Centre Corporation and Sierra and (ii) if Office
Centre Corporation acquires certain target companies, $200,000, subject to
downward adjustment depending on the annualized revenues of such target
companies. In addition, Mr. Kipp will be granted ten-year options to purchase
50,000 shares of Common Stock at the initial public offering price, vesting
ratably over a three-year period. Mr. Kipp also agrees not to compete with
Office Centre Corporation in certain counties
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<PAGE> 35
within the State of California for a period of 18 months following a termination
of his employment (unless such termination is without cause).
Office Solutions. One of the stockholders of Office Solutions, Robert J.
Mareina, will enter into a three-year employment agreement with Office Centre
Corporation and Office Solutions, whereby he will be employed as President of
Office Solutions. Under the employment agreement, he will be paid an annual base
salary of $150,000, plus a bonus of (i) up to 100% of his base salary subject to
achieving certain profitability objectives determined by Office Centre
Corporation and Office Solutions and (ii) if Mr. Mareina actively assists in
acquiring a certain target company, an amount ranging from $5,000 -- $10,000,
depending on the annualized sales of the target company. In addition, Mr.
Mareina will be granted ten-year options to purchase 75,000 shares of Common
Stock at the initial public offering price, vesting ratably over a three-year
period. Further, pursuant to his employment agreement, Mr. Mareina agrees not to
compete with Office Centre Corporation in certain counties within the State of
California for a period of 18 months following a termination of his employment.
Greenwood. Raleigh Green and Robert Wood, the stockholders of Greenwood,
will have the right to participate in certain registrations of Common Stock of
Office Centre Corporation, beginning on the first anniversary date of this
Offering and ending on the third anniversary date of this Offering. Upon
consummation of the Offering, Mr. Green will be the Co-President, Sales and
Marketing, and Mr. Wood will be the Co-President, Operations and Finance, of
Greenwood, each pursuant to a three-year employment agreement with Greenwood
under which each of them will be paid an annual base salary of $150,000, plus a
bonus of (i) up to 100% of his base salary subject to achieving certain
profitability objectives determined by Office Centre Corporation and Greenwood
and (ii) if he actively assists in acquiring a certain target company, an amount
ranging from $7,500 -- $22,500, depending on the annualized sales of the target
company. Pursuant to each employment agreement, Office Centre Corporation will
grant to each of Messrs. Green and Wood ten-year options to purchase 25,000
shares of Common Stock at the initial public offering price, vesting ratably
over a three-year period. Further, pursuant to his employment agreement, each
agrees not to compete with Office Centre Corporation in any state in which
Office Centre Corporation conducts business for a period of three years from the
date of this Offering (unless his employment is terminated without cause or for
good reason).
SOS. Upon consummation of the Offering, David Shapiro, a stockholder of
SOS, will be the President of SOS pursuant to the terms of a three-year
employment agreement with Office Centre Corporation and SOS under which he will
be paid an annual base salary of $105,000, plus a bonus of (i) up to 100% of his
base salary subject to achieving certain profitability objectives determined by
Office Centre Corporation and SOS and (ii) if he actively assists in acquiring a
certain target company, an amount ranging from $7,500 -- $22,500, depending on
the annualized sales of the target company. Office Centre Corporation will grant
to Mr. Shapiro, ten-year options to purchase 25,000 shares of Common Stock at
the initial public offering price per share, vesting ratably over a three-year
period. In addition, Mr. Shapiro agrees not to compete with Office Centre
Corporation in areas within 75 miles of where Office Centre Corporation conducts
business for a period of 18 months from the termination of his employment.
Georgia Impression. Each of William Carroll and Ronald Pace, the
stockholders of Georgia Impression, will enter into a three-year employment
agreement with Office Centre Corporation and Georgia Impression, whereby Mr.
Pace will be employed as President and Mr. Carroll as Vice President of Georgia
Impression. Under the employment agreements, each will be paid an annual base
salary of $80,000, plus a bonus of (i) up to 100% of his base salary subject to
achieving certain profitability objectives determined by Office Centre
Corporation and Georgia Impression and (ii) $3,750. Also, Office Centre
Corporation will grant each of them ten-year options to purchase 25,000 shares
of Common Stock at the initial public offering price per share, vesting ratably
over a three year period. Each of Messrs. Carroll and Pace also agrees not to
compete with Office Centre Corporation in any state in which Office Centre
Corporation conducts business for a period of three years from the date of
termination of his employment.
Office Express. Upon consummation of the Offering, James Motley, a
stockholder of Office Express, will be the President, and Gary Blackwell, a
stockholder of Office Express, will be the Vice President of Office Express,
each pursuant to a three-year employment agreement with Office Centre
Corporation and Office
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<PAGE> 36
Express. Under such employment agreements, each of them will be paid an annual
base salary of $100,000, plus a bonus of (i) up to 100% of his base salary
subject to achieving certain profitability objectives determined by Office
Centre Corporation and Office Express and (ii) if he actively assists in
acquiring a certain target company, an amount ranging from $5,000 -- $10,000,
depending on the annualized sales of the target company. Further, Office Centre
Corporation will grant to each of them ten-year options to purchase 12,500
shares of Common Stock at the initial public offering price, vesting ratably
over a three-year period. Each of them also agrees not compete with Office
Centre Corporation in any state in which Office Centre Corporation conducts
business for a period of 18 months following termination of his employment.
Southern Office Centre. Each of Rogers A. Grogan, Diane Selby and Edward A.
Zimmerman, the stockholders of Southern Office Centre, will enter into a
one-year employment agreement with Southern Office Centre, under which they will
be paid an annual base salary of $50,000 each, plus a bonus of up to 100% of his
or her base salary subject to achieving certain profitability objectives
determined by Office Centre Corporation and Southern Office Centre. Further,
pursuant to the employment agreements, each agrees not to compete with Office
Centre Corporation in any state in which Office Centre Corporation conducts
business for a period of one year following termination of his or her
employment.
Metro Data. Each of Carey Beck (a stockholder of Metro Data) and Aaron Beck
will enter into a three-year employment agreement with Office Centre Corporation
and Metro Data, whereby Aaron Beck will be employed as Senior Vice President of
Metro Data and Carey Beck as its Vice President. Under the employment
agreements, each will be paid an annual base salary of $86,000, plus a bonus of
up to 100% of his base salary subject to achieving certain profitability
objectives determined by Office Centre Corporation and Metro Data. Pursuant to
Carey Beck's employment agreement, Office Centre Corporation will grant him
ten-year options to purchase 25,000 shares of Common Stock at the initial public
offering price per share, vesting ratably over a three year period. Each of
Carey and Aaron Beck also agree not to compete with Office Centre Corporation in
the Dallas-Fort Worth Metroplex for a period of 18 months from the date of
termination of his employment.
BCB. Bernard Mandel, the sole stockholder of BCB will enter into a
three-year employment agreement with BCB, under which he will be paid an annual
base salary of $60,000, plus a bonus of up to 100% of his base salary subject to
achieving certain profitability objectives determined by Office Centre
Corporation and BCB. In addition, Mr. Mandel agrees not to compete with Office
Centre Corporation in any state in which Office Centre Corporation conducts
business for a period of three years following termination of his employment.
BUSINESS AFTER ACQUISITIONS AND THE OFFERING
The following discussion of the business of the Company assumes the
completion of the Acquisitions and the Offering and the integration of the
operations of the Founding Companies into Office Centre Corporation. Where
operations are currently conducted by Office Centre Corporation or certain of
the Founding Companies and the Company intends, after consummation of the
Acquisitions, to implement such operations at other Founding Companies and other
companies acquired in the future, such intentions are noted by forward-looking
words such as "will" or "intends".
The Company's integrated acquisition and operating strategies contemplate a
system of "centres," which are commercial stationers located in major
metropolitan areas, and "satellites," which are smaller, synergistic commercial
stationers located in surrounding markets in which the centre is located. This
integration is intended to leverage more effectively the Company's distribution
capabilities and eliminate a substantial portion of the satellites' operating
expenses. The centre stationers will fulfill all management functions and
maintain all inventory for the satellites in their respective markets.
General Operations. The Company sells a wide variety of office supplies,
office furniture and other office products directly to small and medium-sized
business customers (generally companies having 20 to 250 employees). The Company
provides next-day delivery of ordered items which enables certain customers to
reduce overhead costs by reducing inventory and the associated personnel and
space requirements. The Company believes that many of its customers purchase
office products based on a long-term business relationship with one primary
supplier. Accordingly, the Company's operations, and the improvements and
enhancements that the
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Company intends to implement, are focused primarily on achieving superior
customer satisfaction, as well as operating efficiencies and economies of scale.
The Company purchases office products from manufacturers and wholesalers,
and maintains cross-docking facilities (which are facilities similar to
warehouses where the Company can receive goods from multiple sources and
promptly load them onto trucks for same day delivery to customers) at or near
each of the centre locations. Certain of the Founding Companies maintain
cross-docking facilities which stock only high volume items and carry
approximately 250 to 500 SKUs. The remaining items are not kept in inventory,
but are obtained by such Founding Companies from wholesalers. Following the
consummation of the Acquisitions, the Company intends to implement this
inventory system at all of its centre stationers and to obtain items not kept in
stock from two national wholesalers with whom the Company has relationships,
S.P. Richards and United Stationers, as well as regional and niche wholesalers.
Orders for items received from the wholesalers will be combined with orders
picked from inventory at the cross-docking facilities and delivered by the
Company to its customers.
Order Processing, Fulfillment and Distribution. Certain Founding Companies
use an electronic data interchange ("EDI") system and/or fulfill orders using a
system that combines the inventory they maintain and the "wrap and label"
capabilities of the wholesalers. The Company intends, where appropriate, to
implement these systems at other Founding Companies following the consummation
of the Offering and at companies acquired in the future. The EDI system enables
customers to place orders directly with the Founding Company's computer system
and generate customized usage reports. Once an order is placed, the
order-processing system, which is electronically linked to national wholesalers,
automatically determines on a real-time basis whether an ordered item is to be
filled from inventory at the centre stationer's cross-docking facility or from a
wholesaler. When a customer order needs to be filled from a wholesaler, the
system electronically routes the order to the wholesaler. The order is wrapped,
labeled by customer and local stationer name and delivered for next-day service
to the centre stationer. This capability is called "wrap and label." On the same
day that it receives the items supplied by the wholesalers, the centre stationer
is able to deliver the order directly to the customer without having to break
down or sort through any of the received shipments. Orders for items not
supplied by a wholesaler are filled at the centre cross-docking facility by
"picking" orders arranged according to the location of items within the
facility, improving the efficiency of personnel in filling orders. When orders
have been picked, they will be combined with the ready orders from the
wholesalers, staged and loaded onto trucks. The orders are then delivered by
trucks based on their routing. The Company delivers ordered items using
Company-owned trucks, leased trucks, and unaffiliated delivery companies. Under
its centre/satellite strategy, the Company's satellite locations will serve as
local sales and marketing operations only, and the centre locations will fulfill
all orders and deliveries within their respective regions.
Technology Systems. Certain Founding Companies have developed operating
and technology systems designed to improve and enhance their operations,
including computerized inventory management and order processing systems and
warehouse management and distribution systems. The Company intends, where
appropriate, to implement these systems at other Founding Companies following
the consummation of the Offering and at companies acquired in the future. One
such system, a CD-ROM based computer program called E-Cat (Electronic Catalog),
displays all the products and prices offered by the Founding Company and enables
a customer to process orders electronically and track an ordered item. The
Company believes that this program increases significantly the speed and
accuracy of order processing and fulfillment while reducing personnel
requirements at centre facilities. An Internet version of the E-Cat program is
also available.
Management Information Systems and Reporting. The Founding Companies
currently utilize various compatible management and financial information
systems which cater to the specialized needs of the commercial stationer. These
user-based systems support the customer service, order entry, order fulfillment,
billing and inventory management functions. The Company intends to integrate
these systems with a common core general ledger system following the
consummation of the Acquisitions. This will allow the Company to improve and
standardize its existing reporting capabilities and financial controls at the
corporate level, while allowing the local stationer to continue to have superior
customer service capability and focus. The Company tracks important data related
to each Founding Company's operations and financial performance against prior
year performance and budgeted goals and objectives. In addition, the Company has
developed a daily and
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monthly reporting process which allows management at the corporate level to
monitor key operational statistics and ratios such as each Founding Company's
revenues, gross profit and expenses, cash flows, receivables, inventory turnover
and number of employees. The Company will use such information to prepare and
provide each Founding Company with monthly and quarterly financial data which
will enable them to track and benchmark their performance with the other
Founding Companies.
Products
SOURCING. In 1997, the Founding Companies purchased approximately 60% of
its office products from wholesalers and the remainder from manufacturers. The
principal wholesalers of the office products sold by the Company are S.P.
Richards and United Stationers and the principal manufacturers include 3M, ACCO,
Avery Dennison, Hon, Pentel, Rubbermaid and Smead. In the twelve months
following the consummation of the Acquisitions, the Company intends to increase
the amount of office products it purchases from wholesalers in order to reduce
its inventory, warehousing and distribution costs. In addition, each Founding
Company and each company acquired in the future will be able to order products
from the manufacturers or wholesalers at prices and on terms negotiated by the
Company, therefore benefitting from the Company's purchasing power and
expertise.
MERCHANDISING AND PRODUCTS. The Company offers a full complement of name
brand office products, including paper products, desktop accessories, writing
instruments, technology supplies, office furniture and janitorial supplies, and
provides printing services. To market these products and services, after
consummation of the Acquisitions the Company intends to provide its customers
with catalogs containing full color photographs and descriptions of offered
items. One of these catalogs, which will be produced by wholesalers and will
bear the name of the Company's local operation, will list approximately 20,000
items, all of which will be available for next-day delivery. To supplement the
wholesaler produced catalog, the Company also intends to use a 5,000 item
proprietary catalog similar to the catalog being used by UDI. This catalog will
contain the highest volume items and will feature the Office Centre brand
products. The Company intends to purchase the highest volume items listed in the
proprietary catalog directly from the manufacturers at a lower cost than from
the wholesalers. The Company believes that the proprietary catalog will increase
operating margins by including Office Centre brand products and capturing
additional manufacturers' advertising rebates. In addition, UDI is developing a
multimedia program to be used by the Company's sales representatives to sell
printing services to its customers.
INVENTORY MANAGEMENT. The Company has developed a custom bar coding
system, which certain of the Founding Companies use to track their 250 to 500
SKU inventory through prompt recording of incoming and outgoing products. The
use of bar codes enables orders to be filled more accurately, eliminating costly
returns and pick-ups. In addition, this system will enable the Company to
forecast product demand by SKU, enabling it to select the highest selling items
for its proprietary catalog. The Company believes that the proprietary bar
coding system will be a significant factor in reducing its inventory investment
through increased inventory turns. Additionally, all picking slips will be bar
coded for more accurate invoicing with less effort and error. The Company
intends to implement this bar coding system at additional facilities during the
twelve months following the consummation of the Acquisitions.
OFFICE CENTRE PRIVATE LABEL PRODUCTS. The Company has over 250 of the
highest volume items manufactured with the Office Centre brand name. The Company
offers these products through customized catalogs. The Company believes that the
Office Centre brand name products provide stationers with an additional source
of image recognition and enhance profitability.
BROADENED OFFERED PRODUCTS AND SERVICES. The Company intends to broaden
the complement of products and services it offers to increase its sales to
existing customers. For example, following the consummation of the Offering, the
Company intends to utilize its wholesalers to provide janitorial supplies,
office furniture and advertising specialties at its facilities, as appropriate.
Sales and Marketing
The Company focuses its marketing efforts on the small and medium-sized
corporate customers. The Company believes that a significant opportunity exists
in this segment and that the larger contract stationers
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primarily are positioned to serve the large corporate segment. To address the
high degree of customer satisfaction demanded by the small to medium-sized
company, the Company emphasizes training of sales and customer service
personnel. The Company intends to hire a Vice President of Marketing who will
operate from its corporate headquarters and, using the UDI staff, coordinate the
sales and marketing efforts of sales representatives at the Company's centre
locations. The centre locations will provide marketing and sales programs to the
satellites in their respective regions. The duties of the Vice President of
Marketing will include developing all marketing and promotional materials,
assisting the centres in recruiting and training sales representatives,
supervising the Company's in-house training programs and supporting centre
management and sales representatives with computerized analyses of sales by
product and customer.
The Company's stationers establish and maintain relationships with
customers by assigning a sales representative to most customers. Sales
representatives, who are compensated almost exclusively on a commission and/or
incentive basis, have frequent contact with their customers and share
responsibility for increasing account penetration and providing customer
service. Sales representatives also are responsible for marketing efforts
directed to prospective customers. The Company has approximately 160 sales
representatives in the field, covering ten metropolitan areas. The Company
intends to emphasize a team approach and generally will integrate management,
sales, customer service, purchasing and other personnel into the relationship
with each customer. The Company believes that its decentralized management
strategy offers it a competitive advantage because, by not adhering to a
standardized national model, it has greater flexibility to respond to the needs
of each local market while achieving the buying power and operating efficiencies
of a large company.
The Company provides training and information about products and markets to
the Company's stationers through OffiSat, a digital, interactive, closed-circuit
satellite system developed by UDI. OffiSat enables the Company to perform
Company-wide training without the associated travel cost. UDI utilizes the
OffiSat system to broadcast programming to the 150 UDI members who have OffiSat
satellite dishes at their facilities. Through a system of digital signal
encoding, broadcasts can target one specific stationer or can be sent to some or
all of the Company's stationers and the stationers can participate in the
broadcasts. The Company also intends to utilize OffiSat to market its offered
products and services to its customers. The Company intends to sponsor regional
meetings, where appropriate, at which customers invited by the Company's local
stationers will view OffiSat programs targeting the end user of the Company's
products and services.
UDI has developed a number of other marketing programs which the Company
intends, where appropriate, to implement at the Founding Companies following the
consummation of the Offering and at companies acquired in the future. The
Company intends to utilize the experienced staff of UDI to implement such
programs. For example, UDI has developed operational and technology systems
designed to improve and enhance the operations of local stationers, including
E-Cat and EDI. UDI also has developed a web site which allows UDI members'
customers to order office products by computer. The web site offers more than
20,000 office products, many with picture confirmation, and allows the user to
search for products by category. E-Cat is currently in use in over 1,000
companies in the United States.
The Company's private brand image program is currently being used by
approximately 150 of UDI's members, and private label Office Centre products are
currently offered in UDI's customized catalogs. In 1997, sales of Office Centre
brand name products by UDI members totaled more than $5 million. The Company
believes that the development of this kind of affiliation between UDI's members
and the Office Centre name and organization will facilitate acquisitions within
the UDI network.
The Company intends to capitalize on cross-marketing and business
development opportunities that it believes will be available to the Company as a
national distributor of office products. The Company intends to leverage the
diverse industry specializations and marketing strengths of individual Founding
Companies to expand the overall penetration of products and services within
additional geographic markets. The Company also intends to increase sales by
marketing to customers with multiple locations. Marketing to customers with
multiple locations will be done by Company personnel and implemented through
Company facilities and through participating UDI members. The Company believes
its ability to offer a high level of service and product selection, volume
purchasing discounts and customized central billing will offer customers with
multiple locations a cost-effective way to purchase office supplies.
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COMPETITION
The Company operates in a highly competitive environment. The Company
competes with small commercial office products stationers who sell to customers
in a limited geographic area, and several large retailers, mail order companies
and contract stationers, including Boise Cascade, Corporate Express, BT Office
Products, Office Max, Staples, Office Depot, U.S. Office Products, Viking Office
Supplies, Quill, and Global Directmail, all of which have greater financial
resources than the Company. Viking Office Supplies recently announced that it
had reached a definitive agreement to merge with Office Max. In addition, Quill
recently merged with Staples. These mergers would join two of the largest mail
order companies with two of the largest office products retailers. In the
Company's target markets, the Company believes customers are concerned not only
with the overall reduction of their office products costs but also on
dependability, superior levels of service, and flexible delivery capabilities.
The Company believes that it competes favorably on the basis of service, price
and experience.
The Company also expects that there will be competition to acquire
independent commercial stationers as the office products industry undergoes
continuing consolidation, which could limit the Company's ability to locate
suitable acquisition targets and could increase the cost of purchasing such
acquisition targets. The Company believes that its decentralized management
strategy, long-term relationships with its stationers and other operational
strategies will make it an attractive acquirer of other commercial stationers.
In addition, the Company believes it has an advantage over its competitors due
to its long-term relationships with UDI member stationers.
UDI competes with other office products buying groups for members.
Currently, there are at least seven other buying groups in the United States.
While these groups historically have competed for members based upon product
costs and rebates, the Company believes that programs designed to increase
members' sales and to decrease members' expenses will become more important to
membership retention and growth. UDI believes its technology programs offer it a
competitive advantage among the buying groups and it intends to use these
programs to increase membership and participation.
GEOGRAPHIC CONCENTRATION
Commercial stationers generally serve customers located in the geographic
areas surrounding their facilities. For the year ended December 31, 1997,
approximately 23.6%, 11.5%, 10.9% and 9.5% of the Company's pro forma revenues
were attributable to TSR (located in Richmond, Virginia), New England (located
in Boston, Massachusetts), King (located in New York City) and Sierra (located
in Sacramento, California), respectively. For the three months ended March 31,
1998, approximately 23.1%, 12.3%, 11.4% and 10.2% of the Company's pro forma
revenues were attributable to TSR, New England, King and Sierra, respectively.
This geographic concentration exposes the Company to the risk of a significant
economic downturn in the Richmond, Boston, New York or Sacramento markets. The
Company's acquisition strategy, which will target an additional 35 major
metropolitan areas throughout the country, should mitigate the potential adverse
effects of geographic concentration.
CUSTOMERS
None of the Company's customers accounted for more than ten percent of the
Company's pro forma revenues for 1997. Purchases by certain customers of two of
the Founding Companies may be attributable to the status of such Founding
Companies as women-owned and/or minority-owned small businesses. Such customers
could elect to reduce or cease purchases from these Founding Companies after the
consummation of the Acquisitions based on the loss of their women-owned or
minority-owned status.
EMPLOYEES
As of March 31, 1998, the Company had 680 full-time employees, 138 of whom
were employed primarily in management and administration, 176 in warehouse and
distribution, 77 in printing operations, 168 in marketing, 87 in customer
service, and 34 in retail sales. As of March 31, 1998, one of the Founding
Companies had entered a collective bargaining agreement covering 40 employees.
The Company considers its relations with its employees to be satisfactory.
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PROPERTIES
The Company operates 36 properties, consisting of centre and satellite
facilities for office products operations and administrative offices. Of these
facilities, 35 are leased and one is owned. These facilities are used
principally for operations, general and administrative functions, storage and
cross-docking space and retail space. The Company's facilities range from
approximately 400 square feet to 29,200 square feet. All of the leased
properties are leased for terms expiring on dates ranging from November 1998 to
May 2007, some with options to extend the lease term. The Company believes that
no single lease is material to its operations, that the owned and leased
facilities are adequate to serve its current level of operations and that
alternative facilities presently are available at market rates.
INTELLECTUAL PROPERTY
The Company holds a federal registered trademark for the name "OC Office
Centre" and the associated Company logo. No assurance can be given that such
trademark will be effective to prevent others from using the trademark
concurrently or to permit the Company to use the trademark in certain locations.
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal injury
and property damage incurred in connection with its operations. Management
believes that none of these actions will have a material adverse effect on the
financial condition or results of operations of the Company.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid or hazardous wastes; and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposal or other releases of hazardous substances. Two Founding
Companies conduct printing operations which may generate, or may have generated
in the past, hazardous wastes. Each of these Founding Companies believes that it
has conducted such operations and disposed of any such wastes in compliance with
applicable environmental laws and regulations.
The Company is not aware of any environmental conditions relating to
present or past waste generation at or from these facilities, or any other of
the Company's facilities or operations, that would be likely to have a material
adverse effect on the financial condition or results of operations of the
Company and does not anticipate any material expenditures to comply with
environmental laws, regulations or ordinances. However, there can be no
assurance that environmental liabilities in the future will not have a material
adverse effect on the financial condition or results of operations of the
Company.
OPERATING STRATEGY
The Company has adopted an integrated operating and acquisition strategy
designed to provide superior localized service to small and medium-sized
companies, which the Company defines as companies with 20 to 250 employees, and
to achieve growth internally as well as through the acquisition of other
commercial stationers. The key elements of the Company's operating strategy are
as follows:
Focus on Serving Small and Medium-Sized Companies. The Company believes
that small and medium-sized companies will be the fastest growing sector of the
economy in the United States in terms of revenues over the next three to five
years, and that these companies tend to be very loyal customers, generally
purchasing office products from one primary supplier. The Company believes that
this market segment is more fragmented and offers better margins than the large
company (over 250 employees) segment. In the Company's target markets, the
Company believes customers are concerned not only with the overall reduction of
their office products costs but also on dependability, superior service and
flexible delivery capabilities. Accordingly, the Company is
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focused on providing its customers with knowledgeable sales personnel, next day
delivery service and delivery of products exactly as ordered, as well as
competitive pricing on the highest volume items.
Leverage Wholesaler Resources. The Company intends to leverage the
resources of two national wholesalers, S.P. Richards and United Stationers, as
well as regional and niche wholesalers. Such resources include custom catalogs,
electronic ordering, wrap and label capabilities and national distribution. The
two national wholesalers, which together have approximately 105 warehouses
stocking over $650 million of inventory, will provide the backbone of the
Company's distribution network. These wholesalers are able to provide the
Company with next-day delivery of product wrapped and labeled by customer and
local stationer name ("wrap and label" capability), which the local stationer
can deliver to its customers on the same day. The Company believes that by
utilizing the wholesalers' proven distribution capabilities it can ensure prompt
and efficient delivery of products. The Company believes that leveraging the
resources of the wholesalers will allow it to (i) reduce inventory, warehousing
and distribution costs; and (ii) minimize the need to build an extensive
distribution system.
Achieve Operating Efficiencies and Economies of Scale. The Company will
seek to achieve operating efficiencies and economies of scale through (i) volume
purchasing of office products; (ii) combining certain administrative functions
at the corporate level; (iii) implementing a centre/satellite strategy and
eliminating redundant facilities and services; (iv) implementing Company-wide
integrated technology and operating systems; (v) providing a Company-wide
proprietary catalog to increase advertising rebates from manufacturers; and (vi)
increasing sales volumes by broadening the complement of products and services
its stationers offer. The Company intends to combine the buying power of UDI
with that of the Company's stationers in order to obtain more favorable prices
and rebates, which office product manufacturers and wholesalers have
historically offered only to high volume purchasers. UDI has already been
successful in obtaining lower pricing and annual rebates based on the volume of
purchases for its members. As the Company's revenues increase, the Company
believes that it will be able to increase the discounts and rebates currently
obtained by the Founding Companies and by companies to be acquired in the future
and enable such companies to leverage the wholesalers' "wrap and label"
capabilities. The Company also intends to centralize certain administrative
functions such as cash management, insurance, payroll processing and employee
benefits, marketing and advertising, long distance services and a variety of
professional services to further reduce costs.
Capitalize on Private Brand Image. The Company has developed a private
brand image program that includes Office Centre brand products, retail store
signage, proprietary catalogs and a web site. Currently, approximately 290 UDI
member stationers have paid $1,500 each to participate in this program. Under
the private brand program, the Company has over 250 of the highest volume items
manufactured with the Office Centre name and in 1997 over $5 million of Office
Centre brand product was sold by UDI members. The Company believes this
three-year old program enhances its name recognition with commercial stationers
and customers and offers a significant profit opportunity.
Operate with Decentralized Management. The Company intends to operate with
decentralized management and has entered into long-term employment contracts
with senior management at each of the Founding Companies and intends to continue
to enter into such contracts in connection with future acquisitions. Under the
Company's "centre and satellite" strategy, the centre stationers will fulfill
all management functions for the satellites in their respective regions.
Experienced local management will make decisions relating to the day-to-day
operations of a particular centre and its related satellites and will be
responsible for the profitability and growth of that operation. The Company's
senior managers will provide the centre stationers with strategic planning and
guidance with respect to acquisitions, marketing and operations. The Company
intends to motivate its employees and align their interests with those of the
Company's stockholders by using Common Stock as a currency in its acquisition
program and granting options to purchase Common Stock as a part of employee
compensation. The Company believes that the operating autonomy provided by this
decentralized structure, together with the implementation of reporting systems
and financial controls at the corporate level, will enable it to combine the
superior customer service and responsiveness of a locally-oriented stationer
with the resources and economies of scale of a large company.
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ACQUISITION STRATEGY
The Company is principally a commercial stationer and its acquisition focus
will continue to be on commercial stationers. The Company believes that, due to
the fragmented nature of the commercial stationer market, there are
opportunities for acquiring additional commercial stationers nationwide. The key
elements of the Company's acquisition strategy are as follows:
Target Major Metropolitan Areas. The Company intends to expand
aggressively through acquisitions into an additional 35 major metropolitan areas
throughout the country. The Company will first seek to make a centre acquisition
in a targeted area by acquiring an established, high quality commercial
stationer with revenues of $7 million to $20 million. It will then seek to
acquire additional, smaller synergistic commercial stationers, or satellites,
typically with revenues of $5 million or less, within the metropolitan market
surrounding the centre stationers. The Company believes that the local presence
created through the acquisition of a centre stationer will facilitate the
identification of satellite acquisition targets. The Company intends to
substantially integrate the operations of acquired satellites with the centre
stationers. This integration is intended to leverage more effectively the
Company's distribution capabilities, thereby eliminating a substantial portion
of the operating expenses of the acquired satellites and increasing the
Company's margins.
Leverage UDI Membership and Exclusivity Agreements. Through UDI, the
Company maintains relationships with a large network of stationers that are
potential acquisition candidates for the Company. UDI's membership consists of
approximately 1,100 office products stationers and office furniture dealers
servicing the United States and parts of Canada. Ten of the Founding Companies
are members of UDI. The Company intends to utilize the assistance of UDI sales
representatives to approach acquisition candidates who are UDI members.
Approximately 290 UDI member stationers are already participating in the
Company's private brand image program. The Company believes that the development
of this kind of affiliation between UDI's member stationers and the Office
Centre name and organization will facilitate acquisitions within the buying
group. The Company also intends to leverage the industry contacts of its
Founding Companies, four of which belong or formerly belonged to industry buying
groups other than UDI. In order to strengthen its acquisition pipeline, the
Company has entered into exclusivity agreements with approximately 60 UDI
members, which the Company believes collectively had 1997 revenues in excess of
$120 million. The exclusivity agreements provide that, at the Company's request,
the acquisition candidates will engage in good faith discussions with the
Company with respect to the sale of their respective companies and that they
will not solicit offers from, or engage in any such discussions with, any other
party for a period of six to nine months. In addition, the exclusivity
agreements permit the Company to conduct due diligence on the acquisition
candidates. The Company is currently collecting data on the acquisition
candidates with a view toward sequencing the candidates for potential future
acquisitions. The Company is not in negotiations for acquisition of any
candidates. There can be no assurance that the Company will seek to acquire, or
that it will be successful in acquiring, any of the acquisition candidates who
have entered into exclusivity agreements with the Company. A number of the
exclusivity agreements terminate each month, beginning in August 1998.
Retain Local Management and Image. The Company intends to acquire
successful commercial stationers with strong management in its targeted centre
locations. In most instances, the Company expects to retain the management,
sales personnel and name of the acquired centre stationer. To preserve local
market knowledge and customer relationships, the Company has entered into
long-term employment contracts with senior management level employees at each of
the Founding Companies and intends to continue to do so in connection with
stationers acquired in the future. The Company believes that its decentralized
management strategy will make it an attractive acquirer of additional centre
stationers, particularly those companies whose owners wish to remain involved in
the day-to-day operations of their companies. The Company also intends to retain
the name of the local stationer to maintain continuity with local customers.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
directors, executive officers and persons who will become directors or executive
officers of the Company following the consummation of the Offering:
<TABLE>
<CAPTION>
AGE POSITION
--- --------
<S> <C> <C>
Robert J. Gillon, Jr. 54 Chairman of the Board, President and Chief Executive Officer
Chief Financial Officer, Senior Vice President, Treasurer
Joseph E. Hajjar 45 and Secretary
Richard T. Case 49 Senior Vice President, Corporate Development
Thomas F. Mooney 55 Vice President, Purchasing
Yancey S. Jones 48 Director, President -- TSR
Charles J. Murphy 50 Director
Edward A. Schefer 63 Director
</TABLE>
Robert J. Gillon, Jr. has been Chief Executive Officer of Office Centre
Corporation since May 1997, President of the Company since March 1997, a
director of the Company since March 1997 and Chairman of the Board of the
Company since August 1997. From February 1994 until the present, Mr. Gillon has
been Chief Executive Officer and President of King. From August 1989 until
December 1993, Mr. Gillon was Chief Executive Officer of Emco Corporation, a
regional wholesaler of office supplies in the New York area. Prior to that, for
more than 20 years, Mr. Gillon served in various management positions in sales,
marketing, product development and general management with IBM.
Joseph E. Hajjar has been Chief Financial Officer, Senior Vice President,
Treasurer and Secretary of Office Centre Corporation since September 1997. Mr.
Hajjar was employed from November 1994 to August 1997 as Vice President of
Finance for Bovis, Inc., one of the largest companies in the construction
management, general contracting and construction consulting field. From April
1992 to November 1994, Mr. Hajjar was employed by ENSERCH Corporation where his
most recent position was Chief Financial Officer of ENSERCH Environmental
Corporation, one of the largest firms in environmental consulting and
remediation (now part of Foster-Wheeler Corporation). Mr. Hajjar's 25 years of
finance and accounting experience includes 13 years with the accounting and
management consulting firm of Price Waterhouse, LLP. Mr. Hajjar is a certified
public accountant.
Richard T. Case has been Senior Vice President, Corporate Development, of
Office Centre Corporation since May 1, 1998. From February 1, 1997 until he
joined Office Centre Corporation, Mr. Case provided consulting services to
Office Centre Corporation. Since April 1981, Mr. Case has been President of
Benchmark Associates. Through Benchmark Associates, Mr. Case has served as a
consultant to companies in numerous industries in the area of financial
turnarounds, strategic planning, acquisitions and mergers, operational analysis,
product development and strategic marketing. From March 1979 until April 1981,
Mr. Case was Senior Vice President of Marketing for one of the largest divisions
of American Hospital Supply Corporation, a manufacturer and distributor of
health care products (now part of Baxter International Inc.). From May 1975
until March 1979, Mr. Case was Director of New Business Development, responsible
for acquisition and mergers, at American Hospital.
Thomas F. Mooney has been Vice President of Purchasing of Office Centre
Corporation since May 8, 1998. Prior to joining Office Centre Corporation, Mr.
Mooney served as the Vice President of Purchasing for Corporate Express from
March 1994 until May 1997. From March 1988 until March 1994, Mr. Mooney served
as a Vice President of Purchasing of Hanson Office Products, a contract
stationer.
Yancey S. Jones has been a director of Office Centre Corporation since May
13, 1998. Mr. Jones has been the President and Chief Executive Officer of TSR
since October 1988. Mr. Jones currently serves as the treasurer of TriMega, a
national office products buying group that is also a member of Business Products
Group
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<PAGE> 45
International ("BPGI"), a global office supply buying group. He is a past
president of the Richmond Office Products Association, and was a charter member
of the Virginia Office Products Association. He is also the founder and chairman
of the board of MEGA Office Furniture, LLC, an office furniture superstore
chain, founded in May 1996.
Charles J. Murphy has been a director of Office Centre Corporation since
May 13, 1998. Since July 1998, Mr. Murphy has been a Managing Director of J.P.
Morgan & Co., Incorporated. From March 1996 until July 1998, Mr. Murphy was a
Managing Director of Sextant Group, Inc., a private investment firm. Prior to
joining Sextant Group, Inc., Mr. Murphy headed CS First Boston's global equity
business and was a member of its Executive Board. At CS First Boston, Mr. Murphy
managed global investment banking from 1992 to April 1995, having held both
coverage and management positions in the capital markets, corporate finance and
regulated industry groups. Mr. Murphy has been a Trustee of Manhattan College
and recently has become a member of the Executive Committee of the Boston
College Wall Street Council. Mr. Murphy is also an adjunct professor at New York
University.
Edward A. Schefer has been a director of Office Centre Corporation since
May 13, 1998. From April 1992 until he retired in January 1998, Mr. Schefer
served as Vice President of Management Information Systems at American Home
Products Corp., a diversified health care company.
Pursuant to the listing requirements of the Nasdaq National Market, the
Company is required to have at least two independent directors on its Board of
Directors and to establish an audit committee, at least a majority of which
members are independent. See "-- Committees of the Board of Directors." At each
annual meeting of stockholders, approximately one-third of the directors are
elected by the holders of the Common Stock for a term of three years to succeed
those directors whose terms are expiring. All officers serve at the discretion
of the Board of Directors. See "Description of Capital Stock -- Common Stock."
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company will receive a fee of $2,000 per meeting of the Board of Directors
or committees thereof and will be granted options to purchase 20,000 shares of
Common Stock at an exercise price equal to the initial public offering price,
vesting ratably over the initial term of his directorship beginning on the first
anniversary of the date of the Offering, and expiring ten years after the date
of grant. Directors also are reimbursed for out-of-pocket expenses incurred in
attending meetings of the Board of Directors or committees thereof, or for other
expenses incurred in their capacity as directors.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has established an Audit Committee and a
Compensation Committee.
The responsibilities of the Audit Committee include recommending to the
Board of Directors the independent public accountants to be selected to conduct
the annual audit of the books and records of the Company, reviewing the proposed
scope of such audit and approving the audit fees to be paid, reviewing
accounting and financial controls of the Company with the independent public
accountants and the Company's financial and accounting staff and reviewing and
approving transactions between the Company and its directors, officers and
affiliates. Messrs. Murphy and Schefer are the members of the Audit Committee.
The Compensation Committee provides a general review of the Company's
compensation plans to ensure that they meet corporate objectives. As described
below, the Company's existing plans with respect to executive compensation are
largely based on contractual commitments set forth in employment agreements that
are either in effect or are to be entered into upon consummation of the
Acquisitions. The responsibilities of the Compensation Committee also include
administering the 1998 Stock Option Plan, and selecting the officers and
salaried employees to whom awards will be granted. Messrs. Gillon, Jones, Murphy
and Schefer are the members of the Compensation Committee.
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<PAGE> 46
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to Office Centre
Corporation's chief executive officer and the two other most highly compensated
executive officers whose aggregate salaries and bonuses exceeded $100,000 during
the year ended December 31, 1997 (the "Named Executive Officers").
<TABLE>
<CAPTION>
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
--------------------------- -------- -------- ------------
<S> <C> <C> <C>
Robert J. Gillon, Jr..................................... $167,000 $150,000 --
Chairman, Chief Executive Officer and President(1)
Walter H. Gordenstein.................................... $294,700 -- $64,000(3)
President, Chief Executive Officer and Chairman of
UDI(2)
Joseph E. Hajjar......................................... $ 61,000 $110,000(4) --
Chief Financial Officer, Senior Vice President,
Treasurer and Secretary
</TABLE>
- ---------------
(1) Excludes compensation paid to Mr. Gillon by King.
(2) Mr. Gordenstein ceased to serve as President and Chief Executive Officer of
UDI on February 11, 1998 and ceased to serve as Chairman of UDI on April 15,
1998.
(3) Reflects life insurance premium payments of approximately $63,000 and $1,000
paid to Mr. Gordenstein in director fees.
(4) Consists of the fair market value at the time awarded of 50,000 shares of
Common Stock awarded to Mr. Hajjar.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During 1997, the compensation committee of Office Centre Corporation
consisted of Messrs. Gillon, Gordenstein, Davie and Kaweske, each of whom were
officers of the Company. For a discussion of certain relationships involving
such persons, see "Certain Transactions."
EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE
On May 1, 1997, Office Centre Corporation entered into an employment
agreement with Mr. Gillon pursuant to which Mr. Gillon serves as the President
and Chief Executive Officer of the Company for a term expiring on the third
anniversary of the date of the consummation of the Offering. Mr. Gillon receives
an annual base salary of $250,000. Mr. Gillon will be eligible for annual
bonuses determined by the Board of Directors of Office Centre Corporation. The
employment agreement does not require the payment of bonuses or establish a
range or cap on the amount of such bonuses. See "-- Executive Compensation." In
addition, Mr. Gillon's employment agreement automatically renews at the end of
the current term and each succeeding year for an additional year unless
terminated or the Company or Mr. Gillon provides notice of its or his intent not
to renew at least six months prior to the end of the current term. If the
Company elects not to renew Mr. Gillon's employment agreement, the Company must
pay Mr. Gillon as severance an amount equal to the greater of: (i) his then
current annual salary, or (ii) $250,000. If Mr. Gillon's employment is
terminated at any time by the Company without cause, he will be entitled to
receive the greater of (i) his base salary for the remainder of the term had his
employment not been terminated and (ii) $250,000 (or such greater amount as is
Mr. Gillon's annual base salary at the time of termination). Pursuant to an
amendment to his employment agreement dated May 14, 1998, Mr. Gillon was awarded
options to purchase 50,000 shares of Common Stock, with one-third vesting on the
first anniversary of the date of grant, one-third on the second anniversary of
the date of grant and one-third on the third anniversary of the date of grant.
The options are exercisable for ten years from the date of grant. The exercise
price for the options is the initial public offering price per share. Pursuant
to his employment agreement, in 1997 Mr. Gillon received a signing bonus of
$150,000 and in 1998 received a non-recurring bonus of $250,000. Under his
employment agreement, Mr. Gillon agrees not to compete with the Company during
his employment with the Company and for one year thereafter, provided, that if
his employment is terminated by the Company other than
45
<PAGE> 47
for cause, Mr. Gillon will not compete with the Company until the date which is
the later of (i) the first anniversary of the date of such termination, and (ii)
the date in which his employment would have expired but for his termination.
On April 15, 1998, Office Centre Corporation entered into an employment
agreement with Mr. Gordenstein pursuant to which Mr. Gordenstein is employed by
UDI at an annual base salary of $200,000. Mr. Gordenstein will be eligible for
annual bonuses determined by the Board of Directors of Office Centre
Corporation. The employment agreement does not require the payment of bonuses or
establish a range or cap on the amount of such bonuses. See "-- Executive
Compensation." Mr. Gordenstein's employment agreement terminates on the date of
the consummation of the Offering. Pursuant to his employment agreement, Mr.
Gordenstein agrees not to compete with the Company during his employment with
the Company and for one year thereafter.
Effective May 1, 1998, Office Centre Corporation entered into a three-year
employment agreement with Mr. Case pursuant to which Mr. Case serves as the
Senior Vice President, Corporate Development of the Company. Mr. Case receives
an annual base salary of $200,000. Mr. Case will be eligible for annual bonuses
based upon meeting or exceeding certain annual performance objectives. Payment
of such bonuses is not required but, if paid, will range from 40% to 100% of Mr.
Case's annual base salary depending upon the extent to which he achieves the
annual objectives established by the Company. If Mr. Case's employment with the
Company is terminated at any time without cause, the Company must pay Mr. Case
as severance the unpaid base salary he would have been entitled to receive for
the remainder of the current term and the earned but unpaid bonus during the
year of termination. Pursuant to his employment agreement, Mr. Case is eligible
to receive options to purchase 300,000 shares of Common Stock, with one-third
vesting on January 1, 1999, one-third on January 1, 2000 and one-third on
January 1, 2001. The options are exercisable until December 1, 2007. The
exercise price per share for the options is $9.12. Pursuant to his employment
agreement, Mr. Case agrees not to compete with the Company during his employment
with the Company and for one year thereafter.
On August 22, 1997, Office Centre Corporation entered into an employment
agreement with Mr. Hajjar pursuant to which Mr. Hajjar serves as Senior Vice
President and Chief Financial Officer of the Company for a term expiring on the
third anniversary of the date of the consummation of this Offering. Mr. Hajjar
receives an annual base salary of $185,000. Mr. Hajjar will be eligible for
annual bonuses of up to 25% of his annual base salary determined by the Board of
Directors of Office Centre Corporation, although payment of a bonus is not
required. If Mr. Hajjar's employment is terminated at any time without cause,
the Company must pay Mr. Hajjar as severance an amount equal to the base salary
he would have been entitled to receive for the one year period following his
termination without cause. Pursuant to his employment agreement, at the time of
the Offering Mr. Hajjar will be awarded options to purchase 50,000 shares of
Common Stock, with one-third vesting on the first anniversary of the Offering,
one-third on the second anniversary of the Offering and one-third on the third
anniversary of the Offering. The options are exercisable for ten years from the
date of the Offering. The exercise price for the options is the initial public
offering price per share. Pursuant to his employment agreement, Mr. Hajjar
agrees not to compete with the Company during his employment with the Company
and for one year thereafter.
Effective May 8, 1998, Office Centre Corporation entered into a three-year
employment agreement with Mr. Mooney pursuant to which Mr. Mooney serves as a
Vice President of the Company. Mr. Mooney receives an annual base salary of
$115,000. Mr. Mooney will be eligible for annual bonuses of up to 50% of his
annual base salary determined by the Board of Directors of Office Centre
Corporation based upon Mr. Mooney's performance, although payment of a bonus is
not required. If Mr. Mooney's employment with the Company is terminated at any
time without cause, the Company must pay Mr. Mooney as severance an amount equal
to the base salary he would have been entitled to receive for the one year
period following his termination without cause. Pursuant to his employment
agreement at the time of the Offering Mr. Mooney will be awarded options to
purchase 50,000 shares of Common Stock, with one-third vesting on the first
anniversary of the Offering, one-third on the second anniversary of the Offering
and one-third on the third anniversary of the Offering. The options are
exercisable for ten years from the date of this Offering. The exercise price for
the options is the initial public offering price per share. Pursuant to his
employment agreement, Mr. Mooney agrees not to compete with the Company during
his employment with the Company and for one year thereafter.
46
<PAGE> 48
Simultaneous with the Offering, Office Centre Corporation will enter into a
three-year employment agreement with Mr. Jones pursuant to which Mr. Jones will
serve as President of TSR. Mr. Jones will receive an annual base salary of
$150,000. Mr. Jones will be eligible for annual bonuses which will be dependent
upon the achievement of profitability objectives for his division. Payment of
such bonuses is not required but, if paid, will range from $0 if Mr. Jones'
division achieves less than 100% of the profitability objectives to 100% of his
annual base salary if Mr. Jones' division achieves 130% of the profitability
objectives. Mr. Jones will also receive additional bonuses if he actively
assists in acquiring a target company in an amount equal to .5% of the
annualized sales of such target company for the twelve months preceding such
acquisition. If Mr. Jones terminates his employment for good reason (as defined
in his employment agreement) at any time after six months following the
commencement of his employment, the Company must pay Mr. Jones as severance an
amount equal to the base salary he would have been entitled to receive for the
remainder of the then current term of the employment agreement had such
termination not occurred. Mr. Jones will also agree not to compete with the
Company during his employment with the Company and for two years thereafter.
Pursuant to his employment agreement, at the time of the Offering Mr. Jones will
be awarded options to purchase 50,000 shares of Common Stock, which will vest
ratably over three years. The options are exercisable for ten years from the
date of the Offering. The exercise price for the options is the initial public
offering price per share.
Annual bonuses for the Company's executive officers will be determined by
evaluating the responsibilities of the position held, the experience and
individual performance of the executive officer and the overall performance of
the Company. The Compensation Committee believes that, to the extent funds are
available, annual bonuses should be paid by the Company so that the total
compensation paid to the executive officer is maintained at levels at least
competitive with those offered by companies with which the Company competes for
executive talent in order to attract and retain executive officers of the
caliber that the Company desires.
1998 STOCK OPTION PLAN
In March 1998, the Company adopted the 1998 Stock Option Plan (the "Plan").
The Plan is administered by the Compensation Committee, which consists of four
directors, two of which are independent members of the Board of Directors.
Pursuant to the Plan, the Company may grant options to purchase up to 1,500,000
shares of Common Stock to officers, directors, consultants and employees of the
Company, its subsidiaries and affiliates. Such options may be either incentive
stock options or options which do not qualify for treatment as incentive stock
options. The Plan also provides for the grant of stock appreciation rights
("SARs") in conjunction with all or part of any stock option granted under the
Plan. SARs are exercisable at such time and to the extent as the stock options
to which they relate.
Options granted under the Plan are non-transferable by the optionee during
his lifetime, and will expire if not exercised within ten years from the date of
the grant and terminate upon an optionee's termination of employment or service
with the Company or a subsidiary, except that, under certain circumstances,
options are exercisable for a period of three months after retirement or
termination of employment and for a period of one year after death or
disability, unless such options expire earlier.
Incentive stock options are also subject to the following limitations (i)
the aggregate fair market value (determined at the time an option is granted) of
stock with respect to which incentive stock options are exercisable for the
first time by an optionee during any calendar year (under all such plans of the
Company or its subsidiaries) shall not exceed $100,000; and (ii) if the
individual to whom the incentive stock options were granted is considered as
owning stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company, then (A) the option price at the time of grant
may not be less than 110% of the fair market value per share for such Common
Stock and (B) the option period must be no more than five years from the date of
grant.
In the event of a Change in Control of the Company, for a period of 60 days
thereafter, holders of options under the Plan shall have the right to surrender
all or a portion of the options held by them (whether or not exercisable) and to
receive cash in an amount equal to the amount by which the Change of Control
Price per share of Common Stock on the date of such election exceeds the
exercise price, multiplied by the numbers of shares underlying the options held
by them. The Plan defines "Change in Control" as (i) an acquisition of 20% or
more
47
<PAGE> 49
of the outstanding common voting stock of the Company; (ii) a change in the
majority of the composition of the Board of Directors of the Company; (iii) a
reorganization, merger, consolidation or sale of all or substantially all of the
assets of the Company; or (iv) dissolution or liquidation of the Company. The
Change in Control Price is the highest price of a share of Common Stock on the
exchange on which the shares are listed during the 60-day period prior to the
Change in Control.
Upon the consummation of the Offering, options to acquire 1,124,600 shares
will have been granted under the Plan and no SARs will have been granted under
the Plan.
48
<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of the Company's Common Stock immediately prior to and immediately
following the Offering (assuming no exercise of the Underwriters' over-allotment
option) by: (i) all persons known to the Company to be the beneficial owner of
5% or more of the Company's Common Stock; (ii) each Selling Stockholder; (iii)
each director; (iv) each Named Executive Officer; and (v) all executive officers
and directors as a group. Except as otherwise indicated below, each of the
persons listed has sole voting and investment power with respect to their
shares.
<TABLE>
<CAPTION>
COMMON
STOCK NUMBER OF
BENEFICIALLY PERCENTAGE COMMON SHARES
OWNED OWNERSHIP STOCK TO BENEFICIALLY PERCENTAGE
PRIOR TO PRIOR TO BE SOLD OWNED OWNERSHIP
NAME AND ADDRESS OF THE THE IN THE AFTER THE AFTER THE
BENEFICIAL OWNER OFFERING(1) OFFERING OFFERING OFFERING OFFERING
------------------- ------------ ---------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Clifford M. Davie(2)........................ 770,304 53.7% 200,000 570,304 6.7%
20 Royal Palm Way
Unit 103
Boca Raton, FL 33432
Walter H. Gordenstein(3).................... 537,054 37.5% 225,000 312,054 3.7%
c/o UDI Corp.
90 Tapley Street
Springfield, MA 01101
Robert J. Gillon, Jr.(4).................... -- -- -- 329,937 3.9%
c/o Office Centre Corporation
38 East 32nd Street
New York, NY 10016
Yancey S. Jones(5).......................... -- -- -- 552,782 6.5%
c/o The Supply Room Companies, Inc.
4103 West Clay Street
Richmond, VA 23230
Joseph E. Hajjar(6)......................... 50,000 3.5% -- 50,000 0.6%
c/o Office Centre Corporation
38 East 32nd Street
New York, NY 10016
All directors and executive officers as a
group(7).................................. 50,000 3.5% -- 962,264 11.3%
</TABLE>
- ---------------
(1) Gives effect to the transfer of 35,465 shares of Common Stock from the
stockholders of the Company (other than Joseph Hajjar) to Joseph Hajjar,
pursuant to the terms of an agreement dated as of July 9, 1998, among the
Company and all of the stockholders of the Company.
(2) Includes 37,670 shares held by Dean Witter Reynolds, custodian for Clifford
M. Davie IRA Rollover Trust (the "Davie Trust"). Clifford Davie and the
Davie Trust have agreed that following the completion of the Offering
through December 31, 2002, they will vote all shares of Common Stock owned
by them in the same proportion as all other outstanding shares of Common
Stock are voted. See "-- Standstill Agreements with Founders." Does not
include 29,064 shares held by John Davie, Clifford Davie's son, as to which
Clifford Davie disclaims beneficial ownership. Mr. Davie has formerly served
as a director and as Treasurer of Office Centre Corporation and as a
director of UDI and certain of UDI's subsidiaries. For additional
information about Mr. Davie, see "Certain Transactions."
(3) Does not include 25,000 shares of Common Stock which may be acquired by
Peter B. Gordenstein, Walter H. Gordenstein's son, upon the exercise of
options which are not exercisable within 60 days, of which Walter
Gordenstein disclaims beneficial ownership. Walter Gordenstein has granted
the Underwriters an option to purchase 204,640 shares of Common Stock solely
to cover over-allotments, if any. To the extent such option is exercised,
the number and percent of shares beneficially owned by Mr. Gordenstein after
the Offering will
49
<PAGE> 51
be reduced accordingly. In the past, Mr. Gordenstein has served as a
director and President of Office Centre Corporation, a director, President
and Chief Executive Officer of UDI and a director and officer of certain of
UDI's subsidiaries. For additional information about Mr. Gordenstein, see
"Management" and "Certain Transactions."
(4) Consists of an estimated 329,937 shares to be acquired upon consummation of
the Offering in connection with the Acquisition of King. Does not include
50,000 shares which may be acquired by Mr. Gillon upon the exercise of
options not exercisable within 60 days.
(5) Consists of an estimated 552,782 shares to be acquired upon consummation of
the Offering in connection with the Acquisition of TSR. Does not include
50,000 shares which may be acquired by Yancey S. Jones upon the exercise of
options not exercisable within 60 days. Does not include an estimated
184,261 shares to be acquired by M. Addison Jones, the brother of Yancey
Jones, upon consummation of the Offering in connection with the Acquisition
of TSR, or 25,000 shares which may be acquired by M. Addison Jones upon the
exercise of options not exercisable within 60 days, as to all of which
Yancey Jones disclaims beneficial ownership.
(6) Does not include 50,000 shares of Common Stock which may be acquired by Mr.
Hajjar upon the exercise of options not exercisable within 60 days.
(7) Does not include 50,000, 50,000, 300,000, 50,000, 20,000 and 20,000 shares
of Common Stock which may be acquired by Messrs. Gillon, Hajjar, Case,
Mooney, Schefer and Murphy, respectively, upon the exercise of options not
exercisable within 60 days. See "Management -- Employment Agreements;
Covenants Not to Compete" and "Management--Director Compensation."
INVOLVEMENT OF FOUNDER IN LEGAL PROCEEDINGS
In January 1993, an involuntary bankruptcy petition (In Re Interco Systems,
Inc., Case No. 93-20144, United States Bankruptcy Court for the Western District
of New York) was filed against a company of which Clifford M. Davie, a founder
and principal stockholder of Office Centre Corporation, was president and chief
executive officer. In such proceeding, the bankruptcy trustee filed adversary
proceedings against Mr. Davie which were settled by Mr. Davie's returning his
interest in a real estate project and paying $475,000 in cash to the bankrupt
estate. The bankruptcy case has proceeded to the distribution phase of the
liquidation.
STANDSTILL AGREEMENTS WITH FOUNDERS
On May 13, 1998, Office Centre Corporation, Mr. Davie and the Davie Trust
entered into an agreement (the "Davie Standstill Agreement") whereby Mr. Davie
and the Davie Trust have agreed not to sell or transfer more than 25% of the
shares of Common Stock owned by each of them during each six month period in the
two years following the expiration of the Lockup Period. Pursuant to the Davie
Standstill Agreement, Mr. Davie and the Davie Trust have agreed that following
the completion of the Offering through December 31, 2002, they will vote all
shares of Common Stock owned by them in the same proportion as all other
outstanding shares of Common Stock are voted. They have irrevocably authorized
certain officers of the Company as their proxy to vote their shares in
accordance with such agreement through December 31, 2002. Mr. Davie also agreed
that he will not participate in any manner in the management of the Company, nor
will he acquire any additional capital stock or other securities of the Company
or seek to influence the voting thereof by other stockholders of the Company. In
addition, Mr. Davie has agreed not to compete with the Company until May 2003.
On April 15, 1998, Office Centre Corporation and Mr. Gordenstein entered
into an agreement whereby Mr. Gordenstein has agreed not to sell or transfer
more than 25% of the shares of Common Stock owned by him during each six month
period in the two years following the expiration of Lockup Period. In addition,
Mr. Gordenstein has agreed not to compete with the Company until April 2003.
50
<PAGE> 52
CERTAIN TRANSACTIONS
TRANSACTIONS WITH EXECUTIVE OFFICERS AND DIRECTORS
Mr. Gillon, Chairman, Chief Executive Officer and President of Office
Centre Corporation, is also the President and Chief Executive Officer of King
and, until the consummation of the Acquisition of King, will own approximately
70% of the stock of King. Upon the closing of the Acquisition of King, Office
Centre Corporation will pay to King's stockholders aggregate consideration of
approximately $6.6 million, subject to adjustment, consisting of approximately
$2.9 million in cash and $3.6 million in shares of Common Stock. Office Centre
Corporation will also repay approximately $2.4 million of debt of King, of which
$665,000, plus certain interest and costs, was personally guaranteed by Robert
J. Gillon, Jr. The consideration to be paid for King was not negotiated at arm's
length but was determined based on the average multiple of EBITDA used to
determine the purchase price of the three other largest Founding Companies. The
Board of Directors of Office Centre Corporation, including all of its
disinterested directors, unanimously determined in its good faith business
judgment that the consideration to be paid for King was consistent with that
paid for the other Founding Companies and that the other terms and conditions of
the King acquisition were substantially similar to those of the other
Acquisitions, each of which was the subject of arm's length negotiations.
Effective June 30, 1996, King purchased substantially all of the assets,
(principally accounts receivable, inventory and leasehold improvements) subject
to the assumption of substantially all of the liabilities, of King Office Supply
Co. for $647,142. The liabilities assumed included a $75,000 promissory note
which was subsequently personally guaranteed by Mr. Gillon. Office Centre
Corporation will repay such promissory note in connection with the Acquisition
of King. Also effective June 30, 1996, King purchased certain machinery,
equipment and leasehold improvements relating to the coffee business of Carnegie
Coffee Company for $75,000. On March 1, 1997, King acquired the accounts
receivable, inventory, machinery and equipment of Commercial Office Supply
Company, Inc., doing business as Commercial Office Supply Co., for approximately
$265,000.
Office Centre Corporation has incurred costs payable to King of
approximately $9,500 per month since March 1997 for the use of office space and
certain administrative services. In addition, Office Centre Corporation is
obligated to reimburse King, without markup, for certain disbursements made by
King on behalf of Office Centre Corporation. As a member of UDI, in the ordinary
course of business, King receives wholesale rebates from UDI and reimburses UDI
for direct manufacturer purchases made through UDI.
Prior to becoming an executive officer of the Company, Mr. Case was the
President and owner of Benchmark Associates, Inc. The Company retained the
services of Benchmark Associates, Inc. pursuant to a one-year consulting
agreement that expired February 1, 1998. Under this consulting agreement
Benchmark was paid approximately $94,000, $34,379 of which consisted of
reimbursement for expenses. Pursuant to the Benchmark consulting agreement, at
the time of the Offering, Benchmark will receive $425,000 in cash and $325,000
in the form of shares of Common Stock valued at the initial public offering
price per share. From February 1, 1998 until Mr. Case became an employee of the
Company on May 1, 1998, the Company retained the services of Mr. Case pursuant
to a consulting agreement under which he was paid approximately $104,200, of
which approximately $56,300 consisted of reimbursement for expenses. The
consulting services provided to the Company by Benchmark Associates, Inc. and
Mr. Case included working closely with management in developing the Company's
acquisition strategy, identifying and conducting due diligence on acquisition
candidates, negotiating the acquisitions of the Founding Companies, and
obtaining exclusivity agreements from potential future acquisition candidates.
In September 1997, Office Centre Corporation purchased 1,250 shares of
common stock of TSR for $1.5 million. Yancey S. Jones, a director of Office
Centre Corporation, is an officer and director of TSR and, until the closing of
the Acquisition of TSR, Mr. Jones and his brother, M. Addison Jones, will be the
principal shareholders of TSR. Upon the closing the Acquisition of TSR, Office
Centre Corporation will pay to TSR's stockholders aggregate consideration of
approximately $10.9 million, subject to adjustment, consisting of approximately
$2.8 million in cash and approximately $8.1 million in shares of Common Stock
valued at the initial public offering price per share. Office Centre Corporation
may, in its sole discretion, substitute cash in the amount of $1 million with
respect to the Acquisition as consideration in lieu of $1 million of Common
Stock
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<PAGE> 53
otherwise deliverable in connection with such Acquisition. Office Centre
Corporation will also repay approximately $2.7 million of debt of TSR, $750,000
of which is personally guaranteed by Yancey S. Jones and/or M. Addison Jones and
$290,000 of which is payable to Yancey S. Jones and/or M. Addison Jones. See
"Business -- Current Business -- The Acquisitions of the Founding Companies" for
a description of the factors considered by Office Centre Corporation in
determining the consideration to be paid for TSR. The consideration to be paid
for TSR was determined by the Board of Directors (including independent
directors) of Office Centre Corporation prior to the time Mr. Jones became a
member of the Board of Directors.
TSR entered into a ten-year lease dated January 1, 1992 with Yancey Jones
and M. Addison Jones for commercial space in Virginia. The monthly rent under
the lease is $6,000 in the first three years, $7,000 for the next two years,
$8,000 for the next year, and increasing by 2% thereafter.
TSR entered into a ten-year lease dated October 1, 1993 with Mr. Jones for
commercial space in Virginia for a monthly rent of $4,300 in the first year,
increasing by 4% per year thereafter.
TRANSACTIONS WITH FOUNDERS
In connection with the formation of Office Centre Corporation, Office
Centre Corporation issued 1,291,157 shares of Common Stock at an aggregate
purchase price of approximately $4,442 to Messrs. Davie, Gordenstein and John D.
Kaweske. These shares were issued to Messrs. Davie, Gordenstein and Kaweske in
connection with the founding of Office Centre Corporation, prior to the
acquisition of UDI by Office Centre Corporation and prior to the commencement of
Office Centre Corporation's business. The three founders paid an amount in cash
equal to the par value of the shares purchased and the issuance was recorded by
Office Centre Corporation at such amount.
On May 23, 1997, Messrs. Davie and Gordenstein entered into two Stock
Purchase Agreements with Office Centre Corporation pursuant to which Mr.
Gordenstein and the Davie Trust transferred all of their capital stock in UDI
Corp. and UDI II Corp. to Office Centre Corporation, whereupon UDI Corp. and UDI
II Corp. became wholly-owned subsidiaries of Office Centre Corporation. In
consideration therefor, Mr. Gordenstein received an aggregate of 26,292 shares
of Common Stock and the Davie Trust received an aggregate of 37,670 shares of
Common Stock. The consideration was determined by the Board of Directors of
Office Centre Corporation at the time consisting of Messrs. Gordenstein, Gillon,
Davie and Kaweske. The principle used in determining the amount of consideration
was to give Mr. Gordenstein and the Davie Trust an interest in Office Centre
Corporation proportionate to the interests they held in UDI.
From time to time, UDI has borrowed funds from its directors, officers and
principal shareholders. In 1997, UDI repaid loans of approximately $200,000 and
approximately $364,000 made to UDI by Messrs. Gordenstein and Davie,
respectively, at an interest rate of 7%.
UDI entered into a three-year lease dated January 1, 1997, with Mr.
Gordenstein for office space in Massachusetts for a monthly rent of $2,767 (plus
lessee's proportionate share of any increase in the annual real estate taxes on
the property above the real estate taxes assessed for fiscal year ending June
30, 1997).
On July 20, 1995, Mr. Davie and Buying Group Services, Inc. ("Buying
Group"), a company wholly-owned by Mr. Davie, entered into an agreement with UDI
pursuant to which Mr. Davie and Buying Group were retained by UDI to provide
consulting services for a period of eight years. These consulting services
consist of providing marketing ideas to UDI, recruiting new UDI members,
servicing existing UDI members and implementing UDI marketing programs. Mr.
Davie and/or Buying Group receive a base salary equal to the greater (i) $50,000
or (ii) the base salary of the highest paid sales representative of UDI, and
commissions based on one-half of the income derived from certain fees UDI
receives from certain UDI members. Pursuant to this agreement, Mr. Davie and
Buying Group received compensation of approximately $555,800 in 1997, which
consisted of an annual salary of approximately $190,400, sales commissions of
approximately $283,600 and consulting fees of approximately $12,500 paid to Mr.
Davie or Buying Group, life insurance premium payments of approximately $68,300,
and $1,000 in director fees paid to Mr. Davie. This Agreement will be terminated
upon the consummation of the Offering.
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On January 9, 1998, Office Centre Corporation entered into a license
agreement with John Davie, who is the son of Clifford Davie. Pursuant to the
license agreement, John Davie granted to Office Centre Corporation a
royalty-free, perpetual license to use the marketing concept and name "Smart
Consumer" in the office products, office services and office furniture business
worldwide (the "License"). In consideration of the License, Office Centre
Corporation issued John Davie 29,064 shares of Common Stock and, if Office
Centre Corporation exploits the License in Taiwan, agreed to pay an additional
fee of 15% of all profits therefrom. If after 18 months of consummation of the
Offering, Office Centre Corporation does not spend reasonable amounts of time
and money exploiting the License, John Davie will have a 30-day option to
repurchase the License for either $500,000 or 14,532 shares of Common Stock.
John Davie also agreed not to compete with the business of Office Centre
Corporation within a 25 mile radius of any business location of Office Centre
Corporation or any of its subsidiaries from the date of the agreement until the
end of the 30-day option period.
Pursuant to a Financial Advisory Agreement, Office Centre Corporation has
retained R.K. Grace & Company ("R.K. Grace") to provide financial advice in
connection with its business plan and its acquisition program from February 1,
1997 through December 31, 1998. Mr. Kaweske, a founder and former director and
officer of Office Centre Corporation, is the Chief Executive Officer and a
founder of R.K. Grace. R.K. Grace receives a monthly fee of $5,000 plus expenses
and, in the event the Offering closes during the term of the agreement, it will
receive $587,500 in cash and $1,175,000 in the form of shares of Common Stock
valued at the initial public offering price per share. Also pursuant to the
Financial Advisory Agreement, Office Centre Corporation issued 47,741 shares of
Common Stock to Mr. Kaweske. In 1997, Office Centre Corporation paid R.K. Grace
approximately $97,200.
FUTURE TRANSACTIONS WITH AFFILIATES
In the future, transactions with affiliates of the Company are anticipated
to be minimal and will be approved by a majority of the Board of Directors,
including a majority of the disinterested members of the Board of Directors, and
will be made on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $.001 per share and 5,000,000 shares of preferred stock,
par value $1.00 per share (the "Preferred Stock"). After giving effect to the
Acquisitions, but prior to the consummation of the Offering, the Company will
have outstanding 4,925,000 shares of Common Stock and no shares of Preferred
Stock. Upon completion of the Offering, the Company will have outstanding
8,500,000 shares of Common Stock. As of July 1, 1998, there were six record
holders of Common 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.
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." 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. The holders of Common Stock have no preemptive
rights to purchase shares of stock 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 outstanding shares of Common Stock are, and the
shares of Common Stock to be issued pursuant to the Offering will be upon
payment therefor, fully paid and non-assessable.
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PREFERRED STOCK
The Company's stockholders have approved the creation of a class of
preferred shares, $1.00 par value, to consist of up to 1,000 shares for which
the Board of Directors shall have the authority, without further action by the
stockholders, to issue in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series. The issuance of preferred shares could adversely affect the
voting power of holders of Common Shares and the likelihood that such holders
would receive dividends or payments upon liquidation. In the event of issuance,
the preferred shares could be utilized, under certain circumstances, as a method
of discouraging, deferring or preventing a change in control of the Company.
CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BY-LAWS
Upon consummation of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("DGCL")
("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 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 and who 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.
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 bylaw 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.
The Certificate of Incorporation and By-Laws of the Company contain various
provisions which may have the effect of discouraging future takeover attempts
which the Company's stockholders may deem to be in their best interests and
perpetuating the Company's existing management. Among other things, such
provisions: (i) provide the Board of Directors with broad discretion to issue
preferred stock; (ii) provide for three year terms for the directors of the
Company and the election of such directors on a staggered basis; (iii) prohibit
certain business combinations without the affirmative vote of the holders of at
least 80% of the then outstanding shares of Common Stock and at last 66% of each
series of preferred stock then outstanding; and (iv) require the approval of 80%
of all shares of Common Stock eligible to vote for any proposed amendment to the
Certificate of Incorporation or By-Laws that seeks to modify or remove the
foregoing provisions.
The Company's Certificate of Incorporation provides that liability of
directors of the Company is eliminated to the fullest extent permitted under the
DGCL. As a result, no director of the Company will be liable to the Company or
its stockholders for monetary damages for 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) for any wilful or negligent payment of an unlawful dividend, stock
purchase or redemption; or (iv) for any transaction from which the director
derived an improper personal benefit.
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<PAGE> 56
In addition, pursuant to indemnification agreements with each of its
executive officers and directors, the Company has agreed to indemnify each such
person from any action or omission by him in his capacity as officer or director
of the Company other than actions or omissions resulting from knowingly
fraudulent, deliberately dishonest or intentional misconduct. The Company
maintains directors' and officers' liability insurance in the amount of $5
million.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the consummation of the Acquisitions,
the Company will have outstanding 8,500,000 shares of Common Stock. The
4,000,000 shares sold in the Offering will be freely tradeable without
restriction unless purchased by affiliates of the Company. None of the remaining
4,500,000 outstanding shares of Common Stock (collectively, the "Restricted
Shares") have been registered under the Securities Act, which means that they
may be resold publicly only upon registration under the Securities Act or in
compliance with an exemption from the registration requirements of the
Securities Act, including the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from the Company or any affiliate of the Company, the acquirer or
subsequent holder thereof may sell, within any three-month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the average
weekly trading volume of the Common Stock on the Nasdaq National Market during
the four calendar weeks preceding the date on which notice of the sale is filed
with the Securities and Exchange Commission. Sales under Rule 144 are also
subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. If two years have
elapsed since the later of the date of acquisition of restricted shares of
Common Stock from the Company or from any affiliate of the Company and the
acquirer or subsequent holder thereof is deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale, such person would
be entitled to sell such shares under Rule 144(k) without regard to the
limitations described above.
Upon the consummation of this Offering, the Company will have outstanding
options to purchase 1,124,600 shares of Common Stock, of which 824,600 options
will be exercisable at the initial public offering price per share, and 300,000
of which options will be exercisable at $9.12 per share. The Company has granted
or is committed to grant 560,000 of these options to current employees of Office
Centre Corporation and UDI and is committed to grant 40,000 of these options to
independent directors of Office Centre Corporation. The remaining 524,600
options will be granted to certain employees of the Founding Companies who will
become employees of the Company upon consummation of the Acquisitions. The
Company expects to file a registration statement on Form S-8 under the
Securities Act to register 1,500,000 shares of Common Stock issuable upon
exercise of options to be granted under the 1998 Stock Option Plan. Accordingly,
such shares will be freely tradeable by holders who are not affiliates of the
Company and, subject to the volume and manner of sale limitations of Rule 144,
by holders who are affiliates of the Company.
Pursuant to the agreements relating to the Acquisitions of TSR and
Greenwood, the Company granted recipients of Common Stock in such Acquisitions
certain piggy-back registration rights on customary terms and conditions. Up to
approximately 1,332,455 shares of Common Stock will be covered by such
registration rights following the Offering. Such registration rights are subject
to certain notice requirements, timing restrictions and volume limitations which
may be imposed by the Underwriters.
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market could adversely affect prevailing market
prices and the ability of the Company to raise equity capital in the future.
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<PAGE> 57
UNDERWRITING
Morgan Keegan & Company, Inc., McDonald & Company Securities, Inc. and
Credit Lyonnais Securities (USA) Inc. (the "Underwriters") have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement (the "Underwriting Agreement") to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus.
<TABLE>
<CAPTION>
NAME OF NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Morgan Keegan & Company, Inc................................
McDonald & Company Securities, Inc..........................
Credit Lyonnais Securities (USA) Inc........................
Total.....................................................
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any of such shares are
purchased. The Company and the Selling Stockholders have been advised by the
Underwriters that the Underwriters propose to offer the shares of Common Stock
to the public at the initial public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share of Common Stock. The Underwriters may allow, and
such dealers may allow, a discount not in excess of $ per share to
other dealers. The initial public offering price and the concessions and
discount to dealers may be changed by the Underwriters after the initial public
offering.
The Company and Mr. Gordenstein have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
additional 600,000 shares of Common Stock (of which the first 204,640 shares
will be sold by Mr. Gordenstein and the remaining shares will be sold by the
Company) at the initial public offering price, less underwriting discounts and
commissions, as shown on the cover page of this Prospectus. The Underwriters may
exercise such option solely for the purpose of covering over-allotments incurred
in the sale of the shares of Common Stock offered hereby.
The Company has agreed to pay Credit Lyonnais Securities (USA) Inc. at the
time of closing of the Offering a financial advisory fee equal to $100,000 for
services rendered in structuring the Offering.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or to contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Company, all of its existing stockholders and all of the former
stockholders of the Founding Companies who will receive Common Stock in
connection with the Acquisitions, have agreed that they will not offer or sell
any shares of Common Stock for a period of 180 days (the "Lockup Period") after
the date of this Prospectus without the prior written consent of the
Underwriters, except that the Company may issue shares of Common Stock in
connection with acquisitions. Messrs. Gordenstein and Davie and the Davie Trust
have agreed with the Company that they will not sell or transfer more than 25%
of the Common Stock owned by each of them during each six month period in the
two years following the Lockup Period. After the Lockup Period (or such longer
period to which a shareholder has agreed), all of such shares may be sold in
accordance with Rule 144, subject to the volume, holding period, and other
limitations of Rule 144.
The Underwriters have reserved for sale, at the initial public offering
price of $ per share, up to 350,000 shares of Common Stock for
employees, directors and certain other persons who have a business relationship
with the Company and have expressed an interest in purchasing such shares of
Common Stock in the Offering. The number of shares available for sale to the
general public in the Offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the Underwriters to the general public on the same terms as the other
shares offered hereby. The Representatives are aware of the "Free-Riding and
Withholding" Conduct Rules of the National Association of Securities Dealers in
connection with the sale of certain issuer-directed securities and will comply
with those rules.
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Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price was negotiated among the Company
and the Underwriters. Among the factors considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, were the Company's historical performance and capital structure,
estimates of the business potential and earnings prospects of the Company, an
overall assessment of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Company's Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "OCCI."
The Underwriters have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934 (the "Exchange Act"). Over-allotment
involves syndicate sales in excess of the offering size, which creates a
syndicate short position. Stabilizing transactions permit bids for and purchases
of Common Stock so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve the purchase of Common Stock in
the open market in order to cover a syndicate short position. Penalty bids
permit the Underwriters to reclaim a selling concession from a syndicate member
when the shares of Common Stock originally sold by such syndicate member are
purchased in a stabilizing transaction or syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions, and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq National Market, or otherwise,
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the issuance of shares of Common Stock offered by this
Prospectus will be passed upon for the Company by Richards & O'Neil, LLP, 885
Third Avenue, New York, New York 10022-4873. Certain legal matters in connection
with the sale of the Common Stock offered hereby will be passed upon for the
Underwriters by Baker, Donelson, Bearman & Caldwell, 2000 First Tennessee
Building, 20th Floor, Memphis, Tennessee 38103.
EXPERTS
The audited financial statements included in this Prospectus have been
audited by Grant Thornton LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information pertaining to the Company and the
shares of Common Stock offered hereby, reference is made to such Registration
Statement, including the exhibits, financial statements, and schedules filed
therewith. Statements contained in this Prospectus as to the contents of any
contract or any other document are not necessarily complete, and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza Building,
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois
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60661-2511. Copies of such materials can be obtained from the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Company is required to file electronic versions of these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis and Retrieval (EDGAR) System. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
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OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
Introduction to Unaudited Pro Forma Combined Financial
Statements............................................. F-3
Unaudited Pro Forma Combined Balance Sheet................ F-4
Unaudited Pro Forma Combined Statement of Operations...... F-5-F-7
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. F-8-F-15
HISTORICAL FINANCIAL STATEMENTS
OFFICE CENTRE CORPORATION AND SUBSIDIARIES (REGISTRANT)
Report of Independent Certified Public Accountants........ F-16
Financial Statements
Consolidated Balance Sheets............................ F-17
Consolidated Statements of Operations.................. F-18
Consolidated Statement of Changes in Stockholders'
Equity (Deficiency)................................... F-19
Consolidated Statements of Cash Flows.................. F-20
Notes to Consolidated Financial Statements............. F-21-F-28
THE SUPPLY ROOM COMPANIES, INC.
Report of Independent Certified Public Accountants........ F-29
Financial Statements
Balance Sheets......................................... F-30
Statements of Operations............................... F-31
Statement of Changes in Stockholders' Equity........... F-32
Statements of Cash Flows............................... F-33
Notes to Financial Statements.......................... F-34-F-41
NEW ENGLAND OFFICE SUPPLY, INC.
Report of Independent Certified Public Accountants........ F-42
Financial Statements
Balance Sheets......................................... F-43
Statements of Operations and Retained Earnings......... F-44
Statements of Cash Flows............................... F-45
Notes to Financial Statements.......................... F-46-F-50
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
Report of Independent Certified Public Accountants........ F-51
Financial Statements
Consolidated Balance Sheets............................ F-52
Consolidated Statements of Operations.................. F-53
Consolidated Statement of Changes in Stockholders'
Equity................................................ F-54
Consolidated Statements of Cash Flows.................. F-55
Notes to Consolidated Financial Statements............. F-56-F-61
</TABLE>
F-1
<PAGE> 61
<TABLE>
<CAPTION>
PAGE
<S> <C>
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
Report of Independent Certified Public Accountants........ F-62
Financial Statements
Balance Sheet.......................................... F-63
Statement of Operations and Retained Earnings.......... F-64
Statement of Cash Flows................................ F-65
Notes to Financial Statements.......................... F-66-F-69
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC.
Report of Independent Certified Public Accountants........ F-70
Financial Statements
Balance Sheets......................................... F-71
Statements of Operations and Retained Earnings......... F-72
Statements of Cash Flows............................... F-73
Notes to Financial Statements.......................... F-74-F-77
GREENWOOD OUTFITTERS, INC.
Report of Independent Certified Public Accountants........ F-78
Financial Statements
Balance Sheets......................................... F-79
Statements of Operations and Retained Earnings......... F-80
Statements of Cash Flows............................... F-81
Notes to Financial Statements.......................... F-82-F-83
GEORGIA IMPRESSION PRODUCTS, INC.
Report of Independent Certified Public Accountants........ F-84
Financial Statements
Balance Sheets......................................... F-85
Statements of Operations and Retained Earnings......... F-86
Statements of Cash Flows............................... F-87
Notes to Financial Statements.......................... F-88-F-91
MEGA OFFICE FURNITURE, L.L.C. (EQUITY INVESTMENT OF THE
SUPPLY ROOM, INC.)
Report of Independent Certified Public Accountants........ F-92
Financial Statements
Balance Sheets......................................... F-93
Statements of Operations............................... F-94
Statement of Changes in Members' Capital............... F-95
Statements of Cash Flows............................... F-96
Notes to Financial Statements.......................... F-97-F-103
</TABLE>
F-2
<PAGE> 62
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
INTRODUCTION TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
Office Centre Corporation, a Delaware corporation, was founded in October
1996 for the purpose of becoming a nationwide office products supplier, that
serves primarily small and medium sized corporate customers. During 1997, Office
Centre Corporation acquired all of the outstanding shares of UDI Corp. and UDI
II Corp. (collectively referred to as "UDI") in a stock-for-stock exchange. UDI
II Corp. was subsequently merged with and into UDI Corp., with UDI Corp.
remaining as the surviving entity. The transaction was accounted for as a
reverse acquisition, with the results of UDI's operations presented on a
historical basis.
The unaudited pro forma combined financial statements give effect to the
acquisitions by Office Centre Corporation of The Supply Room Companies, Inc.
("TSR"), New England Office Supply, Inc. ("New England"), King Office Supply,
Inc. and Subsidiary ("King"), Sierra Office Systems and Products, Inc.
("Sierra"), Office Solutions Business Products and Services, Inc. ("Office
Solutions"), Greenwood Outfitters, Inc. ("Greenwood"), Metro Data Supply, Inc.
("Metro Data"), BCB Office Products Company ("BCB"), "SOS" Office Supply Company
("SOS"), Georgia Impression Products, Inc. ("Georgia Impression"), Office
Express, Inc. ("Office Express"), and Southern Office Centre, Inc. ("Southern
Office Centre") (together the "Founding Companies"). These acquisitions (the
"Acquisitions") will occur simultaneously with and as a condition to the closing
of the initial public offering (the "Offering") and will be accounted for using
the purchase method of accounting whereby the assets and liabilities are
recorded at fair market value. Office Centre Corporation has been identified as
the accounting acquirer for financial statement presentation purposes.
The unaudited pro forma combined balance sheet gives effect to the
Acquisitions and the Offering as if they had occurred on March 31, 1998. The
unaudited pro forma combined statements of operations give effect to these
transactions as if they had occurred on January 1, 1997. The pro forma combined
statements of operations reflect the operating results of Office Centre
Corporation and each of the Founding Companies, for the calendar year ended
December 31, 1997 and for the three months ended March 31, 1997 and 1998. Office
Centre Corporation and each of the Founding Companies have a fiscal year ending
December 31, with the exception of TSR, whose fiscal year-end is the last Friday
closest to September 30; Sierra and Metro Data, whose year-ends are March 31;
Office Solutions, whose fiscal year-end is September 30; SOS, whose fiscal
year-end is July 31; and Georgia Impression, whose fiscal year-end is June 30.
Sierra's and Metro Data's operating results for the year ended March 31,
1997 were adjusted by adding the subsequent period April 1, 1997 to December 31,
1997 and subtracting the interim period April 1, 1996 to December 31, 1996.
TSR's and Office Solutions' operating results for the year ended September 30,
1997 were adjusted by adding the subsequent period October 1, 1997 to December
31, 1997 and subtracting the interim period October 1, 1996 to December 31,
1996. SOS's operating results for the year ended July 31, 1997 were adjusted by
adding the subsequent period August 1, 1997 to December 31, 1997 and subtracting
the interim period August 1, 1996 to December 31, 1996. Georgia Impression's
operating results for the year ended June 30, 1997 were adjusted by adding the
subsequent period July 1, 1997 to December 31, 1997 and subtracting the interim
period July 1, 1996 to December 31, 1996.
The pro forma financial statements include adjustments to reflect (i) the
effect of the Acquisitions of the Founding Companies and the Offering, (ii) the
reductions in salaries, lease costs and certain benefits to the owners of the
Founding Companies, (iii) the effect of contractual compensation of Office
Centre Corporation's new corporate management, (iv) amortization of goodwill
over forty years, (v) elimination of interest expense as a result of the
repayment of certain debt with a portion of the proceeds of the Offering and
(vi) all income subject to a corporate income tax rate of 40% and all goodwill
amortization treated as nondeductible.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma financial data do not purport to represent what the
Company's financial position or results of operations would actually have been
if such transactions, in fact, had occurred on those dates and are not
necessarily representative of the Company's financial position or results of
operations for any future period. Since the Founding Companies were not under
common control, historical combined results may not be comparable to, or
indicative of, future performance. The unaudited pro forma combined financial
statements should be read in conjunction with the other financial statements and
notes thereto included elsewhere in this Prospectus. See "Risk Factors" included
elsewhere herein.
F-3
<PAGE> 63
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
OFFICE
CENTRE
CORPORATION NEW OFFICE
(REGISTRANT) TSR ENGLAND KING SIERRA SOLUTIONS GREENWOOD
------------ ------ ------- ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............... $ 1,395 $ 5 $ 3 $ 13 $ 29 $ 244 $ 348
Accounts receivable, net................ 15,936 3,707 2,663 2,417 1,657 1,335 1,086
Due from related parties................ -- -- -- -- -- -- --
Due from affiliate...................... -- -- -- 120 -- -- --
Inventories............................. -- 1,324 369 473 337 330 166
Other current assets.................... 825 155 121 119 58 93 17
------- ------ ------ ------ ------ ------ ------
Total current assets.................. 18,156 5,191 3,156 3,142 2,081 2,002 1,617
INVESTMENT IN AFFILIATE.................. 1,500 1,318 -- -- -- -- --
DUE FROM STOCKHOLDER..................... -- -- -- -- 800 -- --
PROPERTY AND EQUIPMENT, NET.............. 415 900 374 233 1,078 212 118
GOODWILL, NET............................ -- 952 92 781 -- -- --
DEFERRED OFFERING COSTS.................. 3,955 -- -- -- -- -- --
OTHER ASSETS............................. -- 154 21 146 29 -- --
------- ------ ------ ------ ------ ------ ------
$24,026 $8,515 $3,643 $4,302 $3,988 $2,214 $1,735
======= ====== ====== ====== ====== ====== ======
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Short-term debt......................... $ 2,997 $1,968 $ 633 $2,023 $1,334 $ -- $ --
Accounts payable and accrued expenses... 20,849 2,482 1,410 1,758 1,406 1,134 675
Due to related parties.................. -- -- -- -- -- -- --
Due to affiliate........................ 120 -- -- -- -- -- --
Income taxes payable.................... -- 45 34 45 49 199 2
Liabilities to stockholders............. -- -- -- 78 -- -- --
------- ------ ------ ------ ------ ------ ------
Total current liabilities............. 23,966 4,495 2,077 3,904 2,789 1,333 677
DUE TO RELATED PARTIES................... -- 290 -- -- -- -- --
LONG-TERM DEBT........................... 96 501 492 273 110 -- --
LEASE OBLIGATIONS........................ -- 154 -- -- 389 116 --
DEFERRED INCOME TAXES.................... 22 62 -- 19 -- -- --
------- ------ ------ ------ ------ ------ ------
24,084 5,502 2,569 4,196 3,288 1,449 677
------- ------ ------ ------ ------ ------ ------
STOCKHOLDERS' EQUITY
Common stock............................ 1 2,411 515 -- 329 435 150
Additional paid-in capital.............. 379 -- -- -- -- -- --
Retained earnings (accumulated
deficit).............................. (438) 602 559 106 371 330 1,038
Less: Treasury stock.................... -- -- -- -- -- -- (130)
------- ------ ------ ------ ------ ------ ------
(58) 3,013 1,074 106 700 765 1,058
------- ------ ------ ------ ------ ------ ------
$24,026 $8,515 $3,643 $4,302 $3,988 $2,214 $1,735
======= ====== ====== ====== ====== ====== ======
<CAPTION>
SOUTHEAST SATELLITES
GREENWOOD -------------------------------
SATELLITES PRO
--------------- SOUTHERN FORMA PRO
METRO GEORGIA OFFICE OFFICE ACQUISITION FORMA
DATA BCB SOS IMPRESSION EXPRESS CENTRE ADJUSTMENTS COMBINED
------ ------ ------ ---------- ------- -------- ----------- --------
(NOTE 2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............... $ 116 $ 5 $ 758 $ 307 $ 27 $ 4 $ (183) $ 3,071
Accounts receivable, net................ 310 72 487 361 257 206 -- 30,494
Due from related parties................ -- 1 -- -- -- 5 -- 6
Due from affiliate...................... -- -- -- -- -- -- (120) --
Inventories............................. 16 31 132 54 13 124 -- 3,369
Other current assets.................... -- 8 1 3 -- 3 -- 1,403
------ ------ ------ ------ ------ ------ ------- -------
Total current assets.................. 442 117 1,378 725 297 342 (303) 38,343
INVESTMENT IN AFFILIATE.................. -- -- -- -- -- -- (1,500) 1,318
DUE FROM STOCKHOLDER..................... -- -- -- -- -- -- -- 800
PROPERTY AND EQUIPMENT, NET.............. 44 15 198 50 441 65 (421) 3,722
GOODWILL, NET............................ -- -- -- -- -- -- 47,205 49,030
DEFERRED OFFERING COSTS.................. -- -- -- -- -- -- 3,955
OTHER ASSETS............................. 4 9 100 1 2 8 140 614
------ ------ ------ ------ ------ ------ ------- -------
$ 490 $ 141 $1,676 $ 776 $ 740 $ 415 $45,121 $97,782
====== ====== ====== ====== ====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Short-term debt......................... $ 16 $ 17 $ 18 $ 24 $ 38 $ 186 $ (33) $ 9,221
Accounts payable and accrued expenses... 184 212 465 167 180 286 -- 31,208
Due to related parties.................. -- 8 -- -- -- 9 (9) 8
Due to affiliate........................ -- -- -- -- -- -- (120) --
Income taxes payable.................... 2 -- 30 125 26 -- -- 557
Liabilities to stockholders............. -- -- -- -- -- -- 17,110 17,188
------ ------ ------ ------ ------ ------ ------- -------
Total current liabilities............. 202 237 513 316 244 481 16,948 58,182
DUE TO RELATED PARTIES................... -- 7 -- -- -- 58 (58) 297
LONG-TERM DEBT........................... 9 17 -- -- 339 -- (327) 1,510
LEASE OBLIGATIONS........................ -- -- 49 -- -- -- -- 708
DEFERRED INCOME TAXES.................... -- -- -- -- -- -- -- 103
------ ------ ------ ------ ------ ------ ------- -------
211 261 562 316 583 539 16,563 60,800
------ ------ ------ ------ ------ ------ ------- -------
STOCKHOLDERS' EQUITY
Common stock............................ 30 1 12 48 -- 47 (3,975) 4
Additional paid-in capital.............. -- -- -- -- 1 15 37,021 37,416
Retained earnings (accumulated
deficit).............................. 249 (121) 1,102 544 156 (186) (4,750) (438)
Less: Treasury stock.................... -- -- -- (132) -- -- 262 --
------ ------ ------ ------ ------ ------ ------- -------
279 (120) 1,114 460 157 (124) 28,558 36,982
------ ------ ------ ------ ------ ------ ------- -------
$ 490 $ 141 $1,676 $ 776 $ 740 $ 415 $45,121 $97,782
====== ====== ====== ====== ====== ====== ======= =======
<CAPTION>
PRO
FORMA
OFFERING AS
ADJUSTMENTS ADJUSTED
----------- --------
(NOTE 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............... $ 5,837 $ 8,908
Accounts receivable, net................ -- 30,494
Due from related parties................ -- 6
Due from affiliate...................... -- --
Inventories............................. -- 3,369
Other current assets.................... -- 1,403
------- -------
Total current assets.................. 5,837 44,180
INVESTMENT IN AFFILIATE.................. -- 1,318
DUE FROM STOCKHOLDER..................... -- 800
PROPERTY AND EQUIPMENT, NET.............. -- 3,722
GOODWILL, NET............................ -- 49,030
DEFERRED OFFERING COSTS.................. (3,955) --
OTHER ASSETS............................. -- 614
------- -------
$ 1,882 $99,664
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Short-term debt......................... $(9,019) $ 202
Accounts payable and accrued expenses... -- 31,208
Due to related parties.................. (8) --
Due to affiliate........................
Income taxes payable.................... -- 557
Liabilities to stockholders............. (17,188) --
------- -------
Total current liabilities............. (26,215) 31,967
DUE TO RELATED PARTIES................... (297) --
LONG-TERM DEBT........................... (1,510) --
LEASE OBLIGATIONS........................ -- 708
DEFERRED INCOME TAXES.................... -- 103
------- -------
(28,022) 32,778
------- -------
STOCKHOLDERS' EQUITY
Common stock............................ 5 9
Additional paid-in capital.............. 29,899 67,315
Retained earnings (accumulated
deficit).............................. -- (438)
Less: Treasury stock.................... -- --
------- -------
29,904 66,886
------- -------
$ 1,882 $99,664
======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 64
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFICE CENTRE
CORPORATION NEW OFFICE
(REGISTRANT) TSR ENGLAND KING SIERRA SOLUTIONS GREENWOOD
------------- --------- ------- ------ ------ --------- ---------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $2,600 $9,151 $4,132 $3,870 $3,459 $3,339 $2,718
Cost of revenues........................ 1,307 6,201 3,074 2,461 2,396 2,456 1,738
------ ------ ------ ------ ------ ------ ------
Gross margin........................ 1,293 2,950 1,058 1,409 1,063 883 980
Operating expenses...................... 2,226 2,465 849 1,235 1,063 698 701
Goodwill amortization................... -- 32 1 5 -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income (loss)............. (933) 453 208 169 -- 185 279
Other income (expense)
Interest income....................... 16 (4) -- -- 3 3 --
Interest expense...................... (101) (63) (39) (65) (81) (4) --
Other income (expense)................ -- (99) 4 -- 19 -- --
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes.......... (1,018) 287 173 104 (59) 184 279
Provision for income taxes.............. (302) 128 5 42 (16) 74 1
------ ------ ------ ------ ------ ------ ------
Net income (loss)................... $ (716) $ 159 $ 168 $ 62 $ (43) $ 110 $ 278
====== ====== ====== ====== ====== ====== ======
Pro forma net income per share
Basic and Diluted.....................
Shares used in computing pro forma net
income per share
Basic and Diluted.....................
<CAPTION>
GREENWOOD SOUTHEAST SATELLITES
SATELLITES -------------------------------
-------------- SOUTHERN PRO FORMA
METRO GEORGIA OFFICE OFFICE -----------------------
DATA BCB SOS IMPRESSION EXPRESS CENTRE ADJUSTMENTS COMBINED
----- ------ ------ ---------- ------- -------- ----------- ---------
(NOTE 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $546 $ 223 $1,526 $836 $796 $618 $ -- $ 33,814
Cost of revenues........................ 410 146 1,062 584 553 478 -- 22,866
---- ------ ------ ---- ---- ---- ------ ---------
Gross margin........................ 136 77 464 252 243 140 -- 10,948
Operating expenses...................... 129 71 383 153 207 159 (1,319) 9,020
Goodwill amortization................... -- -- -- -- -- -- 294 332
---- ------ ------ ---- ---- ---- ------ ---------
Operating income (loss)............. 7 6 81 99 36 (19) 1,025 1,596
Other income (expense)
Interest income....................... 1 -- 7 -- -- -- -- 26
Interest expense...................... -- (1) (2) -- (12) (12) 335 (45)
Other income (expense)................ -- -- -- -- 1 17 -- (58)
---- ------ ------ ---- ---- ---- ------ ---------
Income (loss) before taxes.......... 8 5 86 99 25 (14) 1,360 1,519
Provision for income taxes.............. 2 -- 5 39 11 -- 751 740
---- ------ ------ ---- ---- ---- ------ ---------
Net income (loss)................... $ 6 $ 5 $ 81 $ 60 $ 14 $(14) $ 609 $ 779
==== ====== ====== ==== ==== ==== ====== =========
Pro forma net income per share
Basic and Diluted..................... $ 0.09
=========
Shares used in computing pro forma net
income per share
Basic and Diluted..................... 8,500,000
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 65
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFICE CENTRE
CORPORATION NEW OFFICE
(REGISTRANT) TSR ENGLAND KING SIERRA SOLUTIONS GREENWOOD
------------- --------- ------- ------ ------ --------- ---------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $2,786 $8,658 $3,547 $3,481 $2,924 $2,275 $2,051
Cost of revenues........................ 1,404 5,775 2,597 2,199 1,979 1,647 1,328
------ ------ ------ ------ ------ ------ ------
Gross margin........................ 1,382 2,883 950 1,282 945 628 723
Operating expenses...................... 1,092 2,458 856 1,162 936 646 582
Goodwill amortization................... -- 13 13 3 -- -- --
------ ------ ------ ------ ------ ------ ------
Operating income (loss)............. 290 412 81 117 9 (18) 141
Other income (expense)
Interest income....................... 32 10 -- -- 21 3 --
Interest expense...................... (30) (79) (23) (58) (78) (4) --
Other income (expense)................ -- (35) (42) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes.......... 292 308 16 59 (48) (19) 141
Provision for income taxes.............. 136 128 3 8 (20) 24 1
------ ------ ------ ------ ------ ------ ------
Net income (loss)................... $ 156 $ 180 $ 13 $ 51 $ (28) $ (43) $ 140
====== ====== ====== ====== ====== ====== ======
Pro forma net income per share
Basic and Diluted.....................
Shares used in computing pro forma net
income per share
Basic and Diluted...................
<CAPTION>
GREENWOOD SOUTHEAST SATELLITES
SATELLITES -------------------------------
------------ SOUTHERN PRO FORMA
METRO GEORGIA OFFICE OFFICE ------------------------
DATA BCB SOS IMPRESSION EXPRESS CENTRE ADJUSTMENTS COMBINED
----- ---- ------ ---------- ------- -------- ----------- ----------
(NOTE 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................................ $502 $201 $1,334 $752 $703 $592 $ -- $ 29,806
Cost of revenues........................ 392 133 882 557 466 453 -- 19,812
---- ---- ------ ---- ---- ---- ----- ----------
Gross margin........................ 110 68 452 195 237 139 -- 9,994
Operating expenses...................... 97 57 514 161 185 160 (575) 8,331
Goodwill amortization................... -- -- -- -- -- -- 294 323
---- ---- ------ ---- ---- ---- ----- ----------
Operating income (loss)............. 13 11 (62) 34 52 (21) 281 1,340
Other income (expense)
Interest income....................... -- -- 9 2 -- -- -- 77
Interest expense...................... -- (3) (2) -- (12) (10) 250 (49)
Other income (expense)................ -- (21) -- -- -- -- -- (98)
---- ---- ------ ---- ---- ---- ----- ----------
Income (loss) before taxes.......... 13 (13) (55) 36 40 (31) 531 1,270
Provision for income taxes.............. -- -- (3) 10 16 (12) 346 637
---- ---- ------ ---- ---- ---- ----- ----------
Net income (loss)................... $ 13 $(13) $ (52) $ 26 $ 24 $(19) $ 185 $ 633
==== ==== ====== ==== ==== ==== ===== ==========
Pro forma net income per share
Basic and Diluted..................... $ 0.07
==========
Shares used in computing pro forma net
income per share
Basic and Diluted................... 8,500,000
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 66
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
OFFICE CENTRE
CORPORATION NEW OFFICE
(REGISTRANT) TSR ENGLAND KING SIERRA SOLUTIONS GREENWOOD
------------- --------- ------- ------- ------- --------- ---------
(NOTE 5)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $11,002 $37,847 $14,665 $13,893 $12,215 $10,879 $ 8,920
Cost of revenues................... 5,489 26,304 10,975 8,780 8,095 7,971 5,885
------- ------- ------- ------- ------- ------- -------
Gross margin................... 5,513 11,543 3,690 5,113 4,120 2,908 3,035
Operating expenses................. 4,981 10,621 3,226 4,690 3,829 2,653 2,652
Goodwill amortization.............. -- 58 147 46 -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income (loss)........ 532 864 317 377 291 255 383
Other income (expense)
Interest income.................. 84 15 -- 1 130 10 --
Interest expense................. (189) (283) (141) (254) (326) (14) --
Other income (expense)........... -- (147) -- -- (22) -- --
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes..... 427 449 176 124 73 251 383
Provision for income taxes......... 244 238 10 15 30 101 3
------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $ 183 $ 211 $ 166 $ 109 $ 43 $ 150 $ 380
======= ======= ======= ======= ======= ======= =======
Pro forma net income per share
Basic and Diluted................
Shares used in computing pro forma
net income per share
Basic and Diluted................
<CAPTION>
GREENWOOD SOUTHEAST SATELLITES
SATELLITES -------------------------------
--------------- SOUTHERN PRO FORMA
METRO GEORGIA OFFICE OFFICE ------------------------
DATA BCB SOS IMPRESSION EXPRESS CENTRE ADJUSTMENTS COMBINED
------ ------ ------- ---------- ------- -------- ----------- ----------
(NOTE 3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $2,167 $ 745 $ 5,484 $3,642 $2,856 $2,531 $ -- $ 126,846
Cost of revenues................... 1,694 504 3,595 2,649 1,941 1,929 -- 85,811
------ ------ ------- ------ ------ ------ ------- ----------
Gross margin................... 473 241 1,889 993 915 602 -- 41,035
Operating expenses................. 452 281 1,994 811 785 653 (3,174) 34,454
Goodwill amortization.............. -- -- -- -- -- -- 1,168 1,419
------ ------ ------- ------ ------ ------ ------- ----------
Operating income (loss)........ 21 (40) (105) 182 130 (51) 2,006 5,162
Other income (expense)
Interest income.................. 1 -- 34 7 -- -- -- 282
Interest expense................. (1) (11) (8) (3) (42) (53) 1,150 (175)
Other income (expense)........... -- (18) (23) -- -- 24 -- (186)
------ ------ ------- ------ ------ ------ ------- ----------
Income (loss) before taxes..... 21 (69) (102) 186 88 (80) 3,156 5,083
Provision for income taxes......... 4 -- 6 52 16 -- 1,882 2,601
------ ------ ------- ------ ------ ------ ------- ----------
Net income (loss).............. $ 17 $ (69) $ (108) $ 134 $ 72 $ (80) $ 1,274 $ 2,482
====== ====== ======= ====== ====== ====== ======= ==========
Pro forma net income per share
Basic and Diluted................ $ 0.29
==========
Shares used in computing pro forma
net income per share
Basic and Diluted................ 8,500,000
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 67
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ACQUISITION OF THE FOUNDING COMPANIES
The following table sets forth the consideration to be paid (the "Purchase
Consideration") in cash and shares of restricted Common Stock to the Founding
Companies, and the allocation of the consideration to the net assets acquired
and resulting goodwill at March 31, 1998. The number of shares to be issued to
the Founding Companies is based upon the assumed Initial Public Offering ("IPO")
price of $11 per share.
<TABLE>
<CAPTION>
NET
SHARES OF ASSETS
COMMON VALUE OF TOTAL (LIABILITIES)
CASH STOCK SHARES CONSIDERATION ACQUIRED GOODWILL
------- --------- -------- ------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
TSR(2)........................ $ 4,257 737,042 $ 8,107(1) $12,364 $3,013 $ 9,351
New England................... 2,000 408,909 4,498(1) 6,498 1,074 5,424
King.......................... 2,937 329,937 3,629 6,566 106 6,460
Sierra........................ 822 441,920 4,861 5,683 700 4,983
Office Solutions.............. 3,826 347,773 3,825 7,651 765 6,886
Greenwood..................... 2,650 595,455 6,550(1) 9,200 1,058 8,142
SOS........................... 600 264,545 2,910 3,510 1,114 2,396
Georgia Impression(3)......... 325 88,773 977 1,302 277 1,025
Office Express(4)............. 195 100,610 1,107 1,302 95 1,207
Southern Office Centre(5)..... 300 -- -- 300 (57) 357
Metro Data.................... 531 39,518 435 966 279 687
BCB........................... 167 -- -- 167 (120) 287
------- --------- ------- ------- ------ -------
$18,610 3,354,482 $36,899 $55,509 $8,304 $47,205
======= ========= ======= ======= ====== =======
</TABLE>
- ---------------
(1) Pursuant to the definitive merger agreements, as amended, between the
Company and each of TSR, New England, and Greenwood, respectively, the
Company, in its sole discretion, may substitute cash in the amount of $1
million with respect to each such transaction as consideration in lieu of $1
million of Common Stock otherwise deliverable under each such agreement.
(2) Cash includes the purchase of 1,250 shares of TSR stock for $1.5 million in
September 1997.
(3) Net assets as of March 31, 1998 have been adjusted to reflect entitlement of
Georgia Impression stockholders to cash in excess of $100,000 available at
closing provided no amounts are outstanding under Georgia Impression's line
of credit and all payables are current.
(4) Net assets as of March 31, 1998 have been adjusted to reflect the transfer
of real estate valued at $421,000 (net of depreciation) and a related
mortgage balance of $360,000 prior to closing.
(5) Net assets have been adjusted to reflect required conversion to equity prior
to closing of debt owed by Southern to a stockholder in the amount of
$67,000.
The total Purchase Consideration does not reflect contingent consideration
related to earn out arrangements included in the merger agreements for TSR, New
England, King, Office Solutions and Greenwood.
Office Centre Corporation has agreed to issue to the stockholders of TSR
additional consideration based on TSR's 1998 earnings before interest, taxes and
depreciation and amortization ("EBITDA") of up to $3 million in shares of
restricted common stock, valued at the IPO price per share, to be deposited in
escrow and released only if TSR achieves certain profitability objectives in
1998.
F-8
<PAGE> 68
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Office Centre Corporation will contingently issue to the sole stockholder
of New England additional shares of restricted common stock equal to 4.5 times
the increase in New England's 1998 EBITDA over its 1997 EBITDA, divided by the
IPO price per share.
Office Centre Corporation will contingently issue to the stockholders of
King cash and shares of restricted common stock equal to 3.5 times the increase
in King's 1998 EBITDA over its 1997 EBITDA, divided by the IPO price per share.
The contingent consideration of cash and shares of restricted stock will be paid
in the same ratio as the consideration of cash and shares of restricted stock
set forth at the time of the Offering.
Office Centre Corporation will contingently issue to the sole stockholder
of Office Solutions additional shares of restricted common stock equal to 3.5
times the amount by which the actual EBITDA of Office Solutions for the twelve
months following the acquisition exceeds the annualized EBITDA of Office
Solutions for the period between January 1, 1998 and the date of the
acquisition, divided by the IPO price per share.
Office Centre Corporation will contingently issue to the stockholders of
Greenwood cash and shares of restricted common stock equal to 3.05 times the
amount of the increase in Greenwood's 1998 EBITDA over its 1997 EBITDA less an
adjustment for owners' compensation in certain circumstances. The contingent
consideration of cash and shares of restricted stock will be paid in the same
ratio as the consideration of cash and shares of restricted stock set forth at
the time of the Offering.
The holders of all of the shares of restricted Common Stock to be issued as
consideration for the Acquisitions have contractually agreed with the Company
not to offer, sell or otherwise dispose of any of those shares for a period of
180 days after the Offering.
F-9
<PAGE> 69
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma combined balance sheet
adjustments (amounts in thousands):
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS OFFERING ADJUSTMENTS
-------------------------------- -------------------------------------------
TOTAL TOTAL
ACQUISITION OFFERING
(a) (b) ADJUSTMENTS (c) (d) (e) ADJUSTMENTS
-------- ------- ----------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......... $ -- $ (183) $ (183) $33,859 $(10,912) $(17,110) $ 5,837
Accounts receivable, net........... -- -- -- -- -- -- --
Due from related parties........... -- -- -- -- -- -- --
Due from affiliate................. -- (120) (120) -- -- -- --
Inventories........................ -- -- -- -- -- -- --
Other current assets............... -- -- -- -- -- -- --
-------- ------- ------- ------- -------- -------- --------
Total current assets......... -- (303) (303) 33,859 (10,912) (17,110) 5,837
INVESTMENT IN AFFILIATE.............. -- (1,500) (1,500) -- -- -- --
DUE FROM STOCKHOLDER................. -- -- -- -- -- -- --
PROPERTY AND EQUIPMENT, NET.......... -- (421) (421) -- -- -- --
GOODWILL, NET........................ -- 47,205 47,205 -- -- -- --
DEFERRED OFFERING COSTS.............. -- -- -- (3,955) -- -- (3,955)
OTHER ASSETS......................... -- 140 140 -- -- -- --
-------- ------- ------- ------- -------- -------- --------
$ -- $45,121 $45,121 $29,904 $(10,912) $(17,110) $ 1,882
======== ======= ======= ======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt.................... $ -- $ (33) $ (33) $ -- $ (9,019) $ -- $ (9,019)
Accounts payable and accrued
expenses......................... -- -- -- -- -- -- --
Due to related parties............. -- (9) (9) -- (8) -- (8)
Due to affiliate................... -- (120) (120) -- -- -- --
Income taxes payable............... -- -- -- -- -- -- --
Liabilities to stockholders........ 17,110 -- 17,110 -- (78) (17,110) (17,188)
-------- ------- ------- ------- -------- -------- --------
Total current liabilities.... 17,110 (162) 16,948 -- (9,105) (17,110) (26,215)
DUE TO RELATED PARTIES............... -- (58) (58) -- (297) -- (297)
LONG-TERM DEBT....................... -- (327) (327) -- (1,510) -- (1,510)
LEASE OBLIGATIONS.................... -- -- -- -- -- -- --
DEFERRED INCOME TAXES................ -- -- -- -- -- -- --
-------- ------- ------- ------- -------- -------- --------
17,110 (547) 16,563 -- (10,912) (17,110) (28,022)
STOCKHOLDERS' EQUITY
Common stock....................... -- (3,975) (3,975) 5 -- -- 5
Additional paid-in capital......... (17,110) 54,131 37,021 29,899 -- -- 29,899
Retained earnings (deficit)........ -- (4,750) (4,750) -- -- -- --
Less: treasury stock............... -- 262 262 -- -- -- --
-------- ------- ------- ------- -------- -------- --------
--
Total Stockholders' Equity....... (17,110) 45,668 28,558 29,904 -- -- 29,904
-------- ------- ------- ------- -------- -------- --------
$ -- $45,121 $45,121 $29,904 $(10,912) $(17,110) $ 1,882
======== ======= ======= ======= ======== ======== ========
</TABLE>
- ---------------
(a) Records a pro forma liability for the cash portion of the consideration to
be paid to stockholders of the Founding Companies in connection with the
Acquisitions less $1.5 million which was previously paid to TSR.
(b) Records the purchase of the Founding Companies by Office Centre Corporation,
including consideration of $18.6 million in cash and issuance of 3,354,482
shares of restricted common stock valued at $11 per share (or $36.9 million)
for a total estimated purchase price of $55.5 million. The excess of the
purchase price over the estimated fair value of net assets
F-10
<PAGE> 70
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
acquired is $47.2 million. The adjustment also reflects a reduction of
$421,000 in Property and Equipment, net and $360,000 in related short term and
long term debt pertaining to a facility owned by one of the stockholders of
the Founding Companies, the elimination of $120,000 in related party
receivables and payables between Office Centre Corporation and certain
Founding Companies, the exchange of debt for equity in one of the Founding
Companies prior to the Offering; the entitlement to excess cash available at
closing to one of the Founding Companies' owners, and the recording of
goodwill associated with acquisition of a customer list by one of the
Founding Companies.
(c) Records the cash proceeds from the issuance of shares of Office Centre
Corporation Common Stock, net of estimated offering costs (based on an
assumed initial public offering of $11 per share). Offering costs primarily
consist of underwriting discounts and commissions, accounting fees, legal
fees, printing expenses and consulting fees, including any fees pursuant to
a financial advisory agreement with R.K. Grace & Company, a related party.
(d) Represents the repayment of $9 million in short-term debt, $1.4 million in
long-term debt and $479,000 in payments to related parties.
(e) Records the use of Offering proceeds to pay the cash portion of the
consideration due to the stockholders of the Founding Companies in
connection with the Acquisitions.
F-11
<PAGE> 71
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The following table summarizes unaudited pro forma combined statements of
operations adjustments:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
------- ---- ------- ------ ------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ -- $ -- $ -- $ -- $ -- $ --
Cost of revenues...................... -- -- -- -- -- --
------- ---- ------- ------ ------- ------
Gross margin........................ -- -- -- -- -- --
Operating expenses.................... (1,311) (8) -- -- -- (1,319)
Goodwill amortization................. -- -- 294 -- -- 294
------- ---- ------- ------ ------- ------
Operating income (loss)............. 1,311 8 (294) -- -- 1,025
Other income (expenses)
Interest income..................... -- -- -- -- -- --
Interest expense.................... -- -- -- 335 -- 335
Other income (expense).............. -- -- -- -- -- --
------- ---- ------- ------ ------- ------
Income (loss) before taxes....... 1,311 8 (294) 335 -- 1,360
Provision for income taxes............ -- -- -- -- 751 751
------- ---- ------- ------ ------- ------
Net income (loss)................ $ 1,311 $ 8 $ (294) $ 335 $ (751) $ 609
======= ==== ======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
---------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
------- ---- ------- ------ ------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ -- $ -- $ -- $ -- $ -- $ --
Cost of revenues...................... -- -- -- -- -- --
------- ---- ------- ------ ------- ------
Gross margin........................ -- -- -- -- -- --
Operating expenses.................... (570) (5) -- -- -- (575)
Goodwill amortization................. -- -- 294 -- -- 294
------- ---- ------- ------ ------- ------
Operating income (loss)............. 570 5 (294) -- -- 281
Other income (expenses)
Interest income..................... -- -- -- -- -- --
Interest expense.................... -- -- -- 250 -- 250
Other income (expense).............. -- -- -- -- -- --
------- ---- ------- ------ ------- ------
Income (loss) before taxes....... 570 5 (294) 250 -- 531
Provision for income taxes............ -- -- -- -- 346 346
------- ---- ------- ------ ------- ------
Net income (loss)................ $ 570 $ 5 $ (294) $ 250 $ (346) $ 185
======= ==== ======= ====== ======= ======
</TABLE>
F-12
<PAGE> 72
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------------
PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS
------- ---- ------- ------ ------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.............................. $ -- $ -- $ -- $ -- $ -- $ --
Cost of revenues...................... -- -- -- -- -- --
------- ---- ------- ------ ------- ------
Gross margin........................ -- -- -- -- -- --
Operating expenses.................... (3,141) (33) -- -- -- (3,174)
Goodwill amortization................. -- -- 1,168 -- -- 1,168
------- ---- ------- ------ ------- ------
Operating income (loss)............. 3,141 33 (1,168) -- -- 2,006
Other income (expenses)
Interest income..................... -- -- -- -- -- --
Interest expense.................... -- -- -- 1,150 -- 1,150
Other income (expense).............. -- -- -- -- -- --
------- ---- ------- ------ ------- ------
Income (loss) before taxes....... 3,141 33 (1,168) 1,150 -- 3,156
Provision for income taxes............ -- -- -- -- 1,882 1,882
------- ---- ------- ------ ------- ------
Net income (loss)................ $ 3,141 $ 33 $(1,168) $1,150 $(1,882) $1,274
======= ==== ======= ====== ======= ======
</TABLE>
- ---------------
(a) Reflects the net reduction in salaries, bonuses and benefits to the owners
and officers of the Founding Companies and Office Centre Corporation to
which they have agreed prospectively.
(b) Reflects occupancy costs reduced pursuant to lease agreement renegotiated
with related parties.
(c) Reflects the amortization of goodwill to be recorded as a result of the
Acquisitions over a 40-year period.
(d) Reflects a reduction of interest expense eliminated by the retirement of all
interest-bearing debt from the proceeds of the Offering, excluding interest
related to capital lease obligations.
(e) Reflects the incremental provision for Federal and state income taxes
assuming all income is subject to a corporate income tax rate of 40% and
that all goodwill amortization is non-deductible.
NOTE 4 -- EARNINGS PER SHARE
Basic and diluted net income per share is computed by dividing net income
by the 8,500,000 common shares outstanding upon the completion of the
Acquisitions and the Offering. The dilutive effect of options outstanding have
not been included in the computation as the effect is not material.
NOTE 5 -- THE SUPPLY ROOM ACQUISITION OF TOP
In March 1998, TSR acquired the office and furniture supply operations
known as Total Office Products ("TOP") from Baltimore Stationery Company
("BSC"), located in Baltimore, Maryland. The acquisition agreement requires a
minimum purchase price of $613,000, plus additional amounts up to a maximum
amount of $1,212,500 contingent upon future gross profit levels. The minimum
purchase price was allocated principally to intangible assets, and has been
included in the accompanying unaudited pro forma combined balance sheet.
Pro forma revenues and the related expenses of the acquired business have
been added to the results of operations of TSR for the period January 1, 1998
through the date of acquisition and for the first quarter of 1997 and calendar
year ended December 31, 1997.
The pro forma adjustments reflect: (i) the elimination of the corporate
overhead allocation agreement between TOP and BSC, which will not be incurred in
the future and the addition of a contractual lease obligation, (ii) amortization
of goodwill over forty years, customer lists over ten years and covenants not to
compete over
F-13
<PAGE> 73
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
four years, and (iii) assuming all income is subject to a corporate income tax
rate of 40% and that goodwill amortization is nondeductible, for income tax
purposes.
The pro forma combined statement of operations below gives effect to the
transaction as if it had occurred on January 1, 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
--------------------------------------------
PRO FORMA
MERGER AS
TSR TOP ADJUSTMENTS ADJUSTED
------- ------ ----------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................. $ 7,814 $1,337 $ -- $ 9,151
Cost of revenues.......................... 5,239 962 -- 6,201
------- ------ ----- -------
Gross margin......................... 2,575 375 -- 2,950
Operating expenses........................ 2,162 350 (47) 2,465
Goodwill amortization..................... 26 -- 6 32
------- ------ ----- -------
Operating income..................... 387 25 41 453
Other income (expense)
Interest income......................... (4) -- -- (4)
Interest expense........................ (63) -- -- (63)
Other income (expense).................. (99) -- -- (99)
------- ------ ----- -------
Income before taxes.................. 221 25 41 287
Provision for income taxes................ 89 11 28 128
------- ------ ----- -------
Net income........................... $ 132 $ 14 $ 13 $ 159
======= ====== ===== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
--------------------------------------------
PRO FORMA
MERGER AS
TSR TOP ADJUSTMENTS ADJUSTED
------- ------ ----------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................. $ 7,090 $1,568 $ -- $ 8,658
Cost of revenues.......................... 4,686 1,089 -- 5,775
------- ------ ----- -------
Gross profit......................... 2,404 479 -- 2,883
Operating expenses........................ 2,091 435 (68) 2,458
Goodwill amortization..................... 4 -- 9 13
------- ------ ----- -------
Operating income..................... 309 44 59 412
Other income (expenses)
Interest income......................... 10 -- -- 10
Interest expense........................ (79) -- -- (79)
Other income (expense).................. (35) -- -- (35)
------- ------ ----- -------
Income before taxes.................. 205 44 59 308
Provision for income taxes................ 90 19 19 128
------- ------ ----- -------
Net income........................... $ 115 $ 25 $ 40 $ 180
======= ====== ===== =======
</TABLE>
F-14
<PAGE> 74
OFFICE CENTRE CORPORATION AND FOUNDING COMPANIES
NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------
PRO FORMA
MERGER AS
TSR TOP ADJUSTMENTS ADJUSTED
------- ------ ----------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues.................................. $29,953 $7,894 $ -- $37,847
Cost of revenues.......................... 20,778 5,526 -- 26,304
------- ------ ----- -------
Gross profit......................... 9,175 2,368 -- 11,543
Operating expenses........................ 8,699 2,195 (273) 10,621
Goodwill amortization..................... 24 -- 34 58
------- ------ ----- -------
Operating income..................... 452 173 239 864
Other income (expenses)
Interest income......................... 15 -- -- 15
Interest expense........................ (283) -- -- (283)
Other income (expense).................. (147) -- -- (147)
------- ------ ----- -------
Income before taxes.................. 37 173 239 449
Provision for income taxes................ 22 69 147 238
------- ------ ----- -------
Net Income........................... $ 15 $ 104 $ 92 $ 211
======= ====== ===== =======
</TABLE>
F-15
<PAGE> 75
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Office
Centre Corporation and Subsidiaries (the "Company") as of December 31, 1996 and
1997 and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and cash flows for each of the three years in
the period ended December 31, 1997. 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 consolidated financial position of Office Centre
Corporation and Subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 6, 1998 (except for
Note C, as to which the
date is July 10, 1998)
F-16
<PAGE> 76
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 910,294 $ 371,146 $ 1,394,704
Accounts receivable, net of allowance for doubtful
accounts of $261,583 in 1996, $341,292 in 1997 and
$383,489 in 1998
From members............................................ 11,069,159 12,386,148 12,797,580
Rebates from wholesalers................................ 6,581,207 5,402,910 1,544,240
Other programs.......................................... 354,926 1,969,708 1,594,138
Prepaid and other current assets.......................... 130,854 74,375 202,302
Prepaid and refundable income taxes....................... 440,490 283,061 201,719
Deferred tax assets....................................... 136,510 114,176 421,176
----------- ----------- -----------
Total current assets.................................. 19,623,440 20,601,524 18,155,859
INVESTMENT IN AFFILIATE..................................... -- 1,500,000 1,500,000
PROPERTY AND EQUIPMENT, NET................................. 245,363 406,319 415,411
DEFERRED OFFERING COSTS..................................... 92,386 2,958,772 3,954,691
----------- ----------- -----------
$19,961,189 $25,466,615 $24,025,961
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Line of credit............................................ $ 1,350,000 $ 5,615,000 $ 2,904,094
Current portion of notes payable.......................... 89,788 93,027 93,027
Accounts payable -- trade................................. 12,632,453 13,648,225 17,233,078
Rebates due to members
Wholesaler program...................................... 4,446,166 3,601,941 1,022,783
Manufacturer program.................................... 366,618 1,251,738 1,504,022
Accrued expenses.......................................... 198,907 653,879 1,089,002
Due to King Office Supply, Inc............................ -- 91,946 119,945
Due to stockholders....................................... 564,193 -- --
----------- ----------- -----------
Total current liabilities............................. 19,648,125 24,955,756 23,965,951
NOTES PAYABLE -- LONG-TERM PORTION.......................... 189,455 96,429 96,429
DEFERRED TAXES.............................................. 23,818 21,805 21,805
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock, $.001 par value; 50,000,000 authorized
shares; 1,355,091, 1,405,091 and 1,434,155 shares issued
and outstanding at December 31, 1996 and 1997 and March
31, 1998, respectively.................................. 1,355 1,405 1,434
Additional paid-in capital................................ 3,307 113,257 378,228
Retained earnings (accumulated deficit)................... 95,129 277,963 (437,886)
----------- ----------- -----------
99,791 392,625 (58,224)
----------- ----------- -----------
$19,961,189 $25,466,615 $24,025,961
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE> 77
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues
Wholesaler program................ $ 9,759,585 $ 6,669,243 $ 5,425,774 $ 1,459,657 $ 1,173,714
Manufacturer program.............. 1,491,801 2,063,563 2,126,520 509,838 527,220
Advertising and promotion
income.......................... 1,057,884 971,285 2,305,090 571,735 617,518
Membership fees................... 328,537 360,293 303,345 76,260 51,126
Other income...................... 346,209 867,054 840,959 168,433 230,173
----------- ----------- ----------- ----------- -----------
12,984,016 10,931,438 11,001,688 2,785,923 2,599,751
----------- ----------- ----------- ----------- -----------
Cost of revenues
Wholesaler program................ 7,261,353 4,446,162 3,571,285 960,757 800,000
Other programs.................... 1,353,525 1,485,708 1,917,229 442,881 506,878
----------- ----------- ----------- ----------- -----------
8,614,878 5,931,870 5,488,514 1,403,638 1,306,878
----------- ----------- ----------- ----------- -----------
Gross margin.................. 4,369,138 4,999,568 5,513,174 1,382,285 1,292,873
Operating costs and expenses........ 4,261,595 5,188,541 4,981,467 1,091,897 2,226,443
----------- ----------- ----------- ----------- -----------
Operating income (loss)....... 107,543 (188,973) 531,707 290,388 (933,570)
Other income (expense)
Interest income................... 80,984 99,050 84,636 31,908 16,681
Interest expense.................. (51,410) (87,181) (189,410) (30,187) (100,986)
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes......................... 137,117 (177,104) 426,933 292,109 (1,017,875)
Provision for income taxes.......... 56,513 8,418 244,099 135,773 (302,026)
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)............. $ 80,604 $ (185,522) $ 182,834 $ 156,336 $ (715,849)
=========== =========== =========== =========== ===========
Net income (loss) per share of
common stock
Basic and Diluted............... $ .06 $ (.14) $ .13 $ .12 $ (.50)
----------- ----------- ----------- ----------- -----------
Weighted average common stock
outstanding
Basic and Diluted............... 1,355,091 1,355,091 1,371,758 1,355,091 1,434,155
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 78
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.................. 1,355,091 $1,355 $ 3,307 $ 200,047 $ 204,709
Net income................................ 80,604 80,604
--------- ------ -------- --------- ---------
Balance at December 31, 1995................ 1,355,091 1,355 3,307 280,651 285,313
Net loss.................................. (185,522) (185,522)
--------- ------ -------- --------- ---------
Balance at December 31, 1996................ 1,355,091 1,355 3,307 95,129 99,791
Issuance of common stock in connection
with employment agreement (Note H),
50,000 shares at $2.20 per share, $.001
par value.............................. 50,000 50 109,950 110,000
Net income................................ 182,834 182,834
--------- ------ -------- --------- ---------
Balance at December 31, 1997................ 1,405,091 1,405 113,257 277,963 392,625
Issuance of common stock in connection
with license agreement-related party... 29,064 29 264,971 265,000
Net loss (unaudited)...................... (715,849) (715,849)
--------- ------ -------- --------- ---------
Balance at March 31, 1998 (unaudited)....... 1,434,155 $1,434 $378,228 $(437,886) $ (58,224)
========= ====== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-19
<PAGE> 79
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)...................... $ 80,604 $ (185,522) $ 182,834 $ 156,336 $ (715,849)
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities
Depreciation and amortization........ 35,735 48,723 69,326 24,786 25,148
Deferred taxes....................... (235,397) 143,078 20,321 -- (307,000)
Stock compensation to officer........ -- -- 110,000 -- --
Stock issued pursuant to licensing
agreement.......................... -- -- -- 265,000
Provision for bad debts.............. 169,633 217,846 109,943 25,986 42,197
Changes in operating assets and
liabilities Accounts receivable.... (1,511,459) (361,096) (1,863,417) 4,020,579 3,780,611
Prepaid and refundable income
taxes, net...................... (214,584) (255,121) 157,509 136,773 81,342
Prepaid expenses and other current
assets.......................... (2,647) (94,251) 53,664 94,314 (128,611)
Accounts payable................... 1,087,045 708,748 171,547 (3,738,995) 1,007,695
Rebates due members................ 200,654 36,879 885,120 1,088,847 252,284
Due to affiliate................... -- -- 91,946 -- 27,999
Accrued expenses................... (62,234) (182,562) 454,972 75,351 433,123
---------- ---------- ---------- ---------- ----------
Net cash (used in) provided by
operating activities................. (452,650) 76,722 443,765 1,883,977 4,763,939
---------- ---------- ---------- ---------- ----------
Cash flows from investing activities
Purchase of property and equipment..... (29,507) (142,989) (227,547) (27,707) (33,556)
Investment in affiliate................ -- -- (1,500,000) -- --
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities......................... (29,507) (142,989) (1,727,547) (27,707) (33,556)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities
Net borrowings (payments) under line
of credit.......................... 100,000 250,000 4,265,000 (1,135,000) (2,710,906)
Payments on long-term debt........... -- (86,703) (89,787) -- --
Loans (repayments) from
stockholders....................... 442,461 (126,463) (564,193) (564,193) --
Initial public offering costs........ -- (92,386) (2,866,386) (65,257) (995,919)
Purchase of treasury stock........... (287,053)
-- -- -- --
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities............... 255,408 (55,552) 744,634 (1,764,450) (3,706,825)
---------- ---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS................. (226,749) (121,819) (539,148) 91,820 1,023,558
Cash and cash equivalents at beginning of
period................................. 1,258,862 1,032,113 910,294 910,294 371,146
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period................................. $1,032,113 $ 910,294 $ 371,146 $1,002,114 $1,394,704
========== ========== ========== ========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for
Interest........................... $ 50,802 $ 84,346 $ 159,216 $ 29,187 $ 123,218
Taxes.............................. 506,494 120,461 76,000 -- --
</TABLE>
During 1995, the repurchase of $365,946 of treasury stock was financed through
the issuance of a note payable to the former stockholder.
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 80
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE A -- DESCRIPTION OF THE BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Formation of the Company
Office Centre Corporation (the "Company") was founded in October 1996 to
create a nationwide office products supplier, serving primarily small and medium
sized corporate customers. During 1997, the Company acquired all of the
outstanding shares of UDI Corp. and UDI II Corp. (collectively referred to as
"UDI") in a stock-for-stock exchange. The transaction was accounted for as a
reverse acquisition with the results of UDI's operations presented on a
historical basis as the results of the Company. The stock exchange is reflected
in stockholders' equity for all periods presented along with the retirement of
previously acquired treasury stock.
UDI is an office products buying group. Members receive the benefit of
UDI's consolidated buying power and the more favorable purchasing terms it
receives with industry manufacturers and wholesalers.
Acquisitions and Public Offering
During 1997 and 1998, the Company entered into definitive agreements to
acquire twelve commercial office products businesses. The companies to be
acquired are The Supply Room Companies, Inc. (the "Supply Room"), New England
Office Supply, Inc., King Office Supply, Inc., Sierra Office Systems and
Products, Inc., Office Solutions Business Products and Services, Inc., Greenwood
Outfitters, Inc., SOS Office Supply Company, Georgia Impression Products, Inc.,
Office Express, Inc., Southern Office Centre, Inc., Metro Data Supply, Inc. and
BCB Office Products Company (collectively referred to as the "Founding
Companies"), ten of which are members of UDI. These acquisitions will occur
simultaneously with and conditioned on the closing of a contemplated initial
public offering (the "Offering") and will be accounted for using the purchase
method of accounting. The expected aggregate consideration that will be paid by
the Company to acquire approximately $8.3 million of net assets of the Founding
Companies is approximately $18.6 million in cash and shares of the Company's
common stock valued at approximately $36.9 million, including $1.5 million paid
to the Supply Room in September 1997 (see Note E).
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries UDI I and UDI II.
All intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
Interim Reporting
The accompanying condensed financial information as of the three months
ended March 31, 1997 and 1998, including such information in the notes to
financial statements, is unaudited. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. Operating results for any
interim period are not necessarily indicative of the results of any other
interim period or for an entire year.
F-21
<PAGE> 81
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
Revenue Recognition
UDI recognizes revenue on the accrual basis for: (i) periodic buying group
fees of 1% to 2% of member purchases from manufacturers and (ii) annual rebate
income from manufacturers and wholesalers paid to UDI primarily based on the
volume of member purchases. Portions of such rebates, which are determined by
management of the Company, are passed on to certain eligible members and accrued
as an operating expense. Revenue is also recognized for membership fees and
other programs offered to UDI's members on the accrual method.
The volume of gross purchases generated by UDI members with manufacturers
was $65,354,000, $81,642,000 and $94,456,000 for the years ended December 31,
1995, 1996 and 1997, respectively, and $23,053,000 and $24,787,000 for the three
months ended March 31, 1997 and 1998, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Deferred Offering Costs
Deferred offering costs incurred in connection with the Company's
contemplated Offering amounted to approximately $92,000, $2,867,000, and
$996,000 during the years ended December 31, 1996 and 1997, and the three-month
period ended March 31, 1998, respectively. Such deferred offering costs will be
charged against the proceeds of such Offering when completed. In the event the
Offering is unsuccessful, such costs would be charged against earnings.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation
and amortization. Depreciation and amortization expense is recorded on the
straight-line basis over the estimated useful lives of the assets. Repairs and
maintenance are charged directly to expense as incurred.
Earnings Per Share
As of December 31, 1997, the Company has adopted the provisions of
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share," which was also applied to December 31, 1996 and 1995. Basic earnings
per share exclude dilution and are computed by dividing income available to
common shareholders by the weighted-average common shares outstanding for the
period. The dilutive effect of options outstanding has not been included in the
computation of earnings per share as the effect is not material (see Note J).
Income Taxes
Deferred income taxes are recognized for temporary differences between
financial statement and income tax bases of assets and liabilities and loss
carryforwards and tax credit carryforwards for which income tax benefits
F-22
<PAGE> 82
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
are expected to be realized in future years. A valuation allowance has been
established to reduce deferred tax assets as it is more likely than not that
some portion of such deferred tax assets will not be realized. The effect of a
change in tax rates on deferred taxes is recognized in income in the period that
includes the enactment date.
Fair Value of Financial Instruments
Financial instruments consist principally of cash and cash equivalents,
line of credit and promissory notes classified as long-term debt. The carrying
value of these instruments approximates their fair value because of their short
maturity and their stipulated interest rates being based on current market
rates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31, ESTIMATED
1996 1997 1998 USEFUL LIVES
-------- -------- --------- -------------
<S> <C> <C> <C> <C>
Office furniture and fixtures..................... $350,176 $564,802 $574,089 5 to 7 years
Leasehold improvements............................ 29,089 42,010 66,279 3 to 10 years
-------- -------- --------
379,265 606,812 640,368
Less accumulated depreciation and amortization.... 133,902 200,493 224,957
-------- -------- --------
$245,363 $406,319 $415,411
======== ======== ========
</TABLE>
Depreciation and amortization expense amounted to $32,719, $45,707 and
$66,591 for the years ended December 31, 1995, 1996 and 1997, respectively, and
$24,366 and $24,464 for the three months ended March 31, 1997 and 1998,
respectively.
NOTE C -- LINE OF CREDIT
As of December 31, 1997, UDI had a demand line of credit with First Union
National Bank (formerly CoreStates Bank NA) ("First Union") which allowed the
Company to borrow a maximum of $10,000,000 at a rate of .5% above prime (8.75%
at December 31, 1997). The line was collateralized by all of the assets of UDI.
As of December 31, 1997 and March 31, 1998, the Company had $5,615,000 and
$2,904,000, respectively, outstanding under this line. As of December 31, 1996,
the Company had $1,350,000 outstanding under a similar line. Availability under
the line is based primarily on 85% of certain eligible accounts receivable plus
60% of eligible inventory.
On July 10, 1998, the Company obtained a $35 million revolving credit
facility from First Union which replaced a prior $10 million facility. Amounts
outstanding bear interest at the prime lending rate plus an applicable margin of
up to .75% or LIBOR plus an applicable margin of up to 2.5%. The Company's
obligations under the revolving credit facility are to be guaranteed by the
current and future subsidiaries of the Company and are secured by a priority
security interest in substantially all other assets of the Company. Pursuant to
the First Union commitment, the revolving credit facility contains customary
covenants, including restrictions on other indebtedness, approval of
acquisitions in excess of $20 million (and certain acquisitions greater than $5
million depending on the percentage of consideration paid in cash or stock),
limits on capital expenditures, restrictions on transactions with affiliates and
sales of assets, as well as various financial covenants. The Company paid a
financing fee of $150,000 for the facility and pays a commitment fee of .375%
per annum on the daily average of the unused portion of the credit facility.
Prior to completion of an IPO the Company's borrowings under the facility are
limited to $10 million. Borrowings under the facility are limited to $25 million
in the event the proceeds from an IPO does not exceed $25 million.
F-23
<PAGE> 83
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
In the event the Company does not complete its IPO by December 31, 1998,
maximum outstanding borrowings based on UDI's receivables shall be reduced
commencing on March 31, 1999 to $6,000,000 and further reductions through
December 31, 1999 to $3,000,000.
The line is collateralized by all of UDI's assets and guaranteed by the
Company. Among other provisions, the demand line agreement provides that: (i)
the annual compensation paid to the president of UDI does not exceed $200,000
and (ii) a maximum amount of $7,500,000 on this line may be used by the Company
for nonoperational purposes in connection with the Offering and anticipated
business acquisitions.
NOTE D -- INCOME TAXES
The provision for income taxes is comprised of:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------------- ---------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Federal
Current provision (benefit)...... $220,930 $(28,840) $169,887 $102,947 $ 3,780
Current refundable............... -- (75,210) -- -- --
Deferred taxes................... (179,599) 105,542 15,444 -- (250,000)
-------- -------- -------- -------- ---------
41,331 1,492 185,331 102,947 (246,220)
-------- -------- -------- -------- ---------
State
Current provision (benefit)...... 70,980 (5,960) 53,891 32,826 1,194
Current refundable............... -- (24,650) -- -- --
Deferred taxes................... (55,798) 37,536 4,877 -- (57,000)
-------- -------- -------- -------- ---------
15,182 6,926 58,768 32,826 (55,806)
-------- -------- -------- -------- ---------
$ 56,513 $ 8,418 $244,099 $135,773 $(302,026)
======== ======== ======== ======== =========
</TABLE>
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- --------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Current "expected" provision (benefit) for Federal
income taxes..................................... 34.0% (34.0)% 34.0% 34.0% (34.0)%
State and local taxes, net of Federal income tax
benefit.......................................... 7.3 2.6 9.1 7.5 (6.2)
Allocations to Canadian operations................. -- 28.6 .8 -- --
Other.............................................. (0.1) 7.6 13.3 5.0 10.5
----- ----- ----- ----- -----
41.2% 4.8% 57.2% 46.5% (29.7)%
===== ===== ===== ===== =====
</TABLE>
F-24
<PAGE> 84
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Deferred tax assets
Reserve for bad debts..................................... $150,339 $134,631 $134,631
Accrued compensation expense.............................. 187,000
Nondeductible accruals.................................... 120,000
Net operating loss carryforward -- Canadian subsidiary.... 59,521 63,420 63,420
Other items............................................... 9,049 8,089 8,089
-------- -------- --------
218,909 206,140 513,140
Valuation allowance......................................... (82,399) (91,964) (91,964)
-------- -------- --------
Net deferred tax assets................................ 136,510 114,176 421,176
Deferred tax liability
Accelerated depreciation.................................. (23,818) (21,805) (21,805)
-------- -------- --------
Net deferred taxes..................................... $112,692 $ 92,371 $399,371
======== ======== ========
</TABLE>
NOTE E -- DUE TO AFFILIATES AND STOCKHOLDERS
Transactions With King
As of December 31, 1997, the amount due to King Office Supply, Inc.
("King") is comprised of disbursements made by King on behalf of the Company for
various operating expenses totalling $142,179 during the year ended December 31,
1997 and $59,495 for the three months ended March 31, 1998. The Chief Executive
Officer of the Company is an officer, director and controlling shareholder of
King.
The Company has accounts receivable due from King for direct manufacturers'
purchases which amounted to $32,584 and $133,566 at December 31, 1996 and 1997,
respectively, and $239,258 for the three months ended March 31, 1998. In
addition, the Company has accounts payable due to King for wholesaler rebates
accrued during the year which amounted to $30,227 and $47,758 at December 31,
1996 and 1997, respectively, and $10,900 for the three months ended March 31,
1998.
Transactions With The Supply Room
In September 1997, the Company purchased 10% of the outstanding common
stock of The Supply Room for $1,500,000.
Due to Stockholders
Due to stockholders represents loans made to the Company by certain
stockholders at an interest rate of 7%. These amounts were fully repaid by the
Company in 1997.
NOTE F -- PROFIT SHARING PLAN
The Company has established a profit sharing plan covering substantially
all employees who meet eligibility requirements. Contributions are made annually
at the discretion of the board of directors and are funded prior to the filing
of the Company's Federal tax return. Plan expense for 1995, 1996 and 1997 was
approximately $100,000, $100,000 and $30,000, respectively.
F-25
<PAGE> 85
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE G -- STOCK REDEMPTION
During 1995, pursuant to a stock redemption agreement, 750 shares of stock
in UDI Corp. and 1,000 shares of stock in UDI II Corp. were purchased, from one
of their stockholders at a cost of $203,501 and $449,498, respectively. The
redemption agreement provides for: (i) a $272,500 cash payment, (ii) a note
payable in the amount of $100,000 at a 5% interest rate, and (iii) cash
installment payments of $75,000 per year for four years. The note payable
outstanding, net of a 5% discount on the installment payment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
Amounts outstanding......................................... $279,243 $189,456 $189,456
Less current portion........................................ 89,788 93,027 93,027
-------- -------- --------
Long-term................................................... $189,455 $ 96,429 $ 96,429
======== ======== ========
</TABLE>
The long-term portion of the outstanding principal on this note of $96,429
at March 31, 1998 is scheduled to be repaid in 1999.
NOTE H -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office space under operating leases of which two leases
are on month-to-month terms and one lease has a term expiring in 1999, with the
related lessor being a founder of the Company and a former officer of UDI.
Remaining future minimum lease payments under this related party operating lease
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998........................................................ $ 37,751
1999........................................................ 33,204
----------
$ 70,955
==========
</TABLE>
Total rental expense paid by the Company was $35,636, $76,216 and $114,256
for the years ended December 31, 1995, 1996 and 1997, respectively, which
comprised $27,904, $36,328 and $48,958 paid to the related party in those years,
respectively, and $11,388 and $13,034 for the three months ended March 31, 1997
and 1998, respectively.
Consulting Agreement
Pursuant to a Financial Advisory Agreement, the Company has retained R.K.
Grace & Company ("R.K. Grace") to provide financial advice in connection with
its business plan and its acquisition program, from February 1, 1997 through
December 31, 1998. A founder and former director and officer of the Company is
the Chief Executive Officer and a founder of R.K. Grace. R.K. Grace receives a
monthly fee of $5,000 plus expenses and, in the event that the Offering closes
during the term of the agreement, it will receive $587,500 in cash and
$1,175,000 in the form of unregistered shares of common stock valued at the
initial public offering price per share. Also pursuant to the Financial Advisory
Agreement, the Company has issued 47,732 shares of common stock to the former
officer. The Company paid consulting fees and expenses to R.K. Grace & Company
of approximately $97,200 for services during the year ended December 31, 1997
and $15,000 for the three months ended March 31, 1998.
F-26
<PAGE> 86
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
Employment Contracts
As of December 31, 1997, the Company was obligated under separate
employment contracts with three officers of the Company. The contracts contain
employment terms expiring at various dates through the third anniversary of the
offering and provide for, among other things, annual compensation, performance
bonuses, certain fringe benefits and life insurance and noncompetition
agreements. Historical compensation expense to key officers for the years ended
December 31, 1995, 1996 and 1997 and the three-month periods ended March 31,
1997 and 1998 amounted to $1,528,000, $1,575,000, $1,439,000, $318,000 and
$746,000, respectively. Remaining future annual salaries with respect to these
contracts are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998................................................... $ 635,000
1999................................................... 635,000
2000................................................... 635,000
2001................................................... 400,000
----------
$2,305,000
==========
</TABLE>
In September 1997, the Company issued 50,000 shares of common stock to an
officer in connection with an employment agreement. Accordingly, $110,000 was
included in operating costs and expensed to record the compensatory issuance of
these 50,000 shares having a fair value of $2.20 per share (based on an
externally prepared valuation).
Dispute With Third-Party Administrator
During June 1994, a health plan was established for the employees of UDI
and its buying groups' members. The health plan was organized as a legal entity,
UDI-Cooperative Health Plan ("UDI-CHP"), separate and apart from the UDI buying
groups and the Company. During 1996, a third-party benefit administrator ("TPA")
to the plan advised UDI-CHP and UDI that they were obligated to reimburse the
TPA for certain underfunded claims incurred and paid through September 1997.
UDI-CHP disputed such claims on the basis of errors committed by the TPA in
calculating adequate premiums. UDI disputed the claims as unenforceable as UDI
is a separate entity and only UDI-CHP is contractually bound to the TPA. Both
parties to the dispute claim approximately $1 million in damages from the other.
The Company has been advised by legal counsel that a materially adverse effect
on the Company as a result of this dispute would be remote.
Concentrations
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable from
members. Management continually monitors the financial condition of its members
to reduce the risk of loss. In addition, the Company maintains credit insurance
or has obtained irrevocable letters of credit equal to each member's average
monthly purchases, thus reducing its exposure to credit risk.
The operations of the Company depend to a great degree on two national
wholesalers, S. P. Richards and United Stationers. For the fiscal year ended
December 31, 1997 these two national wholesalers accounted for approximately 60%
of the products purchased by the Founding Companies. Although alternative
wholesalers may exist for products distributed by the Company, the loss of
either of the two national wholesalers as a source of product could have a
material adverse effect on the Company.
F-27
<PAGE> 87
OFFICE CENTRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1995, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE I -- LICENSE AGREEMENT -- RELATED PARTY
On January 9, 1998, the Company entered into a license agreement with the
son of a stockholder of the Company. Pursuant to the license agreement, the
Company was granted a royalty-free, perpetual license to use the marketing
concept and name "Smart Consumer" in the office products, office services and
office furniture business worldwide (the "License"). In consideration of the
License, the Company issued 29,064 shares of its common stock and, if the
Company exploits the License in Taiwan, agreed to pay an additional fee of 15%
of all profits therefrom. Under certain conditions, the licensor will have a
30-day option to repurchase the License for either $500,000 in cash or 14,532
shares of the Company's common stock. The aggregate value of the shares, which
was $265,000, was charged to operations during the three months ended March 31,
1998.
NOTE J -- SUBSEQUENT EVENTS
1998 Stock Option Plan
In March 1998, the Company adopted the 1998 Stock Option Plan (the "Plan").
The Plan is administered by the Compensation Committee, which consists of four
directors, two of which are independent members of the board of directors.
Pursuant to the Plan, the Company may grant options to purchase up to 1,500,000
shares of Common Stock to officers, directors, consultants and employees of the
Company, its subsidiaries and affiliates. Such options may be either incentive
stock options or options which do not qualify for treatment as incentive stock
options. The Plan also provides for the grant of stock appreciation rights
("SARs") in conjunction with all or part of any stock option granted under the
Plan. SARs are exercisable at such time and to the extent as the stock options
to which they relate.
As of March 31, 1998, no options or SARs have been granted under the Plan.
Stock Split
The Board of Directors will approve a one-for 3.36 reverse stock split of
the Company's common stock upon the consummation of the offering, and will be
effective as of that date. All share, per share, and other financial information
contained in this report have been adjusted to reflect the impact of the
proposed common stock reverse split.
Officer Compensation
In May 1998, the Company granted to two executive officers bonuses
aggregating $352,000. The Company recorded compensation expense for that amount
during the three months ended March 31, 1998.
F-28
<PAGE> 88
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
THE SUPPLY ROOM COMPANIES, INC.
We have audited the accompanying balance sheets of The Supply Room
Companies, Inc. (the "Company"), as of September 27, 1996 and October 3, 1997
and the related statements of operations, changes in stockholders' equity and
cash flows for the fiscal years ended September 27, 1996 and October 3, 1997.
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 The Supply Room Companies,
Inc., as of September 27, 1996 and October 3, 1997 and the results of its
operations and its cash flows for the fiscal years then ended in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 19, 1998
F-29
<PAGE> 89
THE SUPPLY ROOM COMPANIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, OCTOBER 3, MARCH 31,
1996 1997 1998
------------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents........................... $ 25,770 $ 103,260 $ 4,592
Accounts receivable, net of allowance for doubtful
accounts of $29,915 in 1996 and 1997, $45,000 at
March 31, 1998................................... 3,582,101 4,024,650 3,707,255
Inventories......................................... 1,489,834 1,463,298 1,324,369
Prepaid expenses and other current assets........... 7,836 10,500 100,168
Income tax receivable............................... 11,185 -- --
Deferred tax benefit................................ 14,967 14,571 54,705
Due from affiliate.................................. -- 400,000 --
Due from related party -- current portion........... -- 26,194 --
---------- ---------- ----------
Total current assets........................ 5,131,693 6,042,473 5,191,089
PROPERTY AND EQUIPMENT -- NET......................... 629,440 832,016 900,317
OTHER ASSETS
Investment in affiliate............................. 200,000 1,489,718 1,317,913
Goodwill, net of accumulated amortization........... 196,135 483,045 952,774
Due from related party, net of current portion...... -- 104,777 --
Security deposits and other assets.................. 27,664 35,653 153,584
---------- ---------- ----------
423,799 2,113,193 2,424,271
---------- ---------- ----------
$6,184,932 $8,987,682 $8,515,677
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit...................................... $2,368,670 $1,806,132 $1,589,097
Current portion of long-term debt................... 163,255 624,866 316,703
Current maturities of capital lease obligations..... 48,728 54,727 62,394
Accounts payable -- trade........................... 1,696,537 2,326,444 2,271,180
Accrued expenses and other current liabilities...... 331,896 452,991 210,887
Due to related parties -- current portion........... -- 51,146 --
Income taxes payable................................ -- 24,795 44,918
---------- ---------- ----------
Total current liabilities................... 4,609,086 5,341,101 4,495,179
LONG-TERM DEBT, NET................................... 212,622 257,171 501,281
DUE TO RELATED PARTIES, NET........................... 290,000 266,886 290,000
CAPITAL LEASE OBLIGATIONS, NET........................ 181,380 126,653 154,303
DEFERRED INCOME TAXES................................. 38,209 29,024 62,436
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: no par value, 15,000 authorized
shares; 10,000, 11,970 and 11,970 shares issued
at September 27, 1996, October 3, 1997 and March
31, 1998, respectively........................... 441,496 2,410,821 2,410,821
Retained earnings................................... 412,139 556,026 601,657
---------- ---------- ----------
853,635 2,966,847 3,012,478
---------- ---------- ----------
$6,184,932 $8,987,682 $8,515,677
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-30
<PAGE> 90
THE SUPPLY ROOM COMPANIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
---------------------------- --------------------------
SEPTEMBER 27, OCTOBER 3, MARCH 31, MARCH 31,
1996 1997 1997 1998
------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales............................. $24,869,002 $30,027,157 $14,381,474 $15,031,798
Cost of goods sold.................... 17,133,959 20,777,574 9,814,388 10,367,942
----------- ----------- ----------- -----------
Gross margins............... 7,735,043 9,249,583 4,567,086 4,663,856
Operating costs and expenses.......... 7,430,712 8,667,132 4,140,368 4,288,339
----------- ----------- ----------- -----------
Operating income............ 304,331 582,451 426,718 375,517
Other income (expense)
Interest income..................... 40,055 29,105 31,270 2,394
Interest expense.................... (217,022) (272,312) (138,941) (133,356)
Equity in net loss of affiliated
companies........................ -- (104,311) (47,039) (147,205)
Other income (expense).............. -- -- 1,475 (5,318)
----------- ----------- ----------- -----------
Income before provision for
income taxes.............. 127,364 234,933 273,483 92,032
Provision for income taxes............ 45,595 91,046 116,622 46,401
----------- ----------- ----------- -----------
NET INCOME.................. $ 81,769 $ 143,887 $ 156,861 $ 45,631
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-31
<PAGE> 91
THE SUPPLY ROOM COMPANIES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNTS EARNINGS
------ ---------- --------
<S> <C> <C> <C>
Balance at September 30, 1995............................... 10,000 $ 441,496 $330,370
Net income................................................ -- -- 81,769
------ ---------- --------
Balance at September 27, 1996............................... 10,000 441,496 412,139
Net income................................................ -- -- 143,887
Common stock issued....................................... 1,970 1,969,325 --
------ ---------- --------
Balance at October 3, 1997.................................. 11,970 2,410,821 556,026
Net income (unaudited).................................... -- -- 45,631
------ ---------- --------
Balance at March 31, 1998 (unaudited)....................... 11,970 $2,410,821 $601,657
====== ========== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-32
<PAGE> 92
THE SUPPLY ROOM COMPANIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
--------------------------- ---------------------
SEPTEMBER 27, OCTOBER 3, MARCH 31, MARCH 31,
1996 1997 1997 1998
------------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 81,769 $ 143,887 $156,861 $ 45,631
Adjustment to reconcile net income to net cash (used in)
provided by operating activities
Deferred income taxes -- net.......................... 10,682 (8,789) 29,391 (6,188)
Depreciation and amortization......................... 172,559 202,241 98,205 166,211
Provision for bad debts............................... 12,597 -- -- --
(Gain) loss on sale of fixed assets................... (5,778) -- -- 5,318
Equity in net loss of affiliated companies............ -- 104,311 47,039 147,205
Related party notes receivable foregiveness........... -- -- -- 130,971
Changes in operating assets and liabilities
Accounts receivable................................. (935,610) (150,035) 162,642 317,395
Inventories......................................... (231,561) 80,094 (258,750) 138,929
Prepaid expenses and other current assets........... 54,029 (1,452) (48,067) (89,668)
Income taxes receivable............................. (11,185) 11,185 11,185 --
Other assets........................................ (1,771) (7,989) (26,230) 2,069
Accounts payable -- trade........................... 133,801 531,051 259,973 (55,264)
Accrued expenses and other current liabilities...... 123,823 81,771 (10,877) (242,104)
Income taxes payable................................ (21,691) 24,795 70,214 20,123
---------- ----------- --------- ---------
Net cash (used in) provided by operating activities... (618,336) 1,011,070 491,586 580,628
---------- ----------- --------- ---------
Cash flows from investing activities
Investment in affiliate................................... -- (1,546,258) (13,506) --
Purchase of property, plant and equipment................. (172,234) (138,460) (116,341) (189,999)
Acquisition of businesses................................. (246,535) -- -- (165,494)
Proceeds from sale of property and equipment.............. 10,988 -- -- --
---------- ----------- --------- ---------
Net cash used in investing activities................. (407,781) (1,684,718) (129,847) (355,493)
---------- ----------- --------- ---------
Cash flows from financing activities
Principal payments on long-term debt...................... (272,626) (236,324) (61,043) (106,768)
Net increase (decrease) in line of credit................. 1,080,771 (562,538) (323,516) (217,035)
Proceeds from note payable................................ 181,994 50,000 -- --
Capital contributions..................................... -- 1,500,000 -- --
---------- ----------- --------- ---------
Net cash provided by (used in) financing activities... 990,139 751,138 (384,559) (323,803)
---------- ----------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS...... (35,978) 77,490 (22,820) (98,668)
Cash and cash equivalents at beginning of period............ 61,748 25,770 25,770 103,260
---------- ----------- --------- ---------
Cash and cash equivalents at end of period.................. $ 25,770 $ 103,260 $ 2,950 $ 4,592
========== =========== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest................................................ $ 203,832 $ 285,502 $152,131 $ 133,356
Income taxes............................................ 54,387 55,040 36,371 42,000
Summary of noncash items:
On July 1, 1997, the Company purchased all the common stock of Proximus Acquisitions, Inc., in exchange for 720
shares of stock valued at $469,325. Assets acquired and liabilities assumed were as follows:
Fair value of assets acquired.......................................... $ 879,293
Value of stock issued.................................................. (469,325)
Liabilities assumed.................................................... 409,968
</TABLE>
A debt obligation and a receivable in the amount of $400,000 were recorded as of
October 3, 1997 as a result of the Company's co-signing a demand note with MEGA.
The note was subsequently paid off by MEGA in November 1997.
The Company sold a 7.6% ownership in MEGA on September 30, 1997 in return for
notes receivable from two officers in the amount of $130,971. The notes were
forgiven by the Company in November 1997.
The accompanying notes are an integral part of these statements.
F-33
<PAGE> 93
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Supply Room Companies, Inc. (the "Company") is primarily in the
business of selling office supplies and office equipment to commercial and
retail enterprises located in the Commonwealth of Virginia and the mid-Atlantic
region.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
Accounting Period
The Company elected to operate on a 52-53 week fiscal year, beginning
October 1, 1995. The Company's fiscal year ends on the last Friday nearest the
end of September.
Interim Reporting
The accompanying condensed financial information as of March 31, 1998 and
the six months ended March 31, 1997 and 1998, including such information in the
notes to financial statements, is unaudited. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. Operating results for any
interim period are not necessarily indicative of the results of any other
interim period or for an entire year.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized at the time merchandise is shipped to customers.
Retail store revenue is recognized at the time of sale.
Inventories
Inventories, which consist of office supplies, office furniture and
equipment, printing supplies and stationery, are stated at the lower of cost or
market, determined on a first-in, first-out basis.
Investments
The investment in affiliate is accounted for under the equity method of
accounting.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line and accelerated methods over their estimated useful lives. Repairs
and maintenance are charged to expense as incurred.
F-34
<PAGE> 94
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
Deferred Income Taxes
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Deferred tax assets and
liabilities are measured using enacted tax law.
Goodwill
Goodwill is amortized on a straight-line basis over a 15-year period.
Accumulated amortization at September 27, 1996, October 3, 1997 and March 31,
1998, was $31,130, $44,011 and $69,776, respectively.
Valuation of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
held and used for possible impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The Company has determined no provision is necessary for the impairment of
long-lived assets at September 27, 1996, October 3, 1997 and March 31, 1998.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consist principally of cash and cash equivalents, due
from affiliate and related party, capital lease obligations, line of credit and
promissory notes classified as long-term debt. The carrying value of these
instruments approximates their fair value because of their short maturity and
their stipulated interest rates being based on current market rates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, OCTOBER 3, MARCH 31, ESTIMATED
1996 1997 1998 USEFUL LIVES
------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Vehicles.................................... $ 344,484 $ 396,209 $ 405,908 5 years
Furniture and fixtures...................... 387,986 460,198 783,544 7 years
Machinery and equipment..................... 333,225 591,958 359,948 5 years
Leasehold improvements...................... 78,265 87,532 87,257 7-15 years
---------- ---------- ----------
1,143,960 1,535,897 1,636,657
Less accumulated depreciation and
amortization.............................. 514,520 703,881 736,340
---------- ---------- ----------
$ 629,440 $ 832,016 $ 900,317
========== ========== ==========
</TABLE>
Depreciation expense amounted to $147,187 and $189,361 and $90,000 and
$177,381 for the years ended September 27, 1996 and October 3, 1997, and the six
months ended March 31, 1997 and 1998, respectively.
F-35
<PAGE> 95
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE C -- INVESTMENT IN AFFILIATE
On August 31, 1996, the Company acquired a 7.6% interest in MEGA Office
Furniture, LLC (MEGA) for a cost of $200,000. The president and chief executive
officer of the Company is a principal shareholder of MEGA and also serves as its
chairman. On September 11, 1997, the Company acquired an additional 19% interest
in MEGA for a cost of $1,500,000. The Company has accounted for the investment
using the equity method of accounting, and has recognized its proportionate
share of MEGA's operations retroactive to the date of purchase of the original
investment in a manner consistent with the step purchase method of a subsidiary.
The purchase price of the 19% interest exceeded the underlying equity of MEGA by
$738,000, which difference is considered goodwill and will be amortized over a
15-year period. The Company's share of MEGA's operating losses totaled $104,311
and $147,205 in the year ended October 3, 1997 and the six months ended March
31, 1998, respectively.
At September 27, 1997, MEGA had current assets and noncurrent assets of
approximately $2,302,000 and $2,164,000, respectively, based on financial
information included elsewhere in the Offering document. MEGA had current
liabilities and noncurrent liabilities of $2,518,000 and $190,000, respectively,
at September 27, 1997. In addition, MEGA had sales and net losses of $7,444,000
and $1,080,000 for the nine months ended September 27, 1997, respectively. The
Company measures impairment on this investment based on a comparison of the
carrying value to projected future cash flows. If MEGA continues to recognize
significant losses, a write-down in the carrying value of the asset may be
necessary.
On September 30, 1997, the Company sold its 7.6% interest in MEGA to the
Company's president and vice-president for its net book value of $130,971, in
return for five-year, interest-bearing note receivables from each of the
officers. The notes were forgiven on November 28, 1997, with compensation
expense recognized for the book value.
NOTE D -- LINE OF CREDIT
The Company has an available revolving line of credit with Crestar Bank of
up to $3,500,000, with interest at the lower of 30-day LIBOR plus 375 basis
points or prime plus 1.50%, which expired January 31, 1998. Interest is payable
monthly. The line of credit is collateralized by the assets of the Company. The
$3,500,000 line-of-credit agreement states that the maximum principal amount
outstanding at any time be equal to 85% of eligible receivables, plus 50% of
certain inventory value. In addition, the Company must maintain certain
financial requirements and quarterly ratios in connection with the
line-of-credit agreement. At October 3, 1997, September 27, 1996 and March 31,
1998, the Company was in compliance with the covenants. The remaining unused
portion of the revolving line of credit at October 3, 1997 and March 31, 1998
was $1,693,868 and $1,910,903, respectively. The payment of the line is
guaranteed by the Company's shareholders. Subsequent to year-end, the agreement
was renewed with Crestar Bank to February 28, 1999, with terms substantially
similar to those described above.
NOTE E -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, OCTOBER 3, MARCH 31,
1996 1997 1998
------------- ---------- ----------
<S> <C> <C> <C>
Richmond Office Supply Company, Inc., collateralized by
a subordinated interest in certain tangible and
intangible personal property and accounts receivable,
interest at 9%; $3,732 paid monthly, final installment
due October 1998...................................... $ 86,245 $ 47,655 $ 27,022
</TABLE>
F-36
<PAGE> 96
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 27, OCTOBER 3, MARCH 31,
1996 1997 1998
------------- ---------- ----------
<S> <C> <C> <C>
Payable to officers, collateralized by a subordinated
interest in all the Company's assets, with interest at
9%, interest paid quarterly, principal due ranging
from September 30, 1998 to September 30, 2001......... $290,000 $ 290,000 $ 290,000
Minimum earn-out payments due on purchase of Total
Office Products....................................... 450,000
Crestar Bank, collateralized by certain Company assets,
payable in monthly principal payments ranging from
$1,000 to $8,000 at interest rates ranging from 8.25%
to 8.5% which mature on dates ranging from March 25,
1999 through January 15, 2002......................... 258,350 294,536 225,706
Commercial Bank, collateralized by equipment and
consumer goods, interest at 10.50%, $3,328 paid
monthly, final installment due May 7, 2001............ -- 121,143 107,231
Payable to stockholder; collateralized by computer
equipment, principal and interest of $1,553 paid
monthly, interest at 12%.............................. -- 28,032 --
Crestar Bank, collateralized by inventory, furniture,
fixtures and equipment; note due on demand, interest
at lower of 30-day LIBOR plus 3.75% or prime plus
1.5%, interest payable monthly, co-signed with MEGA... -- 400,000 --
Installment loans to commercial banks, collateralized by
vehicles, interest from 8.75% to 10.25%; $1,848 paid
monthly, final installment June 19, 1999.............. 31,282 18,703 8,025
-------- ---------- ----------
$665,877 $1,200,069 $1,107,984
======== ========== ==========
</TABLE>
As of October 3, 1997, aggregate maturities of long-term debt are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
October 2, 1998........................................... $ 676,012
October 1, 1999........................................... 164,058
September 29, 2000........................................ 115,775
September 28, 2001........................................ 240,201
September 27, 2002........................................ 4,023
----------
$1,200,069
==========
</TABLE>
The Company must maintain certain quarterly financial ratio covenants with
its primary lender, Crestar Bank. For the year ended October 3, 1997 and the six
months ended March 31, 1998, the Company was in compliance with the
requirements.
Related Party Borrowings
During the year ended October 3, 1997, the Company co-signed on three
demand notes with a bank for MEGA. The notes were in the amounts of $600,000,
$250,000, and $400,000, of which only the $400,000 note remains outstanding as
of October 3, 1997. The Company has recorded the $400,000 as an amount due from
affiliate and due to bank as of October 3, 1997. The note was subsequently paid
in full on November 7, 1997.
F-37
<PAGE> 97
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
The Company also co-signed on two letters of credit in the amounts of
$85,000 and $50,000. Neither letter of credit has been drawn upon as of January
2, 1998. The notes and letters of credit were collateralized by the assets of
the Company and MEGA, and were personally guaranteed by the president of the
Company.
NOTE F -- CAPITAL LEASES
During the year ended September 27, 1996, the Company entered into capital
leases for certain equipment that met the criteria for capitalization. The
assets were recorded in the accompanying financial statements at a cost of
$281,801, and the related obligations were recorded at the present value of
future minimum lease payments. Accumulated depreciation at September 27, 1996
and October 3, 1997 was $63,292 and $116,524, respectively, and $137,841 at
March 31, 1998.
The following is a schedule of future minimum payments under the lease:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
October 2, 1998........................................... $ 72,951
October 1, 1999........................................... 69,320
September 29, 2000........................................ 46,608
September 28, 2001........................................ 28,036
--------
Total lease payments................................... 216,915
Less portion representing interest.......................... (35,535)
--------
Present value of future lease payments...................... 181,380
Current maturities.......................................... 54,727
--------
$126,653
========
</TABLE>
NOTE G -- OPERATING LEASES
Related Party
The Company leases its main business location from two of its shareholders.
The lease began January 1, 1992, and expires December 31, 2001. Payments are
currently $7,000 per month and will escalate in increments of 2% annually until
January 1, 2002.
Beginning October 1, 1993, the Company leases certain premises from the
president of the Company. The lease expires September 30, 2003. Payments are
$4,300 per month and will escalate in increments of 4% annually until October 1,
2002.
Total rental expense and payments to shareholders for the years ended
September 27, 1996 and October 3, 1997, were $139,811 and $151,044,
respectively, and $73,836 and $89,116 for the six months ended March 31, 1997
and March 31, 1998, respectively.
F-38
<PAGE> 98
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
October 2, 1998........................................... $157,806
October 1, 1999........................................... 162,167
September 29, 2000........................................ 166,662
September 28, 2001........................................ 171,301
September 27, 2002........................................ 70,619
Thereafter................................................ 73,444
--------
$801,999
========
</TABLE>
Other Leases
The Supply Room Companies, Inc. is a lessee in noncancelable leasing
arrangements for office buildings and warehouses in various locations expiring
at various dates. Future minimum lease payments at October 3, 1997, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
<S> <C>
October 2, 1998........................................... $ 315,893
October 1, 1999........................................... 245,588
September 29, 2000........................................ 181,156
September 28, 2001........................................ 186,648
September 27, 2002........................................ 137,655
----------
$1,066,940
==========
</TABLE>
Total rental expense for the years ended September 27, 1996 and October 3,
1997, was $267,320 and $274,728, respectively, and $136,837 and $155,912 for the
six months ended March 31, 1997 and 1998, respectively.
NOTE H -- ACQUISITIONS
Effective March 2, 1998, the Company acquired the office furniture and
office supply operations known as Total Office Products ("TOP") from Baltimore
Stationery Company, located in Baltimore, Maryland. The purchase price included
$162,500 in cash paid at closing, with additional earn-out payments to be made
to the seller equal to 14.1% of the semiannual gross profit of TOP in excess of
$750,000, for four years from the date of closing. The required minimum amount
of total earn-out payments to be made to the seller is $450,000. The Company has
allocated the minimum amount of the purchase price, $612,500, based on the fair
values of the assets purchased, which included customer lists, a noncompete
agreement and goodwill. The goodwill will be amortized over a forty-year period.
On July 1, 1997, the Company purchased the printing business of Proximus
Acquisition, Inc., in Richmond, Virginia, in return for the issuance of 720
shares of the Company's common stock valued at $469,325. The assets purchased
included printing presses and inventory, which, along with goodwill, had a fair
value of approximately $879,000, and liabilities assumed had a fair value of
approximately $410,000. The purchase price includes goodwill in the amount of
$276,115, which is being amortized on a straight-line method over 15 years from
the date of acquisition. This purchase was a noncash transaction.
F-39
<PAGE> 99
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
On February 1, 1996, the Company purchased the retail office supply
business of Ann's Books and Cards, Ltd., in Ashland, Virginia, for approximately
$11,600. The assets purchased consisted of inventory and a computer.
Also on February 1, 1996, the Company purchased the retail office supply
business of Service Stationers, Inc., in Harrisonburg, Virginia, for
approximately $153,250. The assets purchased consisted of inventory, fixed
assets and prepaid expenses.
On April 1, 1996, the Company purchased the retail office supply business
of Leimkuhler-Biden, Inc., in Baltimore, Maryland, for approximately $85,000.
Assets purchased consisted of inventory, furniture and fixtures, and vehicles.
None of the above acquisitions were considered to be significant.
NOTE I -- STOCK OPTIONS
On April 30, 1994, the Company granted two officers hired during the
purchase of an office supply company the right to purchase a maximum of 555
shares each of common stock at a per share price of $360. The options are
exercisable within ten years of the date they were granted, in accordance with
the following terms: 10% expiring each April 1 until April 1, 2002, and 15%
expiring each April 1 thereafter until April 1, 2004. The Company shall have the
right to repurchase from the officers all or any portion of the option at
repurchase prices established in the option agreement. No options were exercised
during the years ended September 27, 1996 and October 3, 1997, and for the six
months ended March, 1998.
NOTE J -- DEFINED CONTRIBUTION RETIREMENT PLAN
The Company has a retirement savings and investment plan for substantially
all full-time employees, which allows participants to make contributions by
salary reduction pursuant to Section 401(k) of the Internal Revenue Code.
Matching employer contributions to the plan are limited to 6% of a participant's
compensation. Employer contributions to the plan for the years ended September
27, 1996 and October 3, 1997 were $28,731 and $34,154, respectively, and $15,894
and $21,322 for the six months ended March 31, 1997 and 1998, respectively.
NOTE K -- INCOME TAXES
The Company has recognized as of September 27, 1996 and October 3, 1997 a
current deferred tax asset of $14,967 and $14,571, respectively, and $54,705 at
March 31, 1998, for the deductible difference related to the allowance for bad
debt expense and inventory capitalization, and a noncurrent deferred tax
liability of $38,209, $29,024, and $62,436, respectively, for the taxable
difference related to the depreciation of property and equipment.
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------- ---------------------
SEPTEMBER 27, OCTOBER 3, MARCH 31, MARCH 31,
1996 1997 1997 1998
------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Current.......................................... $34,913 $99,835 $ 87,231 $52,589
Deferred......................................... 10,682 (8,789) 29,391 (6,188)
------- ------- -------- -------
$45,595 $91,046 $116,622 $46,401
======= ======= ======== =======
</TABLE>
F-40
<PAGE> 100
THE SUPPLY ROOM COMPANIES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 27, 1996 and October 3, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
The income tax provision differs from the amount of income tax determined
by applying the U.S. federal income tax rate to pretax income. Increases to the
provision consist primarily of the tax effect of nondeductible expenses.
Decreases to the provision are related to the tax effect of the excess of tax
over financial depreciation.
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
-------------------------- ---------------------
SEPTEMBER 27, OCTOBER 3, MARCH 31, MARCH 31,
1996 1997 1997 1998
------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Current "expected" provision for Federal income
taxes.......................................... 34.0% 34.0% 34.0% 34.0%
Adjustments in income taxes resulting from
State income taxes, net of Federal income tax
benefit........................................ 4.0 4.0 4.0 4.0
-- Permanent differences -- other
miscellaneous............................... (2.2) .8 4.6 12.4
---- ---- ----- -----
Income tax expense............................... 35.8% 38.8% 42.6% 50.4%
==== ==== ===== =====
</TABLE>
NOTE L -- AGREEMENT WITH OFFICE CENTRE CORPORATION
The Company and its stockholders have entered into a definitive agreement
(the "Agreement") with Office Centre Corporation and Subsidiaries ("Office
Centre") whereby Office Centre will acquire, by merger, all of the issued and
outstanding stock of the Company, in exchange for cash and common stock of
Office Centre upon the consummation of the initial public offering of Office
Centre.
In September 1997, the Company issued 1,250 shares of its common stock
(approximately 10% of the Company's common stock, issued and outstanding) to
Office Centre for $1,500,000.
F-41
<PAGE> 101
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NEW ENGLAND OFFICE SUPPLY, INC.
We have audited the accompanying balance sheet of New England Office
Supply, Inc. (the "Company"), as of December 31, 1997, and the related
statements of operations and retained earnings and cash flows for the year then
ended. 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 New England Office Supply,
Inc., as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
February 9, 1998 (except for
Notes C and D, as to which
the date is April 9, 1998)
F-42
<PAGE> 102
NEW ENGLAND OFFICE SUPPLY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 199,962 $ 2,585
Accounts receivable, net of allowance for doubtful
accounts of $60,000 at December 31, 1997 and March 31,
1998................................................... 2,354,788 2,663,232
Inventories............................................... 338,787 368,682
Prepaid expenses and other current assets................. 50,744 121,824
---------- ----------
Total current assets................................. 2,944,281 3,156,323
PROPERTY AND EQUIPMENT -- NET............................... 400,184 373,749
OTHER ASSETS
Covenants not to compete, net............................. 45,100 20,650
Goodwill, net of accumulated amortization................. 94,002 92,439
---------- ----------
$3,483,567 $3,643,161
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit............................................ $ 300,000 $ --
Current portion of long-term debt......................... 552,832 552,832
Current portion of covenants payable...................... 80,000 80,000
Accounts payable -- trade................................. 1,000,227 1,312,970
Accrued expenses and other current liabilities............ 47,280 97,504
Income taxes payable...................................... 2,800 34,286
---------- ----------
Total current liabilities............................ 1,983,139 2,077,592
LONG-TERM DEBT, NET......................................... 522,178 483,970
COVENANTS PAYABLE, NET...................................... 18,400 7,800
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock: no par value, 200,000 shares authorized;
25,000 shares issued and outstanding................... 514,700 514,700
Retained earnings......................................... 445,150 559,099
---------- ----------
959,850 1,073,799
---------- ----------
$3,483,567 $3,643,161
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE> 103
NEW ENGLAND OFFICE SUPPLY, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net sales............................................ $14,664,883 $3,546,577 $4,131,605
Cost of goods sold................................... 10,974,620 2,597,053 3,073,153
----------- ---------- ----------
Gross margin.................................. 3,690,263 949,524 1,058,452
Operating costs and expenses......................... 3,372,892 868,572 850,216
----------- ---------- ----------
Operating income.............................. 317,371 80,952 208,236
Other income (expense)
Interest expense................................... (141,667) (23,028) (39,341)
Other income (expense)............................. -- (42,000) 4,000
----------- ---------- ----------
Income before provision for income taxes...... 175,704 15,924 172,895
Provision for income taxes........................... 9,965 2,844 5,300
----------- ---------- ----------
NET INCOME.................................... 165,739 13,080 167,595
Retained earnings at beginning of period............. 506,411 506,411 445,150
Distributions........................................ (227,000) (45,212) (53,646)
----------- ---------- ----------
Retained earnings at end of period................... $ 445,150 $ 474,279 $ 559,099
=========== ========== ==========
Unaudited Pro Forma Information
Pro forma net income before provision for income
taxes........................................... $ 175,704 $ 15,924 $ 172,895
Provision for income taxes......................... 129,082 21,070 79,558
----------- ---------- ----------
Pro forma income (loss).................... $ 46,622 $ (5,146) $ 93,337
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE> 104
NEW ENGLAND OFFICE SUPPLY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ----------------------
1997 1997 1998
------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net income........................................... $ 165,739 $ 13,080 $ 167,595
Adjustments to reconcile net income to net cash (used
in) provided by operating activities
Depreciation and amortization................... 260,898 56,169 54,813
Provision for bad debts......................... 46,000 -- --
Changes in operating assets and liabilities
Accounts receivable.......................... (844,457) (640,264) (308,444)
Inventories.................................. (156,566) (31,292) (29,895)
Prepaid expenses and other current assets.... (27,967) (16,350) (71,080)
Accounts payable -- trade.................... 198,285 540,502 312,743
Accrued expenses and other current
liabilities................................ (15,478) 43,853 50,224
Income taxes payable............................ 2,800 -- 31,486
--------- --------- ---------
Net cash (used in) provided by operating
activities........................................ (370,746) (34,302) 207,442
--------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment................... (232,781) (95,320) (2,365)
--------- --------- ---------
Cash flows from financing activities
Principal payments on long-term debt................. (159,112) (48,750) (48,808)
Net increase (decrease) in line of credit............ 300,000 30,000 (300,000)
Proceeds from note payable........................... 884,162 200,000 --
Distribution to shareholders......................... (227,000) (45,212) (53,646)
--------- --------- ---------
Net cash provided by (used in) financing
activities...................................... 798,050 136,038 (402,454)
--------- --------- ---------
INCREASE (DECREASE) IN CASH....................... 194,523 6,416 (197,377)
Cash at beginning of period............................ 5,439 5,439 199,962
--------- --------- ---------
Cash at end of period.................................. $ 199,962 $ 11,855 $ 2,585
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest.......................................... $ 125,000 $ 22,500 $ 28,000
Income taxes...................................... 7,000 2,800 8,000
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE> 105
NEW ENGLAND OFFICE SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
New England Office Supply, Inc. (the "Company") was incorporated on
September 12, 1985, in the Commonwealth of Massachusetts. During 1992, the
stockholder acquired the stock of New England Office Supply, Inc., which was
doing business under the name of Allen Stationery Co. The Company is engaged in
the distribution and sales of office supplies and related products, primarily
throughout the states of Massachusetts and Rhode Island.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Revenue Recognition
Revenue is recognized at the time merchandise is shipped to customers.
Interim Reporting
The accompanying financial information as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998, including such information in the
notes to financial statements, is unaudited. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. Operating results for any
interim period are not necessarily indicative of the results of any other
interim period or for an entire year.
Inventories
Inventories, which consist of office supplies, office furniture and
equipment, printing supplies and stationery, are stated at the lower of cost or
market, determined on a first-in, first-out basis.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line method over their estimated useful lives. Repairs and maintenance
are charged to expense as incurred.
Income Taxes
Federal income taxes are payable personally by the stockholders of the
Company pursuant to an election under Subchapter S of the Internal Revenue
Service Code not to have the Company taxed as a corporation. Accordingly,
Federal income taxes are not reflected in the accompanying financial statements.
The unaudited pro forma income tax information included in the Statements
of Operations and Retained Earnings is presented in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," as if the Company had been subject to federal and state income taxes for
all periods presented.
Other Assets
Other assets consist of goodwill and covenants not to compete. Goodwill is
amortized on a straight-line basis over a 15-year period. Covenants not to
compete are stated at cost and amortized on a straight-line basis over the
contractual lives which range from 4 to 6 years. Accumulated amortization for
the goodwill and the covenants at
F-46
<PAGE> 106
NEW ENGLAND OFFICE SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
December 31, 1997 was $93,702 and $524,900, respectively, and $95,265 and
$549,350 at March 31, 1998, respectively.
Valuation of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
held and used for possible impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The Company has determined no provision is necessary for the impairment of
long-lived assets at December 31, 1997.
Covenants Payable
Covenants payable represent the discounted value of the amount due to
employees arising from covenants not to compete. During 1997, approximately
$86,000 was paid under these agreements.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consist principally of covenants payable and a
promissory note classified as long-term debt. The carrying value of these
instruments approximates their fair value because of their short maturity and
their stipulated interest rate being based on current market rates,
respectively.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, ESTIMATED
1997 1998 USEFUL LIVES
------------ --------- ------------
<S> <C> <C> <C>
Transportation equipment......................... $285,932 $267,273 5 years
Furniture and fixtures........................... 155,881 155,881 7 years
Machinery and equipment.......................... 120,352 120,352 5 years
Computer equipment............................... 165,143 169,374 5 years
-------- --------
727,308 712,880
Less accumulated depreciation and amortization... 327,124 339,131
-------- --------
$400,184 $373,749
======== ========
</TABLE>
Depreciation expense amounted to $114,206, $23,040 and $12,007 for the year
ended December 31, 1997 and the three months ended March 31, 1997 and 1998,
respectively.
NOTE C -- LINE OF CREDIT
The Company has a $700,000 revolving line of credit which was renewed
during 1997. Bank advances on the credit line are payable on demand and carry an
interest rate of 1% over the bank's prime lending rate. The
F-47
<PAGE> 107
NEW ENGLAND OFFICE SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
credit line is secured by substantially all assets of the Company and is
personally guaranteed by the shareholder of the Company. The Company's line of
credit contains restrictive covenants, including limitations on owner
distributions and salary, and capital expenditures. In the event of default of
such covenants, the line of credit along with the long-term debt (Note D) will
become due on demand. The balance due under the credit line was $300,000 at
December 31, 1997.
The line of credit expired on March 31, 1998 and was renewed and increased
to $1,500,000 on April 9, 1998.
NOTE D -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Note payable to bank, due on March 24, 1998.
Interest at 1% above the prime rate...................... $ 400,000 $ 400,000
Note payable to bank, original amount $764,162, due in
sixty fixed monthly principal payments of $12,736 plus
interest at 1% above the prime rate due May 2002......... 675,010 636,802
---------- ----------
1,075,010 1,036,802
Less current maturities of long-term debt.................. 552,832 552,832
---------- ----------
Long-term debt, excluding current maturities............... $ 522,178 $ 483,970
========== ==========
</TABLE>
Long-term debt agreements are secured by substantially all assets of the
company and are personally guaranteed by the shareholder of the Company.
As of December 31, 1997, aggregate maturities of long-term debt are as
follows:
<TABLE>
<S> <C>
Year ending December 31,
1998...................................................... $ 552,832
1999...................................................... 152,832
2000...................................................... 152,832
2001...................................................... 152,832
2002...................................................... 63,682
----------
$1,075,010
==========
</TABLE>
The Company's loan agreements contain restrictive covenants, including
limitations on owner distributions and salary, and capital expenditures. On
April 9, 1998 the note payable of $400,000 due on March 24, 1998 was paid in
full and the note payable to bank due May 2002 was replaced with a note payable
in the amount of $850,000 due April 2003 which is payable in sixty monthly
payments of $14,167.
NOTE E -- COMMITMENTS AND CONTINGENCIES
Operating Leases
Prior to March 1, 1997, the Company leased 15,000 square feet of office and
warehouse space under a lease agreement that expires on October 31, 1999. The
Company had a thirty-day option upon written notice of
F-48
<PAGE> 108
NEW ENGLAND OFFICE SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
terminating the lease, which was exercised effective March 1, 1997. Monthly
lease expense under this agreement was $7,809.
On February 3, 1997, the Company signed a five-year lease for 29,200 square
feet of office and warehouse space in Braintree, Massachusetts, effective March
1, 1997. Monthly lease expense is $13,383, with additional charges for real
estate taxes, insurance and common area maintenance. The Company has an option
to renew for an additional five years.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998...................................................... $ 160,600
1999...................................................... 160,600
2000...................................................... 160,600
2001...................................................... 160,600
2002...................................................... 13,383
----------
$ 655,783
==========
</TABLE>
Total rental expense for the year ended December 31, 1997 and the three
months ended March 31, 1997 and 1998 was $181,085, $32,165 and $49,640,
respectively.
Litigation
During 1997, the Company finalized its litigation with the principals of
Shawmut Printers, which they acquired in 1993. The resolution resulted in no
damages being paid by either party.
Presently, the Company is a plaintiff in litigation with a former owner of
an acquired company for violating the terms of his employment and noncompetition
agreement. In response, this defendant has filed for arbitration claiming that
the Company had not met the terms of the purchase and sales agreement between
New England Office Supply and his former company, Orr Business Products. In the
opinion of legal counsel, this claim is without merit, and no loss has been
recorded by the Company.
Concentrations
The Company is currently certified as a women or minority owned small
business in both Massachusetts and Rhode Island. One of the criteria used in the
selection of the Company as a vendor for state-related, municipal and other
governmental contracts may have been its certification as a women or minority
owned small business. During the year ended December 31, 1997 and the three
months ended March 31, 1997 and 1998, the Company's sales to state, state
related, municipal and governmental agencies represented approximately 16%, 3%,
and 21%, respectively, of the Company's revenues. The Company is required to
notify the respective state agencies of any changes in information supplied to
the state for certification, including any changes in ownership or control.
NOTE F -- COMMON STOCK
Authorized common stock is comprised of both voting (180,000 shares) and
nonvoting (20,000 shares) stock. At December 31, 1997 and March 31, 1998, no
nonvoting shares have been issued.
F-49
<PAGE> 109
NEW ENGLAND OFFICE SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE G -- DEFINED CONTRIBUTION RETIREMENT PLAN
The Company maintains a retirement plan adopted under Internal Revenue Code
Section 401(k). The plan covers all employees who meet certain age and service
requirements. The Company does not make contributions to the plan.
NOTE H -- SUBSEQUENT EVENT
In May 1998, the Company and its stockholder have entered into a definitive
agreement with Office Centre Corporation and Subsidiaries ("Office Centre")
whereby Office Centre will acquire, by merger, all of the issued and outstanding
stock of the Company, in exchange for cash and common stock of Office Centre
upon the consummation of the initial public offering of Office Centre.
F-50
<PAGE> 110
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
KING OFFICE SUPPLY, INC.
We have audited the accompanying consolidated balance sheets of King Office
Supply, Inc. (formerly The King Group, LLC) and Subsidiary (the "Company") as of
December 31, 1996 and 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the period June
30, 1996 (inception) through December 31, 1996 (for the King Group, LLC) and the
year ended December 31, 1997. We have also audited the statements of operations
and cash flows of King Office Supply Co., Inc. (the "Predecessor") for the
period January 1, 1996 through June 29, 1996. These financial statements are the
responsibility of the Company's and the Predecessor'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 consolidated financial position of King Office
Supply, Inc. and Subsidiary as of December 31, 1996 and 1997, and the
consolidated results of its operations and its consolidated cash flows for the
period June 30, 1996 (inception) to December 31, 1996 (for the King Group, LLC)
and the year ended December 31, 1997 and the results of operations and cash
flows of the Predecessor for the period January 1, 1996 through June 29, 1996 in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 9, 1998
F-51
<PAGE> 111
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................... $ 1,900 $ 5,730 $ 12,766
Accounts receivable, net of allowance for doubtful
accounts of $50,000 and $63,500 at December 31, 1996
and 1997 and $63,500 at March 31, 1998.............. 1,802,273 2,167,311 2,417,304
Inventories............................................ 285,742 426,633 473,000
Due from affiliate..................................... -- 91,946 120,130
Prepaid expenses and other current assets.............. 33,586 64,451 60,216
Deferred tax benefit................................... -- 58,494 58,494
---------- ---------- ----------
Total current assets................................ 2,123,501 2,814,565 3,141,910
PROPERTY AND EQUIPMENT -- NET............................ 147,857 229,536 232,538
OTHER ASSETS
Goodwill, net of accumulated amortization.............. 805,784 786,073 780,969
Deferred charges, net.................................. 85,746 129,070 121,070
Due from stockholder................................... 12,351 -- 3,108
Security deposits and other assets..................... 52,342 22,256 22,544
---------- ---------- ----------
956,223 937,399 927,691
---------- ---------- ----------
$3,227,581 $3,981,500 $4,302,139
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit......................................... $1,399,528 $1,756,567 $1,839,779
Notes payable, vendor.................................. 156,343 -- --
Notes payable -- current portion....................... 134,030 177,873 183,022
Accounts payable....................................... 910,697 1,255,307 1,442,847
Accrued expenses and other current liabilities......... 201,481 288,166 315,217
Income taxes payable................................... 17,000 44,607 44,905
Due to stockholders.................................... -- 77,708 77,708
---------- ---------- ----------
Total current liabilities........................... 2,819,079 3,600,228 3,903,478
NOTE PAYABLE -- LONG-TERM PORTION........................ 397,454 320,522 272,789
DEFERRED INCOME TAXES.................................... -- 16,610 19,510
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Members' capital....................................... 150,000 -- --
Common stock -- no par value; authorized, 1,000 shares;
issued and outstanding, 800 shares.................. -- -- --
Retained earnings (accumulated deficit)................ (23,702) 44,140 106,362
---------- ---------- ----------
126,298 44,140 106,362
Subscriptions receivable............................... (115,250) -- --
---------- ---------- ----------
11,048 44,140 106,362
---------- ---------- ----------
$3,227,581 $3,981,500 $4,302,139
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-52
<PAGE> 112
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR
--------------- PERIOD FROM
PERIOD FROM JUNE 30, 1996
JANUARY 1, 1996 (INCEPTION) THREE MONTHS ENDED
THROUGH THROUGH YEAR ENDED MARCH 31,
JUNE 29, DECEMBER 31, DECEMBER 31, -----------------------
1996 1996 1997 1997 1998
--------------- ------------- ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $6,236,542 $6,205,987 $13,892,846 $3,481,097 $3,869,784
Cost of goods sold........... 3,916,123 3,962,142 8,780,430 2,199,173 2,461,211
---------- ---------- ----------- ---------- ----------
Gross margin............... 2,320,419 2,243,845 5,112,416 1,281,924 1,408,573
Operating costs and
expenses................... 2,208,879 2,131,793 4,735,379 1,165,315 1,239,241
---------- ---------- ----------- ---------- ----------
Operating income........... 111,540 112,052 377,037 116,609 169,332
Other income (expenses)
Interest income............ 16,482 9,913 1,475 -- --
Interest expense........... (83,165) (123,170) (254,345) (57,750) (65,387)
Other income (expense)..... 40,442 (5,497) -- -- --
---------- ---------- ----------- ---------- ----------
Income (loss) before
income taxes.......... 85,299 (6,702) 124,167 58,859 103,945
Provision for income taxes... 6,911 17,000 15,367 7,576 41,723
---------- ---------- ----------- ---------- ----------
NET INCOME (LOSS)....... $ 78,388 $ (23,702) $ 108,800 $ 51,283 $ 62,222
========== ========== =========== ========== ==========
Unaudited Pro Forma
Information
Pro forma net income (loss)
before provision for
income taxes............ $ (6,702) $ 124,167 $ 58,859
Provision for income
taxes................... 748 58,957 27,115
---------- ----------- ----------
Pro forma income
(loss)................ $ (7,450) $ 65,210 $ 31,744
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE> 113
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
MEMBERS' COMMON (ACCUMULATED SUBSCRIPTIONS STOCKHOLDERS'
CAPITAL STOCK DEFICIT) RECEIVABLE EQUITY
--------- --------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1996
(inception)..................... $ 150,000 $(150,000)
Contributed capital............. -- 34,750 $ 34,750
Net loss for the period June 30,
1996 (inception) through
December 31,1996............. -- $(23,702) -- (23,702)
--------- -------- --------- --------
Balance at December 31, 1996...... 150,000 (23,702) (115,250) 11,048
Contributed capital............. -- -- 2,000 2,000
Dissolution of the King Group
LLC and formation of King
Office Supply, Inc........... (150,000) $ -- (40,958) 113,250 (77,708)
Net income for the year ended
December 31, 1997............ -- -- 108,800 -- 108,800
--------- --------- -------- --------- --------
Balance at December 31, 1997...... -- -- 44,140 -- 44,140
Net income for the period
(unaudited).................. -- -- 62,222 -- 62,222
--------- --------- -------- --------- --------
Balance at March 31, 1998
(unaudited)..................... $ -- $ -- $106,362 $ -- $106,362
========= ========= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-54
<PAGE> 114
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR
--------------- PERIOD FROM
PERIOD FROM JUNE 30, 1996
JANUARY 1, 1996 (INCEPTION) THREE MONTHS ENDED
THROUGH THROUGH YEAR ENDED MARCH 31,
JUNE 29, DECEMBER 31, DECEMBER 31, ---------------------
1996 1996 1997 1997 1998
--------------- ------------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)................... $ 78,388 $ (23,702) $ 108,800 $ 51,283 $ 62,222
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities
Depreciation and amortization... 29,147 33,695 103,615 19,959 29,742
Provision for bad debts......... 37,975 50,626 73,336 18,206 8,499
Deferred income taxes -- net.... -- -- (41,884) -- 2,900
Noncash compensation expense.... -- -- 85,000 -- --
Changes in operating assets and
liabilities, net of the
effects of acquisitions
Accounts receivable........ (173,186) 70,606 (375,100) (283,789) (258,492)
Inventories................ 46,621 37,279 (30,891) (5,396) (46,367)
Prepaid expenses and other
current assets........... 16,475 (5,543) (30,864) (1,228) 4,236
Due from affiliate......... -- -- (91,946) (10,667) (28,185)
Other assets............... -- (67,864) (62,530) 39,663 (288)
Accounts payable........... 23,341 (127,375) 309,876 182,997 187,540
Accrued expenses and other
current liabilities...... (106,690) 77,233 69,611 51,872 27,051
Income taxes payable....... (10,218) 17,000 35,494 9,433 298
--------- --------- ----------- --------- ---------
Net cash (used in) provided by
operating activities............ (58,147) 61,955 152,517 72,333 (10,844)
--------- --------- ----------- --------- ---------
Cash flows from investing activities
Acquisition of businesses........... -- (125,000) (75,000) -- --
Purchase of property and
equipment......................... -- (11,252) (81,856) -- (19,640)
Increase in due from stockholder.... (75,501) (12,351) (38,967) (9,349) (3,108)
--------- --------- ----------- --------- ---------
Net cash used in investing
activities...................... (75,501) (148,603) (195,823) (9,349) (22,748)
--------- --------- ----------- --------- ---------
Cash flows from financing activities
Principal payments on long-term
debt................................ -- (57,473) (155,560) (32,099) (42,584)
Increase (decrease) in line of
credit............................ 101,524 (48,228) 357,039 101,069 83,212
Proceeds from note payable,
vendor............................ -- 210,000 -- --
Principal payments on notes payable,
vendor............................ -- (53,657) (156,343) (41,338) --
Capital contributions............... -- 34,750 2,000 1,000 --
--------- --------- ----------- --------- ---------
Net cash provided by financing
activities...................... 101,524 85,392 47,136 28,632 40,628
--------- --------- ----------- --------- ---------
(DECREASE) INCREASE IN CASH....... (32,124) (1,256) 3,830 91,616 7,036
Cash at beginning of period........... 35,280 3,156 1,900 1,900 5,730
--------- --------- ----------- --------- ---------
Cash at end of period................. $ 3,156 $ 1,900 $ 5,730 $ 93,516 $ 12,766
========= ========= =========== ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for
Interest............................ $ 83,165 $ 122,753 $ 253,812 $ 58,066 $ 65,485
Income taxes........................ $ 17,200 $ -- $ 30,500 $ -- $ 38,525
</TABLE>
See Note B for noncash acquisition-related items.
The accompanying notes are an integral part of these statements.
F-55
<PAGE> 115
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE A -- DESCRIPTION OF THE BUSINESS AND SIGNIFICANT
Accounting Policies
The King Group, LLC (the "LLC") was formed as a limited liability company
on June 26, 1996, and effective June 30, 1996, acquired King Office Supply Co.,
Inc. ("King" or "Predecessor") and certain of the assets of Carnegie Coffee Co.,
Inc. ("Carnegie") in business combinations (see Note B). King is a supplier of
office and stationery supplies to businesses in the New York metropolitan area
and also has a retail store located in New York City.
Effective May 8, 1997, the members of the LLC contributed the assets and
liabilities of the LLC to a newly formed C Corporation, King Office Supply, Inc.
(the "Company"), in exchange for stock of the Company. The LLC was then
subsequently dissolved in a tax-free transaction. The Company elected to
distribute all of the retained earnings and capital of the LLC, which was
recorded as a note payable to stockholders.
Effective as of March 1, 1997, King Office Supply Co., Inc., a Connecticut
corporation (wholly-owned by the Company) acquired certain assets and assumed
certain liabilities of Commercial -- Connecticut Office Supply Company, Inc.
("Commercial"). Commercial is a supplier of office and stationery supplies to
businesses in the Stamford, Connecticut area and also has a retail store located
in Stamford, Connecticut.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany balances and
transactions have been eliminated in consolidation.
Interim Reporting
The accompanying financial information as of March 31, 1998 and the three
months ended March 31, 1997 and 1998, including such information in the notes to
financial statements, is unaudited. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair presentation have been included. Operating results for any
interim period are not necessarily indicative of the results of any other
interim period or for an entire year.
Revenue Recognition
Revenue within the dealership operations is recognized at the time
merchandise is shipped to customers. Retail store revenues are recognized at the
time of sale.
Inventories
Inventories, which consist of printing supplies, stationery and office
supplies, are stated at the lower of cost or market. Cost is determined by the
first-in, first-out ("FIFO") method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Machinery and equipment are depreciated using the double declining
balance method over their estimated useful lives of five
F-56
<PAGE> 116
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
years. Leasehold improvements are amortized using the straight-line method over
the shorter of the lease term or the estimated useful lives of the assets.
Repairs and maintenance are charged to expense as incurred.
Goodwill
Goodwill, principally from the acquisition of King and Carnegie, represents
the excess of the purchase price over the fair market value of the assets
acquired.
Goodwill is amortized on a straight-line basis over a forty-year period.
Accumulated amortization at December 31, 1996 and 1997 and March 31, 1998 was
approximately $9,800, $30,600 and $35,711, respectively.
Income Taxes
The Company and its wholly-owned subsidiary file a consolidated Federal
income tax return. Deferred income taxes reflect the net effect of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amount used for income tax purposes.
As an LLC, Federal and state taxes for the periods of June 30, 1996 through
December 31, 1996 and January 1, 1997 through May 7, 1997 are payable personally
by the members. Accordingly, no provision was made for Federal and New York
State income taxes for the periods. Provision was made by the Company for New
York City unincorporated business tax. Therefore, the effective tax rate for the
year ended December 31, 1997, is less than the statutory Federal income tax
rate.
As an S Corporation, Federal taxes for the period of January 1, 1996
through June 29, 1996 are payable personally by the stockholders. Accordingly,
no provision was made by the Predecessor for Federal income taxes. Provision was
made by the Predecessor for New York City corporate income taxes and New York
State income taxes on S Corporations.
The unaudited pro forma income tax information included in the Consolidated
Statements of Operations is presented in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," as if the
LLC had been subject to federal and state income taxes for the periods
presented.
Valuation of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
held and used for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has determined that no provision is necessary for the
impairment of long-lived assets at December 31, 1996 and 1997 and March 31,
1998.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consist principally of a line of credit and
promissory notes classified as long-term debt. The carrying value of these
instruments approximates their fair value because of their short maturity and
their stipulated interest rates being based on current market rates.
F-57
<PAGE> 117
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE B -- ACQUISITIONS
The Company (formerly the LLC) acquired King and certain assets of Carnegie
for an aggregate purchase price of approximately $714,000. The Company paid
$125,000 at the time of the agreement and obtained two promissory notes due to
the sellers of King and Carnegie of approximately $472,000 and $42,000,
respectively. In addition, the Company also assumed a note for $75,000 due to an
officer of the Predecessor who was named the Chairman of the Company, after the
acquisition (Note F).
The acquisitions of King and Carnegie in 1996 were accounted for using the
purchase method of accounting and, accordingly, the total acquisition cost has
been allocated to the net assets acquired based on the fair value of the assets
and liabilities on the date of acquisition. The Predecessor ceased operations on
the date of acquisition.
The results of operations of the acquired companies are included in the
accompanying financial statements since the date of acquisition. The total cost
of the acquisition exceeded the fair value of the acquired net assets of King
and Carnegie by approximately $816,000.
In March 1997, the Company acquired certain assets and liabilities of
Commercial for an aggregate purchase price of $198,000. The Company paid $75,000
in April 1997 and obtained a promissory note for the balance of the purchase
price.
The acquisition of Commercial was also accounted for as a purchase. The
results of operations of Commercial are included in the accompanying financial
statements since the date of acquisition. The fair value of the acquired net
assets of $231,000 exceeded the total cost of the acquisition of $198,000, which
resulted in negative goodwill of $33,000. The Company reduced the fair value of
the long-term assets by this excess.
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31, ESTIMATED
1996 1997 1998 USEFUL LIVES
-------- -------- --------- ------------
<S> <C> <C> <C> <C>
Leasehold improvements............................. $106,445 $168,805 $168,805 5-10 years
Machinery and equipment............................ 57,278 134,579 154,219 5 years
-------- -------- --------
163,723 303,384 323,024
Less accumulated depreciation
and amortization................................. 15,866 73,848 90,486
-------- -------- --------
$147,857 $229,536 $232,538
======== ======== ========
</TABLE>
Depreciation expense amounted to $29,147, $15,866, $57,982, $10,615 and
$16,638 for the period ended June 29, 1996, the period ended December 31, 1996,
the year ended December 31, 1997 and the three months ended March 31, 1997 and
1998, respectively.
NOTE D -- LINE OF CREDIT
The Company has an available line of credit of up to $1,750,000, limited to
advances of up to 85% of eligible accounts receivable, and expires in August
1998. Interest is payable monthly at a rate of 2.5% over the prime rate (10.75%
and 11.00% at December 31, 1996 and 1997, respectively). The liability is
collateralized by the assets of the Company and there is a limited guarantee by
the majority shareholder. During November 1997, the Company arranged an
overadvance of $175,000 which is being repaid monthly at a rate not to exceed
$15,000 per month.
F-58
<PAGE> 118
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE E -- NOTE PAYABLE, VENDOR
The note payable, vendor was due in monthly installments of $14,879,
including interest at 9% per annum, and was paid in full in November 1997. The
note was collateralized by the assets of the Company.
NOTE F -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1996 1997 1998
-------- -------- ---------
<S> <C> <C> <C>
(a) Note payable, seller -- King............................ $424,698 $318,375 $290,423
(a) Note payable, seller -- Carnegie........................ 35,843 22,523 19,005
(b) Note payable, seller -- Commercial...................... -- 103,691 97,052
(c) Note payable, officer................................... 70,943 53,806 49,331
-------- -------- --------
531,484 498,395 455,811
Less current portion..................................... 134,030 177,873 183,022
-------- -------- --------
$397,454 $320,522 $272,789
======== ======== ========
</TABLE>
- ---------------
(a) The notes payable to the sellers of King and Carnegie are due in monthly
installments of $12,433 and $1,389, including interest at 12% per annum, and
expire in June 2000 and June 1999, respectively. The King note requires a
mandatory prepayment each year of the lesser of $25,000 or 50% of the
preceding year's net profit of the Company. The Carnegie note requires a
mandatory prepayment each year of 10% of the prepayment amount of the King
note. Both notes require a limited guarantee by the majority shareholder of
the Company. Life insurance policies of approximately $350,000 on the
majority shareholder were assigned to the seller.
(b) The note payable to the sellers of Commercial is due in quarterly
installments of $9,750, including interest at 12% per annum, through March
2001. The note is guaranteed by the majority shareholder of the Company.
(c) The note payable, officer, assumed by the Company as part of the purchase
price for the acquisition of King, is due in quarterly installments of
$5,425, including interest at 7% per annum, through September 2000. Life
insurance policies of approximately $100,000 on the majority shareholder
were assigned to the officer.
All of the long-term debt is subordinated to the amounts owed under the
line of credit (Note D).
Minimum principal payments of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998...................................................... $177,873
1999...................................................... 190,596
2000...................................................... 120,459
2001...................................................... 9,467
--------
$498,395
========
</TABLE>
NOTE G -- DEFINED CONTRIBUTION PLAN
The Company has a 401(k) retirement plan covering all of its eligible
employees. The plan is funded by employee and discretionary employer
contributions. The employer contributed $3,111, $2,696, $6,568, $1,480 and
$1,955 for the periods of January 1, 1996 through June 29, 1996, June 30, 1996
through December 31, 1996, the year ended December 31, 1997 and the three months
ended March 31, 1997 and 1998, respectively.
F-59
<PAGE> 119
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE H -- COMMITMENTS AND CONTINGENCIES
Leases
On May 7, 1997, the Company entered into an agreement to lease office
space. The lease term is for ten years with an option by the Company to
terminate the agreement in 2004. The lease provides for annual rents ranging
from $77,000 per annum to $113,000 per annum plus escalation clauses relating to
operating expenses and real estate taxes.
The Company leases a retail store under an operating lease expiring in
2001. The lease contains a renewal option for a five-year period and escalation
clauses relating to operating expenses and real estate taxes.
The Company also leases a retail store and office space in Connecticut for
Commercial's operations, under an operating lease expiring in February 2000. The
lease contains a renewal option for a three-year period and a 3% escalation
clause for the renewal period.
Rent expense was $123,831, $125,308 and $312,320 for the periods of January
1, 1996 through June 29, 1996, June 30, 1996 through December 31, 1996 and the
year ended December 31, 1997, respectively, and $75,730 and $95,933 for the
three months ended March 31, 1997 and 1998, respectively.
Future minimum lease payments under all noncancellable operating leases are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998...................................................... $ 283,850
1999...................................................... 290,238
2000...................................................... 246,464
2001...................................................... 204,384
2002...................................................... 95,808
Thereafter................................................ 135,364
----------
$1,256,108
==========
</TABLE>
Employment Contracts
The Company has employment agreements with certain employees expiring in
2001. Future annual payments as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998...................................................... $ 230,000
1999...................................................... 230,000
2000...................................................... 230,000
2001...................................................... 100,000
----------
$ 790,000
==========
</TABLE>
Concentration
During the periods of January 1, 1996 through June 29, 1996, June 30, 1996
through December 31, 1996, the year ended December 31, 1997 and the three months
ended March 31, 1997 and 1998, one vendor accounted for 57%, 56%, 60%, 58% and
60% of the Company's purchases, respectively.
F-60
<PAGE> 120
KING OFFICE SUPPLY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE I -- INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
PREDECESSOR
--------------- PERIOD FROM
PERIOD FROM JUNE 30, 1996
JANUARY 1, 1996 (INCEPTION) THREE MONTHS ENDED
THROUGH THROUGH YEAR ENDED MARCH 31,
JUNE 29, DECEMBER 31, DECEMBER 31, ------------------
1996 1996 1997 1997 1998
--------------- ------------- ------------ ------- --------
<S> <C> <C> <C> <C> <C>
Current
Federal.......................... $ -- $ -- $22,423 $ -- $22,400
State and local.................. 6,911 17,000 34,828 7,576 16,423
Deferred........................... -- -- (41,884) -- 2,900
------ ------- ------- ------ -------
$6,911 $17,000 $15,367 $7,576 $41,723
====== ======= ======= ====== =======
</TABLE>
As discussed in Note A, King was taxed as an S Corporation for Federal and
state tax purposes for the period of January 1, 1996 through June 29, 1996. The
King Group, LLC was taxed as a partnership for Federal and New York State tax
purposes for the periods of June 30, 1996 through May 7, 1997. The Company will
file a consolidated Federal income tax return for the period of May 8, 1997
through December 31, 1997. Had the Company filed a consolidated Federal income
tax return, the provision for income taxes for the periods of January 1, 1996
through June 29, 1996, June 30, 1996 through December 31, 1996 and for the year
ended December 31, 1997 would have been approximately $39,000, $0 and $95,000,
respectively.
Significant components of the Company's deferred taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ---------
<S> <C> <C>
Deferred tax assets (liabilities)
Allowance for doubtful accounts........................... $ 21,590 $21,590
Deferred compensation..................................... 34,000 34,000
Capitalized inventory costs............................... 2,904 2,904
-------- -------
58,494 58,494
Amortization of goodwill.................................. (16,610) (19,510)
-------- -------
$ 41,884 $38,984
======== =======
</TABLE>
NOTE J -- AGREEMENT WITH OFFICE CENTRE CORPORATION
The Company and its stockholders have entered into a definitive agreement
with Office Centre Corporation and Subsidiaries ("Office Centre") whereby Office
Centre will acquire, by merger, all of the issued and outstanding stock of the
Company, in exchange for cash and common stock of Office Centre upon the
consummation of the initial public offering of Office Centre. The majority owner
of the Company is also the President, Chief Executive Officer and Chairman and,
upon consummation of the proposed transaction, will be a holder of approximately
10% of the outstanding common stock of Office Centre Corporation.
As of December 31, 1997, the amount due from affiliate is comprised of
payments made by (and owed from) the Company on behalf of Office Centre for the
purchase of certain equipment and various operating expenses and deferred
offering costs incurred by Office Centre during the year ended December 31,
1997.
F-61
<PAGE> 121
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
We have audited the accompanying balance sheet of Sierra Office Systems and
Products, Inc. (the "Company"), as of March 31, 1998, and the related statements
of operations and retained earnings and cash flows for the year then ended.
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 Sierra Office Systems and
Products, Inc., as of March 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
New York, New York
April 30, 1998
F-62
<PAGE> 122
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 28,782
Accounts receivable, net of allowance for doubtful
accounts of $54,048.................................... 1,657,334
Inventories............................................... 337,200
Prepaid expenses and other current assets................. 57,972
----------
Total current assets................................. 2,081,288
DUE FROM STOCKHOLDER........................................ 800,000
PROPERTY AND EQUIPMENT -- NET............................... 1,077,888
OTHER ASSETS
Deferred tax benefit...................................... 20,000
Security deposits and other assets........................ 9,559
----------
$3,988,735
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit............................................ $1,083,808
Current portion of long-term debt......................... 55,119
Current maturities of capital lease obligations........... 115,438
Note payable -- customer.................................. 80,000
Accounts payable -- trade................................. 1,105,570
Accrued expenses and other current liabilities............ 299,637
Income taxes payable...................................... 49,000
----------
Total current liabilities............................ 2,788,572
LONG-TERM DEBT, NET......................................... 109,782
CAPITAL LEASE OBLIGATIONS, NET.............................. 389,003
COMMITMENT AND CONTINGENCY
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000 shares authorized;
754 shares issued and outstanding...................... 329,463
Retained earnings......................................... 371,915
----------
701,378
----------
$3,988,735
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-63
<PAGE> 123
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Net sales................................................... $12,789,343
Cost of goods sold.......................................... 8,531,525
-----------
Gross margin......................................... 4,257,818
Operating costs and expenses................................ 3,897,177
Operating income.......................................... 360,641
Other income (expense)
Interest income -- related party.......................... 82,241
Interest expense.......................................... (311,493)
Other expense, net........................................ (8,771)
-----------
Income before provision for income taxes............. 122,618
Provision for income taxes.................................. 49,000
-----------
NET INCOME........................................... 73,618
Retained earnings at beginning of period.................... 298,297
-----------
Retained earnings at end of period.......................... $ 371,915
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-64
<PAGE> 124
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net income................................................ $ 73,618
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization.......................... 172,210
Changes in operating assets and liabilities
Accounts receivable.................................. (229,239)
Inventories.......................................... (89,667)
Prepaid expenses and other current assets............ 112,333
Other assets......................................... 52,338
Accounts payable -- trade............................ 140,454
Note payable -- customer............................. 80,000
Accrued expenses and other current liabilities....... 39,064
-----------
Net cash provided by operating activities......... 351,111
-----------
Cash flows from investing activities
Purchase of property, plant and equipment................. (192,118)
-----------
Cash flows from financing activities
Principal payments on long-term debt...................... (45,814)
Net increase in line of credit............................ 147,962
Capital lease payments.................................... (246,540)
-----------
Net cash used in financing activities............. (144,392)
-----------
INCREASE IN CASH AND CASH EQUIVALENTS............. 14,601
Cash and cash equivalents at beginning of period............ 14,181
-----------
Cash and cash equivalents at end of period.................. $ 28,782
===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest............................................... $ 311,493
Income taxes........................................... 36,418
</TABLE>
The accompanying notes are an integral part of this statement.
F-65
<PAGE> 125
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Sierra Office Systems and Products, Inc. (the "Company") is primarily in
the business of selling office supplies, printing and office furniture to
commercial and retail enterprises located in the State of California and Pacific
region.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
Accounting Period
The Company operates on a fiscal year beginning April 1 and ending March
31.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized at the time merchandise is shipped to customers.
Inventories
Inventories, which consist of office supplies, office furniture and
equipment, printing supplies and stationery, are stated at the lower of cost or
market, determined on a first-in, first-out basis.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line and accelerated methods over their estimated useful lives. Repairs
and maintenance are charged to expense as incurred.
Valuation of Long-Lived Assets
The Company reviews long-lived assets held and used for possible impairment
whenever events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. The Company has determined no provision is
necessary for the impairment of long-lived assets at March 31, 1998.
Income Taxes
Deferred income taxes reflect the net effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Deferred taxes primarily
result from temporary differences related to the allowance for doubtful
accounts.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of
F-66
<PAGE> 126
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1998
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consist principally of cash and cash equivalents, due
from related party, capital lease obligations, line of credit and promissory
notes classified as long-term debt. The carrying value of these instruments
approximates their fair value because of their short maturity and their
stipulated interest rates being based on current market rates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of March 31, 1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES
------------
<S> <C> <C>
Machinery and equipment.................................... $1,248,464 5 years
Vehicles................................................... 305,918 5 years
Leasehold improvements..................................... 126,621 7 - 10 years
Furniture and fixtures..................................... 103,658 7 years
----------
1,784,661
Less accumulated depreciation and Amortization............. (706,773)
----------
$1,077,888
==========
</TABLE>
Depreciation expense amounted to $172,210 for the year ended March 31,
1998.
NOTE C -- DUE FROM STOCKHOLDER
At March 31, 1998, the Company had an outstanding receivable from Sierra
Dental in the amount of $800,000. Sierra Dental was a company previously owned
by the President of the Company. The President is personally liable for
repayment of the loan. During the year ending March 31, 1998, interest was
charged on this receivable at an effective annual rate of approximately 10%. The
receivable is due no later than December 31, 2001.
NOTE D -- LINE OF CREDIT
The Company has an available revolving line of credit with San Jose
National Bank for up to $1,100,000, which bears interest at a rate of prime plus
7% for balances up to $1,000,000 and prime plus 10% for the balance in excess of
$1,000,000 (18.5% at March 31, 1998). Interest is payable monthly. The line of
credit is collateralized by the assets of the Company. The $1,100,000
line-of-credit agreement states that the maximum principal amount outstanding at
any time be equal to 80% of eligible receivables. In addition, the Company must
maintain certain financial requirements and quarterly ratios in connection with
the line-of-credit agreement. At March 31, 1998, the Company was in compliance
with the covenants. The remaining unused portion of the revolving line of credit
at March 31, 1998 was $16,192. The payment of the line is guaranteed by the
Company's stockholders.
F-67
<PAGE> 127
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1998
NOTE E -- LONG-TERM DEBT
Long-term debt at March 31, 1998 consists primarily of ten notes due to two
financial credit institutions which call for monthly payments ranging from $271
to $636 and bearing interest at rates which range from 5.9% to 12%. These notes
are all collateralized by property of the Company. The final installments of
these notes are due at various times from June 1999 through October 2002.
As of March 31, 1998, aggregate maturities of long-term debt are as
follows:
<TABLE>
<S> <C>
Year ending March 31,
1999...................................................... $ 55,119
2000...................................................... 41,695
2001...................................................... 30,295
2002...................................................... 27,457
2003...................................................... 10,335
--------
$164,901
========
</TABLE>
NOTE F -- CAPITAL LEASES
The Company has entered into capital leases for certain equipment that met
the criteria for capitalization. The assets were recorded at a cost of $914,656,
and the related obligations were recorded at the present value of future minimum
lease payments. Accumulated depreciation at March 31, 1998 was $399,577.
The following is a schedule of future minimum payments under the lease:
<TABLE>
<S> <C>
Year ending March 31,
1999...................................................... $ 215,015
2000...................................................... 183,738
2001...................................................... 178,544
2002...................................................... 63,459
2003...................................................... 7,932
---------
Total lease payments.............................. 648,688
Less portion representing interest.......................... (144,247)
---------
Present value of future lease payments...................... 504,441
Current maturities.......................................... 115,438
---------
$ 389,003
=========
</TABLE>
NOTE G -- COMMITMENT AND CONTINGENCY
Operating Leases
The Company leases its main business location. The lease began June 1,
1997, and expires July 1, 2007. Payments are currently $12,369 per month and
will escalate in increments of 4% annually until July 1, 1999. Payments at that
time will be reduced to $10,727 and will escalate in increments of 4% annually
until July 1, 2007.
F-68
<PAGE> 128
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
March 31, 1998
Future minimum lease commitments are as follows:
<TABLE>
<S> <C>
Year ending March 31,
1999...................................................... $ 151,864
2000...................................................... 156,580
2001...................................................... 135,976
2002...................................................... 132,573
2003...................................................... 137,876
Thereafter................................................ 649,622
----------
$1,364,491
==========
</TABLE>
Total rental expense for the year ended March 31, 1998, was $136,553.
Concentration
During the year ended March 31, 1998, one vendor accounted for 48% of the
Company's purchases.
NOTE H -- INCOME TAXES
The provisions for income taxes consist of the following for the year ended
March 31, 1998:
<TABLE>
<S> <C>
Current
Federal................................................... $40,000
State..................................................... 9,000
-------
$49,000
=======
</TABLE>
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements for the year ended
March 31, 1998:
<TABLE>
<S> <C>
Current "expected" provision for Federal income taxes....... 25.3%
Adjustments in income taxes resulting from
State income taxes, net of Federal income tax benefit..... 6.6
Permanent differences -- other miscellaneous.............. 8.1
----
Income tax expense.......................................... 40.0%
====
</TABLE>
NOTE I -- SUBSEQUENT EVENT
In April 1998, the Company and its stockholders have entered into a
definitive agreement with Office Centre Corporation and Subsidiaries ("Office
Centre") whereby Office Centre will acquire, by merger, all of the issued and
outstanding stock of the Company, in exchange for cash and common stock of
Office Centre upon the consummation of the initial public offering of Office
Centre.
F-69
<PAGE> 129
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC.
We have audited the accompanying balance sheet of Office Solutions Business
Products and Services, Inc. (the "Company"), as of September 30, 1997, and the
related statements of operations and retained earnings and cash flows for the
year then ended. 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 Office Solutions Business
Products and Services, Inc., as of September 30, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
February 13, 1998
F-70
<PAGE> 130
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1998
------------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 123,973 $ 244,498
Accounts receivable, less allowances of $25,000 at
September 30, 1997 and March 31, 1998.................. 1,151,921 1,335,026
Inventories............................................... 354,078 329,903
Prepaid expenses and other current assets................. 44,674 92,365
---------- ----------
Total current assets................................. 1,674,646 2,001,792
PROPERTY AND EQUIPMENT -- NET............................... 247,996 212,384
---------- ----------
$1,922,642 $2,214,176
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of capital lease obligations........... $ 55,789 $ 47,611
Accounts payable and accrued expenses..................... 1,179,074 1,134,208
Income taxes payable...................................... 59,000 198,831
---------- ----------
Total current liabilities............................ 1,293,863 1,380,650
CAPITAL LEASE OBLIGATIONS, NET.............................. 88,742 68,770
COMMITMENTS AND CONTINGENCY
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized, 1,500 shares;
issued and outstanding, 1,000 shares as of September
30, 1997 and March 31, 1998, respectively.............. 434,642 434,642
Retained earnings......................................... 105,395 330,114
---------- ----------
540,037 764,756
---------- ----------
$1,922,642 $2,214,176
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-71
<PAGE> 131
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED ------------------------
SEPTEMBER 30, MARCH 31, MARCH 31,
1997 1997 1998
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net sales............................................ $9,630,943 $4,160,569 $6,472,780
Cost of goods sold................................... 6,994,643 2,951,197 4,737,192
---------- ---------- ----------
Gross margin.................................. 2,636,300 1,209,372 1,735,588
Operating costs and expenses......................... 2,468,759 1,120,611 1,356,657
---------- ---------- ----------
Operating income.............................. 167,541 88,761 378,931
Other income (expense)
Interest income.................................... 10,473 4,231 4,024
Interest expense................................... (13,619) (7,151) (7,705)
---------- ---------- ----------
Income before provision for income taxes...... 164,395 85,841 375,250
Provision for income taxes........................... 59,000 30,000 150,531
---------- ---------- ----------
NET INCOME.................................... 105,395 55,841 224,719
Retained earnings at beginning of period............. -- -- 105,395
---------- ---------- ----------
Retained earnings at end of period................... $ 105,395 $ 55,841 $ 330,114
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-72
<PAGE> 132
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED ---------------------
SEPTEMBER 30, MARCH 31, MARCH 31,
1997 1997 1998
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................................. $105,395 $ 55,841 $224,719
Adjustments to reconcile net income to net cash (used
in) provided by operating activities
Depreciation and amortization........................ 61,856 30,692 40,268
Changes in operating assets and liabilities
Accounts receivable................................ (273,157) (58,375) (183,105)
Inventories........................................ (145,412) (27,400) 24,175
Prepaid expenses and other current assets.......... (46,497) (18,048) (47,691)
Accounts payable and accrued expenses.............. 160,786 (79,213) (44,866)
Income taxes payable............................... 59,000 30,000 139,831
-------- -------- --------
Net cash (used in) provided by operating
activities......................................... (78,029) (66,503) 153,331
-------- -------- --------
Cash flows from investing activities
Purchase of property and equipment...................... (33,150) (3,075) (4,656)
-------- -------- --------
Cash flows from financing activities
Principal payments on capital lease obligations......... (41,708) (12,296) (28,150)
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (152,887) (81,874) 120,525
Cash and cash equivalents at beginning of period.......... 276,860 276,860 123,973
-------- -------- --------
Cash and cash equivalents at end of period................ $123,973 $194,986 $244,498
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest............................................. $ 5,000 $ 6,000 $ 7,000
Income taxes......................................... -- -- 16,000
Noncash investing and financial activities:
Equipment purchased under capital leases............. 90,290 -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-73
<PAGE> 133
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Office Solutions Business Products and Services, Inc. (the "Company") is
primarily in the business of selling office supplies to commercial and retail
enterprises located in Southern California.
The Company was formed on October 1, 1996 when the stockholders exchanged
certain assets and liabilities of their wholly-owned business of the Company in
exchange for all of the Company's common stock. The assets and liabilities were
valued at their historical cost.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized at the time merchandise is shipped to customers.
Inventories
Inventories, which consist of office supplies, printing supplies, and
stationery, are stated at the lower of cost or market, determined on a first-in,
first-out basis.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line and accelerated methods over their estimated useful lives. Leased
property meeting certain criteria is capitalized and the present value of the
related lease payments is recorded as a liability. Amortization of capitalized
leased assets is computed on a straight-line method over the term of the lease.
Repairs and maintenance are charged to expense as incurred.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Fair Value of Financial Instruments
Financial instruments consist principally of cash and cash equivalents and
capital lease obligations. The carrying value of these instruments approximates
their fair value because of their short maturity and their stipulated interest
rates being based on current market rates.
F-74
<PAGE> 134
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
Interim Reporting
The accompanying financial information as of the six months ended March 31,
1997 and 1998, including such information in the notes to financial statements
is unaudited. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, considered necessary for a fair presentation have
been included. Operating results for any interim period are not necessarily
indicative of the results of any other interim period or for an entire year.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, ESTIMATED
1997 1998 USEFUL LIVES
------------- --------- ------------
<S> <C> <C> <C>
Vehicles...................................... $ 291,994 $ 291,994 5 years
Furniture and fixtures........................ 132,012 132,012 7 years
Data processing equipment..................... 13,740 18,396 5 years
Leasehold improvements........................ 26,518 26,518 7 - 15 years
--------- ---------
464,264 468,920
Accumulated depreciation and amortization..... (216,268) (256,536)
--------- ---------
$ 247,996 $ 212,384
========= =========
</TABLE>
Depreciation expense amounted to $61,856, $40,268 and $31,052 for the year
ended September 30, 1997, and the six months ended March 31, 1997 and 1998,
respectively.
NOTE C -- CAPITAL LEASES
The Company leases certain vehicles included in property and equipment that
meet the criteria for capitalization. The assets and obligations were recorded
at $241,337. Accumulated amortization was $101,437 and $130,182 as of September
30, 1997 and March 31, 1998, respectively.
The following is a schedule of future minimum payments under the leases:
<TABLE>
<S> <C>
Year ending September 30,
1998...................................................... $ 71,205
1999...................................................... 49,079
2000...................................................... 33,440
2001...................................................... 17,755
--------
Total lease payments.............................. 171,479
Less portion representing interest.......................... (26,948)
--------
Present value of future lease payments...................... 144,531
Current maturities.......................................... 55,789
--------
$ 88,742
========
</TABLE>
F-75
<PAGE> 135
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE D -- COMMITMENTS AND CONTINGENCY
Operating Lease -- Related Party
The Company leases its corporate office from the stockholders on a
month-to-month lease. Payments are currently $6,000 per month. The stockholders
have a $378,000 note payable related to the corporate office that is guaranteed
by the Company.
Total rental expense and payments to the stockholders was $49,148 for the
year ended September 30, 1997 and $45,949 for the six months ended March 31,
1998.
Operating Lease -- Other
The Company leases office space under an operating lease expiring October
31, 1999. Future rental obligations are $18,000 per year for the years ending
September 30, 1998 and 1999.
Concentration
During the year ended September 30, 1997 and the six months ended March 31,
1997 and 1998, two vendors accounted for approximately 70% of the Company's
purchases, respectively.
NOTE E -- DEFINED CONTRIBUTION RETIREMENT PLAN
The Company has a retirement savings and investment plan for substantially
all full-time employees, which allows participants to make contributions by
salary reduction pursuant to Section 401(k) of the Internal Revenue Code.
Matching employer contributions to the plan are limited to 6% of a participant's
compensation. Employer contributions to the plan for the year ended September
30, 1997 were $25,017 and $8,154 and $5,816 for the six months ended March 31,
1997 and 1998, respectively.
NOTE F -- INCOME TAXES
Income taxes currently payable are provided for on taxable income at the
statutory rates applicable to such income. Deferred taxes have not been provided
for as the tax basis amounts of the Company's assets and liabilities approximate
their reported amounts in the accompanying financial statements.
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, -------------------
1997 1997 1998
------------- ------- --------
<S> <C> <C> <C>
Current
Federal......................................... $49,000 $25,000 $128,531
State........................................... 10,000 5,000 22,000
------- ------- --------
$59,000 $30,000 $150,531
======= ======= ========
</TABLE>
F-76
<PAGE> 136
OFFICE SOLUTIONS BUSINESS PRODUCTS AND SERVICES, INC
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, ---------------------
1997 1997 1998
------------- -------- ---------
<S> <C> <C> <C>
Current "expected" provision for Federal income
taxes......................................... 30% 29% 34%
Adjustments in income taxes resulting from State
tax, net of Federal benefit................... 6 6 6
-- -- --
Income tax expense.............................. 36% 35% 40%
== == ==
</TABLE>
NOTE G -- SUBSEQUENT EVENT
In April 1998, the Company and its stockholders have entered into a
definitive agreement with Office Centre Corporation and Subsidiaries ("Office
Centre") whereby Office Centre will acquire, by merger, all of the issued and
outstanding stock of the Company, in exchange for cash and common stock of
Office Centre upon the consummation of the initial public offering of Office
Centre.
F-77
<PAGE> 137
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
GREENWOOD OUTFITTERS, INC.
We have audited the accompanying balance sheets of Greenwood Outfitters,
Inc. (the "Company") as of December 31, 1996 and 1997 and the related statements
of operations and retained earnings, and cash flows for the years then ended.
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 Greenwood Outfitters, Inc.
as of December 31, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
January 30, 1998
F-78
<PAGE> 138
GREENWOOD OUTFITTERS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash................................................. $ 130,941 $ 222,025 $ 347,668
Accounts receivable.................................. 674,635 977,622 1,086,158
Inventories.......................................... 236,762 129,248 166,136
Prepaid expenses and other current assets............ 6,687 11,819 16,604
---------- ---------- ----------
Total current assets......................... 1,049,025 1,340,714 1,616,566
PROPERTY AND EQUIPMENT -- NET.......................... 64,520 102,165 117,957
---------- ---------- ----------
$1,113,545 $1,442,879 $1,734,523
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable -- trade............................ $ 341,093 $ 473,926 $ 550,867
Accrued expenses and other current liabilities....... 42,012 118,734 125,171
---------- ---------- ----------
Total current liabilities.................... 383,105 592,660 676,038
COMMITMENT
STOCKHOLDERS' EQUITY
Common stock -- no par value; authorized, 1,000,000
shares; issued, 50,000 shares..................... 150,000 150,000 150,000
Retained earnings.................................... 710,440 830,219 1,038,485
---------- ---------- ----------
860,440 980,219 1,188,485
Less treasury stock -- 25,000 shares, at cost........ (130,000) (130,000) (130,000)
---------- ---------- ----------
730,440 850,219 1,058,485
---------- ---------- ----------
$1,113,545 $1,442,879 $1,734,523
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-79
<PAGE> 139
GREENWOOD OUTFITTERS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ------------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................. $7,296,089 $8,920,139 $2,051,384 $2,718,212
Cost of goods sold........................ 4,805,822 5,885,430 1,328,731 1,737,804
---------- ---------- ---------- ----------
Gross margin.................... 2,490,267 3,034,709 722,653 980,408
Operating costs and expenses.............. 2,182,847 2,651,594 581,823 701,308
---------- ---------- ---------- ----------
Income before income taxes...... 307,420 383,115 140,830 279,100
State income tax expense.................. 13,330 3,336 333 834
---------- ---------- ---------- ----------
NET INCOME...................... 294,090 379,779 140,497 278,266
Retained earnings at beginning of
period.................................. 476,350 710,440 710,440 830,219
Distributions............................. (60,000) (260,000) (30,000) (70,000)
---------- ---------- ---------- ----------
Retained earnings at end of period........ $ 710,440 $ 830,219 $ 820,937 $1,038,485
========== ========== ========== ==========
Unaudited Pro Forma Information
Pro forma net income before provision
for income taxes..................... $ 307,420 $ 383,115 $ 140,830 $ 279,100
Provision for income taxes.............. 120,021 153,698 56,247 111,472
---------- ---------- ---------- ----------
Pro forma income................ $ 187,399 $ 229,417 $ 84,583 $ 167,628
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-80
<PAGE> 140
GREENWOOD OUTFITTERS, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31,
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ----------------------
1996 1997 1997 1998
--------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income.................................. $294,090 $ 379,779 $ 140,497 $ 278,266
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation........................... 45,249 53,726 9,765 9,592
Gain on disposal of property and
equipment........................... -- (1,421) -- --
Changes in operating assets and
liabilities
Accounts receivable................. (64,962) (302,987) (150,082) (108,536)
Inventories......................... (70,372) 107,514 160,111 (36,888)
Prepaid expenses and other current
assets............................ 6,486 (5,132) 792 (4,785)
Accounts payable -- trade........... (13,359) 132,833 33,080 76,941
Accrued expenses and other
liabilities....................... (9,762) 76,722 9,067 6,437
-------- --------- --------- ---------
Net cash provided by operating
activities.......................... 187,370 441,034 203,230 221,027
-------- --------- --------- ---------
Cash flows from investing activities
Purchase of property and equipment.......... (33,557) (93,525) (18,384) (25,384)
Proceeds from disposal of property and
equipment................................ -- 3,575 -- --
-------- --------- --------- ---------
Net cash used in investing activities.... (33,557) (89,950) (18,384) (25,384)
-------- --------- --------- ---------
Cash flows from financing activities
Distributions to shareholders............... (60,000) (260,000) (30,000) (70,000)
-------- --------- --------- ---------
INCREASE IN CASH......................... 93,813 91,084 154,846 125,643
Cash at beginning of period................... 37,128 130,941 130,941 222,025
-------- --------- --------- ---------
Cash at end of period......................... $130,941 $ 222,025 $ 285,787 $ 347,668
======== ========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for Income
taxes.................................... $ 13,330 $ 3,336 -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-81
<PAGE> 141
GREENWOOD OUTFITTERS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE A -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Greenwood Outfitters, Inc. (the "Company") is an office supply dealer to
businesses in the Dallas/Fort Worth area.
A summary of the significant accounting policies applied in the preparation
of the accompanying financial statements follows:
Revenue Recognition
Revenue is recognized at the time merchandise is shipped to customers.
Inventories
Inventories, which consist of merchandise held for sale, are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using accelerated methods over the
estimated useful lives of the assets ranging from five to seven years. Repairs
and maintenance are charged to expense as incurred.
Income Taxes
Federal income taxes are payable personally by the stockholders of the
Company pursuant to an election under Subchapter S of the Internal Revenue
Service Code not to have the Company taxed as a corporation. Accordingly,
federal income taxes are not reflected in the accompanying financial statements.
The unaudited pro forma income tax information included in the Statements
of Operations and Retained Earnings is presented in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," as if the
Company had been subject to federal and state income taxes for all periods
presented.
Interim Reporting
The accompanying financial information as of the three months ended March
31, 1997 and 1998, including such information in the notes to financial
statements, is unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation have been included. Operating results for any interim period are
not necessarily indicative of the results of any other interim period or for an
entire year.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-82
<PAGE> 142
GREENWOOD OUTFITTERS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1996 and 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31, ESTIMATED
1996 1997 1998 USEFUL LIVES
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
Furniture and fixtures............... $ 14,029 $ 14,029 $ 14,029 5 - 7 years
Equipment............................ 242,304 321,403 346,787 5 - 7 years
Vehicles............................. 24,016 24,016 24,016 5 years
--------- --------- --------
280,349 359,448 384,832
Less accumulated depreciation........ (215,829) (257,283) 266,875
--------- --------- --------
$ 64,520 $ 102,165 $117,957
========= ========= ========
</TABLE>
NOTE C -- COMMITMENT
Leases
The Company leases office and warehouse space under a noncancellable
operating lease that expired in February 1998. Rent expense was approximately
$46,000, $47,000, $12,000 and $12,000 for the years ended December 31, 1996 and
1997 and the three-month periods ended March 31, 1997 and 1998, respectively.
NOTE D -- AGREEMENT WITH OFFICE CENTRE CORPORATION
The Company and its stockholders entered into a definitive agreement with
Office Centre Corporation and Subsidiaries ("Office Centre") in October 1997,
whereby Office Centre will acquire, by merger, all of the issued and outstanding
stock of the Company, in exchange for cash and common stock of Office Centre
upon the consummation of the initial public offering of Office Centre.
F-83
<PAGE> 143
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
GEORGIA IMPRESSION PRODUCTS, INC.
We have audited the accompanying balance sheet of Georgia Impression
Products, Inc. (the "Company"), as of June 30, 1997, and the related statements
of operations and retained earnings and cash flows for the year then ended.
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 Georgia Impression Products,
Inc., as of June 30, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
March 13, 1998
F-84
<PAGE> 144
GEORGIA IMPRESSION PRODUCTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
-------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $180,082 $306,920
Accounts receivable....................................... 464,255 360,899
Inventories............................................... 48,970 54,483
Prepaid expenses and other current assets................. -- 3,441
-------- --------
Total current assets................................. 693,307 725,743
PROPERTY AND EQUIPMENT -- NET............................... 56,455 49,702
OTHER ASSETS
Security deposits......................................... 650 650
-------- --------
$750,412 $776,095
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt......................... $ 35,210 $ 23,967
Notes payable -- stockholders............................. 43,245 --
Accounts payable -- trade................................. 273,492 158,358
Accrued liabilities....................................... 14,625 8,815
Income taxes payable...................................... 49,101 125,000
-------- --------
Total current liabilities............................ 415,673 316,140
LONG-TERM DEBT, NET......................................... 23,538
COMMITMENT AND CONTINGENCY
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 100,000 shares authorized
shares; 48,000 shares issued; 16,000 shares outstanding
at June 30, 1997 and March 31, 1998.................... 48,000 48,000
Retained earnings......................................... 395,391 544,145
Treasury stock............................................ (132,190) (132,190)
-------- --------
311,201 459,955
-------- --------
$750,412 $776,095
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-85
<PAGE> 145
GEORGIA IMPRESSION PRODUCTS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ---------------------------
JUNE 30, MARCH 31, MARCH 31,
1997 1997 1998
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales............................................ $3,390,319 $2,309,190 $ 2,644,626
Cost of goods sold................................... 2,477,472 1,725,087 1,923,868
---------- ---------- -------------
Gross margin.................................. 912,847 584,103 720,758
Operating costs and expenses......................... 745,488 439,722 499,311
---------- ---------- -------------
Operating income.............................. 167,359 144,381 221,447
Other income (expense)
Interest income.................................... 4,843 1,640 4,216
Interest expense................................... (1,271) (940) (3,010)
---------- ---------- -------------
Income before provision for income taxes...... 170,931 145,081 222,653
Provision for income taxes........................... 55,374 47,664 73,899
---------- ---------- -------------
NET INCOME.................................... 115,557 97,417 148,754
Retained earnings at beginning of period............. 279,834 279,834 395,391
---------- ---------- -------------
Retained earnings at end of period................... $ 395,391 $ 377,251 $ 544,145
========== ========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-86
<PAGE> 146
GEORGIA IMPRESSION PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ----------------------
JUNE 30, MARCH 31, MARCH 31,
1997 1997 1998
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities
Net income............................................ $ 115,557 $ 97,417 $148,754
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization.................... 3,536 1,394 6,753
Provision for bad debts.......................... 8,542 -- --
Changes in operating assets and liabilities
Accounts receivable........................... (94,170) 13,722 103,356
Inventories................................... 1,620 (22,641) (5,513)
Prepaid expenses and other current assets..... 850 (4,665) (3,441)
Accounts payable -- trade..................... 25,039 (24,321) (115,134)
Accrued expenses and other current
liabilities................................. 4,210 (5,000) (5,810)
Income taxes payable.......................... 46,401 45,401 75,899
---------- -------- --------
Net cash provided by operating activities........ 111,585 101,307 204,864
---------- -------- --------
Cash flows from investing activities
Purchase of property and equipment.................... (22,604) (8,904) --
---------- -------- --------
Net cash used in investing activities............ (22,604) (8,904) --
---------- -------- --------
Cash flows from financing activities
Principal payments on long-term debt.................. (24,676) (18,507) (34,781)
Proceeds from note payable to shareholders............ 43,244 -- --
Payments on note payable to shareholders.............. (39,094) (31,734) (43,245)
---------- -------- --------
Net cash used in financing activities............ (20,526) (50,241) (78,026)
---------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS............ 68,455 42,162 126,838
Cash and cash equivalents at beginning of period........ 111,627 111,627 180,082
---------- -------- --------
Cash and cash equivalents at end of period.............. $ 180,082 $153,789 $306,920
========== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest........................................... $ 1,271 $ 940 $ 3,010
Income taxes....................................... 8,919 4,665 2,970
</TABLE>
The accompanying notes are an integral part of these statements.
F-87
<PAGE> 147
GEORGIA IMPRESSION PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE A -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Georgia Impression Products, Inc. (the "Company") is primarily in the
business of selling office supplies and office equipment to commercial and
retail enterprises located in the Atlanta, Georgia region.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Accounting Period
The Company elected to operate on a fiscal year beginning July 1.
Interim Reporting
The accompanying financial information as of the nine months ended March
31, 1997 and 1998, including such information in the notes to financial
statements, is unaudited. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation have been included. Operating results for any interim period are
not necessarily indicative of the results of any other interim period or for an
entire year.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Revenue Recognition
Revenue is recognized at the time merchandise is shipped to customers.
Inventories
Inventories, which consist of office supplies, printing supplies and
stationery, are stated at the lower of cost or market, determined on a first-in,
first-out basis.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are recorded using the
straight-line method over their estimated useful lives. Repairs and maintenance
are charged to expense as incurred.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
F-88
<PAGE> 148
GEORGIA IMPRESSION PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
Fair Value of Financial Instruments
Financial instruments consist principally of cash and cash equivalents,
notes payable to stockholders and promissory notes classified as long-term debt.
The carrying value of these instruments approximates their fair value because of
their short maturity and their stipulated interest rates approximate current
market rates.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31, ESTIMATED
1997 1998 USEFUL LIVES
-------- --------- ------------
<S> <C> <C> <C>
Equipment and furniture................................. $144,310 $144,310 5 - 7 years
Leasehold improvements.................................. 4,713 4,713 7 - 15 years
-------- --------
149,023 149,023
Less accumulated depreciation and amortization.......... 92,568 99,321
-------- --------
$ 56,455 $ 49,702
======== ========
</TABLE>
Depreciation expense amounted to $3,500, $1,394 and $6,753 for the year
ended June 30, 1997, and the nine months ended March 31, 1997 and 1998,
respectively.
NOTE C -- NOTE PAYABLE -- STOCKHOLDERS
Note payable -- stockholders represents bonuses earned by stockholders
during the year ended June 30, 1997, and will be paid in equal monthly
installments of $1,880 to each stockholder through May 31, 1998. The notes bear
interest at 8.0%.
NOTE D -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
-------- ---------
<S> <C> <C>
Payable to former stockholder, principal of $2,056 paid
monthly, no interest, final installment due July 31, 1998
(see Note E).............................................. $26,732 $ 8,224
Installment loans to Nations Bank, collateralized by
vehicles, interest at 8.76%, $1,018 paid monthly, final
installment May 13, 2000.................................. 32,016 15,743
------- -------
$58,748 $23,967
======= =======
</TABLE>
As of June 30, 1997, aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998.................................................. $35,210
1999.................................................. 12,815
2000.................................................. 10,723
-------
$58,748
=======
</TABLE>
F-89
<PAGE> 149
GEORGIA IMPRESSION PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
The Company expects to repay the debt during the next fiscal year;
therefore, the debt has been classified as a current liability, as of March 31,
1998.
NOTE E -- STOCK REDEMPTION
On December 29, 1995, the Company purchased 24,000 shares of stock in the
Company from one of its stockholders at a cost of $86,690. The repurchase
agreement provides for: (i) a $25,000 cash payment and (ii) a note payable in
the amount of $61,690 with no stated interest rate. The note payable is payable
in monthly installments of $2,056 through July 31, 1998.
NOTE F -- COMMITMENT AND CONTINGENCY
Operating Lease
The Company leases its main business location under a lease agreement that
expires November 30, 1998. Payments are currently $1,592 per month.
Total rental expense for the year ended June 30, 1997 and the nine-month
periods ended March 31, 1997 and 1998, was $18,430, $15,246 and $15,914,
respectively.
Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
1998.................................................. $19,104
1999.................................................. 7,962
-------
$27,066
=======
</TABLE>
Concentration
During the year ended June 30, 1997 and each of the nine-month periods
ended March 31, 1997 and 1998, one vendor accounted for 58%, 45% and 49% of the
Company's purchases, respectively.
NOTE G -- DEFINED CONTRIBUTION RETIREMENT PLAN
The Company has a retirement savings and investment plan for substantially
all full-time employees, which allows participants to make contributions by
salary reduction pursuant to Section 401(k) of the Internal Revenue Code.
Matching employer contributions to the plan are limited to 35% of a
participant's contribution. Employer contributions to the plan for the year
ended June 30, 1997 were $8,670 and $5,108 for the nine months ended March 31,
1998.
F-90
<PAGE> 150
GEORGIA IMPRESSION PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 1997
(Information relating to March 31, 1997 and 1998 is unaudited)
NOTE H -- INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ----------------------
JUNE 30, MARCH 31, MARCH 31,
1997 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Current
Federal........................................... $45,220 $38,959 $60,540
State............................................. 10,154 8,705 13,359
------- ------- -------
$55,374 $47,664 $73,899
======= ======= =======
</TABLE>
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED ----------------------
JUNE 30, MARCH 31, MARCH 31,
1997 1997 1998
---------- --------- ---------
<S> <C> <C> <C>
Current "expected" provision for Federal income
taxes............................................. 28.0% 28.6% 28.9%
Adjustments in income taxes resulting from
State income taxes, net of Federal income tax
benefit........................................ 4.0 4.3 4.3
Permanent differences -- other miscellaneous...... .4 -- --
---- ---- ----
Income tax expense.................................. 32.4% 32.9% 33.2%
==== ==== ====
</TABLE>
NOTE I -- SUBSEQUENT EVENT
In May 1998, the Company and its stockholders have entered into a
definitive agreement with Office Centre Corporation and Subsidiaries ("Office
Centre") whereby Office Centre will acquire, by merger, all of the issued and
outstanding stock of the Company, in exchange for cash and common stock of
Office Centre upon the consummation of the initial public offering of Office
Centre.
F-91
<PAGE> 151
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MEGA OFFICE FURNITURE, L.L.C.
We have audited the accompanying balance sheets of MEGA Office Furniture,
L.L.C. (the "Company"), (formerly known as U.S. Office Furniture, L.L.C.), as of
December 28, 1996 and January 3, 1998, and the related statements of operations,
changes in members' capital and cash flows for the four-month period from
September 1, 1996 (inception of operations) to December 28, 1996 and the year
ended January 3, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
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 MEGA Office Furniture,
L.L.C. as of December 28, 1996 and January 3, 1998, and the results of its
operations, changes in members' equity and its cash flows for the four-month
period from September 1, 1996 (inception of operations) to December 28, 1996 and
the year ended January 3, 1998 in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
February 25, 1998
F-92
<PAGE> 152
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3,
1996 1998
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 208,459 $ 218,415
Accounts receivable, net of allowance for doubtful
accounts of $10,000 and $15,000, respectively.......... 461,248 755,647
Other receivables......................................... 129,964 129,389
Inventories............................................... 1,037,107 1,498,602
Other assets.............................................. 5,909 62,368
---------- -----------
Total current assets.............................. 1,842,687 2,664,421
PROPERTY AND EQUIPMENT, NET................................. 207,687 424,049
INTANGIBLES AND OTHER ASSETS, NET........................... 1,892,991 1,668,999
---------- -----------
$3,943,365 $ 4,757,469
========== ===========
LIABILITIES AND MEMBERS' CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt...................... $ 40,763 $ 25,238
Notes payable -- demand................................... -- 715,228
Due to related parties -- current portion................. 964,000 432,588
Accounts payable.......................................... 593,652 773,766
Accrued liabilities....................................... 127,814 124,459
Customer deposits and other liabilities................... 116,701 201,174
---------- -----------
Total current liabilities......................... 1,842,930 2,272,453
LONG-TERM DEBT, net......................................... 201,287 183,454
COMMITMENTS AND CONTINGENCIES
MEMBERS' CAPITAL
Contributed capital, 295,294 and 367,977 Class A Units,
respectively........................................... 2,510,000 4,010,000
Accumulated deficit....................................... (240,852) (1,529,696)
---------- -----------
2,269,148 2,480,304
Subscriptions and notes receivable issued for Class A
Units.................................................. (370,000) (178,742)
---------- -----------
1,899,148 2,301,562
---------- -----------
$3,943,365 $ 4,757,469
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-93
<PAGE> 153
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SEPTEMBER 1,
1996 (INCEPTION)
THROUGH YEAR ENDED
DECEMBER 28, JANUARY 3,
1996 1998
---------------- -----------
<S> <C> <C>
Net sales................................................... $2,727,645 $10,322,689
Cost of sales............................................... 1,844,771 7,146,105
---------- -----------
Gross margin...................................... 882,874 3,176,584
---------- -----------
Store operating expenses.................................... 785,142 3,205,577
General and administrative expenses......................... 344,839 1,181,202
---------- -----------
Loss from operations.............................. (247,107) (1,210,195)
Interest income............................................. 2,703 6,026
Interest expense............................................ (34,318) (145,563)
Other income, net........................................... 37,870 60,888
---------- -----------
NET LOSS.......................................... $ (240,852) $(1,288,844)
========== ===========
Unaudited Pro Forma Information
Pro forma net loss before benefit for income taxes........ $ (240,852) $(1,288,844)
Benefit for income taxes.................................. 66,184 396,973
---------- -----------
Pro forma loss.................................... $ (174,668) $ (891,871)
========== ===========
</TABLE>
The accompanying notes are integral part of these statements.
F-94
<PAGE> 154
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
<TABLE>
<CAPTION>
SUBSCRIPTIONS
CONTRIBUTED ACCUMULATED AND NOTES
CAPITAL DEFICIT RECEIVABLE TOTAL
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Members' initial capital
contributions......................... $2,510,000 $ -- $ -- $ 2,510,000
Subscriptions and notes receivable
issued for Class A Units........... -- -- (370,000) (370,000)
Net loss.............................. -- (240,852) -- (240,852)
---------- ----------- --------- -----------
Members' capital at December 28, 1996... 2,510,000 (240,852) (370,000) 1,899,148
Members' capital contributions........ 1,500,000 -- -- 1,500,000
Collections of subscriptions and notes
receivable issued for Class A
Units.............................. -- -- 191,258 191,258
Net loss.............................. -- (1,288,844) -- (1,288,844)
---------- ----------- --------- -----------
Members' capital at January 3, 1998..... $4,010,000 $(1,529,696) $(178,742) $ 2,301,562
========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-95
<PAGE> 155
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 1,
1996 (INCEPTION)
THROUGH YEAR ENDED
DECEMBER 28, JANUARY 3,
1996 1998
---------------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss.................................................. $ (240,852) $(1,288,844)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation........................................... 18,892 120,127
Amortization of intangible assets...................... 75,392 296,412
Loss on disposal of assets............................. -- 233
Changes in operating assets and liabilities, net of the
effects of acquisition
Increase in receivables.............................. (11,768) (294,399)
Decrease in other assets............................. (80,606) (54,532)
Increase in inventory................................ (10,467) (461,495)
Increase in accounts payable and other liabilities... 21,523 261,232
---------- -----------
Net cash used in operating activities............. (227,886) (1,421,266)
---------- -----------
Cash flows from investing activities
Purchase of assets of OFP................................. (800,000) --
Purchase of assets of MacThrift........................... -- (34,833)
Proceeds from sale of property and equipment.............. 15,500 500
Additions to property and equipment....................... (43,866) (324,786)
---------- -----------
Net cash used in investing activities............. (828,366) (359,119)
---------- -----------
Cash flows from financing activities
Members' contributed capital.............................. 2,140,000 1,691,258
Repayment of debt and other obligations................... (582,158) (1,827,206)
Organization, acquisition and financing costs............. (293,131) (38,939)
Proceeds from notes payable............................... -- 1,250,000
Proceeds from bank borrowings............................. -- 715,228
---------- -----------
Net cash provided by financing activities......... 1,264,711 1,790,341
---------- -----------
NET INCREASE IN CASH.............................. 208,459 9,956
Cash at beginning of period................................. -- 208,459
---------- -----------
Cash at end of period....................................... $ 208,459 $ 218,415
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest............................................... $ 34,318 $ 145,563
Noncash transactions
Notes and subscriptions receivable for issuance of Class A
Units.................................................. 370,000 --
Issuance of note in connection with acquisition of
business............................................... 534,000 --
Execution of noncompetition and employment agreements in
connection with acquisition of business................ 530,000 --
</TABLE>
The accompanying notes are an integral part of these statements.
F-96
<PAGE> 156
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
NOTES TO FINANCIAL STATEMENTS
December 28, 1996 and January 3, 1998
NOTE A -- ORGANIZATION AND ACQUISITIONS
MEGA Office Furniture, L.L.C. (the "Company"), formerly known as U.S.
Office Furniture, L.L.C., was organized on May 9, 1996 as a Virginia limited
liability company for the purpose of establishing and operating a chain of
retail office furniture superstores. The Company began operations effective
September 1, 1996, when it purchased substantially all of the assets and assumed
specified liabilities of Office Furniture Plus, Inc. ("OFP"), an office
furniture retailer with operations in Richmond and Chesapeake, Virginia, for an
initial cash payment of $800,000 and a total consideration of approximately $2
million. The Company financed the OFP acquisition and its initial working
capital requirements by the receipt of equity capital of $2,140,000 pursuant to
the terms of a confidential memorandum dated August 16, 1996 for the private
placement of equity units and the assumption of certain other obligations
related to the purchase of OFP totaling $1 million. The OFP transaction was
accounted for as a purchase and the purchase price and the related acquisition
costs were allocated to the assets acquired and liabilities assumed based on
their fair values at the date of acquisition.
Effective April 25, 1997, the Company purchased, for a nominal price,
certain assets of Southern Office Furniture Distributors, Inc. related to the
operations of MacThrift Office Furniture of Richmond. These assets consisted
primarily of customer lists, open orders and outstanding bids and proposals.
This transaction was also accounted for as a purchase.
On September 11, 1997, the Company received an equity contribution, from an
affiliate of the Company's Chairman, to purchase a 19% interest in the Company
for a cash consideration of $1.5 million. These proceeds were used to reduce
certain obligations associated with the purchase of OFP and for general working
capital requirements.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Period
The Company's fiscal year comprises the 52 or 53 weeks ending on the last
Saturday closest to the end of the calendar year. The accompanying financial
statements are for the 17-week period ended December 28, 1996 and the 53-week
period ended January 3, 1998.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the average cost method.
Property and Equipment
Additions to property and equipment, other than capital leases, are
recorded at cost. Capital leases are recorded at the lesser or fair value or the
discounted present value of the minimum lease payments. Depreciation is computed
by the straight-line method over the estimated useful lives of the assets.
Capital leases are amortized by the straight-line method over the estimated
useful lives of the leased assets. Leasehold improvements are amortized by the
straight-line method over the shorter of the estimated useful life of the asset
or the term of the lease.
F-97
<PAGE> 157
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 28, 1996 and January 3, 1998
Intangibles
Goodwill and other intangibles related to the acquisition of OFP are being
amortized over a period of 15 years using the straight-line method. Organization
costs and customer lists are being amortized over periods of 10 years and 5
years, respectively, using the straight-line method. Deferred employment costs
and similar intangibles are being amortized over the terms of the related
contracts, which are generally 2 years. Accumulated amortization at December 28,
1996 and January 3, 1998 was $75,392 and $371,804, respectively.
Revenue Recognition and Customer Deposits
Revenue is recognized at the time merchandise is shipped to the customer.
The Company generally offers extended payment terms to customers other than
individuals and requires deposits from customers for initial purchases and
special order transactions. Customer deposits are applied against a customer's
account receivable balance upon delivery of merchandise.
Valuation of Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles
held and used for possible impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The Company has determined no provision is necessary for the impairment of
long-lived assets at December 28, 1996 and January 3, 1998.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Income Taxes
Income taxes are not reflected in the accompanying financial statements
because the Company is treated as a partnership for income tax purposes, and the
responsibility for income taxes is that of the members and not that of the
Company.
The unaudited pro forma income tax information included in the Statements
of Operations is presented in accordance with the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as if the Company
had been subject to federal and state income taxes for all periods presented.
Fair Value of Financial Instruments
Financial instruments consist principally of cash, promissory notes due
from related parties, capital lease obligations, line of credit and promissory
notes classified as long-term debt. The carrying value of these instruments
approximates their fair value because of their short maturity and their
stipulated interest rates being based on current market rates.
NOTE C -- FINANCING ARRANGEMENTS AND LIQUIDITY ISSUES
The Company reported a cumulative net loss of $1,529,696 since beginning
operations on September 1, 1996 and is continuing to require cash on a monthly
basis as it develops and refines its business model. However, management has
prepared a business plan for the current operations to include a financial
forecast through
F-98
<PAGE> 158
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 28, 1996 and January 3, 1998
March 1999 which indicates that the working capital at January 3, 1998 together
with the line of credit facility finalized in November 1997 (see Note E) will
adequately fund the Company's cash requirements for this period. To fully
execute its expansion strategy and open superstores in other markets, additional
equity capital will be required and management is continuing to explore these
opportunities.
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 28, JANUARY 3, USEFUL
1996 1998 LIVES
------------ ---------- ---------
<S> <C> <C> <C>
Leasehold improvements................................. $ 61,003 $302,611 2-5 years
Fixtures and equipment................................. 145,949 231,273 3-5 years
Transportation equipment............................... 19,122 28,412 3-5 years
--------- --------
226,074 562,296
Less accumulated depreciation.......................... 18,387 138,247
--------- --------
$ 207,687 $424,049
========= ========
</TABLE>
Depreciation expense for the periods ended December 28, 1996 and January 3,
1998 was $18,892 and $120,127, respectively.
NOTE E -- NOTES PAYABLE AND LONG-TERM DEBT
Balances outstanding comprise:
<TABLE>
<CAPTION>
DECEMBER 28, JANUARY 3,
1996 1998
------------ ----------
<S> <C> <C>
Demand notes payable to commercial bank (a)................. $ -- $ --
Line of credit demand borrowings with a financial services
company (b)............................................... -- 715,228
10% subordinated convertible note payable to OFP (payable
within one year)(c)....................................... 534,000 267,588
Employment and noncompete contracts (payable within one
year) (d)................................................. 430,000 165,000
11.5% subordinated convertible note, due August 31, 1999
(e)....................................................... 150,000 150,000
Capital lease obligations ($26,763 and $25,238 payable
within one year, respectively) (Note G)................... 78,050 58,692
Installment purchase (payable within one year).............. 14,000 --
----------- -----------
1,206,050 1,356,508
Less amount due within one year............................. (1,004,763) (1,173,054)
----------- -----------
$ 201,287 $ 183,454
=========== ===========
</TABLE>
- ---------------
(a) In December 1996, the Company established, with a commercial bank, a
$600,000 line of credit (the "Line"). As of December 28, 1996, the line
remained unused. The Company's line of credit was subsequently increased by
additional borrowings under demand notes of $400,000 in April and $250,000
in June 1997. All assets of the Company, and all accounts receivable and
inventory of an affiliate of the Company's Chairman, The Supply Room
Companies, Inc. ("TSRC"), were pledged as collateral for borrowings under
these arrangements. Advances under these facilities were also guaranteed by
the
F-99
<PAGE> 159
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 28, 1996 and January 3, 1998
Company's Chairman. All borrowings under these arrangements were repaid as
of January 3, 1998 and these credit facilities were closed at year-end.
(b) In November 1997, the Company obtained a revolving line of credit with a
commercial finance company providing for maximum borrowings of $1,500,000 at
an interest rate of prime plus 1.5%. Borrowings under this facility are
subject to advance rates of 80% of eligible accounts receivable and 50% of
qualifying inventories and are secured by effectively all of the Company's
assets. The Company's Chairman has a deficiency guarantee limited to
$100,000.
(c) In connection with the acquisition of certain assets of OFP, the Company
issued a $570,000 subordinated convertible note to OFP. The principal
balance of the note was subsequently adjusted to $532,588 and certain terms
of this agreement were renegotiated in September 1997. A payment of $265,000
was made on September 30, 1997 and the balance is due on or before March 31,
1998. The principal balance of this note bears interest at 10%, payable
monthly, and is convertible in increments of at least $50,000, at the option
of OFP, at any time prior to maturity into membership units in the Company
at the rate of $15 per unit.
(d) The Company also entered into agreements with certain key personnel of OFP
to provide payments to such employees in exchange for continued employment
and noncompete agreements. The terms of these arrangements were renegotiated
in September 1997. A payment of $265,000 under these obligations was made in
September 1997 and the remaining $165,000 due under such arrangements is now
payable on March 31, 1998.
(e) In connection with the August 1996 acquisition of OFP, the Company assumed a
$150,000 promissory note from a former stockholder of OFP. The principal
balance of this note is due on August 31, 1999, bears interest at the rate
of 11.5%, payable monthly, and is convertible in increments of at least
$50,000, at the option of the holder, at any time prior to maturity into
membership units in the Company at a rate of $15 per unit.
NOTE F -- OPERATING AGREEMENT AND MEMBER'S CAPITAL
As a limited liability company, the Company is comprised of members holding
units in the Company pursuant to the applicable sections of the operating
agreement of the Company (the "Operating Agreement"). Each member has voting
rights based upon the number of units owned. At January 3, 1998, there were
367,977 Class A Units outstanding. Originally, 214,000 units were issued to
management and other members pursuant to the terms of a confidential memorandum
(the "Confidential Memorandum") dated August 16, 1996 for a cash consideration
of $10 per unit. Additionally, pursuant to the terms of the Confidential
Memorandum, two former stockholders of OFP were issued 16,500 units in exchange
for noninterest-bearing notes due August 31, 1997 (these notes are payable on
March 31, 1998), 18,500 units were issued to five members whose subscription
agreements were accepted (and subsequently collected) by the Company, and 2,000
units were issued to an officer of the Company in exchange for a promissory note
payable in equal biweekly installments over three years at an interest rate of
10%. In September 1997, 69,266 units representing a 19% interest in the Company
were issued to TSRC for a total consideration of $1,500,000.
Pursuant to the terms of the Confidential Memorandum, the Company issued
44,294 Class A Units to the Chairman to effect an ownership interest of 15%
("Founder's Interest") with respect to the number of units of members' capital
outstanding. The Founder's Interest was granted in recognition of the Chairman's
effort in organizing the Company and his guarantees of certain financing
arrangements received by the Company. The Operating Agreement also provides that
the Founder's Interest will not be reduced below 12.5% on a fully diluted basis
with respect to the Company's first $7.5 million in capital contributions. Class
B Units Options at an exercise price of $5.30 per unit will be automatically
granted to the Chairman upon the issuance of any
F-100
<PAGE> 160
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 28, 1996 and January 3, 1998
subsequent units by the Company in an amount sufficient to maintain his
Founder's Interest at 12.5%. In September 1997, 10,924 options were issued to
the Founder to maintain his Founder's Interest at 12.5% as a result of the $1.5
million investment by TSRC. All units issued relating to the Founder's Interest
only entitle the holder to share, on a pro rata basis, in the profits of the
Company. These units do not receive a capital account or a priority in the
return of the Chairman's investment.
The Operating Agreement also establishes an Incentive Plan which provides
for the issuance of restricted awards of Class A Units ("Restricted Class A
Units") and options to acquire Class B Units to management of the Company. The
aggregate of such awards under the Incentive Plan may not at any time exceed 15%
of the total units outstanding, including units authorized and relating to the
Incentive Plan. As of January 3, 1998, the Company had awarded 10,250 Restricted
Class A Units and 29,250 options to acquire Class B Units at an exercise price
of $10.00 per unit to management and other key employees, with such awards
vesting ratably as future services are performed over a three-year period. The
exercise price of all options awarded under the Incentive Plan shall be equal to
the fair market value of a unit in the Company on the date of grant, and options
will be granted for 10-year terms. The Restricted Class A Units only entitle the
holder to share in a pro rata basis in the profits of the Company relating back
to the date of grant. These units do not receive a capital account or a priority
in the return of the holder's investment. At January 3, 1998, 3,417 restricted
Class A Units and 26,751 options to purchase Class B Units were vested.
Profits and losses are allocated in accordance with the Operating
Agreement, in proportion to each Member's pro rata interest in the Company. The
Operating Agreement provides each holder of Class A Units with preemptive rights
to purchase additional units in the event of future issuance of units by the
Company. Exercise of such preemptive rights would be at the same per unit price
being received by the Company from other investors. In addition, the Operating
Agreement provides that any member wishing to sell units must first offer such
units to existing members before selling such units to persons or entities not
holding a membership interest in the Company. Such offers must be at the same
terms and provisions for all parties.
The Company recognizes compensation cost in accordance with APB No. 25,
"Accounting for Stock Issued to Employees." Had compensation cost for the
Company's stock option plans been determined consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation," the impact on the Company's net loss
for either period would have been immaterial.
The following summarizes stock option transactions for the respective
periods:
<TABLE>
<CAPTION>
1996 1997
-------------------------- --------------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED
UNEXERCISED AVERAGE UNEXERCISED AVERAGE
OPTIONS OPTION PRICE OPTIONS OPTION PRICE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Options at beginning of year....................... -- $ -- 39,250 $10.00
Granted............................................ 39,250 10.00 11,424 5.51
Exercised.......................................... -- --
Cancelled.......................................... -- 10,500 10.00
Options at end of year............................. 39,250 10.00 40,174 8.72
Options exercisable at year-end.................... 35,750 10.00 37,675 8.64
</TABLE>
F-101
<PAGE> 161
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 28, 1996 and January 3, 1998
NOTE G -- COMMITMENTS AND CONTINGENCIES
Leases
The Company has entered into lease agreements with initial terms ranging from 1
to 5 years for certain stores, warehouses and equipment. The lease terms
generally provide that the Company pay the related taxes, insurance and
maintenance costs. The following capital leases are included in the balance
sheet at January 3, 1998:
<TABLE>
<S> <C>
Fixtures and equipment...................................... $95,850
Less accumulated amortization............................... 29,044
-------
$66,806
=======
</TABLE>
Capitalized lease amortization is included in depreciation expense.
Future minimum lease payments under capital leases and operating leases
having lease terms in excess of one year at January 3, 1998, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ----------
<S> <C> <C>
1998.................................................. $30,902 $ 467,671
1999.................................................. 29,126 460,812
2000.................................................. 8,060 467,720
2001.................................................. -- 350,545
2002.................................................. -- 56,807
------- ----------
Total minimum lease payments.......................... 68,088 $1,803,555
==========
Less imputed interest and executory costs............. 9,396
-------
Present value of minimum lease payments (included in
long-term debt)..................................... $58,692
=======
</TABLE>
The Company recorded rent expense for the years ended December 28, 1996 and
January 3, 1998 of $155,206 and $578,306, respectively.
Employment Contracts
The Company has employment contracts with certain key employees covering
such matters as base compensation, incentive plans, benefits, termination and
noncompetition. These agreements are for initial periods of two years or less
and are automatically renewable for additional one-year terms. Annual base
compensation pursuant to the terms of these contracts is approximately $370,000
and the agreements may be terminated by the Company with sixty-days' notice
prior to the end of an initial or any renewal term.
Concentrations
As of December 28, 1996 and January 3, 1998, one vendor represented
approximately 40% of total purchases for both years. The vendor's balance
represented less than 1% of trade payables at both December 28, 1996 and January
3, 1998. No customer represented more than 5% of total revenues in either
period.
F-102
<PAGE> 162
MEGA OFFICE FURNITURE, L.L.C.
(FORMERLY KNOWN AS U.S. OFFICE FURNITURE, L.L.C.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 28, 1996 and January 3, 1998
NOTE H -- RELATED PARTY TRANSACTIONS
The Company leases retail sales and warehouse space from an affiliate of
certain stockholders of MEGA who are currently employed by the Company. The
related rents for the four-month period ended December 28, 1996 and twelve-month
period ended January 3, 1998 were $92,083 and $242,917, respectively. The
Company's future obligations under such lease agreements total approximately
$646,250 over the remaining lease terms.
At January 3, 1998, the Company had two letters of credit outstanding
totalling $185,000 with a commercial bank. The accounts receivable and
inventories of TSRC have been pledged as collateral for these facilities and the
letters of credit have been additionally guaranteed by the Company's Chairman.
NOTE I -- SUBSEQUENT EVENTS (UNAUDITED)
The property which the Company has been leasing for its retail operations
in Chesapeake, Virginia was sold effective October 28, 1997 and, pursuant to the
terms of the lease for this space, notice was received from the new landlord
that the lease would terminate at the end of February 1998. Effective March 1,
1998, this lease was amended such that the Company would occupy 30% of the
demised premises through May 31, 1998. On March 3, 1998, the Company entered
into a lease agreement for a property in Norfolk, Virginia for an initial term
of five years and plans to relocate the operations from Chesapeake, Virginia at
the end of April 1998. Management has recognized the relocation of its
operations in Tidewater, Virginia in the business plan discussed in Note C and
believes that these changes will not adversely impact the Company.
On March 24, 1998, the Board of Directors approved a resolution to amend
the operating agreement with respect to the allocation of profits and losses and
to revalue the Company's assets as of September 11, 1997 for capital account
purposes only, as permitted by the Internal Revenue Code, such that the value of
the capital accounts is equal to the aggregate of the capital contributions
received. The amendments to the operating agreement provide that: (1) if the
capital account balances are less than the capital initially contributed,
profits and losses are to be allocated based on the percentage of capital
contributed by each member and (2) if the capital account balances are in excess
of the capital contributions of all members, profits and losses will be
distributed on a per unit basis. Member consent to the amendments to the
operating agreement was subsequently received by the Company.
The balance due to OFP of $265,588 pursuant to the terms of the
subordinated promissory note (see Note E(c)) was paid on March 31, 1998. Also on
March 31, 1998, the subscription receivables due from two shareholders of OFP
for the combined amount of $165,000 (see Note F) and the payments due to these
same individuals relating to employment and noncompetition agreements totalling
$165,000 (see Note E(d)) were deemed to have been paid in full.
F-103
<PAGE> 163
- ------------------------------------------------------------
- ------------------------------------------------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD 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
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 10
Use of Proceeds............................ 17
Dividend Policy............................ 18
Capitalization............................. 18
Dilution................................... 19
Selected Combined Pro Forma Financial
Data..................................... 20
Selected Financial Data of Office Centre
Corporation.............................. 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 23
Industry Overview.......................... 29
Business................................... 30
Management................................. 43
Principal and Selling Stockholders......... 49
Certain Transactions....................... 51
Description of Capital Stock............... 53
Shares Eligible for Future Sale............ 55
Underwriting............................... 56
Legal Matters.............................. 57
Experts.................................... 57
Additional Information..................... 57
Index to Financial Statements.............. F-1
</TABLE>
THROUGH AND INCLUDING , 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS 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.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
4,000,000 SHARES
[OFFICE CENTRE LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MORGAN KEEGAN & COMPANY, INC.
MCDONALD & COMPANY SECURITIES, INC.
CREDIT LYONNAIS SECURITIES (USA) INC.
, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the securities being registered hereby, other
than underwriting discounts and commissions. The Company is paying all of these
expenses in connection with the issuance and distribution of the securities
except for the incremental costs associated with the shares being sold by the
Selling Stockholders (i.e., the additional SEC registration fee, NASD filing fee
and the Nasdaq Stock Market's National Market listing fee attributable to such
shares).
<TABLE>
<S> <C>
SEC registration fee........................................ $ 16,284
NASD filing fee............................................. 5,300
Nasdaq Stock Market's National Market listing fee........... 77,000
Accountant's fees and expenses.............................. 2,700,000
Legal fees and expenses..................................... 1,300,000
Printing expenses........................................... 250,000
Transfer Agent and Registrar fees........................... 10,000
Financial advisers and offering consultants................. 1,115,000
Miscellaneous............................................... 476,416
----------
Total.................................................. $5,950,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Office Centre Corporation's Amended and Restated Certificate of
Incorporation provides that Office Centre Corporation shall, to the fullest
extent permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), as amended from time to time, indemnify its officers and directors.
Section 145 of the DGCL permits a corporation, under specified
circumstances, to indemnify its directors, officers, employees or agents against
expenses (including attorney's fees), judgments, fine 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 the case of a derivative suit,
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 interest 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.
Reference is hereby made to Article V of the Company's Amended and Restated
By-Laws, filed as Exhibit 3.02 hereto, which provides for indemnification of
directors and officers.
Reference is hereby made to the Indemnification Agreement, the form of
which is filed as Exhibit 10.17 hereto, which Office Centre Corporation has
entered into with its directors and certain key officers. Pursuant to such
Agreement, Office Centre Corporation generally is obligated to indemnify its
directors and such officers to the full extent permitted by the DGCL as
described above. In addition, Office Centre Corporation maintains directors' and
officers' liability insurance in the amount of $5 million.
Reference is hereby made to the Underwriting Agreement, the form of which
is filed as Exhibit 1.01 hereto, in which Office Centre Corporation agrees to
indemnify the underwriters and certain other persons against certain civil
liabilities.
II-1
<PAGE> 165
Office Centre Corporation's Amended and Restated Certificate of
Incorporation also contains provisions eliminating a director's personal
liability to the fullest extent permitted by the provisions of paragraph (7) of
subsection (b) of Section 102 of the DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its incorporation in October 1996, Office Centre Corporation has
issued the following securities. The number of shares listed in paragraphs (a)
through (c) and in paragraph (e) do not give effect to the Reverse Split:
(a) On March 21, 1997, Office Centre Corporation issued shares of Common
Stock to the following founders in the amounts and for the consideration
indicated:
<TABLE>
<S> <C>
Clifford M. Davie: 1 share for a consideration of $.001
Walter H. Gordenstein: 1 share for a consideration of $.001
</TABLE>
(b) On May 2, 1997, Office Centre Corporation issued shares of Common Stock
to the following founders in the amounts and for the consideration indicated:
<TABLE>
<S> <C>
Clifford M. Davie: 2,520,727 shares for a consideration of $2,520.73
Walter H. Gordenstein: 1,757,444 shares for a consideration of $1,757.44
John D. Kaweske: 164,229 shares for a consideration of $164.23
</TABLE>
(c) On May 23, 1997, Office Centre Corporation issued shares of Common
Stock to the following parties in the amounts and for the consideration
indicated:
<TABLE>
<S> <C>
Clifford M. Davie Trust: (i) 78,492 shares in exchange for Mr. Davie's
ownership interest in UDI Corp.
(ii) 51,116 shares in exchange for Mr. Davie's
ownership interests in UDI II Corp.
Walter H. Gordenstein: (i) 39,246 shares in exchange for Mr. Gordenstein's
ownership interest in UDI Corp.
(ii) 51,116 shares in exchange for Mr.
Gordenstein's ownership interest in UDI II Corp.
</TABLE>
(d) On August 22, 1997, Office Centre Corporation issued 50,000 shares of
Common Stock to Joseph Hajjar for a consideration of $5,000 pursuant to an
employment agreement between Office Centre Corporation and Mr. Hajjar.
(e) On January 9, 1998, Office Centre Corporation issued 100,000 shares of
Common Stock to John Davie in exchange for a license to use the "Smart Consumer"
concept developed by Mr. Davie.
(f) Simultaneously with the closing of the Offering, Office Centre
Corporation will issue an aggregate principal amount of $325,000 of shares of
Common Stock calculated at the initial public offering price per share to
Benchmark Associates, Inc. in exchange for consulting services rendered.
(g) Simultaneously with the closing of the Offering, Office Centre
Corporation will issue an aggregate principal amount of $1,175,000 of shares of
Common Stock calculated at the initial public offering price per share to R.K.
Grace & Company in exchange for consulting services rendered.
(h) Simultaneously with the Offering, the Company will issue an aggregate
principal amount of $36,899,000 of shares of Common Stock calculated at the
initial public offering price per share in connection with the acquisition of
twelve businesses. Pursuant to the definitive merger agreements, as amended,
between the Company and each of TSR, New England, and Greenwood, respectively,
Office Centre Corporation, in its sole discretion, may substitute cash in the
amount of $1 million with respect to each such transaction as consideration in
lieu of $1 million of Common Stock otherwise deliverable under each such
agreement. If such options are
II-2
<PAGE> 166
exercised, the number of shares of Common Stock issued in connection with such
acquisitions will be reduced accordingly.
(i) Simultaneously with the Offering, Office Centre Corporation will grant
options to purchase 524,600 shares of Common Stock to certain employees of the
Founding Companies who will become employees of the Company after consummation
of the Acquisitions.
(j) At various times between September 1, 1997 and the closing of the
Offering, Office Centre Corporation will have granted options to purchase
600,000 shares of Common Stock to various consultants, employees, directors and
officers of Office Centre Corporation and UDI.
The transactions set forth above were undertaken in reliance upon the
exemptions from the registration requirements of the Securities Act afforded by
(i) Section 4(2) thereof and/or Regulation D promulgated thereunder, as sales
not involving a public offering, and/or (ii) Rule 701 promulgated thereunder, as
sales by an issuer to employees, directors, officers, consultants or advisors
pursuant to written compensatory benefits plans or written contracts relating to
the compensation of such persons. The purchasers of the securities described
above acquired them for their own account and not with a view to any
distribution thereof to the public. The certificates evidencing the securities
bear legends stating that the shares may not be offered, sold or transferred
other than pursuant to an effective registration statement under the Securities
Act or an exemption from such registration requirements. Office Centre
Corporation will place stop transfer instructions with its transfer agent with
respect to all such securities.
ITEM 16. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits (see exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
***1.01 Form of Underwriting Agreement between Office Centre
Corporation, UDI Corp., Clifford M. Davie, Walter H.
Gordenstein and Morgan Keegan & Company, Inc., as
Representatives of the Underwriters named in Schedule I
thereto
**2.01 Merger Agreement, dated as of May 18, 1998, among Office
Centre Corporation, OCC New York, Inc., King Office Supply,
Inc. and the persons listed on Schedule A
**2.02 Merger Agreement, dated as of October 31, 1997, by and among
Office Centre Corporation, Office Centre Grand Rapids, Inc.,
"SOS" Office Supply, Inc. and the shareholders named therein
**2.03 First Amendment to Merger Agreement, dated May 15, 1998, by
and among Office Centre Corporation, Office Centre Grand
Rapids, Inc., "SOS" Office Supply, Inc. and the shareholders
named therein
**2.04 Merger Agreement, dated as of October 24, 1997, by and among
Office Centre Corporation, Office Centre Fort Worth,
Greenwood Outfitters, Inc. and the shareholders named
therein
**2.05 First Amendment to Merger Agreement, dated October 24, 1997,
by and among Office Centre Corporation, Office Centre Fort
Worth, Greenwood Outfitters, Inc. and the shareholders named
therein
**2.06 Second Amendment to Merger Agreement, dated April 24, 1998,
by and among Office Centre Corporation, Office Centre Fort
Worth, Greenwood Outfitters, Inc. and the shareholders named
therein
**2.07 Amendment No. 3 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Fort Worth, Greenwood Outfitters, Inc. and the shareholders
named therein
</TABLE>
II-3
<PAGE> 167
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
**2.08 Amended and Restated Merger Agreement, dated May 20, 1998,
by and among Office Centre Corporation, Office Centre
Richmond, Office Centre Richmond, The Supply Room Companies
Inc. and the shareholders named therein
**2.09 Amendment No. 1 to Amended and Restated Merger Agreement,
dated as of May 20, 1998, by and among Office Centre
Corporation, Office Centre Richmond, Office Centre Richmond,
The Supply Room Companies, Inc. and the shareholders named
therein
**2.10 Merger Agreement, dated as of April 20, 1998, by and among
Office Centre Corporation, Office Centre Montgomery, Office
Express, Inc. and the shareholders named therein
**2.11 Merger Agreement, dated as of April 10, 1998, by and among
Office Centre Corporation, Office Centre Yorba Linda, Office
Solutions Business Products and Services, Inc. and the
shareholders named therein
**2.12 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Yorba Linda, Office Solutions Business Products and
Services, Inc. and the shareholders named therein
**2.13 Merger Agreement, dated as of May 15, 1998, by and among
Office Centre Corporation, Office Centre New England, New
England Office Supply Company, Inc. and the shareholder
named therein
**2.14 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
New England, New England Office Supply Company, Inc. and the
shareholder named therein
**2.15 Merger Agreement, dated as of April 23, 1998, by and among
Office Centre Corporation, Office Centre Sacramento, Sierra
Office Systems and Products, Inc. and the shareholders named
therein
**2.16 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Sacramento, Sierra Office Systems and Products, Inc. and the
shareholders named therein
**2.17 Merger Agreement, dated as of April 8, 1998, by and among
Office Centre Corporation, Office Centre Georgia, Southern
Office Centre, Inc. and the shareholders named therein
**2.18 Merger Agreement, dated as of April 23, 1998, by and among
Office Centre Corporation, Office Centre Georgia, Georgia
Impressions, Inc. and the shareholders named therein
**2.19 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Georgia, Georgia Impressions, Inc. and the shareholders
named therein
**2.20 Merger Agreement, dated as of April 23, 1998, by and among
Office Centre Corporation, Office Centre Fort Worth, Inc.,
Metro Data Supply, Inc. and the shareholders named therein
**2.21 Merger Agreement, dated as of April 21, 1998, by and among
Office Centre Corporation, Office Centre Fort Worth, Inc.,
BCB Office Products Company, BCB Specialties, Inc. and the
shareholders named therein
**2.22 Stock Purchase Agreement, dated as of May 23, 1997, among
Walter Gordenstein, Dean Witter Reynolds, Inc., Custodian
for the IRA Rollover of Clifford M. Davie DTD 12/15/94,
Clifford M. Davie and Office Centre Corporation relating to
UDI Corp.
**2.23 Stock Purchase Agreement, dated as of May 23, 1997, among
Walter Gordenstein, Dean Witter Reynolds, Inc., Custodian
for the IRA Rollover of Clifford M. Davie DTD 12/15/94,
Clifford M. Davie and Office Centre Corporation relating to
UDI II Corp.
**2.24 Agreement and Plan of Merger, dated as of April 15, 1998,
between UDI Corp. and UDI II Corp.
***2.25 Amendment No. 2 to Merger Agreement, dated as of August 3,
1998, by and among Office Centre Corporation, Office Centre
Sacramento, Sierra Office Systems and Products, Inc. and the
shareholders named therein
**3.01 Amended and Restated Certificate of Incorporation of Office
Centre Corporation
</TABLE>
II-4
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
**3.02 Amended and Restated By-Laws of Office Centre Corporation
***4.01 Specimen of Common Stock Certificate of Office Centre
Corporation
***5.01 Opinion of Richards & O'Neil, LLP
**10.01 Employment/Consulting Agreement, dated July 20, 1995, by and
between UDI Corp., UDI II Corp, Clifford M. Davie and/or
Buying Group Services, Inc.
**10.02 Employment Agreement, dated as of May 1, 1997 by and between
Office Centre Corporation and Robert J. Gillon, Jr.
**10.03 Amendment to Employment Agreement, dated as of August 8,
1997, between Office Centre Corporation and Robert J.
Gillon, Jr.
**10.04 Reformation of Employment Agreement, dated as of March 12,
1998, between Office Centre Corporation and Robert J.
Gillon, Jr.
**10.05 Amendment No. 2 to Employment Agreement, dated as of May 14,
1998, between Office Centre Corporation and Robert J.
Gillon, Jr.
**10.06 Employment Agreement, dated as of August 22, 1997, between
Office Centre Corporation and Joseph Hajjar
**10.07 Amendment No. 1 to Employment Agreement, dated as of May 14,
1998, between Office Centre Corporation and Joseph Hajjar
**10.08 Employment Agreement, dated as of April 15, 1998, between
Office Centre Corporation and Walter Gordenstein
**10.09 Employment Agreement, dated as of April 8, 1998, between
Office Centre Corporation and Thomas F. Mooney
**10.10 Employment Agreement, dated as of February 20, 1998, by and
between Office Centre Corporation and Richard Case
**10.11 Consulting Agreement, dated February 1, 1997, between Office
Centre Corporation and Benchmark Associates, Inc.
**10.12 Agreement, dated January 9, 1998, by and between Office
Centre Corporation and John Davie
**10.13 Agreement, dated as of April 15, 1998, between Office Centre
Corporation and Walter Gordenstein
**10.14 Amendment No. 1 to Agreement, dated as of May 14, 1998, by
and between Office Centre Corporation and Walter Gordenstein
**10.15 Agreement, dated as of May 13, 1998, between Office Centre
Corporation, Dean Witter Reynolds, Inc., Custodian for the
IRA Rollover DTD 12/15/94, and Clifford M. Davie
**10.16 Financial Advisory Agreement, dated as of February 1, 1997,
by and between Office Centre Corporation and R.K. Grace &
Company
**10.17 Form of Indemnification Agreement entered into by Office
Centre Corporation with each of the following persons:
Robert J. Gillon, Jr., John D. Kaweske, Joseph Hajjar,
Clifford M. Davie, Edward A. Schefer, Thomas F. Mooney,
Charles J. Murphy and Yancey Jones
***10.18 Office Centre Corporation 1998 Stock Option Plan
**10.19 Form of Stock Option Agreement
**10.20 Loan and Security Agreement, dated as of July 9, 1998, by
and among Office Centre Corporation and First Union National
Bank, as Agent, and the financial institutions now or
hereafter parties thereto
**10.21 Revolving Credit Note, dated July 9, 1998, issued by Office
Centre Corporation in favor of First Union National Bank
**10.22 Buying Group Agreement, dated December 1, 1997, between UDI
Corp. and S.P. Richards Co. (Previously filed as Exhibit
10.27)
</TABLE>
II-5
<PAGE> 169
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <S>
**10.23 Buying Group Agreement, dated December 1, 1997, between UDI
Corp. and United Stationers (Previously filed as Exhibit
10.28)
**10.24 Form of Employment Agreement by and between Office Centre
Corporation and Yancey S. Jones (Previously filed as Exhibit
10.29)
**21.01 Subsidiaries of Office Centre Corporation
***23.01 Consent of Grant Thornton LLP
***23.02 Consent of Richards & O'Neil, LLP (incorporated into Exhibit
5.01)
**27.01 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
*** Filed herewith
(b) Financial Statement Schedules
Schedules are omitted because they are not required, are not applicable, or
the information is included in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company 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 Company 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 of 1933 and will be
governed by the final adjudication of such issues.
(b) The Company 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 are required by the underwriters
to permit prompt delivery to each purchaser.
(c) The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, 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.
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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 the
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 170
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 the
City of New York, State of New York, on August 4, 1998.
OFFICE CENTRE CORPORATION
By: /s/ ROBERT J. GILLON, JR.
------------------------------------
Name: Robert J. Gillon, Jr.
Title: Chairman of the Board,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to the Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT J. GILLON, JR. Chairman of the Board, President and August 4, 1998
- ------------------------------------------------ Chief Executive Officer (Principal
Robert J. Gillon, Jr. Executive Officer)
/s/ JOSEPH E. HAJJAR Chief Financial Officer, Senior Vice August 4, 1998
- ------------------------------------------------ President, Treasurer and Secretary
Joseph E. Hajjar (Principal Financial Officer and
Principal Accounting Officer)
/s/ YANCEY S. JONES Director August 4, 1998
- ------------------------------------------------
Yancey S. Jones
/s/ CHARLES J. MURPHY Director August 4, 1998
- ------------------------------------------------
Charles J. Murphy
/s/ EDWARD A. SCHEFER Director August 4, 1998
- ------------------------------------------------
Edward A. Schefer
</TABLE>
II-7
<PAGE> 171
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
<C> <S> <C>
***1.01 Form of Underwriting Agreement between Office Centre
Corporation, UDI Corp., Clifford M. Davie, Walter H.
Gordenstein and Morgan Keegan & Company, Inc., as
Representatives of the Underwriters named in Schedule I
thereto.....................................................
**2.01 Merger Agreement, dated as of May 18, 1998, among Office
Centre Corporation, OCC New York, Inc., King Office Supply,
Inc. and the persons listed on Schedule A...................
**2.02 Merger Agreement, dated as of October 31, 1997, by and among
Office Centre Corporation, Office Centre Grand Rapids, Inc.,
"SOS" Office Supply, Inc. and the shareholders named
therein.....................................................
**2.03 First Amendment to Merger Agreement, dated May 15, 1998, by
and among Office Centre Corporation, Office Centre Grand
Rapids, Inc., "SOS" Office Supply, Inc. and the shareholders
named therein...............................................
**2.04 Merger Agreement, dated as of October 24, 1997, by and among
Office Centre Corporation, Office Centre Fort Worth,
Greenwood Outfitters, Inc. and the shareholders named
therein.....................................................
**2.05 First Amendment to Merger Agreement, dated October 24, 1997,
by and among Office Centre Corporation, Office Centre Fort
Worth, Greenwood Outfitters, Inc. and the shareholders named
therein.....................................................
**2.06 Second Amendment to Merger Agreement, dated April 24, 1998,
by and among Office Centre Corporation, Office Centre Fort
Worth, Greenwood Outfitters, Inc. and the shareholders named
therein.....................................................
**2.07 Amendment No. 3 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Fort Worth, Greenwood Outfitters, Inc. and the shareholders
named therein...............................................
**2.08 Amended and Restated Merger Agreement, dated May 20, 1998,
by and among Office Centre Corporation, Office Centre
Richmond, Office Centre Richmond, The Supply Room Companies
Inc. and the shareholders named therein.....................
**2.09 Amendment No. 1 to Amended and Restated Merger Agreement,
dated as of May 20, 1998, by and among Office Centre
Corporation, Office Centre Richmond, Office Centre Richmond,
The Supply Room Companies, Inc. and the shareholders named
therein.....................................................
**2.10 Merger Agreement, dated as of April 20, 1998, by and among
Office Centre Corporation, Office Centre Montgomery Office
Express, Inc. and the shareholders named therein............
**2.11 Merger Agreement, dated as of April 10, 1998, by and among
Office Centre Corporation, Office Centre Yorba Linda, Office
Solutions Business Products and Services, Inc. and the
shareholders named therein..................................
**2.12 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Yorba Linda, Office Solutions Business Products and
Services, Inc. and the shareholders named therein...........
**2.13 Merger Agreement, dated as of May 15, 1998, by and among
Office Centre Corporation, Office Centre New England, New
England Office Supply Company, Inc. and the shareholder
named therein...............................................
**2.14 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
New England, New England Office Supply Company, Inc. and the
shareholder named therein...................................
**2.15 Merger Agreement, dated as of April 23, 1998, by and among
Office Centre Corporation, Office Centre Sacramento, Sierra
Office Systems and Products, Inc. and the shareholders named
therein.....................................................
</TABLE>
<PAGE> 172
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
<C> <S> <C>
**2.16 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Sacramento, Sierra Office Systems and Products, Inc. and the
shareholders named therein..................................
**2.17 Merger Agreement, dated as of April 8, 1998, by and among
Office Centre Corporation, Office Centre Georgia, Southern
Office Centre, Inc. and the shareholders named therein......
**2.18 Merger Agreement, dated as of April 23, 1998, by and among
Office Centre Corporation, Office Centre Georgia, Georgia
Impressions, Inc. and the shareholders named therein........
**2.19 Amendment No. 1 to Merger Agreement, dated as of May 20,
1998, by and among Office Centre Corporation, Office Centre
Georgia, Georgia Impressions, Inc. and the shareholders
named therein...............................................
**2.20 Merger Agreement, dated as of April 23, 1998, by and among
Office Centre Corporation, Office Centre Fort Worth, Inc.,
Metro Data Supply, Inc. and the shareholders named therein..
**2.21 Merger Agreement, dated as of April 21, 1998, by and among
Office Centre Corporation, Office Centre Fort Worth, Inc.,
BCB Office Products Company, BCB Specialties, Inc. and the
shareholders named therein..................................
**2.22 Stock Purchase Agreement, dated as of May 23, 1997, among
Walter Gordenstein, Dean Witter Reynolds, Inc., Custodian
for the IRA Rollover of Clifford M. Davie DTD 12/15/94,
Clifford M. Davie and Office Centre Corporation relating to
UDI Corp....................................................
**2.23 Stock Purchase Agreement, dated as of May 23, 1997, among
Walter Gordenstein, Dean Witter Reynolds, Inc., Custodian
for the IRA Rollover of Clifford M. Davie DTD 12/15/94,
Clifford M. Davie and Office Centre Corporation relating to
UDI II Corp.................................................
**2.24 Agreement and Plan of Merger, dated as of April 15, 1998,
between UDI Corp. and UDI II Corp...........................
***2.25 Amendment No. 2 to Merger Agreement, dated as of August 3,
1998, by and among Office Centre Corporation, Office Centre
Sacramento, Sierra Office Systems and Products, Inc. and the
shareholders named therein..................................
**3.01 Amended and Restated Certificate of Incorporation of Office
Centre Corporation..........................................
**3.02 Amended and Restated By-Laws of Office Centre Corporation...
***4.01 Specimen of Common Stock Certificate of Office Centre
Corporation.................................................
***5.01 Opinion of Richards & O'Neil, LLP...........................
**10.01 Employment/Consulting Agreement, dated July 20, 1995, by and
between UDI Corp., UDI II Corp, Clifford M. Davie and/or
Buying Group Services, Inc..................................
**10.02 Employment Agreement, dated as of May 1, 1997 by and between
Office Centre Corporation and Robert J. Gillon, Jr.
**10.03 Amendment to Employment Agreement, dated as of August 8,
1997, between Office Centre Corporation and Robert J.
Gillon, Jr.
**10.04 Reformation of Employment Agreement, dated as of March 12,
1998, between Office Centre Corporation and Robert J.
Gillon, Jr..................................................
**10.05 Amendment No. 2 to Employment Agreement, dated as of May 14,
1998, between Office Centre Corporation and Robert J.
Gillon, Jr..................................................
**10.06 Employment Agreement, dated as of August 22, 1997, between
Office Centre Corporation and Joseph Hajjar.................
**10.07 Amendment No. 1 to Employment Agreement, dated as of May 14,
1998, between Office Centre Corporation and Joseph Hajjar...
</TABLE>
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------- ------------------- ----
<C> <S> <C>
**10.08 Employment Agreement, dated as of April 15, 1998, between
Office Centre Corporation and Walter Gordenstein............
**10.09 Employment Agreement, dated as of April 8, 1998, between
Office Centre Corporation and Thomas F. Mooney..............
**10.10 Employment Agreement, dated as of February 20, 1998, by and
between Office Centre Corporation and Richard Case..........
**10.11 Consulting Agreement, dated February 1, 1997, between Office
Centre Corporation and Benchmark Associates, Inc............
**10.12 Agreement, dated January 9, 1998, by and between Office
Centre Corporation and John Davie...........................
**10.13 Agreement, dated as of April 15, 1998, between Office Centre
Corporation and Walter Gordenstein..........................
**10.14 Amendment No. 1 to Agreement, dated as of May 14, 1998, by
and between Office Centre Corporation and Walter
Gordenstein.................................................
**10.15 Agreement, dated as of May 13, 1998, between Office Centre
Corporation, Dean Witter Reynolds, Inc., Custodian for the
IRA Rollover DTD 12/15/94, and Clifford M. Davie............
**10.16 Financial Advisory Agreement, dated as of February 1, 1997,
by and between Office Centre Corporation and R.K. Grace &
Company.....................................................
**10.17 Form of Indemnification Agreement entered into by Office
Centre Corporation with each of the following persons:
Robert J. Gillon, Jr., John D. Kaweske, Joseph Hajjar,
Clifford M. Davie, Edward A. Schefer, Thomas F. Mooney,
Charles J. Murphy and Yancey Jones..........................
***10.18 Office Centre Corporation 1998 Stock Option Plan............
**10.19 Form of Stock Option Agreement..............................
**10.20 Loan and Security Agreement, dated as of July 9, 1998, by
and among Office Centre Corporation and First Union National
Bank, as Agent, and the financial institutions now or
hereafter parties thereto...................................
**10.21 Revolving Credit Note, dated July 9, 1998, issued by Office
Centre Corporation in favor of First Union National Bank....
**10.22 Buying Group Agreement, dated December 1, 1997, between UDI
Corp. and S.P. Richards Co. (Previously filed as Exhibit
10.27)......................................................
**10.23 Buying Group Agreement, dated December 1, 1997, between UDI
Corp. and United Stationers (Previously filed as Exhibit
10.28)......................................................
**10.24 Form of Employment Agreement by and between Office Centre
Corporation and Yancey S. Jones (Previously filed as Exhibit
10.29)......................................................
**21.01 Subsidiaries of Office Centre Corporation...................
***23.01 Consent of Grant Thornton LLP...............................
***23.02 Consent of Richards & O'Neil, LLP (incorporated into Exhibit
5.01).......................................................
**27.01 Financial Data Schedule.....................................
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
*** Filed herewith
<PAGE> 1
Exhibit 1.01
OFFICE CENTRE CORPORATION
4,000,000 SHARES
COMMON STOCK
($.001 PAR VALUE)
FORM OF
UNDERWRITING AGREEMENT
----------------------
August __, 1998
Morgan Keegan & Company, Inc.
McDonald & Company Securities, Inc.
Credit Lyonnais Securities (USA), Inc.
As Representatives of the Underwriters
Morgan Keegan & Company, Inc.
50 Front Street
Memphis, TN 38103
Dear Sirs:
Office Centre Corporation, a Delaware corporation (the "Company"), and
Clifford M. Davie and Walter H. Gordenstein (the "Selling Stockholders") propose
to sell to the several underwriters named in Schedule I (collectively, the
"Underwriters") an aggregate of 4,000,000 shares of the Company's common stock,
$.001 par value per share (the "Common Stock"), as set forth in Schedule I
hereto (such 4,000,000 shares are herein referred to as the "Firm Shares"). The
Firm Shares are to be sold to each Underwriter, acting severally and not
jointly, in such amounts as are set forth in Schedule I opposite the name of
such Underwriter.
Solely for the purpose of covering over-allotments in the sale of the
Firm Shares, the Company and Walter H. Gordenstein ("Gordenstein") grant to the
Underwriters the right to purchase up to an additional 600,000 shares of Common
Stock (the "Option Shares"), which option shall be exercisable in the manner and
such Option Shares shall be sold in the denominations set forth in Section 3(b)
below. The Firm Shares and Option Shares are herein sometimes referred to as the
"Shares." The Company operates a wholly owned subsidiary, UDI Corp., a
Massachusetts corporation (the "Subsidiary"); has entered into definitive
agreements to acquire (the "Acquisition Agreements") the companies listed on
Schedule II (collectively the "Acquisition Companies"); and has entered into
exclusivity agreements (the "Exclusivity Agreements") with the companies listed
on Schedule III (collectively the "Target Companies"). The "Office Centre
Companies" refers to Office Centre Corporation, the Subsidiary, the UDI
Subsidiaries (defined below) and the Acquisition Companies unless the context
clearly indicates otherwise.
Section 1. Representations and Warranties of the Company, the
Subsidiary, and the Selling Stockholders. The Company, the Subsidiary, and the
Selling Stockholders represent and warrant to and agree with each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-53411) with
respect to the Shares, including a preliminary form of prospectus subject to
completion, has been prepared by the Company in conformity with the requirements
of the Securities Act of 1933, as amended (the "1933 Act"), and the applicable
rules and regulations (the "1933 Act Regulations") of the Securities and
Exchange Commission (the "Commission") and has been filed with the
<PAGE> 2
Commission; and such amendments to such registration statement as may have been
required, if any, prior to the date hereof have been filed with the Commission,
and such amendments have been similarly prepared. Copies of such registration
statement and amendment or amendments and of each related preliminary
prospectus, and the exhibits, financial statements and schedules, as finally
amended and revised, have been delivered to you. The Company has prepared in the
same manner, and proposes so to file with the Commission, one of the following:
(i) prior to effectiveness of such registration statement, a further amendment
thereto, including the form of final prospectus, (ii) if the Company does not
rely on Rule 434 of the 1933 Act Regulations, a final prospectus in accordance
with Rules 430A and 424(b) of the 1933 Act Regulations, or (iii) if the Company
relies on Rule 434 of the 1933 Act Regulations, a term sheet relating to the
Shares that shall identify the preliminary prospectus that it supplements
containing such information as is required or permitted by Rules 434, 430A and
424(b) of the 1933 Act Regulations. The Company also may file a related
registration statement with the Commission pursuant to Rule 462(b) of the 1933
Act Regulations for the purpose of registering certain additional shares of
Common Stock, which registration statement will be effective upon filing with
the Commission. As filed, such amendment, any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations and any term sheet and form
of final prospectus, or such final prospectus, shall include all Rule 430A
Information (as defined below) and, except to the extent that you shall agree in
writing to a modification, shall be in all respects in the form furnished to you
prior to the date and time that this Agreement was executed and delivered by the
parties hereto, or, to the extent not completed at such date and time, shall
contain only such specific additional information and other changes (beyond that
contained in the latest preliminary prospectus) as the Company shall have
previously advised you in writing would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the Closing Time (as hereinafter defined), shall also mean
such registration statement as so amended; provided, however, that such term
shall also include all Rule 430A Information contained in any Prospectus and any
Term Sheet (as hereinafter defined) and deemed to be included in such
registration statement at the time such registration statement becomes effective
as provided by Rule 430A of the 1933 Act Regulations. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the preceding
paragraph and any preliminary prospectus included in the Registration Statement
at the time it becomes effective that omits Rule 430A Information. The term
"Prospectus" as used in this Agreement shall mean (a) if the Company relies on
Rule 434 of the 1933 Act Regulations, the Term Sheet relating to the Shares that
is first filed pursuant to Rule 424(b)(7) of the 1933 Act Regulations, together
with the Preliminary Prospectus identified therein that such Term Sheet
supplements, or (b) if the Company does not rely on Rule 434 of the 1933 Act
Regulations, the prospectus relating to the Shares in the form in which it is
first filed with the Commission pursuant to Rule 424(b) of the 1933 Act
Regulations or, if no filing pursuant to Rule 424(b) of the 1933 Act Regulations
is required, shall mean the form of final prospectus included in the
Registration Statement at the time such Registration Statement becomes
effective. The term "Rule 430A Information" means information with respect to
the Shares and the offering thereof permitted pursuant to Rule 430A of the 1933
Act Regulations to be omitted from the Registration Statement when it becomes
effective. The term "462(b) Registration Statement" means any registration
statement filed with the Commission pursuant to Rule 462(b) of the 1933 Act
Regulations (including the Registration Statement and any Preliminary Prospectus
or Prospectus incorporated therein at the time such registration statement
becomes effective). The term "Term Sheet" means any term sheet that satisfies
the requirements of Rule 434 of the 1933 Act Regulations. Any reference to the
"date" of a Prospectus that includes a Term Sheet shall mean the date of such
Term Sheet.
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission and no proceedings for that purpose
have been instituted or, to the knowledge of the Company, the Subsidiary or the
Selling Stockholders, threatened by the Commission or the state securities
authority of any jurisdiction, and each Preliminary Prospectus, at the time of
filing thereof, conformed in all material respects to the requirements of the
1933 Act and the 1933 Act Regulations and did not contain 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; provided, however,
that this representation and
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<PAGE> 3
warranty shall not apply to untrue statements or omissions of material facts to
the extent they are corrected in the Prospectus first filed pursuant to Rule
424(b) under the 1933 Act Regulations, or to any statements or omissions made in
reliance upon and in conformity with information furnished in writing to the
Company by an Underwriter expressly for use in the Registration Statement or any
462(b) Registration Statement.
(c) When the Registration Statement and any 462(b) Registration
Statement shall become effective, or any Term Sheet that is part of the
Prospectus is filed with the Commission pursuant to Rule 434, when the
Prospectus is first filed pursuant to Rule 424(b) of the 1933 Act Regulations,
when any amendment to the Registration Statement or any 462(b) Registration
Statement becomes effective, and when any supplement to the Prospectus or Term
Sheet is filed with the Commission, and at each Date of Delivery (as defined in
Section 3), (i) the Registration Statement, the 462(b) Registration Statement,
the Prospectus, the Term Sheet and all amendments thereof and supplements
thereto will conform in all material respects with the applicable requirements
of the 1933 Act and the 1933 Act Regulations and (ii) neither the Registration
Statement, the 462(b) Registration Statement, the Prospectus, any Term Sheet nor
any amendment or supplement thereto, will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
in which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any statement or omission made in
reliance upon and in conformity with information furnished in writing to the
Company by an Underwriter expressly for use in the Registration Statement or any
462(b) Registration Statement.
(d) The Company, the Subsidiary and the Acquisition Companies have been
duly incorporated and each is validly existing as a corporation in good standing
under the laws of its respective state of incorporation, with all requisite
corporate power and authority to own, lease and license its properties, and
conduct its business as described in the Prospectus and to perform its
obligations pursuant to the applicable transactions described under the heading
"Business-The Acquisitions of the Forming Companies" in the Prospectus, namely
the Acquisition Agreements. The Company, the Subsidiary and the Acquisition
Companies each has qualified to do business and is in good standing as a foreign
corporation in every jurisdiction in which the ownership or leasing of its
properties or the nature or conduct of its business requires such qualification,
except where the failure to do so would have a material adverse effect on the
financial condition, results of operations, cash flows or prospects of the
Office Centre Companies taken as a whole (a "Material Adverse Effect"). The
Company does not own or control, directly or indirectly, any corporation,
association or other entity, other than the Subsidiary, three subsidiaries of
the Subsidiary, namely, The Office Channel Broadcasting Network, Inc., UDI
Office Centre Canada, Ltd. and Art Retailers Together (collectively, the "UDI
Subsidiaries") and the subsidiaries of the Company which are parties to the
Acquisition Agreements.
(e) The Company and the Subsidiary have the full legal right, power and
authority to enter into this Agreement, and to consummate the transactions
contemplated herein. The Company has the full corporate power and authority and
each Selling Stockholder has the legal right and power to issue, sell and
deliver the Shares as provided herein. The Company and each Acquisition Company
has the full corporate power and authority to consummate the transactions
contemplated by the Acquisition Agreements to which it is a party. This
Agreement has been duly authorized, executed and delivered by the Company and
the Subsidiary and constitutes the valid and binding agreement of the Company
and the Subsidiary enforceable against each of them in accordance with its
terms, except to the extent that the indemnification provisions set forth in
Section 9 of this Agreement may be limited by applicable law or equitable
principles, and except as enforceability may be limited by bankruptcy,
reorganization, moratorium or similar laws affecting the enforceability of
creditors' rights generally and rules of law governing specific performance,
injunctive relief and other equitable remedies.
(f) Each material consent, approval, authorization, order, designation
or filing by or with any governmental agency or body necessary for the valid
authorization, issuance, sale and delivery of the Shares, the execution,
delivery and performance of this Agreement, the consummation of the transactions
contemplated hereby, and the consummation of the transactions contemplated by
the Acquisition Agreements has been made or obtained by the Company, the
Subsidiary and the Acquisition Companies and are in full force and effect,
except as may be required
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<PAGE> 4
under applicable state securities laws. The issuance, sale and delivery of the
Shares, the execution, delivery and performance of this Agreement, the
consummation of the transactions contemplated by this Agreement, and the
consummation of the transactions contemplated by the Acquisition Agreements (i)
will not result in a breach or violation of any of the terms and provisions of,
or constitute a default by the Company, the Subsidiary or the Acquisition
Companies under their respective Articles of Incorporation or Bylaws and (ii)
will not result in a breach or violation of any of the terms or provisions of,
or constitute a default by the Company, the Subsidiary or the Acquisition
Companies under, any material provision of any indenture, mortgage, deed of
trust, loan agreement, note, lease or other agreement or instrument to which any
of the Company, the Subsidiary, or the Acquisition Companies is a party or to
which it or its properties is subject, or (iii) will not result in a breach or
violation of any material statute, judgment, decree, order, rule or regulation
of any court or governmental agency or body applicable to the Company, the
Subsidiary or the Acquisition Companies or any of their respective properties.
(g) (i) The Company has common stock issued and outstanding as set
forth in the Registration Statement. The Company has no other issued and
outstanding capital stock. The Company has authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
as of the date therein. All the issued and outstanding shares of Common Stock of
the Company, including the Shares to be sold by the Selling Stockholders, have
been duly authorized and validly issued, are fully paid and nonassessable and
conform to the description of the Common Stock contained in the Prospectus and
the rights set forth in the instruments defining the same. All offers and sales
of the Company's capital stock prior to the date hereof were at all relevant
times duly registered under the 1933 Act or were exempt from the registration
requirements of the 1933 Act by reason of Sections 3(b), 4(2) or 4(6) thereof
and were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or blue sky laws.
The Shares to be sold by the Company and the Selling Stockholders, when issued
and delivered by the Company and the Selling Stockholders and paid for pursuant
to this Agreement, will be validly issued, fully paid and nonassessable and will
conform in all material respects to the description thereof contained in the
Prospectus. No preemptive rights of stockholders exist with respect to the
Shares or the shares of capital stock of the Acquisition Companies. Except as
disclosed in the Prospectus, no person or entity holds a right to require or
participate in the registration under the 1933 Act of the Shares and no person
holds a right to require registration under the 1933 Act of any shares of Common
Stock of the Company at any other time. No person or entity has a right of
participation or first refusal with respect to the sale of the Shares by the
Company or Selling Stockholders, or the sale of any shares of capital stock by
the Acquisition Companies to the Company. None of the issued shares of capital
stock of the Company or the issued shares of capital stock of the Acquisition
Companies, has been issued in violation of any preemptive or similar rights. All
shares of common stock of the Company subject to outstanding options or warrants
have been duly authorized and reserved for issuance, and, when issued in
accordance with the terms of the applicable option or warrant, will be validly
issued, fully paid and nonassessable and will not be issued in violation of any
preemptive right (contractual or other). There is no outstanding option, warrant
or other right calling for the issuance of and no commitment, plan or
arrangement to issue, any share of capital stock of the Company or the Acquired
Companies or any security convertible into or exchangeable for capital stock of
the Company or the Acquired Companies, except (A) as is disclosed in the
Registration Statement and the Prospectus, or (B) those which will have been
terminated on or before the Closing Time (hereinafter defined);
(ii) All of the shares of issued and outstanding capital stock of the
Subsidiary and the Acquisition Companies have been duly authorized and validly
issued, are fully paid and nonassessable and upon the consummation of the
transactions contemplated by the Acquisition Agreements, the shares of capital
stock of the Acquisition Companies will be owned beneficially by the Company
free and clear of all liens, security interests, pledges, charges, or
encumbrances. Other than the Subsidiary, the UDI Subsidiaries and the
subsidiaries of the Company which are party to the Acquisition Agreements, the
Company does not own directly or indirectly, any capital stock or other equity
securities of any other corporation or any ownership interest in any
partnership, joint venture or other association.
(iii) The shares of Common Stock to be issued by the Company to the
shareholders of the Acquisition Companies pursuant to the Acquisition Agreements
have been duly authorized and, when issued and delivered pursuant
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<PAGE> 5
to the Acquisition Agreements, will be validly issued, fully paid and
nonassessable and will conform to the description of the Common Stock contained
in the Prospectus.
(h) The financial statements of the Company (including the related
notes and schedules) included in the Registration Statement and the Prospectus
present fairly the financial position of the Company as of the dates indicated
and the results of its operations and its cash flows for the periods specified,
all in conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (subject, in the case of
unaudited financial statements, to normal year-end adjustments) and in
conformity with Regulation S-X of the Commission. The supporting schedules
included in the Registration Statement and the amounts in the Prospectus under
the captions "Prospectus Summary -- Summary Combined Historical and Pro Forma
Financial Data," " -- Summary Historical Statement of Operations Data for the
Founding Companies," and "Selected Combined Pro Forma Financial Data," and
"Selected Financial Data of Office Centre Corporation" are accurately computed,
fairly present the information shown therein and have been determined on a basis
consistent with the financial statements included in the Registration Statement
and the Prospectus. No other financial statements or schedules are required by
Form S-1 or otherwise to be included in the Registration Statement, the
Prospectus or any Preliminary Prospectus.
The unaudited pro forma combined financial statements included in the
Prospectus and the selected pro forma financial data set forth under the caption
"Summary Combined Historical and Pro Forma Financial Data" and "Selected
Combined Pro Forma Financial Data" in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the rules and regulations of the Commission thereunder, and the Company
believes (A) the assumptions underlying the pro forma adjustments are
reasonable, (B) that such adjustments have been properly applied to the
historical amounts in the compilation of such statements and (C) that such
statements present fairly, with respect to the Company and its consolidated
subsidiaries the information purported to be shown therein. The financial data
statements and schedules (including the related notes) of each of the Office
Centre Companies included in the Registration Statement, the Prospectus or any
Preliminary Prospectus were prepared in accordance with generally accepted
accounting principals consistently applied throughout the periods involved
(subject, in the case of unaudited financial statements, to normal year-end
adjustments) and fairly present the financial position and result of operations
of each of the Office Centre Companies at the dates and periods presented.
(i) Grant Thornton, LLP, which has examined and is reporting upon the
audited financial statements and schedules included in the Registration
Statement, are, and were during the periods covered by their reports included in
the Registration Statement and Prospectus, independent public accountants with
respect to the Company and the Subsidiary within the meaning of the 1933 Act and
the 1933 Act Regulations.
(j) The Company has obtained for the benefit of the Company and the
Underwriters from each of its directors and officers and from the stockholders
of the Company and the Acquisition Companies, a written agreement that for a
period of 180 days from the date of the Prospectus such director, officer or
stockholder will not, without your prior written consent, offer sell, contract
to sell, pledge, grant any option to purchase, or otherwise dispose of, directly
or indirectly, any shares of Common Stock or other instrument which by its terms
is convertible into, exercisable or exchangeable for, any shares of Common Stock
of which the undersigned is now, or may in the future become, the beneficial
owner (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934,
as amended), other than the Option Shares that may be sold by Gordenstein and an
exercise of stock options or sale of Common Stock pursuant to a "cashless
exercise" of stock options which are either (i) outstanding on the date of the
Prospectus, (ii) issued under the Company's stock option plan, or a bona fide
gift of Common Stock, provided that the donee agrees to be bound by the terms
hereof;
(k) Neither the Company, the Subsidiary, nor any of the Acquisition
Companies has sustained, since December 31, 1997, any material loss or
interference with its business from fire, explosion, flood, hurricane, accident
or other calamity, whether or not covered by insurance, or from any labor
dispute or arbitrators' or court or governmental
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<PAGE> 6
action, order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as otherwise stated in
the Registration Statement and Prospectus, there has not been (i) any material
change in the capital stock, long-term debt, obligations under capital leases or
short-term borrowings of the Company, the Subsidiary or the Acquisition
Companies; (ii) any event or development which could reasonably be seen as
having a Material Adverse Effect; (iii) any liability or obligation, direct or
contingent, incurred or undertaken by the Company, the Subsidiary, or the
Acquisition Companies, except for liabilities or obligations incurred in the
ordinary course of business or which otherwise would not have a Material Adverse
Effect; or (iv) any declaration or payment of any dividend or distribution of
any kind on or with respect to its capital stock.
(l) Neither the Company, the Subsidiary, nor any of the Acquisition
Companies is in violation of its Certificate of Incorporation or Bylaws and, as
of the date hereof, no default exists, and no event has occurred, nor state of
facts exists, which, with notice or after the lapse of time to cure or both,
would constitute a default in the due performance and observance of any
obligation, agreement, covenant, consideration or condition contained in any
indenture, mortgage, deed of trust, loan agreement, note, lease or other
agreement or instrument to which the Company, the Subsidiary or any Acquisition
Company is a party or by which it or any of its properties is subject, and no
violation exists of any law, order, rule, regulation, writ, injunction or decree
of any government, governmental instrumentality or court, domestic or foreign,
in any such case where the consequences of such violation or default would have
a Material Adverse Effect.
(m) Except as otherwise disclosed in the Prospectus, (i) neither the
Company, the Subsidiary, nor any of the Acquisition Companies has authorized or
conducted or has knowledge of the generation, transportation, storage, presence,
use, treatment, disposal, release or handling of (in an amount or of a type that
has been or must be reported to any governmental agency, violates any
Environmental Law, or has required or could require remediation expenditures)
any hazardous substance, asbestos, radon, polychlorinated biphenyl ("PCBs"),
petroleum product or waste (including crude oil or any fraction thereof),
natural gas, liquefied gas, synthetic gas or other material defined, regulated,
controlled or potentially subject to any remediation requirement under any
Environmental Law (collectively, "Hazardous Materials"), on, in or under any
real property owned, leased or used by the Company, the Subsidiary or the
Acquisition Companies (ii) the Company, the Subsidiary and the Acquisition
Companies are in compliance with all federal, state and local laws, ordinances,
rules, regulations and other governmental requirements relating to pollution,
control of chemicals, management of waste, discharges of materials into the
environment, health, safety, natural resources, and the environment
(collectively, "Environmental Laws"), and (iii) the Company, the Subsidiary and
the Acquisition Companies have, and are in compliance with, all licenses,
permits, registrations and government authorizations necessary to operate under
all applicable Environmental Laws except in the case of clause (i) or (ii),
where such noncompliance would not have a Material Adverse Effect. Except as
otherwise disclosed in the Prospectus, neither the Company, the Subsidiary, nor
any of the Acquisition Companies has received any written or oral notice from
any governmental entity or any other person and there is no pending or, to the
knowledge of the Company, the Subsidiary or the Selling Stockholders, threatened
claim, litigation or any administrative agency proceeding that: alleges a
violation of any material Environmental Laws by the Company, the Subsidiary, or
the Acquisition Companies; alleges the Company, the Subsidiary, or the
Acquisition Companies is a liable party or a potentially responsible party under
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. ss. 9601, et seq., or any state superfund law; has resulted in or could
result in the attachment of an environmental lien on any real property owned,
leased or used by the Company, the Subsidiary or the Acquisition Companies; or
alleges the occurrence of contamination of any of such real property, damage to
natural resources, property damage, or personal injury based on activities of
the Company, the Subsidiary or the Acquisition Companies or the activities of
their predecessors or third parties (whether at the real property or elsewhere)
involving Hazardous Materials, whether arising under the Environmental Laws,
common law principles, or other legal standards.
(n) The Company, the Subsidiary, and the Acquisition Companies have
good and marketable title to all real property owned by them, free and clear of
all liens, encumbrances, claims, security interests, restrictions and
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<PAGE> 7
defects, other than liens of mechanics, materialmen and landlords that may arise
in the ordinary course of business for sums not overdue or being diligently
contested in good faith, and except such as are reflected in the Prospectus.
Each parcel of real property owned or leased by the Company, the Subsidiary, and
the Acquisition Companies, and each improvement thereon, complies with all
applicable codes, laws and regulations (including, without limitation, building
and zoning codes, laws and regulations and laws relating to access to facilities
located on such real property) except if and to the extent disclosed in the
Prospectus, and except for such failures to comply that would not have a
Material Adverse Effect. Neither the Company, the Subsidiary nor any Selling
Stockholder has knowledge of any pending or threatened condemnation proceedings,
zoning change, or other proceeding or action that will in any manner affect the
size of, use of, improvements on, construction on or access to such real
property and improvements, except such proceedings or actions that would not
have a Material Adverse Effect.
(o) Any real property and buildings held under lease by the Company,
the Subsidiary, or the Acquisition Companies is held by such entity under a
valid, subsisting and enforceable lease with such exceptions as are not material
and do not interfere in any material respect with the use made and proposed to
be made of such property and building by the Company, the Subsidiary, or the
Acquisition Companies; such leases conform to the description thereof, if any,
set forth in the Registration Statement; and no notice has been given or
material claim asserted by anyone adverse to the rights of the Company, the
Subsidiary, or the Acquisition Companies under any of the leases or affecting
their rights to the continued possession of the leased property.
(p) Except as described in the Prospectus, to the best of the
Company's, the Subsidiary's and the Selling Stockholders' knowledge, there is
not pending nor threatened, any action, suit, proceeding, inquiry or
investigation, against the Company, the Subsidiary, or the Acquisition Companies
or any of their respective officers, directors or significant stockholders or to
which the properties, assets or rights of the Office Centre Companies are
subject, before or brought by any court or governmental agency or body or board
of arbitrators, which would, if adversely determined, have a Material Adverse
Effect, or which could prevent consummation of the transactions contemplated by
this Agreement or the Acquisition Agreements.
(q) There are no contracts or other documents required by the 1933 Act
or the 1933 Act Regulations to be described in or incorporated by reference into
the Registration Statement or Prospectus or to be filed as exhibits to the
Registration Statement which have not been accurately described in all material
respects in the Prospectus or incorporated or filed as required. The agreements
to which the Company, the Subsidiary, and the Acquisition Companies are parties
which are described in the Registration Statement and the Prospectus, are valid
and enforceable in all material respects by the Company, the Subsidiary, or the
Acquisition Companies, as the case may be, and, to the best of the Company's,
the Subsidiary's and the Selling Stockholders' knowledge, no party thereto is in
breach or default under any of such agreements except where such breach or
default would not have a Material Adverse Effect.
(r) The Company, the Subsidiary, and the Acquisition Companies own,
possess or have obtained all permits, licenses, franchises, certificates,
consents, orders, approvals and other authorizations of governmental or
regulatory authorities as are necessary to own or lease, as the case may be, and
to operate their properties and to carry on their businesses as presently
conducted except where a failure to own, possess or obtain such permits,
licenses, franchises, certificates, consents, orders, approvals and other
authorizations would not have a Material Adverse Effect. Neither the Company,
the Subsidiary, nor the Acquisition Companies have received any notice of
proceedings relating to revocation or modification of any such license, permit,
franchise, certificate, consent, order, approval or authorization which
revocation or modification would have a Material Adverse Effect.
(s) The Company, the Subsidiary, and the Acquisition Companies own or
possess adequate licenses or other rights to use all patents, trademarks,
service marks, trade names, copyrights, software and design licenses, trade
secrets, manufacturing processes, other intangible property rights and know-how
(collectively "Intangibles") necessary to entitle them to conduct their
businesses now, and as proposed to be conducted or operated as described in the
Prospectus, and neither the Company, the Subsidiary, nor the Acquisition
Companies have received any notice of
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<PAGE> 8
infringement of or conflict with (and neither the Company, the Subsidiary nor
any Selling Stockholder knows of any such infringement of or conflict with)
asserted rights of others with respect to any Intangibles which would have a
Material Adverse Effect.
(t) The systems of internal accounting controls utilized by the
Company, the Subsidiary, and the Acquisition Companies are sufficient to meet
the objectives of internal accounting control insofar as those objectives
pertain to the prevention or detection of errors or irregularities in amounts
that would be material in relation to the their financial statements and the
financial information disclosed in the Registration Statement and Prospectus;
and, neither the Company, the Subsidiary, nor any of the Acquisition Companies
nor any of their employees, or agents has made any payment or received or
retained any funds from the accounts of any Office Centre Company; and no funds
of the Company, the Subsidiary or the Acquisition Companies have been set aside
to be used for any payment in violation of any law, rule or regulation.
(u) The Company, the Subsidiary, and the Acquisition Companies have
filed on a timely basis all federal, state, local and foreign income and
franchise tax returns required to be filed through the date hereof and have paid
all taxes shown as due thereon; and no tax deficiency, has been asserted against
the Company, the Subsidiary, or the Acquisition Companies nor does the Company
know of any tax deficiency which is likely to be asserted against any of the
Office Centre Companies, which if determined adversely to any such company,
would have a Material Adverse Effect. All tax liabilities are adequately
provided for on the books of the Company, the Subsidiary, the Acquisition
Companies.
(v) Except as disclosed in the Prospectus, the Company, the Subsidiary,
and the Acquisition Companies maintain insurance (issued by insurers of
recognized financial responsibility) of the types and in the amounts generally
deemed adequate for their businesses and, to the best of the Company's, the
Subsidiary's and the Selling Stockholders' knowledge, generally 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 Office Centre Companies against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
and casualty and liability insurance covering the Company's, the Subsidiary's
and the Acquisition Companies' operations, all of which insurance is in full
force and effect.
(w) Except as disclosed in the Prospectus, no labor problem exists with
the Company's, the Subsidiary's or the Acquisition Companies' employees or, to
the best of the Company's, the Subsidiary's and the Selling Stockholders'
knowledge, is threatened or imminent, that would have a Material Adverse Effect,
and the Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, contractors or
customers that would have a Material Adverse Effect.
(x) Neither the Company, its officers, directors, stockholders, its
affiliates nor the Selling Stockholders have taken, and such parties will not
take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in or constitute, the stabilization or
manipulation of the price of the Shares to facilitate the sale or resale of the
Shares.
(y) The Common Stock has been registered pursuant to Section 12(g) of
the 1934 Act and the Shares have been approved for listing on The Nasdaq Stock
Market's National Market (the "NSM"), subject to official notice of issuance.
(z) Neither the Company, the Subsidiary, the Selling Stockholders, nor
the Acquisition Companies have incurred any liability for a fee, commission or
other compensation on account of the employment of a broker or finder in
connection with the transactions contemplated by this Agreement other than as
contemplated hereby.
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<PAGE> 9
(aa) The Company, is not, will not become as a result of the
transactions contemplated hereby or in the Acquisition Agreements and does not
intend to conduct its business in a manner that would cause it to become an
"investment company" or a company controlled by an "investment company" within
the meaning of the Investment Company Act of 1940.
Section 2. Further Representations and Warranties of the Selling
Stockholders. Each Selling Stockholder further severally represents and warrants
to each Underwriter and agrees that:
(a) Such Selling Stockholder has all legal capacity necessary to
execute and deliver this Agreement, to sell and deliver the Shares to be sold by
him hereunder and to perform all other obligations under this Agreement; this
Agreement has been duly executed and delivered by such Selling Stockholder, and
constitutes the valid and binding agreement of such Selling Stockholder,
enforceable against him in accordance with its terms, except that thee
indemnification provisions set forth in Section 9 of this Agreement may be
limited by applicable law or equitable principles, and except as enforceability
may be limited by bankruptcy, reorganization, moratorium or similar laws
affecting the enforceability of creditors' rights generally and rules of law
governing specific performance, injunctive relief and other equitable remedies;
the execution, delivery and performance of this Agreement by each Selling
Stockholder will not conflict with, result in the creation or imposition of any
lien, charge or encumbrance upon any of the Shares to be sold by such Selling
Stockholder pursuant to the terms of, or constitute a default under, any
agreement or other instrument, or any order, rule or regulation of any court or
governmental agency having jurisdiction over such Selling Stockholder or the
Selling Stockholder's properties; and except as required by the 1933 Act and
applicable state securities laws, no consent, authorization or order of, or
filing or registration with, any court or governmental agency is required (or,
if required, has been obtained) for the execution, delivery and performance of
this Agreement by such Selling Stockholder.
(b) At the Closing Time, such Selling Stockholder will have good title
to the Shares being sold by him hereunder; such Shares are, and at the Closing
Time will be, validly authorized, duly issued and outstanding, fully paid and
nonassessable Common Stock of the Company with no personal liability attaching
to the ownership thereof; and upon the delivery of and payment for such Shares
as contemplated herein, the Underwriters will receive good title to the Shares
purchased by them, respectively, from such Selling Stockholder, free and clear
of any and all liens, encumbrances, security interests and adverse claims.
(c) Without the prior written consent of the Underwriters, such Selling
Stockholder and any affiliate controlled by him (other than the Company) will
not sell or offer or contract to sell, except to the Underwriters pursuant to
this Agreement, any securities of the Company which he beneficially owns within
180 days after the effective date of the Registration Statement. Such Selling
Stockholder has not (i) taken, and agrees that he will not take, directly or
indirectly, any action which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Shares, or (B) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.
(d) Except as set forth in the Prospectus, such Selling Stockholder is
disposing of his Shares hereunder for his own account and is not selling such
Shares, directly or indirectly, for the benefit of the Company or the
Underwriters.
(e) When any Preliminary Prospectus was filed with the Commission (i)
it contained all statements required to be stated therein regarding such Selling
Stockholder in accordance with, and complied in all material respects regarding
such Selling Stockholder with the requirements of, the 1933 Act and the rules
and regulations thereunder, and (ii) such statements in the Preliminary
Prospectus as are made in reliance upon and in conformity with written
information furnished to the Company by such Selling Stockholder for use therein
did not include any untrue
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<PAGE> 10
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. When the Registration Statement or any amendment
thereto or any 462(b) Registration Statement or any amendment thereto was or is
declared effective and at the Closing Time or any Date of Delivery, as the case
may be, (i) it contained or will contain all statements required to be stated
therein regarding such Selling Stockholder in accordance with, and complied or
will comply in all material respects regarding such Selling Stockholder with the
requirements of the 1933 Act and the rules and regulations of the Commission
thereunder and (ii) such statements in the Registration Statement, any 462(b)
Registration Statement or any amendment thereto as are made in reliance upon and
in conformity with written information furnished to the Company by such Selling
Stockholder specifically for use therein did not or will not include any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading. When the Prospectus, any Term Sheet,
or any amendment or supplement thereto is filed with the Commission pursuant to
Rule 424(b) (or, if any Prospectus or such amendment or supplement is not
required to be so filed, when the Registration Statement or the amendment
thereto containing such amendment or supplement to the Prospectus was or is
declared effective), and at the Closing Time or any Date of Delivery, as the
case may be, (i) the Prospectus, as amended or supplemented at any such time
(including by means of any Term Sheet), contained or will contain all statements
required to be contained or stated therein regarding such Selling Stockholder in
accordance with, and complied or will comply in all material respects regarding
such Selling Stockholder with the requirements of, the 1933 Act and the rules
and regulations of the Commission thereunder and (ii) such statements in the
Prospectus, as so amended or supplemented at any such time, as are made in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder specifically for use therein did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(f) The sale of the Shares by such Selling Stockholder pursuant to this
Agreement is not prompted by any material information concerning the Company
which is not set forth in the Prospectus.
Section 3. Sale and Delivery of Shares to the Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Company
and such Selling Stockholder agree to sell to the Underwriters named in Schedule
I hereto, and each such Underwriter agrees, severally and not jointly, to
purchase from the Company and such Selling Stockholder, at a purchase price of
$______ per share, the aggregate number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto.
(b) On the basis of the representations and warranties herein
contained, and subject to the terms and conditions herein set forth, the Company
and Gordenstein hereby grant an option to the Underwriters, severally and not
jointly, to purchase up to an additional 600,000 Option Shares on the same terms
and conditions as the Firm Shares. The option hereby granted will expire if not
exercised within the 30 day period after the first date on which the Firm Shares
are released by you for sale to the public, by giving written notice to the
Company. The option granted hereby may be exercised, in whole or in part (but
not more than once), only for the purpose of covering the over-allotments that
may be made in connection with the offering and distribution of the Firm Shares.
The notice of exercise shall set forth the number of Option Shares as to which
the several Underwriters are exercising the option, and the time and date of
payment and delivery thereof. Such time and date of delivery (the "Date of
Delivery") shall be determined by you but shall not be earlier than the second
business day after the date on which the notice of the exercise of the option
shall have been given nor later than seven full business days after the exercise
of such option, nor in any event prior to the Closing Time. If the option is
exercised in whole or in part, then the first 204,640 Option Shares shall be
sold to the Underwriters by Gordenstein, and the balance of the Option Shares
with respect to which the option shall have been exercised shall be sold to the
Underwriters by the Company. If the option is exercised as to all or any portion
of the Option Shares, the Option Shares as to which the option is exercised
shall be purchased by the Underwriters, severally and not jointly, in their
respective underwriting obligation proportions.
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<PAGE> 11
(c) Payment of the purchase price for and delivery of the Firm Shares
shall be made at the offices of Morgan Keegan & Company, Inc., 50 Front Street,
Memphis, Tennessee 38103 or at such other place as shall be agreed upon by the
Company, the Selling Stockholders and you, at 10:00 A.M., either (i) on the
third full business day after the effective date of the Registration Statement,
or (ii) at such other time not more than ten full business days thereafter as
you, the Selling Stockholders and the Company shall determine (unless, in either
case, postponed pursuant to Section 12) (such date and time of payment and
delivery being herein called the "Closing Time"). In addition, in the event that
any or all of the Option Shares are purchased by the Underwriters, payment of
the purchase price for and delivery of the Option Shares shall be made at the
offices of Morgan Keegan & Company, Inc. in the manner set forth above, or at
such other place as the Company, the Selling Stockholders and you shall
determine, on the Date of Delivery as specified in the notice from you to the
Company and the Selling Stockholders. Payment for the Firm Shares and the Option
Shares shall be made to the Company by certified or official bank check or
checks in New York Clearing House next day funds payable to the order of the
Company and the Selling Stockholders, respectively, against delivery to you for
the respective accounts of the Underwriters of the Shares to be purchased by
them.
(d) The Shares to be purchased by the Underwriters shall be in such
denominations and registered in such names as you may request in writing at
least two full business days before the Closing Time or the Date of Delivery, as
the case may be. The Shares will be made available at the offices of Morgan
Keegan & Company, Inc. or at such other place as Morgan Keegan & Company, Inc.
may designate for examination and packaging not later than 10:00 A.M. at least
two full business days prior to the Closing Time or the Date of Delivery, as the
case may be.
(e) After the Registration Statement becomes effective, you intend to
offer the Shares to the public as set forth in the Prospectus, but after the
initial public offering of such Shares, you may from time to time increase or
decrease the public offering price, in your sole discretion, by reason of
changes in general market condition or otherwise.
Section 4. Certain Covenants of the Company. The Company covenants and
agrees with each Underwriter as follows:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective (if not yet effective at the date and time that
this Agreement is executed and delivered by the parties hereto). If the Company
elects to rely upon Rule 430A of the 1933 Act Regulations or the filing of the
Prospectus is otherwise required under Rule 424(b) of the 1933 Act Regulations,
and subject to the provisions of Section 4(b) of this Agreement, the Company
will comply with the requirements of Rule 430A and will file the Prospectus,
properly completed, pursuant to the applicable provisions of Rule 424(b), or a
Term Sheet pursuant to and in accordance with Rule 434, within the time period
prescribed. If the Company elects to rely upon Rule 462(b), the Company shall
file a 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 p.m., Washington, D.C. time on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee. The Company will notify you immediately and confirm
the notice in writing, (i) when the Registration Statement, 462(b) Registration
Statement or any post-effective amendment to the Registration Statement, shall
have become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission to amend the Registration
Statement or 462(b) Registration Statement or amend or supplement the Prospectus
or for additional information, and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or any
462(b) Registration Statement or of any order preventing or suspending the use
of any Preliminary Prospectus, or of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, or of the institution or threat
of any proceedings for any of such purposes. The Company will use every
reasonable effort to prevent the issuance of any such stop order or of any order
preventing or suspending such use and, if any such order is issued, use its
reasonable efforts to obtain the withdrawal thereof at the earliest possible
moment.
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<PAGE> 12
(b) The Company will not at any time file or make any amendment to the
Registration Statement or any amendment or supplement (i) to the Prospectus, if
the Company has not elected to rely upon Rule 430A, or (ii) if the Company has
elected to rely upon Rule 430A, to either the Prospectus included in the
Registration Statement at the time it becomes effective or to the Prospectus
filed in accordance with Rule 424(b) or any Term Sheet filed in accordance with
Rule 434, or (iii) if the Company has elected to rely upon Rule 462(b), to any
462(b) Registration Statement, in either case if you shall not have previously
been advised and furnished a copy thereof a reasonable time prior to the
proposed filing, or if you or counsel for the Underwriters shall reasonably
object to such amendment or supplement.
(c) The Company has furnished or will furnish to you, at its expense,
as soon as available, as many signed copies of the Registration Statement as
originally filed and of all amendments thereto, whether filed before or after
the Registration Statement becomes effective, copies of all exhibits and
documents filed therewith and signed copies of all consents and certificates of
experts, as you may reasonably request, and has furnished or will furnish to
each Underwriter, one conformed copy of the Registration Statement as originally
filed and of each amendment thereto (but without exhibits).
(d) The Company will deliver to each Underwriter, at its expense, from
time to time, as many copies of each Preliminary Prospectus as such Underwriter
may reasonably request, and the Company hereby consents to the use of such
copies for purposes permitted by the 1933 Act. The Company will deliver to each
Underwriter, at its expense, as soon as the Registration Statement shall have
become effective, and thereafter from time to time as requested during the
period when the Prospectus is required to be delivered under the 1933 Act, such
number of copies of the Prospectus (as supplemented or amended) as each
Underwriter may reasonably request. The Company will use its best efforts to
comply with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Shares as contemplated in this Agreement
and in the Prospectus. In case you are required to deliver a prospectus within
nine months after the time of issue of the Prospectus or any Term Sheet in
connection with the offering or sale of the Shares and if at such time any event
shall have occurred as a result of which the Prospectus or any Term Sheet as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made
when such Prospectus or any Term Sheet is delivered, not misleading, or, if for
any reason it shall be necessary during such period to amend or supplement the
Prospectus or any Term Sheet in order to comply with the 1933 Act or the 1933
Act Regulations, the Company will notify you and upon your request prepare
promptly and furnish without charge to each Underwriter and to any dealer in
securities as many copies as you may from time to time reasonably request of an
amended Prospectus or any Term Sheet or a supplement to the Prospectus or any
Term Sheet which will correct such statement or omission or effect such
compliance. In case any Underwriter is required to deliver a prospectus in
connection with sales of any of the Shares at any time nine months or more after
the time of issue of the Prospectus or any Term Sheet, upon your request but at
the expense of such Underwriter, the Company will prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus or any Term Sheet complying with the requirements of Section 10(a)(3)
of the 1933 Act.
(e) The Company will use its best efforts, in cooperation with you, to
qualify the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions as you may designate and to maintain such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation in any jurisdiction in which it is not otherwise so subject.
The Company will file such statements and reports as may be required by the laws
of each jurisdiction in which the Shares have been qualified as above provided.
(f) The Company will use the net proceeds received by it from the sale
of the Shares substantially in the manner specified in the Prospectus under the
caption "Use of Proceeds."
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<PAGE> 13
(g) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than the end of the fiscal
quarter first occurring after the first anniversary of the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the 1933 Act
Regulations), an earnings statement (in reasonable detail but which need not be
audited) complying with the provisions of Section 11(a) of the 1933 Act and Rule
158 thereunder and covering a period of at least 12 months beginning after the
effective date of the Registration Statement.
(h) During a period of five years from the date hereof, the Company
will furnish to its stockholders, as soon as practicable after the end of each
fiscal year, annual reports (including financial statements audited by
independent public accountants) and will furnish to you: (i) as soon as they are
available, copies of all reports (financial or otherwise) mailed to stockholders
of the Company; (ii) 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; (iii) every material press release in respect of the
Company or its affairs which is released by the Company; and (iv) any additional
information of a public nature concerning the Company that you may reasonably
request. During such five-year period, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the Company are
consolidated with any subsidiaries, and shall be accompanied by similar
financial statements for any significant subsidiary that is not so consolidated.
(i) For a period of 180 days from the date hereof, the Company will
not, without your prior written consent, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Common
Stock or securities convertible into Common Stock, other than to the
Underwriters pursuant to this Agreement except for: (i) contributions to
employee benefit plans in existence on the date of the execution of this
Agreement; (ii) the issuance of Common Stock pursuant to the terms of the
Acquisition Agreements; (iii) the issuance of Common Stock to stockholders of a
company whose primary business is sales of office products, supplies, furniture
or equipment and such stock is issued in connection with the acquisition of such
company by the Company, provided that each such stockholder of the acquired
company agrees not to offer, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, such shares of common
stock for a period of 180 days from the date of the Prospectus without prior
written consent of the Underwriters; (iv) the grant of options pursuant to the
Company's Stock Option Plan in effect at the time of execution of this
Agreement; or (v) pursuant to an exercise of stock options or sale of Common
Stock pursuant to a "cashless exercise" of stock options which are outstanding
on the date of the Prospectus.
(j) 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.
(k) For as long as the Common Stock of the Company is publicly traded,
the Company will use it best efforts to maintain the listing of its shares of
Common Stock on NSM; provided that nothing herein shall prevent the Company from
listing its Common Stock on the New York Stock Exchange.
(l) The Company is familiar with the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder, and has in the past conducted
its affairs, and will in the future conduct its affairs, in such a manner so as
to ensure that the Company was not and will not be an "investment company"
within the meaning of the Investment Company Act of 1940 and the rules and
regulations thereunder.
(m) The Company will not, and will use its best efforts to cause its
officers, directors and affiliates not to, (i) take, directly or indirectly
prior to the termination of the underwriting syndicate contemplated by this
Agreement, any action designed to stabilize or manipulate the price of any
security of the Company, or which may cause or result in, or which might in the
future reasonably be expected to cause or result in, the stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of any of the Shares, (ii) sell, bid for, purchase or pay anyone any
compensation for soliciting purchases of the Shares or (iii) pay or agree to pay
to any person any compensation for soliciting any order to purchase any other
securities of the Company.
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<PAGE> 14
(n) If at any time during the 30-day period after the Registration
Statement becomes effective, any publication or event relating to or affecting
the Company shall occur as a result of which in your reasonable opinion the
market price of the Common Stock has been or is likely to be materially affected
(regardless of whether such publication or event necessitates a supplement or
amendment of the Prospectus) and after written notice from you advising the
Company to the effect set forth above, the Company agrees to 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 publication or event.
(o) The Company will file timely and accurate information with the
Commission in accordance with Rule 463 of the 1933 Act Regulations or any
successor provision.
(p) The Company will supply the Underwriters with copies of all
correspondence to and from and all documents issued to and by the Commission or
the Commission staff in connection with the registration of the Shares under the
1933 Act.
Section 5. Covenants of the Selling Stockholders. The Selling
Stockholders covenant:
(a) To pay all taxes, if any, on the transfer and sale of the Shares to
be sold by them hereunder;
(b) To comply with all reasonable requests of the Company to cause the
Registration Statement to become effective, to do and perform all things to be
done and performed by the Selling Stockholders hereunder prior to the Closing
Time and to satisfy all conditions precedent to the delivery of the Shares to be
sold by the Selling Stockholders; and
(c) To not (i) take, directly or directly, prior to the termination of
the underwriting syndicate contemplated by this Agreement, any action designed
to stabilize or manipulate the price of any security of the Company, or which
may cause or result in, or which might in the future reasonably be expected to
cause or result in, the stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale of any of the Shares,
(ii) sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of the Shares or (iii) pay or agree to pay to any person any
compensation for soliciting any order to purchase any other securities of the
Company.
Section 6. Payment of Expenses. (a) The Company will pay or cause to be
paid and bear all costs, fees and expenses incident to the performance of its
obligations under this Agreement, including (i) the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits), as originally filed and as amended, the Preliminary Prospectuses and
the Prospectus and any amendments or supplements thereto, and the cost of
furnishing copies thereof to the Underwriters; (ii) the preparation, printing
and distribution of this Agreement, the Selected Dealer Agreement, and any
instruments relating to any of the foregoing; (iii) the issuance and delivery of
the Shares to the Underwriters, including any transfer taxes payable upon the
sale of the Shares to the Underwriters (other than transfer taxes on resales by
the Underwriters); (iv) the fees and disbursements of the Company's counsel and
accountants; (v) the qualification of the Shares under the applicable securities
laws in accordance with Section 4(f) hereof and any filing for review of the
offering with the NASD, including filing fees and fees and disbursements of
counsel for the Underwriters in connection therewith; (vi) the transfer agent's
and registrar's fees and all miscellaneous expenses referred to in Item 14 of
the Registration Statement; (vii) costs related to travel and lodging incurred
by the Company and its representatives relating to meetings with and
presentations to prospective purchasers of the Shares; and (viii) all other
costs and expenses incident to the performance of the Company's obligations
hereunder (including costs incurred in closing the purchase of the Option
Shares, if any) that are not otherwise specifically provided for in this
section. The Company, upon your request, will provide funds in advance for
filing fees in connection with "blue sky" qualifications and the NASD.
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<PAGE> 15
(b) The Selling Stockholders shall pay their proportionate share of all
Underwriters' commissions relating to Shares of the Company sold by such Selling
Stockholders.
(c) If the sale of Shares provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 7 hereof has not been satisfied or because of any refusal, inability or
failure on the part of the Company or the Selling Stockholders to perform any
agreement herein or comply with any provision hereof other than by reason of a
default by any of the Underwriters, the Company and the Selling Stockholders
will reimburse the Underwriters severally on demand for all reasonable
out-of-pocket expenses, including fees and disbursements of Underwriters'
counsel, reasonably incurred by the Underwriters in reviewing the Registration
Statement and the Prospectus, and in investigating and making preparations for
the marketing of the Shares.
Section 7. Conditions of Underwriters' Obligations. The obligations of
the Underwriters to purchase and pay for the Shares that they have severally
agreed to purchase pursuant to this Agreement (including any Option Shares as to
which the option granted in Section 3 has been exercised and the Date of
Delivery determined by you is the same as the Closing Time) are subject to the
accuracy of the representations and warranties of the Company and the Selling
Stockholders contained herein or in certificates of any officer of the Company
delivered pursuant to the provisions hereof, to the performance by the Company
and the Selling Stockholders of their respective obligations hereunder, and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., eastern time, on the date of this Agreement or, with your
consent, at a later time and date not later, however, than 5:30 P.M., eastern
time, on the first business day following the date hereof, or at such later time
or on such later date as you may agree to in writing; and at the Closing Time no
stop order suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act and no proceedings for that purpose shall have
been instituted or shall be pending or, to your knowledge or the knowledge of
the Company shall be contemplated by the Commission, and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel for the Underwriters. If the Company has
elected to rely upon Rule 430A, a prospectus containing the Rule 430A
Information shall have been filed with the Commission in accordance with Rule
424(b) (or a post-effective amendment providing such information shall have been
filed and declared effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time you shall have received the opinions of (i)
Richards & O'Neil, LLP, counsel for the Company and the Selling Stockholders,
with respect to the Company, the Subsidiary, the Selling Stockholders and King
Office Supply, Inc. (ii) Atlas Pearlman Trop & Brokson, P.A., counsel for the
Company, with respect to the Acquisition Companies (other than King Office
Supply, Inc.) and (iii) Cooley, Shrair P.C., counsel for the Subsidiary, with
respect to the Subsidiary and the UDI Subsidiaries, together with signed or
reproduced copies of such opinions for each of the other Underwriters, in form
and substance satisfactory to Baker, Donelson, Bearman & Caldwell, counsel for
the Underwriters and to be attached as Exhibit 7.b.
(c) At the Closing Time, you shall have received a favorable opinion
from Baker, Donelson, Bearman & Caldwell, counsel for the Underwriters, dated as
of the Closing Time, with respect to the Registration Statement, the Prospectus
and other related matters as the Underwriters may reasonably require, and the
Company shall have furnished to such counsel such documents as they reasonably
request for the purpose of enabling them to pass upon such matters.
(d) At the Closing Time,
(i) the Registration Statement, any 462(b) Registration
Statement, and the Prospectus, as they may then be amended or
supplemented, shall contain all statements that are required to be
stated therein under the 1933 Act and the 1933 Act Regulations and in
all material respects shall conform to the requirements of the
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<PAGE> 16
1933 Act and the 1933 Act Regulations, the Company shall have complied
in all material respects with Rule 430A (if it shall have elected to
rely thereon) and neither the Registration Statement, any 462(b)
Registration Statement nor the Prospectus, as they may then be amended
or supplemented, shall contain an 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 light of the circumstances
under which they were made, not misleading;
(ii) there shall not have been, since the respective dates as
of which information is given in the Registration Statement, any change
in the business, prospects, properties, assets, results of operation or
condition (financial or otherwise) of the Company, whether or not
arising in the ordinary course of business which would have a Material
Adverse Effect;
(iii) no action, suit or proceeding at law or in equity before
or by any federal, state or other commission, board or administrative
agency shall be pending or, to the best of the Company's knowledge,
threatened against the Company that would be required to be set forth
in the Prospectus other than as set forth therein wherein an
unfavorable decision, ruling or finding would have a Material Adverse
Effect.
(iv) the Company and the Selling Stockholders shall have
complied with all agreements and satisfied all conditions contained
herein in all material respects on their respective parts to be
performed or satisfied at or prior to the Closing Time; and
(v) the representations and warranties of the Company and the
Selling Stockholders set forth in Section 1 and the representations and
warranties of the Selling Stockholders set forth in Section 2 shall be
accurate in all material respects as though expressly made at and as of
the Closing Time. At the Closing Time, you shall have received
certificates executed by the Selling Stockholders, the President and
the Chief Financial Officer of the Company, dated as of the Closing
Time, to such effect and with respect to the following additional
matters:
(A) the Registration Statement has become effective
under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or preventing or
suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are
pending or, to the best of their knowledge, threatened under
the 1933 Act; and
(B) they have carefully reviewed the Registration
Statement, any 462(b) Registration Statement and the
Prospectus and when the Registration Statement and any 462(b)
Registration Statement became effective and at all times
subsequent thereto up to the delivery of such certificate, the
Registration Statement, any 462(b) Registration Statement and
the Prospectus and any amendments or supplements thereto
contained all statements and information required to be
included therein or necessary to make the statements therein
in light of the circumstances in which they were made, not
misleading and neither the Registration Statement, any 462(b)
Registration Statement nor Prospectus and any amendment or
supplement thereto included any untrue statement of a material
fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements
therein 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 that
has not been so set forth, and
(C) all representations, warranties, covenants and
statements made herein by the Company and the Selling
Stockholders, respectively, are true and correct in all
material respects at such Closing Time, with the same effect
as if made on and as of such Closing Time, and all agreements
herein to be performed by the Company and the Selling
Stockholders, respectively, on or prior to such Closing Time
have been duly performed.
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<PAGE> 17
(e) On the business day immediately preceding the date of this
Agreement and at the Closing Time you shall have received from Grant Thornton,
LLP, a letter or letters, dated the date hereof and as of the Closing Time in
form and substance satisfactory to you, together with signed or reproduced
copies of such letter for each of the other Underwriters, confirming that they
are independent public accountants with respect to the Company within the
meaning of the 1933 Act and 1933 Act Regulations, stating in effect that:
(i) in their opinion, the financial statements and any
supplementary financial information and schedules included in the
Registration Statement and covered by their opinion therein comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations;
(ii) on the basis of limited procedures (set forth in detail
in such letter and made in accordance with such procedures as may be
reasonably specified by you) not constituting an audit in accordance
with generally accepted auditing standards, consisting of (but not
limited to) a reading of the latest available internal unaudited
financial statements of the Office Centre Companies , a reading of
minute books of the Office Centre Companies , inquiries of officials of
the Company responsible for financial and accounting matters, and such
other inquiries and procedures, as may be specified in such letter,
nothing has come to their attention which caused them to believe that:
(A) the unaudited financial statements and supporting
schedules and other unaudited financial data of the Company
included in the Registration Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the 1933 Act or the 1933 Regulations or are
not presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with
that of the audited financial statements included in the
Registration Statement;
(B) the amounts of revenues, income before income
taxes, net income and net income per share for the three
fiscal years ended December 31, 1997 included in the
Prospectus under the caption "Prospectus Summary -- Summary
Combined Historical and Pro Forma Financial Data" do not agree
with the corresponding amounts in the audited statements of
earnings;
(C) at a specified date not more than five business
days prior to the date of delivery of such letter, there was
any change in the capital stock or long-term debt or
obligations under capital leases of the Company other than
scheduled repayments or any decreases in total assets,
Stockholders' equity or other items specified by the
Underwriters from that set forth in the Consolidated Balance
Sheet at December 31, 1997, included in the Prospectus, except
as described in such letter;
(D) for the period from December 31, 1997, to a
specified date not more than five days prior to the date of
delivery of such letter, there were any decreases in revenues,
gross profit, or the total or per share amounts of income
before extraordinary items or net income, of the Company, in
each case as compared with the corresponding period of the
preceding year, except in each case for decreases or increases
which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(iii) in addition to the procedures referred to in clause (ii)
above and the examination referred to in their opinions included in the
Registration Statement, they have carried out certain specific
procedures, not constituting an audit in accordance with generally
accepted auditing standards, with respect to certain amounts,
percentages and financial information specified by you which are
derived from the general accounting records of the Company, which
appear in the Registration Statement or the exhibits or schedules
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<PAGE> 18
thereto and are specified by you, and have compared such amounts,
percentages and financial information with the accounting records of
the Company and with material derived from such records and have found
them to be in agreement.
(f) At the Closing Time, you shall have received from Grant Thornton,
LLP a letter, in form and substance satisfactory to you and dated as of
the Closing Time, to the effect that they reaffirm the statements made
in the letter furnished pursuant to subsection (e) above, except that
the specified date referred to shall be a date not more than five
business days prior to the Closing Time.
(g) In the event that either of the letters to be delivered pursuant to
subsections (e) and (f) above sets forth any such changes, decreases or
increases, it shall be a further condition to your obligations that you shall
have determined, after discussions with officers of the Company responsible for
financial and accounting matters and with Grant Thornton, LLP, that such
changes, decreases or increases as are set forth in such letters do not reflect
a material adverse change in the capital stock, long-term debt, obligations
under capital leases, total assets, or Stockholders' equity of the Company as
compared with the amounts shown in the latest condensed consolidated balance
sheet of the Company, or a material adverse change in revenues or the total or
per share amounts of income before extraordinary items or net income, of the
Company, in each case as compared with the corresponding period of the prior
year.
(h) At the Closing Time, counsel for the Underwriters shall have been
furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the issuance
and sale of the Shares as contemplated in this Agreement and the matters
referred to in Section 7(d) and in order to evidence the accuracy and
completeness of any of the representations and warranties or statements of the
Company, the performance of any of the covenants of the Company, or the
fulfillment of any of the conditions herein contained; and all proceedings taken
by the Company at or prior to the Closing Time in connection with the
authorization, issuance and sale of the Shares as contemplated in this Agreement
shall be reasonably satisfactory in form and substance to you and to counsel for
the Underwriters. The Company will furnish you with such number of conformed
copies of such opinion, certificates, letters and documents as you shall
request.
(i) The NASD, upon review of the terms of the public offering of the
Shares, shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(j) The Firm Shares and the Option Shares, if any, shall have been
approved for listing on NSM upon official notice of the issuance, sale and
evidence of satisfactory distribution thereof pursuant to this underwritten
public offering.
(k) Each executive officer, director and stockholder of the Company
specified in Section 1(j) hereof shall have agreed in writing as to the matters
set forth in such section.
If any of the conditions specified in this Section 7 shall not have
been fulfilled in any material respect when and as required by this Agreement to
be fulfilled, this Agreement may be terminated by you on notice to the Company
and the Selling Stockholders at any time at or prior to the Closing Time, and
such termination shall be without liability of any party to any other party.
Notwithstanding any such termination, the provisions of Section 9 shall remain
in effect and shall survive the term of this Agreement.
Section 8. Conditions to Purchase of Option Shares. In the event that
the Underwriters exercise the option granted in Section 3 hereof to purchase all
or any part of the Option Shares and the Date of Delivery determined by you
pursuant to Section 3 hereof is later than the Closing Time, the obligations of
the several Underwriters to purchase and pay for the Option Shares that they
shall have severally agreed to purchase pursuant to this Agreement are subject
to the accuracy of the representations and warranties of the Company and Selling
Stockholders herein contained, to
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<PAGE> 19
the performance by the Company and the Selling Stockholders of their obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall remain effective at the Date of
Delivery, and, at the Date of Delivery, no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act and no proceedings for that purpose shall have been instituted or shall
be pending or, to your knowledge or the knowledge of the Company or the Selling
Stockholders, shall be contemplated by the Commission, and any request on the
part of the Commission for additional information shall have been complied with
to the satisfaction of counsel for the Underwriters.
(b) At the Date of Delivery, the provisions of Sections 7(d)(i) through
7(d)(v) shall have been complied with at and as of the Date of Delivery and, at
the Date of Delivery, you shall have received certificates executed by the
Selling Stockholders, the President and the Chief Financial Officer of the
Company, dated as of the Date of Delivery, to such effect and to the effect set
forth in clauses (A), (B) and (C) of Section 7(d).
(c) At the Date of Delivery, you shall have received favorable opinions
of (i) Richards & O'Neil, LLP, counsel for the Company and the Selling
Stockholders, with respect to the Company, the Selling Stockholders and King
Office Supply, Inc., (ii) Atlas Pearlman Trop & Brokson, P.A., counsel for the
Company, with respect to the Acquisition Companies (other than King Office
Supply, Inc.), and (iii) Cooley, Shrair P.C., counsel for the Subsidiary, with
respect to the Subsidiary, together with signed or reproduced copies of such
opinions for each of the other Underwriters, in form and substance satisfactory
to counsel for the Underwriters, dated as of the Date of Delivery, relating to
the Option Shares and otherwise to the same effect as the opinions required by
Section 7(b).
(d) At the Date of Delivery, you shall have received a favorable
opinion of Baker, Donelson, Bearman & Caldwell, counsel for the Underwriters,
dated as of the Date of Delivery relating to the Option Shares and otherwise to
the same effect as the opinion required by Section 7(c).
(e) At the Date of Delivery, you shall have received a letter from
Grant Thornton, LLP, in form and substance satisfactory to you and dated as of
the Date of Delivery, to the effect that they reaffirm the statements made in
the letter furnished pursuant to Section 7(e), except that the specified date
referred to shall be a date nor more than five business days prior to the Date
of Delivery.
(f) At the Date of Delivery, counsel for the Underwriters shall have
been furnished with all such documents, certificates and opinions as they may
reasonably request for the purpose of enabling them to pass upon the issuance
and sale of the Option Shares as contemplated in this Agreement and the matters
referred to in Section 8(a) and in order to evidence the accuracy and
completeness of any of the representations, warranties or statements of the
Company and the Selling Stockholders, the performance of any of the covenants of
the Company and the Selling Stockholders, or the fulfillment of any of the
conditions herein contained; and all proceedings taken by the Company and the
Selling Stockholders, at or prior to the Date of Delivery in connection with the
authorization, issuance and sale of the Option Shares as contemplated in this
Agreement shall be reasonably satisfactory in form and substance to you and to
counsel for the Underwriters.
Section 9. Indemnification and Contribution. (a) The Company and the
Subsidiary, jointly and severally, and each Selling Stockholder, severally, with
his potential liability limited to the amount of gross proceeds from the sale of
his Shares, will indemnify and hold harmless each Underwriter against any
losses, claims, damages or liabilities, joint or several, to which such
Underwriter may become subject under the 1933 Act, specifically including but
not limited to losses, claims, damages or liabilities related to negligence on
the part of any Underwriter, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
breach of any warranty or covenant of the Company herein contained or any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment
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<PAGE> 20
or supplement thereto, or in any "blue sky" application or other document
executed by the Company or based upon any information furnished in writing by
the Company, filed in any jurisdiction in order to qualify any or all of the
Shares under the securities laws thereof ("Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company and the Selling Stockholders shall not be liable in any such case to the
extent that any such loss, claim, damage or liability 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 such amendment or supplement, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to the
Company by you or by any Underwriter through you expressly for use therein;
provided, further, that the Company and the Selling Stockholders will not be
liable for any such losses, claims, damages, or liabilities arising from the
sale of the Shares to any person if a copy of the Prospectus (as first filed
pursuant to Rule 424(b)) or the Prospectus as amended or supplemented by all
amendments or supplements thereto which has been furnished to the Underwriters
shall not have been sent, mailed or given to such person, at or prior to the
written confirmation of the sale of such Shares to such person, but only if and
to the extent that such Prospectus, if so sent or delivered, would have cured
the defect giving rise to such losses, claims, damages or liabilities. In
addition to their other obligations under this Section 9(a), the Company and the
Selling Stockholders agree that, as an interim measure during the pendency of
any such claim, action, investigation, inquiry or other proceeding arising out
of or based upon any statement or omission, or any alleged statement or
omission, described in this Section 9(a), they will reimburse the Underwriters
on a monthly basis for all reasonable legal and 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
and the Selling Stockholders' obligation to reimburse the Underwriters for such
expense and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. Any such interim reimbursement
payments that are not made to an Underwriter within 30 days of a request for
reimbursement shall bear interest at the prime rate (or reference rate or other
commercial lending rate for borrowers of the highest credit standing) announced
from time to time by First Tennessee Bank National Association (the "Prime
Rate") from the date of such request. This indemnity agreement shall be in
addition to any liabilities that the Company may otherwise have. For purposes of
this Section 9, the information set forth in the last paragraph on the front
cover page (insofar as such information related to the Underwriters) and under
"Underwriting" 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.
(b) Each Underwriter, severally but not jointly, will indemnify and
hold harmless the Company and the Selling Stockholders against any losses,
claims, damages or liabilities to which the Company or the Selling Stockholders
may become subject, under the 1933 Act specifically including but not limited to
losses, claims, damages or liabilities related to negligence on the part of the
Company and the Selling Stockholders, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
breach of any warranty or covenant by you herein contained or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or any Blue Sky Application or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, such Preliminary Prospectus or the Prospectus, or such
amendment or supplement, or any Blue Sky Application, in reliance upon and in
conformity with information furnished to the Company by such Underwriter
expressly for use therein; and will reimburse the Company and the Selling
Stockholders for any legal or other expenses reasonably incurred by the Company
or the Selling Stockholders in connection with investigating or defending any
such loss, claim, damage, liability or action. In addition to their other
obligations under this Section 9(b), the Underwriters agree that, as an
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<PAGE> 21
interim measure during the pendency of any such claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section 9(b),
they will reimburse the Company and the Selling Stockholders on a monthly basis
for all reasonable legal and 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 their obligation to reimburse the Company or
the Selling Stockholders for such expense and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
Any such interim reimbursement payments that are not made to the Company or the
Selling Stockholders within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement shall be in addition to any liabilities which the Underwriters may
otherwise have.
The indemnity agreement in this Section 9(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company and each person, if any, who controls the Company within
the meaning of the 1933 Act to the same extent as such agreement applies to the
Company.
(c) The Selling Stockholders shall indemnify and hold harmless the
Company and the Underwriters against any losses, claims, damages or liabilities
to which the Company or the Underwriters may become subject, under the 1933 Act
specifically including but not limited to losses, claims, damages or liabilities
related to negligence on the part of the Company or the Underwriters, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any breach of any warranty or covenant by the
Selling Stockholders herein contained or any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or any Blue Sky Application or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, such Preliminary Prospectus or the Prospectus, or such amendment or
supplement, or any Blue Sky Application, in reliance upon and in conformity with
written information furnished to the Company by such Selling Stockholders
expressly for use therein; and will reimburse the Company and the Underwriters
for any legal or other expenses reasonably incurred by the Company or the
Underwriters in connection with investigating or defending any such loss, claim,
damage, liability or action. In addition to his other obligations under this
Section 9(c), the Selling Stockholders agree that, as an interim measure during
the pendency of any such claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 9(c), he will reimburse
the Company and the Underwriters on a monthly basis for all reasonable legal and
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
his obligation to reimburse the Company or the Underwriters for such expense and
the possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. Any such interim reimbursement payments that
are not made to the Company or the Underwriters within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement shall be in addition to any liabilities which
the Selling Stockholders may otherwise have.
The indemnity agreement in this Section 9(c) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer and
director of the Company and each person, if any, who controls the Company within
the meaning of the 1933 Act to the same extent as such agreement applies to the
Company.
(d) Within ten days after receipt by an indemnified party under
subsection (a), (b) or (c) above of notice of commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; no indemnification provided in this Section
9(a), 9(b) or 9(c) shall be available to any party who shall fail to give notice
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<PAGE> 22
as provided in this Section 9(d) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
prejudiced by the failure to give such notice, but the omission so to notify the
indemnifying party will not relieve the indemnifying party from any liability
that it may have to any indemnified party otherwise than under this Section 9.
In case any such action shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it shall wish, jointly with any other indemnifying party, similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its own counsel in any such
action, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the employment of counsel by such indemnified
party has been authorized by the indemnifying party, (ii) the indemnified party
shall have been advised by such counsel that there may be a conflict of interest
between the indemnifying party and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party)
or (iii) the indemnifying party shall not in fact have employed counsel to
assume the defense of such action, in any of which events such fees and expenses
shall be borne by the indemnifying party. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Section 9(a), 9(b) and 9(c)
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 indemnifying parties, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written 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 9(a), 9(b) and 9(c) hereof and will not resolve the
ultimate propriety or enforceability of the obligation to indemnify for expenses
that is created by the provisions of Sections 9(a), 9(b) and 9(c).
(f) In order to provide for just and equitable contribution in
circumstances under which the indemnity provided for in this Section 9 is for
any reason 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) to be unenforceable by the indemnified
parties although applicable in accordance with its terms, the Company, the
Selling Stockholders and the Underwriters shall contribute to the aggregate
losses, liabilities, claims, damages and expenses of the nature contemplated by
such indemnity incurred by the Company, the Selling Stockholders and one or more
of the Underwriters, as incurred, in such proportions that (i) the Underwriters
are responsible pro rata for that portion represented by the underwriting
discount appearing on the cover page of the Prospectus bears to the public
offering price (before deducting expenses) appearing thereon, and (ii) the
Company and the Selling Stockholders are responsible for the balance; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation; provided,
further, that if the allocation provided above is not permitted by applicable
law, the Company, the Selling Stockholders and the Underwriters shall contribute
to the aggregate losses in such proportion as is appropriate to reflect not only
the relative benefits referred to above but also the relative fault of the
Company, the Selling Stockholders and the Underwriters in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or
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<PAGE> 23
the omission or alleged omission to state a material fact relates to information
supplied by the Company, by the Selling Stockholders or by the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The amount paid or payable by
a party as a result of the losses, claims, damages or liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (f), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. For purposes of this
Section 9(f), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as such Underwriter, and each director of the Company, each officer of the
Company who signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as the Company.
(g) The parties to this Agreement acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions of this Agreement, including without
limitation, the provisions of this Section 9, and are fully informed regarding
said provisions. They further acknowledge that the provisions of this Section 9
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 Prospectus as required by the 1933 Act. The
parties are advised that federal or state public policy, as interpreted by the
courts in certain jurisdictions, may be contrary to certain of the provisions of
this Section 9, 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 9 and further agree not to attempt to assert any such defense.
Section 10. Representations and Agreements to Survive Delivery. The
representations, warranties, indemnities, agreements and other statements of the
Selling Stockholders, the Company or its officers set forth in or made pursuant
to this Agreement will remain operative and in full force and effect regardless
of any investigation made by or on behalf of the Company, the Selling
Stockholders or any Underwriter or controlling person, with respect to an
Underwriter or the Company and will survive delivery of and payment for the
Shares or termination of this Agreement.
Section 11. Effective Date of Agreement and Termination. (a) This
Agreement shall become effective immediately as to Sections 6 and 9 and, as to
all other provisions, (i) if at the time of execution of this Agreement the
Registration Statement has not become effective, at 10:00 A.M. eastern time on
the first full business day following the effectiveness of the Registration
Statement, or (ii) if at the time of execution of this Agreement, the
Registration Statement has been declared effective, at 10:00 A.M. eastern time
on the first full business day following the date of execution of this
Agreement; but this Agreement shall nevertheless become effective at such
earlier time after the Registration Statement becomes effective as you may
determine on and by notice to the Company or by release of any of the Shares for
sale to the public. For the purposes of this Section 11, the Shares shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Shares or upon the release by you of
telegrams or facsimile messages (i) advising the Underwriters that the Shares
are released for public offering, or (ii) offering the Shares for sale to
securities dealers, whichever may occur first. By giving notice before the time
this Agreement becomes effective, you, as the Representative of the several
Underwriters, or the Company, may prevent this Agreement from becoming
effective, without liability of any party to any other party, except that the
Company shall remain obligated to pay costs and expenses to the extent provided
in Section 6 hereof.
(b) You may terminate this Agreement by notice to the Company and the
Selling Stockholders at any time at or prior to the Closing Time in accordance
with the last paragraph of Section 7 of this Agreement:
(i) if there has been, since the respective dates as of which
information is given in the Registration Statement, any development
which would have a Material Adverse Effect.
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<PAGE> 24
(ii) if there has occurred or accelerated any outbreak of
hostilities or other national or international calamity or crisis or
change in economic or political conditions the effect of which on the
financial markets of the United States is such as to make it, in your
judgment, impracticable to market the Shares or enforce contracts for
the sale of the Shares;
(iii) if trading in any securities of the Company has been
suspended by the Commission or by the NASD or NSM, or if trading
generally on the New York Stock Exchange or in the over-the-counter
market has been suspended, or limitations on prices for trading (other
than limitations on hours or numbers of days of trading) have been
fixed, or maximum ranges for prices for securities have been required,
by such exchange or the NASD or by order of the Commission or any other
governmental authority;
(iv) if a banking moratorium has been declared by federal or
New York or Tennessee authorities;
(v) any federal or state statute, regulation, rule or order of
any court or other governmental authority has been enacted, published,
decreed or otherwise promulgated which in your reasonable opinion would
have a Material Adverse Effect; or
(vi) any action has been taken by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which
in your reasonable opinion has a material adverse effect on the
securities markets in the United States.
(c) If this Agreement is terminated pursuant to this Section 11, such
termination shall be without liability of any party to any other party, except
to the extent provided in Section 6. Notwithstanding any such termination, the
provisions of Section 9 shall remain in effect.
Section 12. Default by One or More of the Underwriters. (a) If any
Underwriter shall default in its obligation to purchase the Firm Shares which it
has agreed to purchase hereunder, you may in your discretion arrange for you or
another party or other parties to purchase such Firm Shares on the terms
contained herein. If within 36 hours after such default by any Underwriter you
do not arrange for the purchase of such Firm Shares, then the Company or the
Selling Stockholders shall be entitled to a further period of 36 hours within
which to procure another party or other parties satisfactory to you to purchase
such Firm Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company and the Selling Stockholders that you
have so arranged for the purchase of such Firm Shares, or the Company or the
Selling Stockholders notifies you that it has so arranged for the purchase of
such Firm Shares, you or the Company or the Selling Stockholders shall have the
right to postpone the Closing Time for a period of not more than seven days in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby be
made necessary. The term "Underwriter" as used in this Agreement shall include
any persons substituted under this Section 12 with like effect as if such person
had originally been a party to this Agreement with respect to such Firm Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Stockholders as provided in subsection (a) above, the
aggregate number of Firm Shares which remains unpurchased does not exceed
100,000, then the Company shall have the right to require each non-defaulting
Underwriter to purchase the Firm Shares which such Underwriter agreed to
purchase hereunder and, in addition, to require each non-defaulting Underwriter
to purchase its pro rata share (based on the number of Firm Shares which such
Underwriter agreed to purchase hereunder) of the Firm Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
-24-
<PAGE> 25
(c) If, after giving effect to any arrangements for the purchase of the
Firm Shares of a defaulting Underwriter or Underwriters made by you or the
Company or the Selling Stockholders as provided in subsection (a) above, the
number of Firm Shares which remains unpurchased exceeds 100,000, or if the
Company shall not exercise the right described in subsection (b) above to
require non-defaulting Underwriters to purchase Firm Shares of a defaulting
Underwriter or Underwriters, then this Agreement shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the Company
or the Selling Stockholders except for the expenses to be borne by the Company,
the Selling Stockholders and the Underwriters as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 9 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its default.
Section 13. Default by the Company or the Selling Stockholders. If the
Company or the Selling Stockholders shall fail at the Closing Time to sell and
deliver the respective aggregate number of Firm Shares that they are obligated
to sell, then this Agreement shall terminate without any liability on the part
of any non-defaulting party, except to the extent provided in Section 6 and
except that the provisions of Section 9 shall remain in effect. No action taken
pursuant to this Section shall relieve the Company or the Selling Stockholders
from liability, if any, in respect of its default.
Section 14. Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given if
mailed, delivered or transmitted by any standard form of telecommunication.
Notices to the Underwriters shall be directed c/o Morgan Keegan & Company, Inc.,
50 Front Street, Memphis, Tennessee 38103, attention of Mr. John H. Grayson,
Jr., Senior Vice President (with a copy sent in the same manner to Baker,
Donelson, Bearman & Caldwell, 2000 First Tennessee Building, 165 Madison Avenue,
Memphis, Tennessee 38103, attention of John A. Good, Esq.); and notices to the
Company and the Selling Stockholders shall be directed to Office Centre
Corporation, 38 E. 32nd Street, 4th Floor, New York, NY 10016, Attention Robert
J. Gillon, Jr., Chief Executive Officer (with a copy sent in the same manner to
Richards & O'Neil, LLP, 885 Third Avenue, New York, NY 10022, Attention Floyd I.
Wittlin, Esq.). Each notice hereunder shall be effective upon receipt by the
party to which it is addressed.
Section 15. Parties. This Agreement is made solely for the benefit of
the Underwriters, the Selling Stockholders, the Acquisition Companies and the
Company and, to the extent so provided, any person controlling the Company or
any of the Underwriters, and the directors of the Company, its officers who have
signed the Registration Statement, and their respective executors,
administrators, successors and assigns and, subject to the provisions of Section
12, no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser, as
such purchaser, from any of the several Underwriters of the Shares.
Section 16. Governing Law and Time. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Tennessee.
Specified time of the day refers to United States Central Time.
Section 17. Counterparts. This Agreement may be executed in one or more
counterparts and when a counterpart has been executed by each party, all such
counterparts taken together shall constitute one and the same agreement.
-25-
<PAGE> 26
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us a counterpart hereof, whereupon this
instrument will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
OFFICE CENTRE CORPORATION
By:
---------------------------------
Robert J. Gillon, Jr.
SELLING STOCKHOLDERS:
------------------------------------
Clifford M. Davie
Walter H. Gordenstein
UDI CORP., a Massachusetts corporation:
------------------------------------
Confirmed and accepted in Memphis,
Tennessee, as of the date
first above written, as
Representatives of the
Underwriters named
in Schedule I hereto.
MORGAN KEEGAN & COMPANY, INC.
By:
--------------------------------------------
John H. Grayson, Jr., Senior Vice President
- 26 -
<PAGE> 27
SCHEDULE I
Number
of
Name Shares
---- ------
Morgan Keegan & Company, Inc. ............................................
McDonald & Company Securities, Inc........................................
Credit Lyonnais Securities USA, Inc.......................................
Total ...........................................................
Schedule I
<PAGE> 28
Schedule II
-----------
1. King Office Supply, Inc.
2. The Supply Room Companies, Inc.
3. New England Office Supply, Inc.
4. Sierra Office Systems and Products, Inc.
5. Office Solutions Business Products and Services, Inc.
6. Greenwood Outfitters, Inc.
7. SOS Office Supply Company
8. Georgia Impression, Inc.
9. Office Express, Inc.
10. Southern Office Center, Inc.
11. Metro Data Supply, Inc.
12. BCB Products Company and BCB Specialities, Inc.
Schedule II
<PAGE> 29
Schedule III
------------
1. Harris Stations, Inc.
2. Office Interiors, Inc.
3. K&G Office Centre
4. American Office Products
5. Business World Products
6. Circle Brands
7. Shubert's
8. The Paperwork Company
9. Value Business Products
10. Dwyco Office Centre
11. TAG Office Products
12. O'Leary's Office Products
13. Universal Business Equipment Corp.
14. P.D. Morrison Enterprises Inc.
15. Hurricane Office Centre, Inc.
16. Parchment'n Quill, Inc.
17. Rhyme Supply Co., Inc.
18. Sablatura's Office Centre
19. Indainhead Specialty Co.
20. Mississippi Office Environments, Inc.
21. St. John's Printing and Office Centre
22. Work Center, Inc.
23. Sherman Office Supply, Inc.
24. Branan Office Products, Inc.
25. Challenge Office Products, Inc.
26. Reliant Business Products, Inc.
27. Jackpine Press, Inc.
28. Wright Business Products
29. Universal Stationers, Inc.
30. Stire Office Furniture & Supplies, Inc.
31. Veltri Interests
32. Southern Office Centre
33. Reliant Business Products
34. Sherman Office Supply, Inc.
35. Universal Business Equipment Corp.
36. Mississippi Office Environments Inc.
37. Alted Industries, Inc.
38. Meadows Office Supply & Equipment (but not its Stockholders)
39. Business World Products of Hastings, Inc.
40. Agenda Group, Ltd. dba TAG Office Products
41. Circle Brands Office Express
42. Shubert's, Inc. (but not its Stockholders)
43. The Paperwork Co.
44. Value Business Products, Inc.
45. City Office Supplies
Schedule III-1
<PAGE> 1
EXHIBIT 2.25
AMENDMENT NO. 2 TO MERGER AGREEMENT
AMENDMENT NO. 2, dated as of August 3, 1998 by and among OFFICE CENTRE
CORPORATION, a Delaware corporation ("Buyer"), OFFICE CENTRE SACRAMENTO, a
Delaware corporation ("Acquisition"), SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.,
a California corporation ("Company"), MICHAEL KIPP, an individual resident in
California, JOHN E. KIPP, JR. and ROSE MARIE KIPP (each a "Seller" collectively
the "Sellers").
WITNESSETH
----------
WHEREAS, the parties hereto are parties to that certain merger agreement,
dated as of April 23, 1998 (the "Original Merger Agreement"), as amended on May
20, 1998 (collectively the "Original Agreements"); and
WHEREAS, the parties desire to amend the original Agreements in accordance
with the terms set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Section 2.7 of the Merger Agreement is hereby deleted in its entirety
and replaced with the following:
2.7 CONVERSION OF COMPANY COMMON STOCK
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of any holder of capital stock of Buyer, Acquisition, the Company or
Sellers; (1) the shares of Common Stock of Acquisition purchased, issued and
outstanding immediately prior to the Effective Time shall be converted as a
result of the Merger and without any action on the part of the holder thereof,
into 1 share of capital stock of the Surviving Corporation, and (2) the shares
of the Company held by Sellers (and the other shareholders of the Company) shall
be converted into and shall become, without further action on the part of the
Sellers and the other shareholders of the Company, the right to receive seven
(7) times the Company's actual adjusted EBITDA (as set forth in Schedule 2.7(a))
for the fiscal year ending March 31, 1998, which shall be composed of the
Company's pre-tax earnings for the fiscal year ending March 31, 1998 plus the
sum of (x) interest in an amount not less than $310,000, (y) depreciation and
amortization in an amount not less than $200,000 and (z) the adjustments listed
on Schedule 2.7(a) in the amount of $217,000, plus the additional consideration
set forth in Section 2.7(b) below (the "Purchase Price"). The Purchase Price
shall be reduced by (a) any amounts outstanding under the Company's line of
credit with San Jose National Bank on the Closing Date; (b) any accounts payable
over 30 days on the Closing Date; (c) any negative cash balance per the
Company's financial records on the Closing Date; and (d) the amount of legal
fees and costs incurred by the Company in connection with the negotiation and
<PAGE> 2
documentation of this Agreement and the Employment Agreement that will have
been paid and/or remain payable on the Closing Date. The Purchase Price shall
be further adjusted (increased or decreased, as the case may be) by the
difference between the amount of accounts receivable (less than 90 days),
inventory and accounts payable on the Closing Date as compared to the amount of
the Company's accounts receivable (less than 90 days), inventory and accounts
payable on December 31, 1997. The consideration shall consist of shares of
restricted Common Stock of Buyer which number of shares of Common Stock shall
be determined by dividing the Purchase Price above by Buyer's initial public
offering price per share (the "IPO Price"), provided, however, that the
consideration to be received by shareholders, other than the Sellers, shall
consist only of cash.
(b) As additional consideration, in connection with that certain
promissory note (the "Promissory Note") issued by Sellers to the Company in the
amount of $875,000 on the date of the Original Merger Agreement and which is
expected to be about $800,000 on the Closing Date, at the Buyer's option, (i)
the Sellers (and the other shareholders of the Company) shall receive $550,000
in cash or (ii) Buyer shall forgive $550,000 of the principal amount of the
Promissory Note, in either case in three (3) equal installments, over a three
(3) year period, beginning one (1) year from the Closing Date.
2. Section 7.11 of the Merger Agreement is hereby deleted in its entirety
and replaced with following:
7.11 PROMISSORY NOTE
Michael Kipp and Company shall have entered into a revised Promissory
Note as of the Closing, which shall provide for interest at the rate of six
percent (6%) per annum, to be paid on the annual anniversary of the revised
Promissory Note, with all principal due and payable on the third anniversary of
such note, and which shall be secured by a number of shares of Buyer's Common
Stock issued to Sellers in this Agreement equal to $250,000 principal amount of
the revised Promissory Note divided by the IPO Price. Such shares shall be
released upon the full payment of such Promissory Note, which may be prepaid
at any time without penalty.
3. The Original Agreements, as hereby amended, shall remain in full
force and effect.
4. This Agreement may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original, but all of
which counterparts shall constitute but one and the same instrument.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
OFFICE CENTRE CORPORATION
By: /s/ Robert J. Gillon, Jr.
-----------------------------
OFFICE CENTRE SACRAMENTO
By: /s/ Robert J. Gillon, Jr.
------------------------------
SIERRA OFFICE SYSTEMS AND PRODUCTS, INC.
By: /s/ Michael Kipp
------------------------------
/s/ Michael Kipp
------------------------------
MICHAEL KIPP
/s/ John E. Kipp, Jr.
------------------------------
JOHN E. KIPP, JR.
/s/ Rose Marie Kipp
------------------------------
ROSE MARIE KIPP
<PAGE> 1
Exhibit 4.01
<TABLE>
<S> <C> <C>
[Office Centre Logo]
Number Shares
OC
OFFICE CENTRE CORPORATION
COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE COMMON STOCK
THIS CERTIFIES THAT CUSIP 676218 10 0
SEE REVERSE FOR CERTAIN DEFINITIONS
is the owner of
FULLY-PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $.001 PER SHARE, OF
OFFICE CENTRE CORPORATION (hereinafter called the "Corporation") transferable on the books of the
Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
This Certificate is not valid unless countersigned and registered by the Transfer Agent
and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its Countersigned and
duly authorized officers. registered
FIRST UNION NATIONAL
BANK
(Charlotte, N.C.)
OFFICE CENTRE CORPORATION Dated: By
CORPORATE
SEAL Transfer Agent and
1996 Registrar
DELAWARE /s/ Joseph E. Hajjar /s/ Robert J. Gillon, Jr.
*
Secretary Chairman, Chief Executive Authorized Signature
Officer and President
</TABLE>
<PAGE> 2
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
ANY SUCH REQUEST SHOULD BE ADDRESSED TO THE SECRETARY OF THE CORPORATION.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - As tenants in common UNIF GIFT MIN ACT _______ Custodian________
(Cust) (Minor)
TEN ENT - As tenants by the entireties
JT TEN - As joint tenants with right under Uniform Gifts to Minors
of survivorship and not as
tenants in common Act_________________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
-----------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- -------------------------------------- ----------------------------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
, Shares
- -------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
--------------------------------------------
- -------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated
-------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the Certificate, in every
particular, without alteration or enlargement
or any change whatever.
Signatures(s) Guaranteed:
- -------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOANS
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM). PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 5.01
[RICHARDS & O'NEIL, LLP LETTERHEAD]
August 3, 1998
Office Centre Corporation
38 East 32nd Street
New York, NY 10016
Gentlemen:
We refer to the Registration Statement on Form S-1 (File No.
333-53411) (the "Registration Statement") filed by Office Centre Corporation,
a Delaware corporation (the "Company"), with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, pursuant to which the
Company will offer up to 3,970,360 shares of its common stock, $.001 par value
per share (the "Shares") and Walter H. Gordonstein and Clifford M. Davie
(together, the "Selling Shareholders") will offer up to 429,640 and 200,000
Shares, respectively.
As counsel to the Company, we have examined such corporate records,
documents and matters of law as we have considered necessary or appropriate for
the purpose of this opinion and, upon the basis of such examination, we advise
you that in our opinion (i) the Shares to be sold by the Company, when
delivered and paid for in accordance with the terms of the Underwriting
Agreement by and among the Company, its wholly-owned subsidiary, UDI Corp., the
Selling Shareholders, Morgan, Keegan & Company, Inc., McDonald & Company
Securities, Inc., and Credit Lyonnais Securities (USA), Inc., as
representatives of the several underwriters, will be legally issued, fully paid
and nonassessable, and (ii) the Shares to be sold by the Selling Shareholders
are legally issued, fully paid and nonassessable.
We consent to the filing of this opinion as Exhibit 5.01 to the
Registration Statement and the reference to this firm under the caption "Legal
Matters" in the Prospectus contained therein.
Very truly yours,
/s/ RICHARDS & O'NEIL, LLP
<PAGE> 1
EXHIBIT 10.18
OFFICE CENTRE CORPORATION
1998 STOCK OPTION PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the Plan is to give the Company a competitive
advantage in attracting, retaining and motivating officers and employees and to
provide the Company and its subsidiaries with a stock plan providing incentives
more directly linked to the profitability of the Company's businesses and
increases in stockholder value.
For purposes of the Plan, the following terms are defined as
set forth below:
(a) "AFFILIATE" means a corporation or other entity controlled
by the Company and designated by the Committee from time to time as such.
(b) "AWARD" means an award of Stock Appreciation Rights or
Stock Options.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CAUSE" means (1) conviction of a participant for
committing a felony under federal law or the law of the state in which such
action occurred, (2) dishonesty in the course of fulfilling a participant's
employment duties, (3) willful and deliberate failure on the part of a
participant to perform his employment duties in any material respect, (4) breach
on the part of a participant of any employment agreement between such
participant and the Company or any of its Subsidiaries, or (5) such other events
as shall be determined by the Committee. The Committee shall have the sole
discretion to determine whether "Cause" exists, and its determination shall be
final. Notwithstanding the foregoing, if an optionee has an employment agreement
with the Company which provides for a definition of "Cause", then such
definition shall be the definition for purposes of this Plan.
(e) "CHANGE IN CONTROL" and "CHANGE IN CONTROL PRICE" have the
meanings set forth in Sections 8(b) and (c), respectively.
(f) "CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(g) "COMMISSION" means the Securities and Exchange Commission
or any successor agency.
(h) "COMMITTEE" means the Committee referred to in Section 2.
<PAGE> 2
(i) "COMMON STOCK" means common stock, par value $.001 per
share, of the Company.
(j) "COMPANY" means Office Centre Corporation, a Delaware
corporation.
(k) "DISABILITY" means permanent and total disability as
determined under Company procedures in effect on the effective date of the Plan
or as otherwise established by the Committee for purposes of the Plan.
Notwithstanding the foregoing, if an optionee has an employment agreement with
the Company which provides for a definition of "Disability", then such
definition shall be the definition for purposes of this Plan.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended from time to time, and any successor thereto.
(m) "FAIR MARKET VALUE" means, as of any given date, the mean
between the highest and lowest reported sales prices of the Common Stock on any
national securities exchange on which the Common Stock is listed or, if not
listed on any such exchange, as quoted on the Nasdaq National Market. If there
is no regular public trading market for such Common Stock, the Fair Market Value
of the Common Stock shall be determined by the Committee in good faith.
(n) "INCENTIVE STOCK OPTION" or "ISO" means any Stock Option
designated as, and qualified as, an "INCENTIVE STOCK OPTION" within the meaning
of Section 422 of the Code.
(o) "NON-EMPLOYEE DIRECTOR" means a member of the Board who
qualifies as a "Non-Employee Director" as defined in Rule 16b-3(b)(3), as
promulgated by the Commission under the Exchange Act, or any successor
definition adopted by the Commission.
(p) "NONQUALIFIED STOCK OPTION" means any Stock Option that
is not an Incentive Stock Option.
(q) "PLAN" means the Office Centre Corporation 1998 Stock
Option Plan, as set forth herein and as hereinafter amended from time to time.
(r) "RULE 16b-3" means Rule 16b-3, as promulgated by the
Commission under Section 16(b) of the Exchange Act, as amended from time to
time.
(s) "STOCK APPRECIATION RIGHT" means a right granted under
Section 6.
(t) "STOCK OPTION" means an option granted under Section 5.
-2-
<PAGE> 3
(u) "SUBSIDIARY" means a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
(v) "TERMINATION OF EMPLOYMENT" means the termination of the
participant's employment with the Company and any Subsidiary or Affiliate. A
participant employed by a Subsidiary or an Affiliate shall also be deemed to
incur a Termination of Employment if the Subsidiary or Affiliate ceases to be
such a Subsidiary or an Affiliate, as the case may be, and the participant does
not immediately thereafter become an employee of the Company or another
Subsidiary or Affiliate. Temporary absences from employment because of illness,
vacation or leave of absence and transfers among the Company and it Subsidiaries
and Affiliates shall not be considered Terminations of Employment.
In addition, certain other terms used herein have definitions
given to them in the first place in which they are used.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Compensation Committee
designated by the Board pursuant to the Company's By-Laws. If at any time there
is no such Compensation Committee, or such Compensation Committee shall fail to
be composed of at least two directors each of whom is both (1) a Non-Employee
Director and (2) an "outside director" within the meaning of Section 162(m)(4)
of the Code, the Plan shall be administered by a Committee selected by the Board
and composed of not less than two individuals, each of whom shall be such a
Non-Employee Director and such an outside director.
The Committee shall have plenary authority to grant Awards
pursuant to the terms of the Plan to officers and employees of the Company and
its Subsidiaries and Affiliates.
Among other things, the Committee shall have the authority,
subject to the terms of the Plan:
(a) To select the officers and employees to whom
Awards may from time to time be granted;
(b) Determine whether and to what extent Incentive
Stock Options, Nonqualified Stock Options, Stock Appreciation
Rights or any combination thereof are to be granted hereunder;
(c) Determine the number of shares of Common Stock to
be covered by each Award granted hereunder;
-3-
<PAGE> 4
(d) Determine the terms and conditions of any Award
granted hereunder (including, but not limited to, the option
price (subject to Section 5(a)), any vesting condition,
restriction or limitation and any acceleration of vesting or
waiver of forfeiture regarding any Award and the shares of
Common Stock relating thereto, based on such factors as the
Committee shall determine; PROVIDED, HOWEVER, that the terms
and conditions of any Award intended to qualify as
"performance-based" compensation as described in Section
162(m)(4)(C) of the Code shall include, but not be limited to,
such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m)(4)(C) of the Code;
(e) Subject to the provisions of Section 9, modify,
amend or adjust the terms and conditions of any Award, at any
time or from time to time; and
(f) Determine to what extent and under what
circumstances Common Stock and other amounts payable with
respect to an Award shall be deferred.
The Committee shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices governing the Plan as
it shall from time to time deem advisable, to interpret the terms and provisions
of the Plan and any Award issued under the Plan (and any agreement relating
thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then
in office, except that the Committee may (1) authorize the delegation to
designated officers or employees of the Company such of its powers and authority
under the Plan as it deems appropriate (provided that no such authorization may
be made that would cause Awards or other transactions under the Plan to fail to
be exempt from Section 16(b) of the Exchange Act) and (2) authorize any one or
more of the members of the Committee or any designated officer or employee of
the Company to execute and deliver documents on behalf of the Committee.
Any determination made by the Committee or pursuant to
delegated authority pursuant to the provisions of the Plan with respect to any
Award shall be made in the sole discretion of the Committee or such delegate(s)
at the time of the grant of the Award or, unless in contravention of any express
terms of the Plan, at any time thereafter. All decisions made by the Committee
or any appropriately delegated officer(s) or employee(s) pursuant to the
provisions of the Plan shall be final and binding on all persons, including the
Company and Plan participants.
-4-
<PAGE> 5
SECTION 3. COMMON STOCK SUBJECT TO PLAN
(a) OPTIONED STOCK AUTHORIZED. The total number of shares of
Common Stock reserved and available for issuance pursuant to Stock Options under
the Plan shall be 1,500,000 (the "PLAN MAXIMUM"). However, except for purposes
of determining the number of shares available for issuance pursuant to Incentive
Stock Options (which shall not exceed such number), the Plan Maximum shall be
increased by (i) the number of shares of Common Stock used to pay the exercise
price of Stock Options and (ii) the number of Stock Options which have
terminated upon expiration, cancellation, forfeiture or otherwise, subject to
the limitations of Section 3(b) of the Plan. Shares subject to an Award under
the Plan may be authorized and unissued shares or may be treasury shares.
(b) MAXIMUM PARTICIPANT RIGHTS. No Plan participant may
receive, during any fiscal year of the Company, Awards covering an aggregate of
more than 350,000 shares of Common Stock. To the extent required by Section
162(m) of the Code, Common Stock relating to Awards which are cancelled continue
to be counted against the maximum number of shares of Common Stock a Plan
participant may receive and if, after grant of an Award, the Option Price is
reduced, the transaction will be treated as a cancellation of the Award and a
grant of a new Award and both the Award deemed to be cancelled and the Award
deemed to be granted will be counted against the maximum number of shares of
Common Stock a Plan participant may receive.
(c) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. In
the event of any change in corporate capitalization, such as a stock split or a
corporate transaction, such as any merger, consolidation, separation, including
a spin-off, or other distribution of stock or property of the Company, any
reorganization (whether or not such reorganization comes within the definition
of such term in Section 368 of the Code) or any partial or complete liquidation
of the Company, the Committee or Board may make such substitution or adjustments
in the aggregate number and kind of shares reserved for issuance under the Plan,
in the aggregate limit on grants to individuals, in the number, kind and Option
Price of shares subject to outstanding Stock Options and Stock Appreciation
Rights, and/or such other equitable substitution or adjustments as it may
determine to be appropriate in its sole discretion; PROVIDED, HOWEVER, that the
number of shares subject to any Award shall always be a whole number.
SECTION 4. ELIGIBILITY
All officers, directors, employees and consultants of the
Company, its Subsidiaries and Affiliates are eligible to be granted Awards under
the Plan.
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SECTION 5. STOCK OPTIONS
Stock Options may be granted alone or in addition to other
Awards granted under the Plan and may be of two types: Incentive Stock Options
and Nonqualified Stock Options. Any Stock Option granted under the Plan shall be
in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Nonqualified Stock Options or both types of Stock
Options (in each case with or without Stock Appreciation Rights); PROVIDED,
HOWEVER, that an Incentive Stock Option may not be granted to an optionee if the
Fair Market Value at the date of grant of shares with respect to which such
option would first become exercisable in any calendar year, when added to the
Fair Market Value at the date of grant of any other shares with respect to which
an Incentive Stock Option granted to such optionee under the Plan (or any other
incentive stock option plan maintained by the Company, its parent or any
Subsidiary) first becomes exercisable in such calendar year, would exceed
$100,000; AND PROVIDED FURTHER, HOWEVER, that Incentive Stock Options may be
granted only to employees of the Company and its Subsidiaries. To the extent
that any Stock Option is not designated as an Incentive Stock Option or even if
so designated does not qualify as an Incentive Stock Option, it shall constitute
a Nonqualified Stock Option.
Stock Options shall be evidenced by option agreements, the
terms and provisions of which may differ. An option agreement shall indicate on
its face whether it is intended to be an agreement for an Incentive Stock Option
or a Nonqualified Stock Option. The grant of a Stock Option shall occur on the
date the Committee, by resolution, selects an individual to be a participant in
any grant of a Stock Option, determines the number of shares of Common Stock to
be subject to such Stock Option to be granted to such individual and specifies
the terms and provisions of the Stock Option. The Company shall notify a
participant of any grant of a Stock Option, and a written option agreement or
agreements shall be duly executed and delivered by the Company to the
participant. Such agreement or agreements shall become effective upon execution
by the Company and the participant.
Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the Code or, without
the consent of the optionee affected, to disqualify any Incentive Stock Option
under such Section 422.
Stock Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions as the Committee shall deem desirable:
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(a) OPTION PRICE. The option price per share of Common Stock
purchasable under a Stock Option shall not be less than the Fair Market Value of
the Common Stock subject to the Stock Option on the date of grant; PROVIDED,
HOWEVER, that in the case of an Incentive Stock Option granted to an optionee
who, immediately before the grant of such Incentive Stock Option, owns shares
representing more than 10% of the total combined voting power of all classes of
shares of the Company, its parent or Subsidiary, in no event shall the per share
option price be less than 110% of the Fair Market Value per share of Common
Stock on the date of grant.
(b) OPTION TERM. The term of each Stock Option shall be fixed
by the Committee, but no Incentive Stock Option shall be exercisable more than
10 years after the date the Stock Option is granted; PROVIDED, HOWEVER, that in
the case of an Incentive Stock Option granted to an optionee who, immediately
before the grant of such Incentive Stock Option, owns shares representing more
than 10% of the total combined voting power of all classes of shares of the
Company, its parent or Subsidiary, in no event shall the Incentive Stock Option
by its terms be exercisable more than five years after the date such Incentive
Stock Option is granted.
(c) EXERCISABILITY. Except as otherwise provided herein, Stock
Options shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) METHOD OF EXERCISE. Subject to the provisions of this
Section 5, Stock Options may be exercised, in whole or in part, at any time
during the option term by giving written notice of exercise to the Company
specifying the number of shares of Common Stock subject to the Stock Option to
be purchased.
Such notice shall be accompanied by payment in full of the
purchase price by certified or bank check or such other instrument as the
Company may accept. Unless otherwise determined by the Committee, such payment
may also be made in full or in part in the form of unrestricted Common Stock
already owned by the optionee of the same class as the Common Stock subject to
the Stock Option (based on the Fair Market Value of the Common Stock on the date
the Stock Option is exercised); PROVIDED, HOWEVER, that, (i) any Common Stock
used to make such payment shall have been held for at least six months, and (ii)
in the case of an Incentive Stock Option, the right to make payment in the form
of already owned shares of Common Stock may be authorized only at the time the
Stock Option is granted.
The Company may make loans to such participants as the
Committee, in its discretion, may determine (including a participant who is a
director or officer of the Company) in connection with the exercise of Stock
Options in an amount up to the exercise price of the
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<PAGE> 8
Stock Option to be exercised plus any applicable withholding taxes. In no event
may any such loan exceed the Fair Market Value, at the date of exercise, of the
shares covered by the Stock Option, or portion thereof, exercised by the
participant. Such loans shall be subject to such terms and conditions as the
Committee shall determine. Every loan shall comply with all applicable laws,
regulations and rules of the Federal Reserve Board and any other governmental
agency having jurisdiction.
Unless otherwise determined by the Committee, payment for any
shares subject to a Stock Option may also be made by delivering a properly
executed exercise notice to the Company, together with a copy of irrevocable
instructions to a broker to deliver promptly to the Company the amount of sale
or loan proceeds to pay the purchase price, and, if requested, by the amount of
any federal, state, local or foreign withholding taxes. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
No shares of Common Stock shall be issued until full payment
therefor has been made. An optionee shall have all of the rights of a
shareholder of the Company holding the class or series of Common Stock that is
subject to such Stock Option (including, if applicable, the right to vote the
shares and the right to receive dividends), when the optionee has given written
notice of exercise, has paid in full for such shares and, if requested, has
given the representation described in Section 11(a).
(e) NONTRANSFERABILITY OF STOCK OPTIONS. No Stock Option shall
be transferable by the optionee other than (1) by will or by the laws of descent
and distribution; (2) in the case of a Nonqualified Stock Option, pursuant to a
qualified domestic relations order (as defined in the Code or title 1 of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder); or (3) as otherwise determined by the Committee (provided that no
such determination may be made that would cause Awards or other transactions
under the Plan to fail to be exempt under Section 16(b) of the Exchange Act).
All Stock Options shall be exercisable, subject to the terms of this Plan,
during the optionee's lifetime, only by the optionee or by the guardian or legal
representative of the optionee, or, in the case of a Nonqualified Stock Option,
its alternative payee pursuant to such qualified domestic relations order, or
the recipient of a transfer of such Stock Option permitted pursuant to clause
(3) of the preceding sentence, it being understood that the terms "holder" and
"optionee" include the guardian and legal representative of the optionee named
in the option agreement and any permitted transferee thereof.
(f) TERMINATION BY REASON OF DEATH. Unless otherwise
determined by the Committee, if an optionee's employment terminates by reason of
death, any Stock Option held by such optionee may thereafter be fully exercised
(whether or not the Stock Option was fully exercisable) by the estate of the
optionee, or by a person who acquired the right to exercise the Stock Option by
bequest or inheritance, or otherwise by reason of the death of the Optionee, for
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a period of one year from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise
determined by the Committee, if an optionee's employment terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be fully
exercised by the optionee (whether or not the Stock Option was fully
exercisable, unless provided otherwise in the option agreement) for a period of
one year from the date of such termination of employment or until the expiration
of the stated term of such Stock Option, whichever period is the shorter. If
following the optionee's termination of employment by reason of Disability the
optionee dies, the Stock Option may be exercised by the classes of persons
identified in Section 5(f). In the event of termination of employment by reason
of Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Nonqualified Stock Option.
(h) OTHER TERMINATION. Unless otherwise determined by the
Committee: (1) if an optionee incurs a Termination of Employment for Cause, all
Stock Options held by such optionee shall thereupon terminate; and (2) if an
optionee incurs a Termination of Employment for any reason other than death,
Disability or Cause, any Stock Option held by such optionee, to the extent then
exercisable, or on such accelerated basis as the Committee may determine, may be
exercised for the lesser of three months from the date of such Termination of
Employment or the balance of such Stock Option's term; PROVIDED, HOWEVER, that
if the optionee dies within such three-month period, any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-month period, continue to be exercisable to the extent to which it was
exercisable at the time of death for a period of one year from the date of such
death or until the expiration of the stated term of such Stock Option, whichever
period is the shorter. In the event of Termination of Employment, if an
Incentive Stock Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Nonqualified Stock Option.
(i) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other
provision of the Plan, during the 60-day period from and after a Change of
Control (the "EXERCISE PERIOD"), unless the Committee shall determine otherwise
at the time of grant, an optionee shall have the right, whether or not the Stock
Option is fully exercisable and in lieu of the payment of the exercise price for
the shares of Common Stock being purchased under the Stock Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Stock Option to the Company and to receive cash, within 30 days of
such notice, in an amount equal to the amount by which the Change in Control
Price per share of Common Stock on the date of such election shall exceed the
exercise price per share of Common Stock under the Stock Option (the "SPREAD")
multiplied by the number of shares of Common Stock granted under the Stock
Option as to which the right granted under this Section 5(i) shall have been
exercised.
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SECTION 6. STOCK APPRECIATION RIGHTS
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a Nonqualified Stock Option, such rights maybe granted
either at or after the time of grant of such Stock Option. In the case of an
Incentive Stock Option, such rights may be granted only at the time of grant of
such Stock Option. A Stock Appreciation Right shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in
accordance with Section 6(b) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the Committee.
Upon such exercise and surrender, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(b). Stock Options which
have been so surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be
subject to such terms and conditions as shall be determined by the Committee,
including the following:
(i) Stock Appreciation Rights shall be exercisable
only at such time or times and to the extent that the Stock Options to which
they relate are exercisable in accordance with the provisions of Section 5 and
this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right,
an optionee shall be entitled to receive an amount in cash, shares of Common
Stock or both, equal in value to the excess of the Fair Market Value of one
share of Common Stock as of the date of exercise over the Option Price per share
specified in the related Stock Option multiplied by the number of shares in
respect of which the Stock Appreciation Right shall have been exercised, with
the Committee having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable
only to permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
SECTION 7. DEFERRAL
The Committee may establish procedures whereby participants
may elect to defer the receipt of shares or cash in settlement of Awards for a
specified period or until a specified event.
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SECTION 8. CHANGE IN CONTROL PROVISIONS
(a) IMPACT OF EVENT. Notwithstanding any other provision of
the Plan to the contrary, in the event of a Change in Control, any Stock Options
and Stock Appreciation Rights outstanding as of the date such Change in Control
is determined to have occurred, and which are not then exercisable and vested,
shall become fully exercisable and vested to the full extent of the original
grant.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of the Plan,
a "Change in Control" shall mean the happening of any of the following events:
(1) An acquisition after the effective date of the
Plan by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "PERSON")
of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either
(A) the then outstanding shares of common stock of the Company
(the "OUTSTANDING COMPANY COMMON STOCK") or (B) the combined
voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of
directors (the "OUTSTANDING COMPANY VOTING SECURITIES");
excluding, however, the following: (i) any acquisition
directly from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security
being so converted was itself acquired directly from the
Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any company
controlled by the Company, or (iv) any acquisition by any
company pursuant to a transaction which complies with clauses
(A), (B) and (C) of Subsection (3) of this Section 8(b); or
(2) A change in the composition of the Board such
that the individuals who, as of the effective date of the
Plan, constitute the Board (such Board shall be hereinafter
referred to as the "INCUMBENT BOARD") cease for any reason to
constitute at least a majority of the Board; PROVIDED,
HOWEVER, for purposes of this Section 8(b), that any
individual who becomes a member of the Board subsequent to the
effective date of the Plan, whose election, or nomination for
election by the Company's shareholders, was approved by a vote
of at least a majority of those individuals who are members of
the Board and who were also members of the Incumbent Board (or
who shall be deemed to be such by election pursuant to this
proviso) shall be considered as though such individual were a
member of the Incumbent Board; but, PROVIDED, FURTHER, that
any such individual whose initial assumption of office occurs
as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
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<PAGE> 12
threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board shall not be so considered as
a member of the Incumbent Board; or
(3) The approval by the shareholders of the Company
of a reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company ("CORPORATE TRANSACTION") or, if consummation of such
Corporate Transaction is subject, at the time of such approval
by shareholders, to the consent of any government or
governmental agency, obtaining of such consent (either
explicitly or implicitly by consummation); excluding, however,
such a Corporate Transaction pursuant to which (A) all or
substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the
combined voting power of the outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (B) no Person (other
than the Company, any employee benefit plan (or related trust)
of the Company or such corporation resulting from such
Corporate Transaction) will beneficially own, directly or
indirectly, 20% or more of, respectively, the outstanding
shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the
outstanding voting securities of such corporation entitled to
vote generally in the election of directors except to the
extent that such ownership existed prior to the Corporate
Transaction, and (C) individuals who were members of the
Incumbent Board will constitute at least a majority of the
members of the board of directors of the corporation resulting
from such Corporate Transaction; or
(4) The approval by the stockholders of the Company
of a complete liquidation or dissolution of the Company.
(c) CHANGE IN CONTROL PRICE. For purposes of the Plan, "CHANGE
IN CONTROL PRICE" means the higher of (1) the highest reported sales price,
regular way, of a share of Common Stock in any transaction reported on any
national exchange on which such shares are listed or, if not listed on any such
exchange, as quoted on the Nasdaq National Market during
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the 60-day period prior to and including the date of a Change in Control or (2)
if the Change in Control is the result of a tender or exchange offer or a
Corporate Transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or Corporate Transaction; PROVIDED, HOWEVER, that in
the case of Incentive Stock Options and Stock Appreciation Rights relating to
Incentive Stock Options, the Change in Control Price shall be in all cases the
Fair Market Value of the Common Stock on the date such Incentive Stock Option or
Stock Appreciation Right is exercised. To the extent that the consideration paid
in any such transaction described above consists all or in part of securities or
other noncash consideration, the value of such securities or other noncash
consideration shall be determined in the sole discretion of the Board.
SECTION 9. TERM, AMENDMENT AND TERMINATION
The Plan will terminate on March 11, 2008. Awards outstanding
as of the date of any such termination shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan to the
extent it deems appropriate in the best interest of the Company, but no
amendment, alteration or discontinuation shall be made which would (1) impair
the rights of an optionee under a Stock Option or a recipient of a Stock
Appreciation Right theretofore granted without the optionee's or recipient's
consent, except such an amendment which is necessary to cause any Award or
transaction under the Plan to qualify, or to continue to qualify, for the
exemption provided by Rule 16b-3, or (2) disqualify any Award or transaction
under the Plan from the exemption provided by Rule 16b-3. In addition, no such
amendment shall be made without the approval of the Company's stockholders to
the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other
Award theretofore granted, prospectively or retroactively, but no such amendment
shall impair the rights of any holder without the holder's consent except such
an amendment which is necessary to cause any Award or transaction under the Plan
to qualify, or to continue to qualify, for the exemption provided by Rule 16b-3.
Subject to the above provisions, the Board shall have
authority to amend the Plan to take into account changes in law and tax and
accounting rules as well as other developments, and to grant Awards that qualify
for beneficial treatment under such rules without stockholder approval.
SECTION 10. UNFUNDED STATUS OF PLAN
It is presently intended that the Plan constitute an
"unfunded" plan for incentive and deferred compensation. The Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Common Stock or make
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<PAGE> 14
payments; PROVIDED, HOWEVER, that unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan.
SECTION 11. GENERAL PROVISIONS
(a) The Committee may require each person purchasing or
receiving shares pursuant to an Award to represent to and agree with the Company
in writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements
made pursuant thereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(1) Quotation or approval for quotation upon notice
of issuance of such shares on the Nasdaq National Market, or
such national securities exchange as may at the time be the
principal market for the Common Stock;
(2) Any registration or other qualification of such
shares of the Company under any state or federal law or
regulation, or the maintaining in effect of any such
registration or other qualification which the Committee shall,
in its absolute discretion upon the advice of counsel, deem
necessary or advisable; and
(3) Obtaining any other consent, approval, or permit
from any state or federal governmental agency which the
Committee shall, in its absolute discretion after receiving
the advice of counsel, determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company or
any Subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) Adoption of the Plan shall not confer upon any employee
any right to continued employment, nor shall it interfere in any way with the
right of the Company or any Subsidiary or Affiliate to terminate the employment
of any employee at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Common Stock, including
Common Stock that is part of the Award that gives rise to the withholding
requirement. The obligations
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<PAGE> 15
of the Company under the Plan shall be conditional on such payment or
arrangements, and the Company and its Affiliates shall, to the extent permitted
by law, have the right to deduct any such taxes from any payment otherwise due
to the participant. The Committee may establish such procedures as it deems
appropriate, including making irrevocable elections, for the settlement of
withholding obligations with Common Stock.
(e) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid or by whom any
rights of the participant, after the participant's death, may be exercised.
(f) In the case of a grant of an Award to any employee of a
Subsidiary of the Company, the Company may, if the Committee so directs, issue
or transfer the shares of Common Stock, if any, covered by the Award to the
Subsidiary, for such lawful consideration as the Committee may specify, upon the
condition or understanding that the Subsidiary will transfer the shares of
Common Stock to the employee in accordance with the terms of the Award specified
by the Committee pursuant to the provisions of the Plan.
(g) Notwithstanding the foregoing, if any right to receive
cash granted pursuant to this Plan would make a Change in Control transaction
ineligible for pooling-of-interests accounting under APB No. 16 that but for the
nature of such grant would otherwise be eligible for such accounting treatment,
the Committee shall have the ability to substitute for such cash Common Stock
with a Fair Market Value equal to the cash that would otherwise be payable
hereunder.
(h) The Plan and all Awards made and actions taken thereunder
shall be governed by and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws.
(i) The Committee may grant Awards to employees who are
subject to the tax laws of nations other than the United States, which Awards
may have terms and conditions that differ from other Awards granted under the
Plan for the purposes of complying with foreign tax laws. The Committee may
grant Stock Appreciation Rights to employees without the grant of an
accompanying Stock Option if the employees are subject at the time of grant to
the laws of a jurisdiction that prohibits them from owning common stock. The
Stock Appreciation Rights shall permit the employees to receive cash at the time
of any exercise thereof.
(j) Any transaction effected pursuant to this Plan that is
deemed to be a "DISCRETIONARY TRANSACTION" (as defined in Rule 16b-3) that
occurs within six months of an "opposite way" discretionary transaction (as
described in Rule 16b-3(f) thereunder) is automatically voided and will be
deferred until six months have elapsed from the date of the most recent
"opposite way" discretionary transaction under any Plan of the Company. If any
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<PAGE> 16
provision of the Plan is found not to be in compliance with Delaware or other
applicable law, such provision shall be deemed null and void to the extent
required to permit the Plan to comply with Delaware or such other applicable
law.
SECTION 12. LIMITATIONS APPLICABLE TO PERFORMANCE-BASED COMPENSATION.
Notwithstanding any other provision of this Plan, any Award
intended to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall be subject to any additional limitations set
forth in Section 162(m) of the Code (including any amendment to Section 162(m)
of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and this Plan shall be deemed amended to the
extent necessary to conform to such requirements.
SECTION 13. EFFECTIVE DATE OF PLAN
The Plan shall be effective on March 12, 1998.
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<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports accompanying the financial statements of the
companies and for the dates as indicated in the accompanying table; such
reports are contained in the Registration Statement and Prospectus.
<TABLE>
<CAPTION>
Company Report Date
- ------- -----------
<S> <C>
Office Centre Corporation and Subsidiaries February 6, 1998
(except for Note C, as to which
the date is July 10, 1998)
The Supply Room Companies, Inc. February 19, 1998
New England Office Supply, Inc. February 9, 1998
(except for Notes C
and D, as to which the
date is April 9, 1998)
King Office Supply, Inc. and Subsidiary February 9, 1998
Sierra Office Systems and Products, Inc. April 30, 1998
Office Solutions Business Products and Services, Inc. February 13, 1998
Greenwood Outfitters, Inc. January 30, 1998
Georgia Impression Products, Inc. March 13, 1998
Mega Office Furniture, L.L.C. February 25, 1998
</TABLE>
We consent to the use of the aforementioned reports in the Registration
Statement and Prospectus, and to the use of our name as it appears under the
caption "Experts."
/S/ GRANT THORNTON LLP
---------------------------------
GRANT THORNTON LLP
New York, New York
August 3, 1998
