<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 22, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OFFICE DEPOT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5943 59-2663954
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
2200 OLD GERMANTOWN ROAD
DELRAY BEACH, FLORIDA 33445
(561) 438-4800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BARRY GOLDSTEIN
OFFICE DEPOT, INC.
2200 OLD GERMANTOWN ROAD
DELRAY BEACH, FLORIDA 33445
(561) 438-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
JOHN W. CARR, ESQ. M. BRUCE NELSON THOMAS W. DOBSON, ESQ.
SIMPSON THACHER & BARTLETT VIKING OFFICE PRODUCTS, INC. LATHAM & WATKINS
425 LEXINGTON AVENUE 950 WEST 190TH STREET 633 WEST FIFTH STREET, SUITE 4000
NEW YORK, NEW YORK 10017 TORRANCE, CALIFORNIA 90502 LOS ANGELES, CALIFORNIA 90071-2005
(212) 455-2000 (310) 225-4500 (213) 891-7916
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time ("Effective Time") of the merger (the "Merger") of VK Acquisition
Corp., ("Merger Sub"), a wholly owned subsidiary of Office Depot, Inc. ("Office
Depot"), with and into Viking Office Products, Inc. ("Viking"), as described in
the Agreement and Plan of Merger dated as of May 18, 1998.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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 of 1933 as amended (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. [ ]
- ---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) REGISTRATION FEE(2)
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<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share(3).... 91,696,026 N/A $3,183,686,023 $939,187
- ---------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Represents the maximum number of shares of common stock of Office Depot, par
value $.01 per share (the "Office Depot Common Stock"), issuable on
consummation of the Merger based on the exchange ratio of one share of
Office Depot Common Stock to be exchanged for each outstanding share of
common stock of Viking, no par value ("Viking Common Stock"), and based on
the number of shares of Viking Common Stock outstanding at July 20, 1998
(85,329,976) plus the number of shares that could be issued between July 20,
1998 and the effective time of the Merger (6,366,050) upon exercise of stock
options or otherwise. Based on the foregoing, the maximum number of shares
of Viking Common Stock to be acquired by Office Depot in the Merger would be
91,696,026. The actual number of shares of Viking Common Stock to be
received, and of Office Depot Common Stock to be issued, in the Merger will
depend on the facts and circumstances as they exist on the effective date of
the Merger.
(2) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act, the
registration fee was calculated, based on $34.72, the average of the high
and low sale prices for shares of Viking Common Stock on the Nasdaq National
Market on July 21, 1998. Pursuant to Rule 457(b) under the Securities Act
and Section 14(g)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and Rule O-11 thereunder, $537,024 was previously paid in
connection with the filing under the Exchange Act of preliminary copies of
the proxy materials included herein and has been credited against the
registration fee payable hereunder.
(3) This Registration Statement also relates to an indeterminate number of
shares of Office Depot Common Stock that may be issued upon stock splits,
stock dividends or similar transactions in accordance with Rule 416 under
the Securities Act.
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<PAGE> 2
OFFICE DEPOT, INC.
July 24, 1998
To the Stockholders of Office Depot, Inc.:
On May 17, 1998, the Board of Directors of Office Depot, Inc. ("Office
Depot") approved a merger of Viking Office Products, Inc. ("Viking") and a
wholly owned subsidiary of Office Depot (the "Merger"). On the following day,
May 18, 1998, Office Depot and Viking entered into an Agreement and Plan of
Merger among Office Depot, Viking, and VK Acquisition Corp., the wholly owned
subsidiary of Office Depot (the "Merger Agreement"). The Board of Directors of
Office Depot is seeking your vote for approval of this important transaction.
If the Merger is effected, Viking will become a wholly owned subsidiary of
Office Depot and Viking stockholders will become stockholders of Office Depot.
As more fully set forth in the accompanying document, each share of Viking's
common stock will be converted into the right to receive one share of Office
Depot common stock.
Office Depot stockholders are being asked, at a special meeting of Office
Depot's stockholders, to approve: (i) the issuance of shares of Office Depot
common stock to Viking stockholders (the "Share Issuance") pursuant to the
Merger Agreement; (ii) a proposal to amend Section 4.1 of Office Depot's
certificate of incorporation to increase the number of authorized shares of
Office Depot common stock from 400,000,000 to 800,000,000 (the "Charter
Amendment"); (iii) a proposal to amend the Office Depot Long-Term Equity
Incentive Plan to increase the number of shares of Office Depot common stock
reserved for issuance to officers and key employees following the Merger from
15,212,500 to 20,712,500 (the "Incentive Plan Amendment"); and (iv) such other
business as may properly come before the meeting or any postponement or
adjournment thereof.
THE BOARD OF DIRECTORS OF OFFICE DEPOT HAS UNANIMOUSLY APPROVED THE SHARE
ISSUANCE, THE CHARTER AMENDMENT AND THE INCENTIVE PLAN AMENDMENT AND RECOMMENDS
A VOTE FOR APPROVAL OF SUCH PROPOSALS.
You can find the full text of the Merger Agreement at the back of this
document in Annex I.
Whether or not you plan to attend the special meeting, please take the time
to vote on the proposals submitted to Office Depot stockholders by completing
and mailing the enclosed proxy card. If you sign, date and mail your proxy card
without indicating how you wish to vote, your proxy will be counted as a vote in
favor of the Share Issuance and the accompanying proposals. If you fail to
return a properly executed proxy card, it will have the same effect as a vote
against the Share Issuance and the accompanying proposals. YOUR VOTE IS VERY
IMPORTANT.
The date, time and place of the Office Depot special meeting is August 26,
1998, 11:00 a.m., Eastern time, at Office Depot's executive offices, 2200 Old
Germantown Road, Delray Beach, Florida.
This document provides you with detailed information about the Merger. We
encourage you to read this entire document carefully. Stockholders who have
questions about the Merger should call Office Depot's Investor Relations
Department at (561) 438-4399.
Sincerely,
/s/ David I. Fuente
David I. Fuente
Chairman of the Board and
Chief Executive Officer
Office Depot, Inc.
<PAGE> 3
VIKING OFFICE PRODUCTS, INC.
July 24, 1998
To the Stockholders of Viking Office Products, Inc.:
On May 17, 1998, the Board of Directors of Viking Office Products, Inc.
("Viking") approved a merger (the "Merger") of Viking and a wholly owned
subsidiary of Office Depot, Inc. ("Office Depot"). On the following day, May 18,
1998, Office Depot and Viking entered into an Agreement and Plan of Merger among
Office Depot, Viking, and VK Acquisition Corp., the wholly owned subsidiary of
Office Depot (the "Merger Agreement"). The Board of Directors of Viking is
seeking your vote for approval of this important transaction.
If the Merger is effected, Viking will become a wholly owned subsidiary of
Office Depot and Viking stockholders will become stockholders of Office Depot.
As more fully set forth in the accompanying document, each share of Viking
common stock will be converted into the right to receive one share of Office
Depot common stock.
Viking stockholders are being asked, at a special meeting of Viking's
stockholders, to approve the terms of the Merger as provided in the Merger
Agreement (the "Merger Proposal") and any other business as may properly come
before the meeting or any postponement or adjournment thereof.
THE BOARD OF DIRECTORS OF VIKING HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND RECOMMENDS A VOTE FOR APPROVAL OF SUCH PROPOSAL.
You can find the full text of the Merger Agreement at the back of this
document in Annex I.
Whether or not you plan to attend the special meeting, please take the time
to vote on the proposal submitted to Viking stockholders by completing and
mailing the enclosed proxy card. If you sign, date and mail your proxy card
without indicating how you wish to vote, your proxy will be counted as a vote in
favor of the Merger Proposal. If you fail to return a properly executed proxy
card, it will have the same effect as a vote against the Merger Proposal. YOUR
VOTE IS VERY IMPORTANT.
The date, time and place of the Viking special meeting is August 26, 1998,
8:00 a.m., Pacific time (11:00 a.m., Eastern time), at Viking's executive
offices, 950 West 190th Street, Torrance, California.
This document provides you with detailed information about the Merger. We
encourage you to read this entire document carefully. Stockholders who have
questions about the Merger should call Frank Jarc, Executive Vice President and
Chief Financial Officer of Viking, at (310) 225-4466 or Charlotte Wiethoff, Vice
President of Administration and Secretary of Viking, at (310) 225-4263.
Sincerely,
/s/ Irwin Helford
Irwin Helford
Chairman of the Board and
Chief Executive Officer
Viking Office Products, Inc.
<PAGE> 4
OFFICE DEPOT, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 26, 1998
NOTICE IS HEREBY GIVEN, that a special meeting of the stockholders of
Office Depot, Inc. ("Office Depot") will be held on August 26, 1998 at 2200 Old
Germantown Road, Delray Beach, Florida, commencing at 11:00 a.m., Eastern time,
to consider the following in connection with an Agreement and Plan of Merger,
dated May 18, 1998 (the "Merger Agreement"), which appears as Annex I to the
accompanying Joint Proxy Statement/Prospectus, providing for the merger (the
"Merger") of VK Acquisition Corp., a California corporation and a wholly owned
subsidiary of Office Depot ("Merger Sub"), with and into Viking Office Products,
Inc., a California corporation ("Viking"), which will become the surviving
corporation in the Merger and a wholly owned subsidiary of Office Depot:
1. To approve the issuance of shares (the "Share Issuance") of Office
Depot's Common Stock (the "Office Depot Common Stock") in exchange for
each outstanding share of common stock of Viking (on the basis of one
share of Office Depot Common Stock for each outstanding share of Viking
common stock) pursuant to the Merger Agreement.
2. To approve an amendment (the "Charter Amendment") to Section 4.1 of the
certificate of incorporation of Office Depot to increase the number of
authorized shares of Office Depot Common Stock from 400,000,000 to
800,000,000.
3. To approve an amendment (the "Incentive Plan Amendment") to the Office
Depot Long-Term Equity Incentive Plan to increase the number of shares
of Office Depot Common Stock reserved for issuance to officers and key
employees following the Merger from 15,212,500 to 20,712,500.
4. To transact such other business as may properly come before the special
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on July 20, 1998 as
the record date for determination of the stockholders entitled to notice of and
to vote at the special meeting.
The approval of the Share Issuance and the Incentive Plan Amendment will
require the affirmative vote of the holders of a majority of the shares of
Office Depot Common Stock represented at the Special Meeting of Office Depot
stockholders. The approval of the Charter Amendment will require the affirmative
vote of the holders of a majority of the outstanding shares of Office Depot
Common Stock. The approval of the Share Issuance and the consummation of the
Merger are not conditioned upon the approval of the Charter Amendment or the
Incentive Plan Amendment.
Holders of Office Depot Common Stock will not be entitled to appraisal
rights in connection with the Merger.
By Action of the Board of Directors,
/S/ BARRY GOLDSTEIN
Barry J. Goldstein
Secretary
Delray Beach, Florida
July 24, 1998
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE OFFICE DEPOT SPECIAL MEETING,
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN
THE POSTAGE-PAID ENVELOPE PROVIDED FOR THAT PURPOSE, SO AS TO BE RECEIVED NO
LATER THAN AUGUST 25, 1998. TO AVOID ADDITIONAL EXPENSE TO OFFICE DEPOT, WE ASK
FOR YOUR COOPERATION IN PROMPTLY MAILING YOUR PROXY CARD.
<PAGE> 5
VIKING OFFICE PRODUCTS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 26, 1998
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
Viking Office Products, Inc. ("Viking") will be held on August 26, 1998, at
Viking's executive offices located at 950 West 190th Street, Torrance,
California, commencing at 8:00 a.m., Pacific time (11:00 a.m. Eastern time), to
consider the following matters:
1. To approve the merger (the "Merger Proposal") of VK Acquisition Corp.,
a wholly owned subsidiary of Office Depot, Inc., with and into Viking,
which will become the surviving corporation in the Merger and a wholly
owned subsidiary of Office Depot, pursuant to the terms of the
Agreement and Plan of Merger, dated as of May 18, 1998, among Office
Depot, Inc., VK Acquisition Corp. and Viking (the "Merger Agreement").
2. To transact such other business as may properly come before the special
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on July 20, 1998 as
the record date (the "Record Date") for determination of the stockholders
entitled to notice of and to vote at the special meeting.
The approval of the Merger Proposal will require the affirmative vote of
the holders of a majority of the shares of Viking common stock outstanding as of
the Record Date.
Holders of Viking common stock will be entitled to dissenters' rights under
the California Corporations Code.
By Action of the Board of Directors,
/s/ Charlotte Wiethoff
CHARLOTTE WIETHOFF
Secretary
Torrance, California
July 24, 1998
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE VIKING SPECIAL MEETING, PLEASE
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE
POSTAGE-PAID ENVELOPE PROVIDED FOR THAT PURPOSE, SO AS TO BE RECEIVED NO LATER
THAN AUGUST 25, 1998. TO AVOID ADDITIONAL EXPENSE TO VIKING, WE ASK FOR YOUR
COOPERATION IN PROMPTLY MAILING IN YOUR PROXY CARD.
<PAGE> 6
[OFFICE DEPOT LOGO] [VIKING LOGO]
OFFICE DEPOT, INC.
AND
VIKING OFFICE PRODUCTS, INC.
------------------------
JOINT PROXY STATEMENT
------------------------
OFFICE DEPOT, INC. PROSPECTUS
This Joint Proxy Statement/Prospectus is being furnished to holders, as of
July 20, 1998 (the "Record Date"), of Common Stock, par value $.01 per share
("Office Depot Common Stock"), of Office Depot, Inc., a Delaware corporation
("Office Depot"), in connection with the solicitation of proxies by the Board of
Directors of Office Depot (the "Office Depot Board") for use at a Special
Meeting of Stockholders of Office Depot (the "Office Depot Special Meeting") to
be held on August 26, 1998, at Office Depot's executive offices, 2200 Old
Germantown Road, Delray Beach, Florida, commencing at 11:00 a.m., Eastern time,
and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus is also being furnished to holders, as
of the Record Date, of Common Stock, no par value ("Viking Common Stock"), of
Viking Office Products, Inc., a California corporation ("Viking"), in connection
with the solicitation of proxies by the Board of Directors of Viking (the
"Viking Board") for use at the Special Meeting of Stockholders of Viking (the
"Viking Special Meeting") to be held on August 26, 1998, at Viking's executive
offices, 950 West 190th Street, Torrance, California, commencing at 8:00 a.m.,
Pacific time (11:00 a.m., Eastern time), and at any adjournment or postponement
thereof.
The Office Depot Special Meeting has been called to consider and vote upon
proposals to approve (i) the issuance of shares of Office Depot Common Stock to
Viking stockholders (the "Share Issuance") pursuant to the Agreement and Plan of
Merger dated as of May 18, 1998 (the "Merger Agreement"), among Office Depot, VK
Acquisition Corp., a California corporation and wholly owned subsidiary of
Office Depot ("Merger Sub"), and Viking; (ii) the amendment of Section 4.1 of
Office Depot's certificate of incorporation (the "Office Depot Charter") to
increase the number of authorized shares of Office Depot Common Stock from
400,000,000 to 800,000,000 (the "Charter Amendment"); (iii) the amendment of the
Office Depot Long-Term Equity Incentive Plan (the "Equity Incentive Plan") to
increase the number of shares of Office Depot Common Stock reserved for issuance
to officers and key employees following the Merger from 15,212,500 to 20,712,500
(the "Incentive Plan Amendment") and (iv) such other matters as may properly be
brought before the Office Depot Special Meeting or any adjournment or
postponement thereof. A copy of the Merger Agreement is attached to this Joint
Proxy Statement/Prospectus as Annex I and is incorporated herein by reference.
Pursuant to the Merger Agreement, Merger Sub will be merged with and into Viking
(the "Merger"), which will be the surviving corporation in the Merger and become
a wholly owned subsidiary of Office Depot. In the Merger, each outstanding share
of Viking Common Stock will be converted into one share of Office Depot Common
Stock, subject to dissenters' rights. Based upon the number of outstanding
shares of Office Depot Common Stock and Viking Common Stock as of the Record
Date, the shares of Office Depot Common Stock issued to Viking stockholders in
the Merger would represent approximately 35% of the outstanding shares of Office
Depot Common Stock immediately following the closing of the Merger. On July 20,
1998, the last reported sale price of the Office Depot Common Stock on the New
York Stock Exchange was $36.188 per share, and the last reported sale price of
the Viking Common Stock on the Nasdaq National Market was $35.75 per share.
THE BOARD OF DIRECTORS OF OFFICE DEPOT HAS UNANIMOUSLY APPROVED THE MERGER,
THE MERGER AGREEMENT, THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE
INCENTIVE PLAN AMENDMENT AND RECOMMENDS A VOTE FOR APPROVAL OF THE SHARE
ISSUANCE, THE CHARTER AMENDMENT AND THE INCENTIVE PLAN AMENDMENT.
The Viking Special Meeting has been called to consider and vote upon a
proposal to approve the Merger on the terms provided by the Merger Agreement
(the "Merger Proposal").
THE BOARD OF DIRECTORS OF VIKING HAS UNANIMOUSLY APPROVED THE MERGER, THE
MERGER AGREEMENT AND THE MERGER PROPOSAL AND RECOMMENDS A VOTE FOR APPROVAL OF
THE MERGER PROPOSAL.
Office Depot has filed a Registration Statement on Form S-4 (File No.
333- ) (including the exhibits and amendments thereto, the "Registration
Statement") pursuant to the Securities Act of 1933, as amended (the "Securities
Act"), covering up to 91,696,026 shares of Office Depot Common Stock which may
be issued pursuant to the Merger Agreement in exchange for outstanding shares of
Viking Common Stock (including shares that may become outstanding prior to the
closing of the Merger upon the exercise of options for the purchase of Viking
Common Stock). This Joint Proxy Statement/Prospectus constitutes the Prospectus
of Office Depot and comprises a part of the Registration Statement.
All information contained in this Joint Proxy Statement/Prospectus relating
to Office Depot has been supplied by Office Depot management, and all
information relating to Viking has been supplied by Viking management.
SEE "RISK FACTORS" BEGINNING ON PAGE 24 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY OFFICE DEPOT AND VIKING STOCKHOLDERS.
------------------------
THE SHARES OF OFFICE DEPOT COMMON STOCK TO BE ISSUED IN EXCHANGE FOR SHARES OF
VIKING COMMON STOCK 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 JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to Office Depot and Viking stockholders on or about July
24, 1998.
The date of this Joint Proxy Statement/Prospectus is July 23, 1998.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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AVAILABLE INFORMATION....................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 1
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS............ 3
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 4
SUMMARY..................................................... 7
The Companies............................................. 7
The Special Meetings...................................... 7
Stockholders Entitled to Vote............................. 7
Purposes of the Meetings.................................. 7
The Merger................................................ 8
Risk Factors.............................................. 8
Recommendations........................................... 8
Opinions of the Financial Advisors........................ 9
Interests of Certain Persons.............................. 9
Effective Time of the Merger.............................. 10
Management and Operations Following the Merger............ 10
Conditions of the Merger.................................. 10
Termination............................................... 11
Stock Option Agreements................................... 11
Dissenters' and Appraisal Rights.......................... 11
The Office Depot Charter Amendment........................ 11
The Office Depot Incentive Plan Amendment................. 12
Certain Legal Proceedings................................. 12
Certain Federal Income Tax Considerations................. 12
Accounting Treatment...................................... 12
Surrender of Certificates................................. 13
Certain Effects of the Merger on the Rights of Holders of
Viking Common Stock.................................... 13
Selected Historical and Unaudited Pro Forma Combined
Financial Information.................................. 14
Comparative Per Share Data................................ 17
Comparative Market Price Information...................... 18
THE OFFICE DEPOT SPECIAL MEETING............................ 19
Date, Time and Place...................................... 19
Matters To Be Considered at the Office Depot Special
Meeting................................................ 19
Office Depot Board Recommendations........................ 19
Vote Required............................................. 19
Voting of Proxies......................................... 19
Revocability of Proxies................................... 20
Record Date; Stock Entitled to Vote; Quorum............... 20
Solicitation of Proxies................................... 20
THE VIKING SPECIAL MEETING.................................. 21
Date, Time and Place...................................... 21
Matters To Be Considered at the Viking Special Meeting.... 21
Viking Board Recommendations.............................. 21
Vote Required............................................. 21
Voting of Proxies......................................... 21
Revocability of Proxies................................... 21
Record Date; Stock Entitled to Vote; Quorum............... 22
Solicitation of Proxies................................... 22
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
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RISK FACTORS................................................ 23
Risks Relating to the Merger.............................. 23
Risks Relating to Office Depot and Viking................. 23
THE MERGER.................................................. 26
General................................................... 26
Background of the Merger.................................. 26
Recommendations of the Office Depot Board; Office Depot's
Reasons for the Merger................................. 27
Recommendations of the Viking Board; Viking's Reasons for
the Merger............................................. 29
Opinions of the Financial Advisors........................ 31
Interests of Certain Persons in the Merger................ 43
Employment Agreements with Viking Employees............... 45
Structure of the Merger................................... 47
Merger Consideration...................................... 47
Conditions to the Consummation of the Merger.............. 47
Regulatory Approval Required.............................. 48
Effective Time of the Merger.............................. 48
Management and Operations Following the Merger............ 48
Accounting Treatment...................................... 49
Certain Federal Income Tax Consequences................... 49
Dissenters' and Appraisal Rights.......................... 50
Certain Legal Proceedings................................. 52
Federal Securities Law Consequences....................... 52
THE MERGER AGREEMENT........................................ 53
General................................................... 53
Conversion of Shares...................................... 53
Representations and Warranties............................ 54
Certain Covenants......................................... 54
No Solicitation........................................... 55
Management of the Combined Company Following the Merger... 56
Stock Options and Employee Benefits....................... 56
Rights Plans.............................................. 57
Director and Officer Indemnification...................... 57
Conditions to Closing..................................... 58
Termination; Termination Fees and Expenses................ 59
Amendment and Waiver...................................... 61
THE STOCK OPTION AGREEMENTS................................. 63
THE OFFICE DEPOT CHARTER AMENDMENT AND INCENTIVE PLAN
AMENDMENT................................................. 63
Reasons for the Charter Amendment......................... 63
Effects of the Charter Amendment.......................... 64
Vote Required for the Charter Amendment................... 64
Reasons for the Incentive Plan Amendment.................. 64
Description of the Equity Incentive Plan.................. 65
Certain Federal Income Tax Consequences of the Incentive
Plan Amendment......................................... 67
Vote Required for the Incentive Plan Amendment............ 69
OFFICE DEPOT, INC. ......................................... 69
Business.................................................. 69
Security Ownership of Certain Beneficial Owners and
Management............................................. 71
VIKING OFFICE PRODUCTS, INC. ............................... 73
Business.................................................. 73
Security Ownership of Certain Beneficial Owners and
Management............................................. 74
</TABLE>
ii
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
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<S> <C>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS........... 76
DESCRIPTION OF OFFICE DEPOT CAPITAL STOCK................... 84
General................................................... 84
Common Stock.............................................. 84
Preferred Stock........................................... 84
Rights Plan............................................... 84
Delaware Corporation Law and Certain Charter Provisions... 84
Transfer Agent............................................ 85
COMPARISON OF STOCKHOLDER RIGHTS............................ 86
Directors................................................. 86
Charter and Bylaw Amendments.............................. 86
Cumulative Voting......................................... 87
Stockholder Meeting Procedures............................ 87
Voting by Stockholders.................................... 88
Right to Examine Stockholder List......................... 88
Rights Plans.............................................. 89
Indemnification and Limitation of Liability............... 89
Dissenters' and Appraisal Rights.......................... 91
Preemptive Rights......................................... 92
Interested Director and Stockholder Transactions.......... 92
LEGAL MATTERS............................................... 93
EXPERTS..................................................... 93
STOCKHOLDERS' PROPOSALS..................................... 94
</TABLE>
<TABLE>
<S> <C> <C>
ANNEXES
Annex I Agreement and Plan of Merger
Annex II Opinion of Peter J. Solomon Company Limited
Annex III Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Annex IV Opinion of SBC Warburg Dillon Read Inc.
Annex V Excerpt from the California Corporations Code Regarding
Dissenters' Rights
</TABLE>
iii
<PAGE> 10
AVAILABLE INFORMATION
Office Depot and Viking are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith must file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). The reports,
proxy statements and other information filed by Office Depot and Viking with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade
Center, 13th floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60601. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, Office Depot and Viking
are each required to file electronic versions of such material 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. Office Depot Common Stock is quoted on the New York Stock Exchange.
Reports and other information concerning Office Depot may also be inspected at
the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005. Viking Common Stock is quoted on the Nasdaq National Market. Reports
and other information concerning Viking can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N.W., Washington, D.C. 20006.
Office Depot has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the shares of Office Depot Common
Stock to be issued pursuant to the Merger Agreement. This Joint Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to Office Depot,
Viking and the Office Depot Common Stock, reference is hereby made to the
Registration Statement (including the exhibits and schedules thereto).
Statements contained in this Joint Proxy Statement/Prospectus or in any document
incorporated by reference in this Joint Proxy Statement/Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document (if any) filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Office Depot documents filed with the Commission are
incorporated by reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended December 27,
1997;
2. Quarterly Report on Form 10-Q for the quarter ended March 28,
1998; and
3. Current Report on Form 8-K dated as of May 18, 1998.
The following Viking documents filed with the Commission are incorporated
by reference in this Joint Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended June 27,
1997;
2. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998, December 31, 1997 and September 30, 1997; and
3. Current Report on Form 8-K dated as of May 18, 1998.
All documents and reports subsequently filed by Office Depot or Viking
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Joint Proxy Statement/Prospectus and prior to the date of the Office
Depot Special Meeting and the Viking Special Meeting shall be deemed to be
incorporated by reference in this Joint Proxy Statement/Prospectus and to be
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be
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incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
This Joint Proxy Statement/Prospectus also incorporates certain documents
by reference which are not presented herein or delivered herewith. Such
documents (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference) are available to any person, including
any beneficial owner, to whom this Joint Proxy Statement/Prospectus is
delivered, on written or oral request, without charge, in the case of documents
relating to Office Depot, directed to Office Depot, Inc., 2200 Old Germantown
Road, Delray Beach, Florida 33445 (telephone number (561) 438-4800), Attention:
Secretary; or, in the case of documents relating to Viking, to Viking Office
Products, Inc., 950 West 190th Street, Torrance, California 90502 (telephone
number (310) 225-4500), Attention: Secretary.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY OFFICE
DEPOT, VIKING OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF OFFICE
DEPOT OR VIKING SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
"Office Depot," "Images," "Office Depot Express," "Furniture at Work" and
"Uptime Services" are registered trademarks or service marks of Office Depot.
"Viking," "Viking Office Product," "Viking Direct," "Viking Direkt," "VKG," "VKG
Direct," "Man Pointing Device," "Page Device I," "Page Device II," "Page Device
III" and "We Bring Our Super-Store To You" are registered trademarks of Viking.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
This Joint Proxy Statement/Prospectus contains or incorporates by reference
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act that include, among others, statements
by Office Depot or Viking, as the case may be, concerning the benefits expected
to result from the Merger, including, without limitation, synergies in the form
of increased revenues, decreased expenses and avoided expenses and expenditures
that are expected to be realized by Office Depot and Viking together after the
closing of the Merger, and other statements by Office Depot or Viking, as the
case may be, of expectations, beliefs, future plans and strategies, anticipated
developments and other matters that are not historical facts. The management of
Office Depot and Viking, respectively, caution the reader that the actual
results or experience could differ materially from the forward-looking
statements as a result of many factors, including the accuracy of financial,
regulatory and market trend projections. Such risks and uncertainties include
those risks, uncertainties and risk factors identified, among other places,
under "SUMMARY -- Selected Historical and Unaudited Pro Forma Combined Financial
Information," "RISK FACTORS," "THE MERGER -- Recommendations of the Office Depot
Board; Office Depot's Reasons for the Merger," "--Recommendations of the Viking
Board; Viking's Reasons for the Merger," "-- Opinions of the Financial
Advisors," and "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS."
The most important factors that could prevent Office Depot or Viking, as
the case may be, from achieving its stated goals include, but are not limited
to, failure by Office Depot and Viking to consummate the Merger on a timely
basis or at all, intense competition in Office Depot's and Viking's markets, the
potential for rapid and significant changes in technology and their effect on
Office Depot's or Viking's operations, operating and financial risks related to
managing rapid growth and integrating acquired businesses, and, if the Merger is
consummated, failure by the combined company to integrate the respective
operations of Office Depot and Viking or to achieve the synergies expected from
the Merger.
The cautionary statements contained or referred to in this section should
be considered in connection with any subsequent written or oral forward-looking
statements that may be issued by Office Depot or Viking or persons acting on
their behalf. Neither Office Depot nor Viking undertakes any obligation to
release publicly any revisions to any forward-looking statements contained
herein to reflect events or circumstances after the date hereof or to reflect
the occurrence of unanticipated events.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY HAVE OFFICE DEPOT AND VIKING PROPOSED THAT THE TWO COMPANIES MERGE?
A: Office Depot sells high-quality, brand-name office products at significant
discounts through its national chain of high-volume office products stores,
provides delivery of its products in the United States and Canada to its
store, catalog and Internet customers and is a full-service contract
stationer serving businesses throughout the United States. Viking sells
office products to small and medium-sized businesses in the United States,
Europe and Australia through innovative direct marketing catalogs and
aggressive database marketing programs. Viking's target customers are
businesses with fewer than 100 employees, and Viking has become one of the
largest direct marketers of office products to these businesses. Office
Depot and Viking believe that the Merger is an attractive strategic
combination because, among other reasons, operating as a combined company
Office Depot and Viking can achieve significant synergies, including (i)
reduced product costs, (ii) reduced distribution costs, (iii) reduced
catalog production and marketing expenses and (iv) reduced general and
administrative expenses. In addition, the combined company would be in a
position to: (i) more effectively pursue international growth and expansion,
(ii) benefit from utilizing the best management, operating systems and
practices of each of Office Depot and Viking, and (iii) achieve savings as a
result of Viking's use of Office Depot's delivery network.
For holders of Office Depot and Viking Common Stock, the Merger is expected
to increase stockholder value by providing greater purchasing power and
immediate exposure to additional markets in which neither Office Depot nor
Viking, as individual companies, is currently operating. Management of the
two companies anticipate that the combined company will have greater
revenues and profits and broader market share than either Office Depot or
Viking could achieve separately.
For a more detailed discussion of the reasons for the Merger, see "THE
MERGER -- Recommendations of the Office Depot Board; Office Depot's Reasons
for the Merger" and "-- Recommendations of the Viking Board; Viking's
Reasons for the Merger." Achieving the anticipated benefits of the Merger is
subject to certain risks, as discussed under "RISK FACTORS" and "INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS."
Q: WHAT WILL HAPPEN TO THE STOCK OF VIKING IN THE MERGER?
A: In the Merger, each holder of Viking Common Stock will receive one share of
Office Depot Common Stock in exchange for each share of Viking Common Stock
held by such holder (the "Exchange Ratio"), subject to dissenters' rights.
Q: HOW WAS THE EXCHANGE RATIO DETERMINED?
A: The Exchange Ratio was determined through negotiations between Office Depot
and Viking, and after substantial analysis and consideration was authorized
by the Boards of Directors of Office Depot and Viking. For a detailed
discussion of the financial analyses performed by the financial advisors,
see "THE MERGER -- Opinions of the Financial Advisors."
Q: WHEN WILL THE MERGER TAKE EFFECT?
A: Office Depot and Viking expect that the Merger will become effective
promptly after the holders of Office Depot Common Stock approve the Share
Issuance at the Office Depot Special Meeting and the holders of Viking
Common Stock approve the Merger Proposal at the Viking Special Meeting. The
Special Meetings are each scheduled for August 26, 1998.
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<PAGE> 14
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER FOR THE VIKING
STOCKHOLDERS?
A: The receipt of shares of Office Depot Common Stock in the Merger generally
will be tax-free to the holders of Viking Common Stock. For a detailed
discussion of the tax consequences of the Merger, see "THE MERGER -- Certain
Federal Income Tax Consequences."
Q: WILL STOCKHOLDERS OF OFFICE DEPOT OR VIKING HAVE DISSENTERS' OR APPRAISAL
RIGHTS?
A: Holders of Viking Common Stock entitled to vote on the Merger Proposal will
have dissenters' rights under the California Corporations Code. If holders
of 5% or more of the outstanding shares of Viking Common Stock entitled to
vote at the Viking Special Meeting vote against the Merger and comply with
certain other procedures, Viking stockholders who take such actions will be
entitled to exercise dissenters' rights pursuant to the provisions of
Chapter 13 of the California Corporations Code. In accordance with these
provisions, dissenting Viking stockholders will have the right to be paid
the fair market value of their shares of Viking Common Stock as determined
by appraisal (excluding any appreciation or depreciation as a consequence of
the Merger) by fully complying with the procedures set forth in the
California Corporations Code. The failure of a dissenting Viking stockholder
to comply timely and properly with such procedures will result in the
termination or waiver of such rights. For the text of the applicable
provisions of the California Corporations Code, see Annex V.
The Merger Agreement provides as a condition to closing that holders of more
than 7.5% of the outstanding shares of Viking Common Stock shall not have
elected to exercise their dissenters' rights pursuant to the California
Corporations Code.
Holders of Office Depot Common Stock will not have dissenters' or appraisal
rights.
Q: WHAT SHOULD STOCKHOLDERS OF OFFICE DEPOT AND VIKING DO NOW?
A: This Joint Proxy Statement/Prospectus contains important information
regarding the Merger. It also contains important information that the
management and the Boards of Directors of each of Office Depot and Viking
considered in evaluating the Merger. The stockholders of Office Depot and
Viking are urged to read this Joint Proxy Statement/Prospectus carefully,
including its annexes, and to consider how the Merger will affect them as
holders of Office Depot Common Stock or Viking Common Stock, respectively.
Q: HOW DO I VOTE?
A: Office Depot and Viking stockholders should mail their signed and dated
proxy card in the enclosed envelope as soon as possible to ensure that their
shares will be represented at the Office Depot Special Meeting and the
Viking Special Meeting, respectively. After the Merger is completed, Viking
stockholders will receive written instructions for exchanging their share
certificates. VIKING STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES AT
THIS TIME OR WITH THEIR PROXIES.
Q: CAN OFFICE DEPOT AND VIKING STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE
MAILED IN A SIGNED PROXY CARD?
A: Yes. Office Depot and Viking stockholders can change their vote in one of
three ways at any time before their proxies are used at the Office Depot
Special Meeting or the Viking Special Meeting, as applicable. First,
stockholders can revoke their proxies by written notice. Second,
stockholders can complete new, later-dated proxy cards. Third, holders of
Office Depot Common Stock and Viking Common Stock can attend the Office
Depot Special Meeting and the Viking Special Meeting, respectively, and vote
in person.
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Q: HOW ARE SHARES HELD IN A BROKER'S NAME VOTED?
A: Brokers will vote shares nominally held in their name (or in what is
commonly called "street name") only if the beneficial holder provides the
broker with written instructions on how to vote. Absent such instructions,
these shares will not be voted, which will have the same effect as a vote
against the approval of the Share Issuance, the Charter Amendment or the
Incentive Plan Amendment by an Office Depot stockholder, or the Merger
Proposal by a Viking stockholder, as applicable. OFFICE DEPOT STOCKHOLDERS
ARE URGED TO INSTRUCT THEIR BROKERS IN WRITING TO VOTE SHARES HELD IN STREET
NAME IN FAVOR OF THE APPROVAL OF THE SHARE ISSUANCE, THE CHARTER AMENDMENT
AND THE INCENTIVE PLAN AMENDMENT. VIKING STOCKHOLDERS ARE URGED TO INSTRUCT
THEIR BROKERS IN WRITING TO VOTE SHARES HELD IN STREET NAME IN FAVOR OF THE
APPROVAL OF THE MERGER PROPOSAL.
Office Depot and Viking stockholders who hold their shares in "street name"
can change their vote by providing the broker with alternative voting
instructions before their proxy is used at the Office Depot Special Meeting
or Viking Special Meeting, as applicable.
Q: WHOM SHOULD STOCKHOLDERS CALL WITH QUESTIONS?
A: Office Depot stockholders who have questions about the Merger should call
Office Depot's Investor Relations Department at (561) 438-4399. Viking
stockholders who have questions about the Merger should call Frank Jarc,
Executive Vice President and Chief Financial Officer of Viking, at (310)
225-4466 or Charlotte Wiethoff, Vice President of Administration and
Secretary of Viking, at (310) 225-4263.
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<PAGE> 16
SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/ Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained, or
incorporated by reference, in this Joint Proxy Statement/Prospectus and the
annexes hereto. Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere in this Joint
Proxy Statement/Prospectus. Stockholders of Office Depot and Viking are urged to
read this Joint Proxy Statement/Prospectus and the annexes hereto in their
entirety.
THE COMPANIES
Office Depot. Office Depot sells high-quality, brand-name office products
at significant discounts through its national chain of high-volume office
products stores, provides delivery of its products in the United States and
Canada to its store, catalog and Internet customers and is a full-service
contract stationer serving businesses throughout the United States. The
principal executive office of Office Depot is located at 2200 Old Germantown
Road, Delray Beach, Florida 33445 and its telephone number is (561) 438-4800. As
used in this Joint Proxy Statement/Prospectus, the term "Office Depot" refers to
Office Depot, Inc. and its subsidiaries, unless the context otherwise requires.
Viking. Viking sells office products to small and medium-sized businesses
in the United States, Europe and Australia through direct marketing catalogs and
database marketing programs. The principal executive office of Viking is located
at 950 West 190th Street, Torrance, California 90502 and its telephone number is
(310) 225-4500. As used in this Joint Proxy Statement/Prospectus, the term
"Viking" refers to Viking Office Products, Inc. and its subsidiaries, unless the
context otherwise requires.
THE SPECIAL MEETINGS
The Office Depot Special Meeting will be held on August 26, 1998, at Office
Depot's executive offices, 2200 Old Germantown Road, Delray Beach, Florida,
commencing at 11:00 a.m., Eastern time.
The Viking Special Meeting will be held on August 26, 1998, at Viking's
executive offices, 950 West 190th Street, Torrance, California, commencing at
8:00 a.m., Pacific time (11:00 a.m., Eastern time).
STOCKHOLDERS ENTITLED TO VOTE
Holders of record of shares of Office Depot Common Stock at the close of
business on the Record Date are entitled to notice of and to vote at the Office
Depot Special Meeting. On the Record Date there were 159,666,751 shares of
Office Depot Common Stock outstanding, each of which will be entitled to one
vote on each matter acted upon at the Office Depot Special Meeting.
Holders of record of shares of Viking Common Stock at the close of business
on the Record Date are entitled to notice of and to vote at the Viking Special
Meeting. On the Record Date there were 85,329,976 shares of Viking Common Stock
outstanding, each of which will be entitled to one vote on each matter acted
upon at the Viking Special Meeting.
PURPOSES OF THE MEETINGS
Office Depot Special Meeting. At the Office Depot Special Meeting, holders
of Office Depot Common Stock will be asked to consider and vote upon proposals
to approve (i) the issuance of up to 91,696,026 shares of Office Depot Common
Stock in exchange for shares of Viking Common Stock pursuant to the Merger
Agreement (the "Share Issuance"); (ii) the amendment of Section 4.1 of the
Office Depot Charter to increase the number of authorized shares of Office Depot
Common Stock from 400,000,000 to 800,000,000 (the "Charter Amendment"); (iii)
the amendment of the Office Depot Long-Term Equity Incentive Plan (the "Equity
Incentive Plan") to increase the number of shares of Office Depot Common Stock
reserved for issuance to officers and key employees following the Merger from
15,212,500 to 20,712,500 (the "Incentive Plan Amendment"); and (iv) such other
matters as may properly be brought before the Office Depot Special
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<PAGE> 17
Meeting, or any adjournment or postponement thereof. Approval of the Share
Issuance and consummation of the Merger are not predicated upon approval of the
Charter Amendment or the Incentive Plan Amendment.
Viking Special Meeting. At the Viking Special Meeting, holders of Viking
Common Stock will be asked to consider and vote upon: (i) a proposal to approve
the terms of the Merger and the Merger Agreement (the "Merger Proposal"); and
(ii) such other matters as may properly be brought before the Viking Special
Meeting, or any adjournment or postponement thereof.
THE MERGER
Upon consummation of the Merger, pursuant to the Merger Agreement, (i) VK
Acquisition Corp., a wholly owned subsidiary of Office Depot ("Merger Sub") will
be merged with and into Viking, which will be the surviving corporation in the
Merger, and Viking will become a wholly owned subsidiary of Office Depot and
(ii) each issued and outstanding share of Viking Common Stock (other than shares
owned by Viking as treasury stock, or by its subsidiaries or by Office Depot or
its subsidiaries, all of which will be cancelled and retired) will be converted
into one share of Office Depot Common Stock (the "Exchange Ratio"), subject to
dissenters' rights. Each outstanding share of Office Depot Common Stock will
remain outstanding and be unaffected by the Merger.
Based upon the number of outstanding shares of Office Depot Common Stock
and Viking Common Stock as of the Record Date, the stockholders of Viking
immediately prior to the consummation of the Merger will own approximately 35%
of the outstanding shares of Office Depot Common Stock immediately following
consummation of the Merger.
Upon consummation of the Merger, each outstanding option to purchase Viking
Common Stock will be converted into an option to purchase an equal number of
shares of Office Depot Common Stock at an exercise price per share equal to the
exercise price for the shares of Viking Common Stock immediately prior to the
Merger. See "THE MERGER AGREEMENT -- Stock Options and Employee Benefits."
RISK FACTORS
IN EVALUATING THE SHARE ISSUANCE, OFFICE DEPOT STOCKHOLDERS SHOULD
CAREFULLY CONSIDER CERTAIN RISK FACTORS. SEE "RISK FACTORS."
IN EVALUATING THE MERGER PROPOSAL, VIKING STOCKHOLDERS SHOULD CAREFULLY
CONSIDER CERTAIN RISK FACTORS. SEE "RISK FACTORS."
RECOMMENDATIONS
The Office Depot Board and the Viking Board believe that the Merger
represents an attractive strategic fit between two leading companies with
similar business strategies, as well as complementary operations and
geographical presences. Both Boards of Directors believe that the combined
company will have greater financial strength, operating efficiencies, earning
power and growth potential than either Office Depot or Viking would have on its
own. See "THE MERGER -- Recommendations of the Office Depot Board; Office
Depot's Reasons for the Merger" and "-- Recommendations of the Viking Board;
Viking's Reasons for the Merger."
THE OFFICE DEPOT BOARD HAS APPROVED THE MERGER, THE MERGER AGREEMENT, THE
SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE INCENTIVE PLAN AMENDMENT AND
RECOMMENDS THAT HOLDERS OF OFFICE DEPOT COMMON STOCK VOTE IN FAVOR OF THE SHARE
ISSUANCE, THE CHARTER AMENDMENT AND THE INCENTIVE PLAN AMENDMENT.
THE VIKING BOARD HAS APPROVED THE MERGER, THE MERGER AGREEMENT AND THE
MERGER PROPOSAL AND RECOMMENDS THAT HOLDERS OF VIKING COMMON STOCK VOTE IN FAVOR
OF THE APPROVAL OF THE MERGER PROPOSAL.
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OPINIONS OF THE FINANCIAL ADVISORS
Office Depot. On May 17, 1998, Peter J. Solomon Company Limited ("PJSC")
delivered its oral opinion to the Office Depot Board to the effect that, as of
such date, the Exchange Ratio was fair to Office Depot from a financial point of
view. On May 18, 1998, PJSC provided its written opinion to the Office Depot
Board.
The full text of the written opinion of PJSC, dated May 18, 1998, which
sets forth assumptions made, procedures followed, matters considered,
limitations on and scope of the review undertaken by PJSC in connection with its
opinion, is attached hereto as Annex II and is incorporated herein by reference.
HOLDERS OF OFFICE DEPOT COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION
IN ITS ENTIRETY. See "THE MERGER -- Opinions of the Financial Advisors" and
"-- Interests of Certain Persons in the Merger."
Viking. On May 17, 1998, each of Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and SBC Warburg Dillon Read Inc. ("Warburg Dillon
Read") delivered its written opinion to the Viking Board to the effect that, as
of such date, the Exchange Ratio was fair to the Viking stockholders from a
financial point of view.
The written opinions of Merrill Lynch and Warburg Dillon Read, each dated
May 17, 1998, which set forth assumptions made, matters considered and
qualifications and limitations on the review undertaken, are attached hereto as
Annex III and Annex IV, respectively, and are incorporated herein by reference.
HOLDERS OF VIKING COMMON STOCK ARE URGED TO READ SUCH OPINIONS IN THEIR
ENTIRETY. See "THE MERGER -- Opinions of the Financial Advisors" and
"-- Interests of Certain Persons in the Merger."
INTERESTS OF CERTAIN PERSONS
Stock options for the purchase of Viking Common Stock which were
outstanding as of May 18, 1998 were granted pursuant to option agreements that
provide that such options will become exercisable in full from and after the
date of a change in control (as defined in such option agreements) of Viking.
The approval of the Merger Proposal by Viking stockholders will constitute a
change in control of Viking within the meaning of such stock option agreements.
See "THE MERGER -- Interests of Certain Persons in the Merger." The vesting of
additional stock options for up to 1,600,000 shares of Viking Common Stock which
may be granted subsequent to May 18, 1998 by Viking to employees consistent with
past practices will not accelerate upon a change of control of Viking in the
Merger.
Each of Viking's executive officers has an agreement with Viking that
provides for certain severance payments to the executive officer if his or her
employment is terminated after a change in control of Viking. The Merger will
constitute a change in control of Viking for purposes of these agreements. See
"THE MERGER -- Interests of Certain Persons in the Merger."
Six executive officers of Viking, as well as a number of other executive
members of Viking management, have entered into employment agreements with
Office Depot, which will take effect upon the closing of the Merger. See "THE
MERGER -- Employment Agreements with Viking Employees."
Pursuant to the Merger Agreement, Office Depot has agreed to indemnify each
present and former director and officer of Viking against liabilities and
expenses incurred in connection with claims relating to matters prior to the
closing of the Merger, and to maintain in effect directors' and officers'
liability insurance for their benefit. In addition, Viking has entered into
indemnification agreements with each of its directors and executive officers
pursuant to which Viking has agreed, among other things, to indemnify such
persons to the maximum extent permitted by the California Corporations Code. See
"THE MERGER AGREEMENT -- Director and Officer Indemnification."
Peter J. Solomon, a member of the Office Depot Board, is also Chairman of
PJSC. Office Depot has engaged PJSC for a fee to provide financial advisory
services in connection with the Merger, including the delivery of a fairness
opinion. In the past, PJSC has provided financial advisory services to Office
Depot and
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has received fees for these services. See "THE MERGER -- Background of the
Merger" and "-- Interests of Certain Persons in the Merger."
Warburg Dillon Read acted as co-financial advisor to the Viking Board in
connection with the Merger and will receive a fee for its services. In the past,
SBC Warburg Dillon Read Inc., a subsidiary of Swiss Bank Corporation, and Dillon
Read & Co. Inc., the predecessor firm to SBC Warburg Dillon Read Inc., and their
affiliates have provided financial advisory and financing services to Viking and
have received fees for these services. In addition, an executive of Warburg
Dillon Read serves on the Viking Board. Pursuant to a business combination
effective June 29, 1998, SBC Warburg Dillon Read Inc.'s successor became Warburg
Dillon Read LLC. See "THE MERGER -- Background of the Merger" and "-- Interests
of Certain Persons in the Merger."
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated upon the filing of an agreement of merger,
with an officer's certificate of each of Viking and Merger Sub attached, with
the Secretary of State of the State of California (the time of the filing of
such Certificate of Merger is referred to herein as the "Effective Time"). The
Effective Time will occur as promptly as practicable after the requisite
stockholder approvals have been obtained and all other conditions to the Merger
have been satisfied or waived.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
The Board of Directors of Office Depot following the Merger will consist of
the following twelve persons: Cynthia R. Cohen, David I. Fuente, W. Scott
Hedrick, James L. Heskett, John C. Macatee, Michael J. Myers, Frank P. Scruggs,
Jr. and Peter J. Solomon (all of whom are currently directors of Office Depot),
and Irwin Helford, M. Bruce Nelson, Lee A. Ault III and Neil R. Austrian (all of
whom are currently directors of Viking).
Upon the closing of the Merger, David I. Fuente, who is currently Chairman
of the Board and Chief Executive Officer of Office Depot, will retain such
positions at Office Depot; Irwin Helford, who is currently Chairman of the Board
and Chief Executive Officer of Viking, will remain as Chairman of the Viking
subsidiary of Office Depot and will become Vice Chairman and a corporate
executive officer of Office Depot; John Macatee, who is currently President and
Chief Operating Officer of Office Depot, will retain such positions at Office
Depot; and M. Bruce Nelson, who is currently President and Chief Operating
Officer of Viking, will remain as President of the Viking subsidiary and will
become Chief Executive Officer of the Viking subsidiary and a corporate
executive officer of Office Depot. For additional information regarding the
senior management of Office Depot following the Merger, see "THE
MERGER -- Management and Operations Following the Merger."
The corporate headquarters of the combined company will be located in
Delray Beach, Florida, the current headquarters of Office Depot. Certain
significant functions will continue to be located in Torrance, California, the
current headquarters of Viking.
CONDITIONS OF THE MERGER
The obligations of Office Depot and Viking to consummate the Merger are
subject to the satisfaction of certain conditions, including, but not limited
to, obtaining the requisite approvals of the Office Depot and Viking
stockholders, obtaining requisite regulatory approvals, the continuing accuracy
as of the Effective Time of the representations and warranties made by Office
Depot and Viking in the Merger Agreement, the receipt of certain legal opinions
with respect to tax matters and the receipt of an accountants' letter with
respect to qualification of the Merger as a pooling of interests transaction.
Approvals required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act") and applicable foreign antitrust laws have
already been obtained. Each party has the right to waive certain closing
conditions referred to above. See "THE MERGER -- Accounting Treatment,"
"-- Certain Federal Income Tax Consequences," "-- Regulatory Approval Required"
and "-- Conditions to the Consummation of the Merger."
10
<PAGE> 20
TERMINATION
The Merger Agreement is subject to termination: (i) by mutual written
consent of Office Depot and Viking; (ii) at the option of either Office Depot or
Viking if the Merger is not consummated by November 30, 1998 (although either
Office Depot or Viking may unilaterally extend such date to February 28, 1999);
and (iii) prior to such time upon the occurrence of certain events. See "THE
MERGER AGREEMENT -- Termination; Termination Fees and Expenses."
Under certain circumstances, either Office Depot or Viking may be required
to reimburse the other party for expenses of up to $5,000,000 if the Merger
Agreement is terminated, to pay the other party a termination fee of $30,000,000
and, if an acquisition or merger involving Office Depot or Viking, as the case
may be, is consummated within twelve months of the termination that results in
the ownership by a third party of more than 25% of the outstanding shares of
Office Depot Common Stock or Viking Common Stock, or the surviving entity, to
pay the other party an additional fee of $50,000,000. See "THE MERGER
AGREEMENT -- Termination; Termination Fees and Expenses" and "THE STOCK OPTION
AGREEMENTS."
STOCK OPTION AGREEMENTS
Office Depot and Viking have entered into Stock Option Agreements, each
dated as of May 18, 1998, pursuant to which (i) Office Depot has the right,
under certain circumstances, to purchase up to 16,929,500 shares of Viking
Common Stock (or approximately 19.9% of the outstanding Viking Common Stock as
of May 15, 1998, prior to giving effect to such issuance) at a price of $33.60
per share (the "Viking Stock Option Agreement"), and (ii) Viking has the right,
under certain circumstances, to purchase up to 31,669,400 shares of Office Depot
Common Stock (or approximately 19.9% of the outstanding Office Depot Common
Stock as of May 15, 1998, prior to giving effect to such issuance) at a price of
$33.60 per share (the "Office Depot Stock Option Agreement," and with the Viking
Stock Option Agreement, the "Stock Option Agreements"). Each Stock Option
Agreement contains other features which, among other things, (1) permit the
optionholder, under certain circumstances, to receive a cash payment in lieu of
stock upon exercise of the option and (2) limit the profit, after accounting for
any termination fee payable pursuant to the Merger Agreement, which the
optionholder can realize in connection with the option to $125 million. See "THE
STOCK OPTION AGREEMENTS."
DISSENTERS' AND APPRAISAL RIGHTS
If holders of 5% or more of the outstanding shares of Viking Common Stock
entitled to vote at the Viking Special Meeting vote against the Merger Proposal
and comply with certain other procedures, Viking stockholders who take such
actions will be entitled to exercise dissenters' rights pursuant to the
provisions of Chapter 13 of the California Corporations Code. In accordance with
these provisions, dissenting Viking stockholders will have the right to be paid
in cash the fair market value of their shares of Viking Common Stock as
determined by appraisal (excluding any appreciation or depreciation as a
consequence of the Merger) by fully complying with the procedures set forth in
the California Corporations Code. The failure of a dissenting Viking stockholder
to comply timely and properly with such procedures will result in the
termination or waiver of such rights. See "THE MERGER -- Dissenters' and
Appraisal Rights."
Delaware law does not provide any appraisal rights or the right to receive
cash for their shares to holders who object to the Merger and who vote against
or abstain from voting in favor of the Share Issuance, and Office Depot does not
intend to make available such rights to its stockholders.
THE OFFICE DEPOT CHARTER AMENDMENT
The approval of the Charter Amendment by the Office Depot stockholders is
required by the Delaware General Corporation Law (the "Delaware Corporation
Law") to increase the number of authorized shares of Office Depot Common Stock
from 400,000,000 shares to 800,000,000 shares. Although there are presently
enough authorized shares of Office Depot Common Stock to issue shares to Viking
stockholders in connection with the Merger, the Charter Amendment is recommended
to ensure that additional shares of Office Depot Common Stock will be available,
if and when needed, for issuance from time to time for any proper purpose
11
<PAGE> 21
approved by the Office Depot Board, including issuances to raise capital or
effect acquisitions, and for other corporate purposes. Approval of the Charter
Amendment is not necessary to approve the Share Issuance or consummate the
Merger. See "THE OFFICE DEPOT CHARTER AMENDMENT AND INCENTIVE PLAN
AMENDMENT -- Reasons for the Charter Amendment."
THE OFFICE DEPOT INCENTIVE PLAN AMENDMENT
The Incentive Plan Amendment would increase the total number of shares of
Office Depot Common Stock reserved for issuance to officers and key employees of
the combined company from 15,212,500 to 20,712,500. As of June 27, 1998,
6,450,498 shares of Office Depot Common Stock were available for issuance under
the plan. Following the Merger, the Office Depot Board intends to cancel the
unused portion of the Viking stock plans. As of the Record Date, options to
purchase approximately 5,800,000 additional shares of Viking Common Stock were
available for issuance under the Viking stock plans pursuant to prior
authorization by the Viking stockholders. The Incentive Plan Amendment is
recommended to increase the number of shares of Office Depot Common Stock
reserved for issuance by approximately the same number as the shares of Viking
Common Stock reserved and unissued under the Viking stock plans. This will
enable Office Depot to issue shares of Office Depot Common Stock in amounts
sufficient to provide for awards to employees of the combined company. Approval
of the Incentive Plan Amendment is not necessary to approve the Share Issuance
or consummate the Merger. See "THE OFFICE DEPOT CHARTER AMENDMENT AND INCENTIVE
PLAN AMENDMENT -- Reasons for the Incentive Plan Amendment."
CERTAIN LEGAL PROCEEDINGS
On May 21, 1998, a Viking stockholder, Thaddeus Szymczak, filed a purported
class action complaint in Superior Court, State of California, County of Los
Angeles for breaches of fiduciary duties against Viking and the Viking Board.
The complaint seeks an injunction against the Merger and the certification as a
class of all Viking stockholders. It alleges that Viking and its directors
breached their fiduciary duties to Viking's stockholders by, among other things,
agreeing to an Exchange Ratio that fails to protect Viking stockholders against
a decline in the value of Office Depot stock, and failing to conduct an auction
for Viking or otherwise procuring a market assessment of the value of Viking in
an acquisition. The complaint also names Office Depot as a defendant, alleging
that it aided and abetted the Viking Board's breach of its fiduciary duties.
Office Depot and Viking believe that this complaint is without merit and
will aggressively defend against the suit and pursue the Merger.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Merger is intended to be a tax-free reorganization in which no gain or
loss will be recognized by Office Depot or Viking and no gain or loss will be
recognized by Viking stockholders. A condition to the Merger is that Office
Depot and Viking each receive an opinion of counsel to the effect that the
Merger will constitute a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). For a
further discussion of the federal income tax consequences of the Merger, see
"THE MERGER -- Certain Federal Income Tax Consequences." See also "THE MERGER
AGREEMENT -- Conditions to Closing."
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Office Depot's management believes that the
Merger will qualify as a pooling of interests under generally accepted
accounting principles. Under this method of accounting, the recorded assets and
liabilities of Office Depot and Viking will be carried forward in the combined
company at their recorded amounts, the operating results of the combined company
will include the operating results of Office Depot and Viking for the entire
fiscal year in which the combination occurs, and the reported operating results
of the separate companies for prior periods will be combined and restated as the
operating results of the combined company. A condition to the Merger is that
Office Depot and Viking shall have each received a letter as of the Effective
12
<PAGE> 22
Time from Deloitte & Touche LLP, Office Depot's independent accountants,
regarding its concurrence with the conclusions of Office Depot's management as
to the appropriateness of pooling of interests accounting, under Accounting
Principles Board Opinion No. 16, for the Merger. See "THE MERGER -- Accounting
Treatment" and "THE MERGER AGREEMENT -- Conditions to Closing."
SURRENDER OF CERTIFICATES
Following the Effective Time, Office Depot will mail a letter of
transmittal to all holders of record of Viking Common Stock immediately prior to
the Merger, which contains instructions for surrendering their stock
certificates in exchange for certificates representing shares of Office Depot
Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS RECEIVED. See "THE MERGER AGREEMENT -- Conversion of Shares."
CERTAIN EFFECTS OF THE MERGER ON THE RIGHTS OF HOLDERS OF VIKING COMMON STOCK
Upon consummation of the Merger, holders of Viking Common Stock will become
stockholders of Office Depot, subject to dissenters' rights. The internal
affairs of Office Depot are governed by the Delaware Corporation Law and Office
Depot's Certificate of Incorporation and By-Laws. The Merger will result in
certain differences in the rights of holders of Viking Common Stock. See
"DESCRIPTION OF OFFICE DEPOT CAPITAL STOCK" and "COMPARISON OF STOCKHOLDER
RIGHTS."
13
<PAGE> 23
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION
The following selected historical financial information of Office Depot and
Viking has been derived from their respective historical financial statements
and should be read in conjunction with such consolidated financial statements
and the notes thereto, which are incorporated by reference herein. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
In the opinion of management of the respective companies, the quarterly
financial information includes all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations of the respective companies as of such dates and for such
periods. Results of operations for interim periods are not necessarily
indicative of results for the full year.
The selected unaudited pro forma combined financial information is derived
from the unaudited pro forma combined financial statements, appearing elsewhere
herein, which give effect to the Merger as a pooling of interests, and should be
read in conjunction with such unaudited pro forma combined statements and the
notes thereto. For the purpose of the unaudited pro forma combined statement of
earnings data, Office Depot's results of operations for the thirteen weeks ended
March 28, 1998 (unaudited) and March 29, 1997 (unaudited) and the fiscal years
ended December 27, 1997, December 28, 1996 and December 30, 1995 have been
combined with corresponding unaudited Viking operating results for the quarters
ended March 31, 1998 and March 31, 1997 and the years ended December 31, 1997,
December 31, 1996 and December 31, 1995, respectively. Viking utilizes a 52- or
53-week fiscal year ending on the last Friday in June. For clarity of
presentation, Viking has described all periods presented as if the year ended
June 30. In order to conform Viking's financial statements to Office Depot's
fiscal years, Viking's historical quarterly results were realigned according to
Office Depot's fiscal year, which is a 52- or 53-week fiscal year ending on the
last Saturday in December. For the purpose of the unaudited pro forma combined
balance sheet, Office Depot's unaudited consolidated balance sheet as of March
28, 1998 has been combined with Viking's unaudited consolidated balance sheet as
of March 31, 1998, giving effect to the Merger as if it had occurred on March
28, 1998.
The unaudited pro forma combined financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have been achieved if the Merger had
been consummated as of the beginning of the periods presented, nor is it
necessarily indicative of the future operating results or financial position of
the combined company. The unaudited pro forma combined financial information
does not give effect to any cost savings which may result from the integration
of Office Depot's and Viking's operations. Additionally, the unaudited pro forma
combined statements of earnings do not include the merger-related expenses and
integration costs associated with the Merger (which are currently estimated to
be approximately $107.5 million, excluding the deferred tax benefit of $28
million relating to these expenses). No material adjustments were required to
conform the accounting policies of the two companies.
14
<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
------------------------------------------------------------------------ -----------------------
DECEMBER 25, DECEMBER 31, DECEMBER 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1993(1) 1994 1995 1996 1997(2) 1997 1998
------------ ------------ ------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE DEPOT -- STATEMENT OF
EARNINGS DATA
Sales....................... $2,836,787 $4,266,199 $5,313,192 $6,068,598 $6,717,514 $1,772,444 $1,981,096
Operating profit............ 122,538 192,829 244,077 239,381 302,968 76,755 97,797
Net earnings................ 70,832 104,957 132,399 129,042 159,676 38,787 55,823
Earnings per common share:
Basic................... $ 0.50 $ 0.71 $ 0.87 $ 0.82 $ 1.01 $ 0.25 $ 0.35
Diluted................. $ 0.48 $ 0.68 $ 0.83 $ 0.80 $ 0.97 $ 0.24 $ 0.33
OFFICE DEPOT -- BALANCE
SHEET DATA
Working capital............. $ 471,114 $ 487,333 $ 708,984 $ 693,795 $ 882,805 $ 743,419 $ 963,990
Total assets................ 1,531,092 1,903,983 2,531,217 2,740,317 2,981,089 2,656,126 3,056,784
Long-term debt, less current
maturities................ 367,602 393,800 494,910 416,757 447,020 420,524 450,959
Common stockholders'
equity.................... 590,284 715,271 1,002,995 1,155,945 1,328,905 1,197,813 1,394,944
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------------------------ ----------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1993 1994 1995(3) 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
VIKING -- INCOME STATEMENT
DATA
Revenues..................... $ 449,687 $ 565,055 $ 811,899 $1,055,754 $1,286,289 $960,109 $1,121,123
Operating income(4).......... 29,358 47,672 64,499 81,860 94,015 72,500 81,482
Net income................... 17,157 31,780 46,106 60,471 70,120 53,565 63,153
Net income per common
share:(5)
Basic.................... $ 0.22 $ 0.40 $ 0.57 $ 0.73 $ 0.84 $ 0.64 $ 0.75
Diluted.................. $ 0.21 $ 0.38 $ 0.54 $ 0.70 $ 0.81 $ 0.62 $ 0.73
VIKING -- BALANCE SHEET DATA
Working capital.............. $ 68,699 $ 95,223 $ 127,580 $ 146,756 $ 197,656 $176,454 $ 231,849
Total assets................. 165,345 227,220 308,344 399,641 474,508 491,699 583,440
Stockholders' equity......... 112,660 150,232 208,526 275,029 352,638 322,834 414,006
</TABLE>
- ---------------
(1) Fiscal year consisted of 53 weeks. All other Office Depot fiscal years
consisted of 52 weeks.
(2) Net earnings and earnings per common share include costs of approximately
$16 million incurred in connection with a September 1996 merger plan which
was terminated in July 1997.
(3) Fiscal year consisted of 53 weeks. All other Viking fiscal years consisted
of 52 weeks.
(4) Represents operating income as reported in Viking's historical financial
statements. In order to conform to Office Depot's presentations, certain
reclassifications were made to Viking's financial statements included in the
Unaudited Pro Forma Combined Statements of Earnings.
(5) Restated for 2-for-1 stock splits in May 1996 and May 1994.
15
<PAGE> 25
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
------------------------------------------ -----------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1995(1) 1996 1997 1997 1998
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF
EARNINGS DATA(2):
Sales............................... $6,233,985 $7,250,931 $8,100,319 $2,125,527 $2,398,677
Net earnings........................ 185,060 196,218 234,861 59,535 81,094
Earnings per common share(3):
Basic.......................... $ 0.79 $ 0.82 $ 0.97 $ 0.25 $ 0.33
Diluted........................ $ 0.75 $ 0.79 $ 0.93 $ 0.24 $ 0.32
Number of shares used in computing
earnings per common share --
basic(3).......................... 233,567 239,828 241,755 241,159 243,352
Number of shares used in computing
earnings per common share --
diluted(3)........................ 258,974 262,570 263,286 262,861 266,372
</TABLE>
<TABLE>
<CAPTION>
MARCH 28,
1998(4)
----------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA (2):
Working capital............................................. $1,132,839
Total assets................................................ 3,645,724
Long-term debt, less current maturities..................... 450,959
Common stockholders' equity................................. 1,729,450
</TABLE>
- ---------------
(1) Viking's fiscal year consisted of 53 weeks, Office Depot's fiscal year
consisted of 52 weeks.
(2) See Notes to Unaudited Pro Forma Combined Financial Statements.
(3) Viking's share and per share data has been restated for a 2-for-1 stock
split in May 1996.
(4) The pro forma combined balance sheet as of March 28, 1998 includes an
accrual of $107.5 million for the estimated merger-related and integration
expenses and the deferred tax benefit of $28 million relating to those
expenses.
16
<PAGE> 26
COMPARATIVE PER SHARE DATA
The following table sets forth certain unaudited historical per share data
of Office Depot and Viking and combined per share data on an unaudited pro forma
basis after giving effect to the Merger on a pooling of interests basis (and
assuming the issuance of one share of Office Depot Common Stock in the Merger in
exchange for each outstanding share of Viking Common Stock). Viking utilizes a
52- or 53-week fiscal year ending on the last Friday of June; consequently, for
the purposes of the preparation of the unaudited pro forma combined per share
data, Viking's historical quarterly results were realigned to conform with
Office Depot's fiscal year. Viking's per share data also has been restated for a
2-for-1 stock split in May 1996. This data should be read in conjunction with
the selected historical financial data and the unaudited pro forma combined
financial statements included elsewhere in this Joint Proxy Statement/Prospectus
and the separate historical financial statements of Office Depot and Viking
incorporated by reference herein. The pro forma consolidated financial data is
not necessarily indicative of the operating results or financial position that
would have been achieved if the Merger had been consummated as of the beginning
of the periods presented, nor is it necessarily indicative of the future
operating results or financial position of the combined company. Neither Office
Depot nor Viking has ever paid any cash dividends on its Common Stock.
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
-------------------------------------------- ----------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL -- OFFICE DEPOT:
Net earnings -- basic.................. $ 0.87 $ 0.82 $ 1.01 $ 0.25 $ 0.35
Net earnings -- diluted................ $ 0.83 $ 0.80 $ 0.97 $ 0.24 $ 0.33
Book value............................. $ 6.44 $ 7.35 $ 8.39 $ 7.61 $ 8.79
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------- ----------------------
JUNE 30, JUNE 30, JUNE 30, MARCH 31, MARCH 31,
1995(1) 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL -- VIKING:
Net income -- basic.................... $ 0.57 $ 0.73 $ 0.84 $ 0.64 $ 0.75
Net income -- diluted.................. $ 0.54 $ 0.70 $ 0.81 $ 0.62 $ 0.73
Book value............................. $ 2.55 $ 3.32 $ 4.21 $ 3.86 $ 4.87
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTEEN WEEKS ENDED
-------------------------------------------- ----------------------
DECEMBER 30, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1995(2) 1996 1997 1997 1998(3)
------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED --
PER OFFICE DEPOT/VIKING SHARE:
Net earnings -- basic.................. $ 0.79 $ 0.82 $ 0.97 $ 0.25 $ 0.33
Net earnings -- diluted................ $ 0.75 $ 0.79 $ 0.93 $ 0.24 $ 0.32
Book value............................. $ 5.23 $ 6.10 $ 7.07 $ 6.30 $ 7.42
EQUIVALENT PRO FORMA COMBINED --
PER VIKING SHARE(4):
Net earnings -- basic.................. $ 0.79 $ 0.82 $ 0.97 $ 0.25 $ 0.33
Net earnings -- diluted................ $ 0.75 $ 0.79 $ 0.93 $ 0.24 $ 0.32
Book value............................. $ 5.23 $ 6.10 $ 7.07 $ 6.30 $ 7.42
</TABLE>
- ---------------
(1) Viking fiscal year consisted of 53 weeks. All other Viking fiscal years
consisted of 52 weeks.
(2) Fiscal year consists of 52 weeks for Office Depot and 53 weeks for Viking.
(3) The unaudited pro forma combined balance sheet as of March 28, 1998 includes
an accrual of $107.5 million for the estimated merger-related and
integration expenses and the deferred tax benefit of $28 million relating to
these expenses. See Notes to Unaudited Pro Forma Combined Financial
Statements.
(4) The equivalents of Viking's unaudited pro forma per share amounts are the
same as the combined pro forma per share amounts per Office Depot/Viking
share since the Exchange Ratio is one share of Office Depot Common Stock for
each share of Viking Common Stock.
17
<PAGE> 27
COMPARATIVE MARKET PRICE INFORMATION
Office Depot Common Stock is quoted on the New York Stock Exchange under
the symbol "ODP." Viking Common Stock is listed on the Nasdaq National Market
under the symbol "VKNG."
The table below sets forth, for the fiscal quarters indicated, the reported
high and low sale prices of Office Depot Common Stock and Viking Common Stock on
the New York Stock Exchange and the Nasdaq National Market, respectively. For
purposes of comparison, the Viking Common Stock price information is presented
for the fiscal periods of Office Depot rather than for Viking's historical
fiscal periods. The Viking Common Stock Price Information also reflects a
2-for-1 stock split in May 1996.
<TABLE>
<CAPTION>
OFFICE DEPOT
COMMON STOCK VIKING COMMON STOCK
------------------ --------------------
HIGH LOW HIGH LOW
------- ------- -------- --------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED DECEMBER 30, 1995:
First Quarter..................................... $26.500 $22.750 $15.500 $12.500
Second Quarter.................................... 29.500 20.875 18.500 12.500
Third Quarter..................................... 32.125 27.000 21.125 15.750
Fourth Quarter.................................... 31.750 19.000 24.313 18.625
FISCAL YEAR ENDED DECEMBER 28, 1996:
First Quarter..................................... 23.875 16.875 29.188 20.875
Second Quarter.................................... 25.625 19.375 34.000 25.750
Third Quarter..................................... 23.500 12.875 31.750 22.125
Fourth Quarter.................................... 23.750 17.250 30.875 25.000
FISCAL YEAR ENDED DECEMBER 27, 1997:
First Quarter..................................... 23.250 16.375 29.125 19.125
Second Quarter.................................... 21.250 12.000 21.375 13.500
Third Quarter..................................... 21.563 14.500 25.000 17.500
Fourth Quarter.................................... 23.688 18.750 25.250 19.750
FISCAL YEAR ENDING DECEMBER 26, 1998:
First Quarter..................................... 30.063 21.750 25.500 19.500
Second Quarter.................................... 34.750 28.063 32.750 20.050
Third Quarter (through July 21, 1998)............. 37.250 31.500 36.750 31.375
</TABLE>
On May 15, 1998, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement thereof, the last
reported sale price of Office Depot Common Stock on the New York Stock Exchange
was $34.4375 per share, and the last reported sale price of Viking Common Stock
on the Nasdaq National Market was $23.938 per share.
On the Record Date, the most recent practicable date prior to the printing
of this Joint Proxy Statement/ Prospectus, the last reported sale price of
Office Depot Common Stock on the New York Stock Exchange was $36.188 per share,
and the last reported sales price of Viking Common Stock on the Nasdaq National
Market was $35.75 per share.
Because the market price of Office Depot Common Stock is subject to
fluctuation, the market value of the shares of Office Depot Common Stock that
holders of Viking Common Stock will receive in the Merger may increase or
decrease prior to the Merger.
OFFICE DEPOT AND VIKING STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET
QUOTATION FOR OFFICE DEPOT COMMON STOCK AND VIKING COMMON STOCK.
18
<PAGE> 28
THE OFFICE DEPOT SPECIAL MEETING
DATE, TIME AND PLACE
This Joint Proxy Statement/Prospectus is being furnished to holders of
Office Depot Common Stock in connection with the solicitation of proxies by the
Office Depot Board of Directors for use at the Office Depot Special Meeting to
be held on August 26, 1998, at Office Depot's executive offices, 2200 Old
Germantown Road, Delray Beach, Florida, commencing at 11:00 a.m., Eastern time,
and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Office Depot on or about July 24,
1998.
MATTERS TO BE CONSIDERED AT THE OFFICE DEPOT SPECIAL MEETING
At the Office Depot Special Meeting, holders of Office Depot Common Stock
will be asked to consider and vote upon proposals to approve: (i) the issuance
of up to 91,696,026 shares of Office Depot Common Stock in exchange for shares
of Viking Common Stock pursuant to the Merger Agreement; (ii) the amendment of
Section 4.1 of the Office Depot Charter to increase the number of authorized
shares of Office Depot Common Stock from 400,000,000 to 800,000,000; (iii) the
amendment of the Office Depot Long-Term Equity Incentive Plan to increase the
number of shares of Office Depot Common Stock reserved for issuance to officers
and key employees following the Merger from 15,212,500 to 20,712,500; and (iv)
such other matters as may properly be brought before the Office Depot Special
Meeting, or any adjournment or postponement thereof.
OFFICE DEPOT BOARD RECOMMENDATIONS
THE OFFICE DEPOT BOARD HAS UNANIMOUSLY APPROVED THE MERGER, THE MERGER
AGREEMENT, THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE INCENTIVE PLAN
AMENDMENT AND RECOMMENDS THAT HOLDERS OF OFFICE DEPOT COMMON STOCK VOTE IN FAVOR
OF THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE INCENTIVE PLAN AMENDMENT.
VOTE REQUIRED
The approval of the Share Issuance and the Incentive Plan Amendment will
require the affirmative vote of the holders of a majority of the shares of
Office Depot Common Stock represented at the Office Depot Special Meeting. The
approval of the Charter Amendment will require the affirmative vote of the
holders of a majority of the outstanding shares of Office Depot Common Stock.
The approval of the Share Issuance and the consummation of the Merger is not
predicated upon the approval of the Charter Amendment or the Incentive Plan
Amendment.
VOTING OF PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Office Depot
stockholders in connection with the solicitation of proxies by and on behalf of
the Office Depot Board for use at the Office Depot Special Meeting, and is
accompanied by a form of proxy.
All shares of Office Depot Common Stock which are entitled to vote and are
represented at the Office Depot Special Meeting by properly executed proxies
received prior to or at the Special Meeting, and not revoked, will be voted at
the Office Depot Special Meeting in accordance with the instructions indicated
on such proxies. If no instructions are indicated, such proxies will be voted
for approval of the Share Issuance, the Charter Amendment and the Incentive Plan
Amendment.
If any other matters are properly presented at the Office Depot Special
Meeting for consideration, including, among other things, consideration of a
motion to adjourn the Office Depot Special Meeting to another time and/or place
(including, without limitation, for the purposes of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
Merger), the persons named in the enclosed forms of proxy and acting thereunder
will have discretion to vote on such matters in accordance with their best
judgment. Proxies voted against the Share Issuance, the Charter Amendment or the
Incentive Plan Amendment will not be voted in favor of adjournment for the
purpose of the continued solicitation of proxies.
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REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Office Depot, at or before the taking of the vote at the
Office Depot Special Meeting, a written notice of revocation bearing a later
date than the proxy, (ii) duly executing a later dated proxy relating to the
same shares and delivering it to the Secretary of Office Depot before the taking
of the vote at the Office Depot Special Meeting or (iii) attending the Office
Depot Special Meeting and voting in person (although attendance at the Meeting
will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be sent to Office Depot, Inc.,
2200 Old Germantown Road, Delray Beach, Florida 33445, Attention: Secretary, or
hand delivered to the Secretary of Office Depot at or before the taking of the
vote at the Office Depot Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
The Office Depot Board of Directors has fixed July 20, 1998 as the Record
Date for the determination of the Office Depot stockholders entitled to notice
of and to vote at the Office Depot Special Meeting. Accordingly, only Office
Depot stockholders of record on the Record Date will be entitled to notice of
and to vote at the Office Depot Special Meeting. As of the Record Date, there
were outstanding and entitled to vote 159,666,751 shares of Office Depot Common
Stock (constituting all of the voting stock of Office Depot), which shares were
held by approximately 2,741 holders of record. Each holder of record of shares
of Office Depot Common Stock on the Record Date is entitled to one vote per
share, which may be cast either in person or by properly executed proxy, at the
Office Depot Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Office Depot Common Stock entitled to vote
at the Office Depot Special Meeting is necessary to constitute a quorum at the
Office Depot Special Meeting. Shares of Office Depot Common Stock represented in
person or by proxy will be counted for the purpose of determining whether a
quorum is present at the Office Depot Special Meeting. Shares that are present
and entitled to vote which abstain from voting as to a particular matter will be
treated as shares that are present and entitled to vote at the Office Depot
Special Meeting for purposes of determining whether a quorum exists. The Share
Issuance and the Incentive Plan Amendment must be approved by the holders of a
majority of the shares of Office Depot Common Stock represented at the Office
Depot Special Meeting. The approval of the Charter Amendment will require the
affirmative vote of the holders of a majority of the shares of Office Depot
Common Stock. Abstentions will have the same effect as a vote against the Share
Issuance, the Charter Amendment and the Incentive Plan Amendment.
As of the Record Date, directors and executive officers of Office Depot and
their affiliates may be deemed to have or share beneficial ownership of
approximately 2.1% of the outstanding shares of Office Depot Common Stock. Each
of the directors and executive officers of Office Depot has advised Office Depot
that he or she intends to vote or direct the vote of all shares of Office Depot
Common Stock over which he or she has or shares voting control for approval of
the Merger Agreement. See "OFFICE DEPOT, INC. -- Security Ownership of Certain
Beneficial Owners and Management."
SOLICITATION OF PROXIES
All expenses of Office Depot's solicitation of proxies, including the cost
of mailing this Joint Proxy Statement/Prospectus to Office Depot stockholders,
will be borne by Office Depot. In addition to solicitation by use of the mails,
proxies may be solicited from Office Depot stockholders by directors, officers
and employees of Office Depot in person or by telephone or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Office Depot has retained Corporate Investor
Communications, Inc., a proxy solicitation firm, for assistance in connection
with the solicitation of proxies for the Office Depot Special Meeting at a cost
of approximately $6,500 plus reimbursement of reasonable out-of-pocket expenses.
Arrangements will also be made with brokerage houses, custodians, nominees and
fiduciaries for the forwarding of proxy solicitation materials to beneficial
owners of shares held of record by such brokerage houses, custodians, nominees
and fiduciaries, and Office Depot will reimburse such brokerage houses,
custodians, nominees and fiduciaries for their reasonable expenses incurred in
connection therewith.
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THE VIKING SPECIAL MEETING
DATE, TIME AND PLACE
This Joint Proxy Statement/Prospectus is being furnished to holders of
Viking Common Stock in connection with the solicitation of proxies by the Viking
Board of Directors for use at the Viking Special Meeting to be held on August
26, 1998, at Viking's executive offices, 950 West 190th Street, Torrance,
California, commencing at 8:00 a.m., Pacific time (11:00 a.m., Eastern time),
and at any adjournment or postponement thereof.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Viking on or about July 24, 1998.
MATTERS TO BE CONSIDERED AT THE VIKING SPECIAL MEETING
At the Viking Special Meeting, holders of Viking Common Stock will be asked
to consider and vote upon: (i) the Merger Proposal; and (ii) such other matters
as may properly be brought before the Viking Special Meeting, or any adjournment
or postponement thereof.
VIKING BOARD RECOMMENDATIONS
THE VIKING BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND THE MERGER
AGREEMENT AND RECOMMENDS THAT HOLDERS OF VIKING COMMON STOCK VOTE IN FAVOR OF
THE APPROVAL OF THE MERGER PROPOSAL.
VOTE REQUIRED
The approval of the Merger Proposal will require the affirmative vote of
the holders of a majority of the shares of Viking Common Stock outstanding as of
the Record Date.
VOTING OF PROXIES
This Joint Proxy Statement/Prospectus is being furnished to Viking
stockholders in connection with the solicitation of proxies by and on behalf of
the Viking Board for use at the Viking Special Meeting, and is accompanied by a
form of proxy.
All shares of Viking Common Stock which are entitled to vote and are
represented at the Viking Special Meeting by properly executed proxies received
prior to or at the Viking Special Meeting, and not revoked, will be voted at
such Meeting in accordance with the instructions indicated on such proxies. If
no instructions are indicated, such proxies will be voted for approval of the
Merger Proposal.
If any other matters are properly presented at the Viking Special Meeting
for consideration, including, among other things, consideration of a motion to
adjourn such Meeting to another time and/or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions to the Merger), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment. Proxies voted
against the Merger Proposal will not be voted in favor of adjournment for the
purpose of the continued solicitation of proxies.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by: (i) filing
with the Secretary of Viking, at or before the taking of the vote at the Viking
Special Meeting, a written notice of revocation bearing a later date than the
proxy; (ii) duly executing a later dated proxy relating to the same shares and
delivering it to the Secretary of Viking before the taking of the vote at the
Viking Special Meeting; or (iii) attending the Viking Special Meeting and voting
in person (although attendance at the Special Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be sent to Viking Office Products, Inc.,
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950 West 190th Street, Torrance, California 90502, Attention: Secretary, or hand
delivered to the Secretary of Viking at or before the taking of the vote at the
Viking Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
The Viking Board of Directors has fixed July 20, 1998 as the Record Date
for the determination of the Viking stockholders entitled to notice of and to
vote at the Viking Special Meeting. Accordingly, only Viking stockholders of
record on the Record Date will be entitled to notice of and to vote at the
Viking Special Meeting. As of the Record Date, there were outstanding and
entitled to vote 85,329,976 shares of Viking Common Stock (constituting all of
the voting stock of Viking), which shares were held by approximately 1,480
holders of record. Each holder of record of shares of Viking Common Stock on the
Record Date is entitled to one vote per share, which may be cast either in
person or by properly executed proxy, at the Viking Special Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Viking Common Stock entitled to vote at
the Viking Special Meeting is necessary to constitute a quorum at the Viking
Special Meeting. Shares of Viking Common Stock represented in person or by proxy
will be counted for the purpose of determining whether a quorum is present at
the Viking Special Meeting. Shares which abstain from voting as to a particular
matter will be treated as shares that are present and entitled to vote at the
Viking Special Meeting for purposes of determining whether a quorum exists. The
Merger Proposal must be approved by the holders of a majority of the shares of
Viking Common Stock outstanding on the Record Date; consequently, abstentions
will have the same effect as a vote against the Merger Proposal.
As of the Record Date, directors and executive officers of Viking and their
affiliates may be deemed to have or share beneficial ownership of approximately
6.1% of the outstanding shares of Viking Common Stock. Each of the directors and
executive officers of Viking has advised Viking that he or she intends to vote
or direct the vote of all shares of Viking Common Stock over which he or she has
or shares voting control for approval of the Merger Proposal. See "VIKING OFFICE
PRODUCTS, INC. -- Security Ownership of Certain Beneficial Owners and
Management."
SOLICITATION OF PROXIES
All expenses of Viking's solicitation of proxies, including the cost of
mailing this Joint Proxy Statement/ Prospectus to Viking stockholders, will be
borne by Viking. In addition to solicitation by use of the mails, proxies may be
solicited from Viking stockholders by directors, officers and employees of
Viking in person or by telephone or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Viking has retained Corporate Investor Communications, Inc., a
proxy solicitation firm, for assistance in connection with the solicitation of
proxies for the Viking Special Meeting at a cost of approximately $6,500 plus
reimbursement of reasonable out-of-pocket expenses. Arrangements will also be
made with brokerage houses, custodians, nominees and fiduciaries for forwarding
of proxy solicitation materials to beneficial owners of shares held of record by
such brokerage houses, custodians, nominees and fiduciaries, and Viking will
reimburse such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
VIKING STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
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RISK FACTORS
The following risk factors, in addition to the other information contained
or incorporated by reference in this Joint Proxy Statement/Prospectus, should be
considered by holders of the Office Depot Common Stock in evaluating whether to
approve the Share Issuance, Charter Amendment and Incentive Plan Amendment and
by holders of Viking Common Stock in evaluating whether to approve the Merger
Proposal and thereby become holders of Office Depot Common Stock.
RISKS RELATING TO THE MERGER
Integration of Operations. Office Depot, headquartered in Florida,
operates more than 600 office products superstores in various markets across the
United States and Canada, operates a Business Services Division providing
delivery and contract stationer services to businesses throughout the United
States and operates internationally through joint ventures or licensed
operations in Colombia, France, Hungary, Israel, Japan, Mexico, Poland and
Thailand. Viking sells office products to small and medium-sized businesses in
the United States, Europe and Australia through direct marketing catalogs and
database marketing programs. Integrating the operations and management of Office
Depot and Viking will be a complex process, and there can be no assurance that
this integration will be completed rapidly or will result in the achievement of
all of the anticipated synergies and other benefits expected to be realized from
the Merger. Moreover, the integration of Office Depot and Viking will require
significant management attention, which may temporarily distract management from
its usual focus on the daily operations of the combined company. The inability
of management to integrate successfully the operations of Office Depot and
Viking, or any significant delay in achieving such integration, could have a
material adverse effect on the business and operating results of the combined
company. See "THE MERGER -- Recommendations of the Office Depot Board; Office
Depot's Reasons for the Merger" and "-- Recommendations of the Viking Board;
Viking's Reasons for the Merger."
Merger-Related Charges. Office Depot and Viking estimate that, as a result
of the Merger, the combined company will incur consolidation and integration
expenses of approximately $72.5 million. In addition, it is expected that Office
Depot and Viking will incur merger-related expenses of approximately $35
million, consisting of investment banking, legal and accounting fees and
financial printing and other related charges. The combined company expects to
expense the majority of the $107.5 million charge relating to the
above-referenced expenses in fiscal 1998. The amount of these charges is a
preliminary estimate and is subject to change. Moreover, additional
unanticipated expenses may be incurred in connection with the integration of the
businesses of Office Depot and Viking.
Fixed Conversion Ratio Does Not Reflect Changes in Stock Prices. The
number of shares of Office Depot Common Stock into which each share of Viking
Common Stock is to be converted in the Merger is fixed. The market value of
Office Depot Common Stock and/or Viking Common Stock at the Effective Time of
the Merger may vary significantly from the price as of the date of execution of
the Merger Agreement, the date hereof or the date on which Office Depot and
Viking stockholders vote on the Merger due to, among other factors, market
perception of the synergies expected to be achieved by the Merger, changes in
the business, operations or prospects of Office Depot or Viking, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, and general market and economic conditions. Because the Exchange Ratio
will not be adjusted to reflect changes in the market value of Office Depot
Common Stock or Viking Common Stock, the market value of the Office Depot Common
Stock issued in the Merger, and the market value of the Viking Common Stock
surrendered in the Merger, may be higher or lower than the value of such shares
at the time the Merger was negotiated or approved by the Office Depot Board and
the Viking Board.
RISKS RELATING TO OFFICE DEPOT AND VIKING
Competition. Both Office Depot and Viking operate in highly competitive
marketplaces in which they compete with a variety of retailers, direct-mail
marketers, dealers and distributors. Office Depot competes in many of its
geographic markets with office products superstores including OfficeMax and
Staples, as well as Corporate Express, Boise Cascade, U.S. Office Products and
other high-volume office products retailers,
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independent dealers, contract stationers, mail order stationers, wholesale
clubs, mass merchandisers, consumer electronics retailers, computer superstores
and manufacturers. Viking competes with numerous companies including Quill,
Reliable, OfficeMax and Staples in the United States; Bruneau and JPG, in
France; Overtoom in Belgium; Neat Ideas in the United Kingdom; and Printus and
others in Germany -- all of which are high-volume direct-mail marketers of
office products. Some of the current and potential competitors of Office Depot
and Viking in the office products industry are larger and have greater financial
resources than Office Depot and Viking, even as a combined company. No assurance
can be given that this competition will not have an adverse effect on the
combined business of Office Depot and Viking.
Growth Strategy. An aggressive store growth strategy is an integral part
of the business plan of Office Depot. Office Depot opened 41 new office supply
stores in the United States and Canada in fiscal 1997 and opened 60 new office
supply stores in fiscal 1996. Viking has opened five distribution centers in
Europe and Australia and three distribution centers in the United States since
the beginning of fiscal 1996. Viking has based its expansion strategy in part
upon entering new countries, and continued growth in existing markets, including
the addition of distribution centers as required by customer demand. Management
of both companies anticipate that the combined company will continue to pursue
this aggressive growth strategy following the Merger. There can be no assurance
that the combined company will be able to identify and lease favorable sites,
hire, train and integrate employees and adapt its management and operational
systems to the extent necessary to fulfill its expansion plans. The failure to
open new stores, retain existing customers and attract new customers in
accordance with Office Depot's and Viking's growth plans could have a material
adverse effect upon future sales and profits. Moreover, the expansion strategy
of Office Depot is based in part on the continued addition of new stores to its
suburban store network in existing markets to take advantage of economies of
scale in marketing, distribution and supervision costs; this can result in the
"cannibalization" of sales of existing stores. In addition, there can be no
assurance that the new stores opened will achieve sales or profit levels
commensurate with those of existing stores.
Fluctuations in Quarterly Operating Results. Both Office Depot and Viking
have experienced in the past, and either company (or, following the Merger, the
combined company) may experience in the future, fluctuations in its quarterly
operating results. There can be no assurance that the combined company will
continue to realize the earnings growth experienced by the two companies over
recent years, or that earnings in any particular quarter will not fall short of
either a prior fiscal quarter or investors' expectations. Factors such as the
number of new store openings (pre-opening costs are expensed as incurred, and
newer stores are less profitable than mature stores), the extent to which new
stores cannibalize sales of existing stores, the ability to reach new consumers
via direct-mail catalogs, the mix of products sold, pricing actions of
competitors, the level of advertising and promotional expenses, seasonality, and
one-time charges associated with acquisitions, new country openings or other
events could contribute to variability in quarterly operating results. In
addition, both companies' expense levels are based in part on expectations of
future sales levels, and a shortfall in expected sales could therefore result in
a disproportionate decrease in net income.
Management of Growth. The businesses of both Office Depot and Viking,
including the number of stores and distribution centers and the number of
employees, have grown significantly over the past several years. Office Depot
has consummated a number of significant acquisitions in the last few years, and
may make additional acquisitions in the future. This growth has resulted in
integration and expansion costs and placed significant demands on the management
and operational systems of both companies. To manage the anticipated growth
effectively, each of Office Depot and Viking (and, following the Merger, the
combined company) will be required to continue to upgrade its operational and
financial systems, expand its management teams and increase and effectively
manage its employees.
International Operations. Both Office Depot and Viking have a presence in
international markets, primarily through joint venture or licensing arrangements
for Office Depot and through subsidiaries for Viking. Viking has an extensive
network of distribution centers and call centers in Europe and Australia. Office
Depot may enter additional international markets in the future. Operations in
foreign markets are subject to risks similar to those affecting domestic
operations described above, as well as a number of risks inherent in foreign
operations, including local customs and competitive conditions, foreign currency
fluctuations and changes in foreign tax rates. Viking's and Office Depot's
operations around the world are dependent on the performance
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and costs of each country's postal system and telecommunications network. Office
Depot's foreign operations are at an early stage of development and are
currently unprofitable in the aggregate, and there can be no assurance that they
will become profitable. Viking's foreign operations are more mature and
accounted for over 50% of its operating profit in fiscal 1997, though there can
be no assurance that the foreign operations will continue to be profitable.
Future Cash Needs. Office Depot and Viking each currently expects that the
cash and cash equivalents of the combined company, together with the funds
available under Office Depot's and Viking's existing credit agreements and
credit lines expected to be obtained in the future, will be sufficient to fund
the planned store openings and other operating cash needs of Office Depot and
Viking for at least the next twelve months. There can be no assurance, however,
that the combined company will not require additional sources of financing prior
to such time as a result of unanticipated cash needs or opportunities, an
expanded growth strategy or lower than expected operating results. There also
can be no assurance that the additional funds required, whether within the next
twelve months or thereafter, will be available on satisfactory terms, if at all.
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THE MERGER
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approvals of the Office Depot and Viking stockholders required therefor are
obtained and all other conditions to the Merger are satisfied or waived. Upon
consummation of the Merger, Merger Sub will be merged with and into Viking, the
separate corporate existence of Merger Sub will cease, and Viking will continue
as the surviving corporation and a wholly owned subsidiary of Office Depot.
Pursuant to the Merger, each outstanding share of Viking Common Stock (other
than shares owned by Viking as treasury stock or by its subsidiaries or by
Office Depot or its subsidiaries, all of which will be canceled and retired)
will be converted into one share of Office Depot Common Stock, subject to
dissenters' rights.
Based upon the outstanding shares of Office Depot and Viking as of the
Record Date, the stockholders of Viking immediately prior to the consummation of
the Merger would own approximately 35% of the outstanding Office Depot Common
Stock immediately following consummation of the Merger. Such percentage could
change depending upon whether shares of Office Depot Common Stock and Viking
Common Stock, issuable upon exercise of outstanding Office Depot and Viking
stock options or other rights, are issued, and whether and to what extent Viking
stockholders exercise dissenters' rights.
BACKGROUND OF THE MERGER
In light of continuing consolidation in the office products industry,
Viking retained Merrill Lynch and Warburg Dillon Read on May 8, 1997 to explore
strategic alternatives. Subsequently, in accordance with discussions with
Merrill Lynch, Warburg Dillon Read and Viking's directors, management explored
numerous strategic alliances, alternatives and options.
In January 1998, Office Depot asked Merrill Lynch, which had previously
represented Office Depot, to contact Viking about the possibility of a strategic
transaction. In late January 1998, senior management of Office Depot and Viking
met in Los Angeles to conduct preliminary discussions regarding the possibility
of some type of business combination. These conversations were exploratory in
nature and did not progress beyond the preliminary stage.
During February 1998, Viking's management consulted with its advisors to
consider the strategic rationale for a business combination involving Office
Depot and decided to proceed with further discussions.
A confidentiality agreement was entered into by Office Depot and Viking and
certain information was exchanged in March 1998. Later that month,
representatives of Office Depot and Viking met.
Beginning in early April 1998, management of Viking had discussions with
its outside directors to consider the potential benefits of a business
combination with Office Depot.
During late April and early May 1998, Viking's representatives and advisors
and Office Depot's representatives and advisors had various meetings to further
discuss the potential benefits and opportunities which could accrue from a
merger, possible exchange ratios, and other terms. By May 11, 1998, the
managements of both Viking and Office Depot believed that it was advisable to
inform their respective Boards of Directors of the progress of discussions and
instruct their respective counsels to begin preparing documentation for a
strategic business combination.
From May 12, 1998 through May 17, 1998, Viking and Office Depot and their
respective advisors proceeded to work on, and hold a series of meetings and
discussions regarding, the Merger Agreement, Stock Option Agreements and related
documents and the financial, legal and accounting "due diligence" investigation
of the respective companies. During this period, management of each of Office
Depot and Viking held internal discussions and meetings with their respective
advisors to evaluate the potential benefits of a business combination of the two
companies and continued discussions with their respective directors regarding
the potential benefits of such a transaction. Representatives and advisors of
Viking and Office Depot also held several meetings to negotiate the principal
business terms of the Merger during that week.
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At meetings of the Viking Board held on May 11 and 12, 1998, the Viking
directors discussed with Viking's management, and representatives of Latham &
Watkins and Ervin, Cohen & Jessup LLP, the status of the merger discussions with
Office Depot as well as the proposed terms of the Merger and the effects of the
Merger on Viking and the combined companies. See "-- Recommendations of the
Office Depot Board; Office Depot's Reasons for the Merger" and
"-- Recommendation of the Viking Board; Viking's Reasons for the Merger."
At the meeting of the Office Depot Board held on May 14, 1998, the Office
Depot directors discussed the status of merger negotiations. In addition, the
directors discussed the strategic justification for the Merger and prospective
financial and legal terms. These items were discussed with various members of
Office Depot's management and with representatives of PJSC and Simpson Thacher &
Bartlett. See "-- Recommendations of the Office Depot Board; Office Depot's
Reasons for the Merger" and "-- Recommendation of the Viking Board; Viking's
Reasons for the Merger."
The Viking Board met again on the morning of May 16, 1998, at which meeting
the proposed terms of the Merger Agreement were discussed, and Viking's
management and advisors made presentations concerning the Merger. Merrill Lynch
and Warburg Dillon Read each delivered their respective oral opinion that, as of
such date and based upon and subject to certain factors and assumptions, the
Exchange Ratio was fair to the holders of Viking Common Stock from a financial
point of view. At that meeting, the Viking Board unanimously approved the Merger
Agreement and unanimously recommended that the holders of Viking Common Stock
vote in favor of the approval and adoption of the Merger Proposal.
The Office Depot Board reconvened on May 17, 1998 and discussed the terms
of the Merger Agreement with representatives of PJSC and Simpson Thacher &
Bartlett. They also discussed certain aspects of Viking's operations and
revisited strategic concerns relating to the Merger. Simpson Thacher & Bartlett
provided a description of the Merger Agreement and Stock Option Agreements. PJSC
delivered its oral opinion that, as of such date and based upon and subject to
certain factors and assumptions, the Exchange Ratio was fair to Office Depot
from a financial point of view. This opinion was subsequently confirmed in a
written opinion dated May 18, 1998. The Office Depot Board, with one director
absent, unanimously approved the Merger Agreement and unanimously recommended
that the holders of Office Depot Common Stock vote in favor of the Share
Issuance pursuant to the Merger Agreement.
On May 17, 1998, the Viking Board reconvened. Merrill Lynch and Warburg
Dillon Read each delivered their respective written opinion that, as of such
date and based upon and subject to the factors and assumptions set forth
therein, the Exchange Ratio was fair to the holders of Viking Common Stock from
a financial point of view. The Viking Board unanimously reaffirmed its approval
and recommendation of the Merger Proposal.
On May 18, 1998, following the amendment of the Viking Rights Plan to
render such plan inapplicable to the Merger, Viking and Office Depot executed
and delivered the Merger Agreement and related documents and made a joint public
announcement regarding the Merger Agreement.
RECOMMENDATIONS OF THE OFFICE DEPOT BOARD; OFFICE DEPOT'S REASONS FOR THE MERGER
THE OFFICE DEPOT BOARD BELIEVES THAT THE CONSUMMATION OF THE MERGER IS IN
THE BEST INTERESTS OF OFFICE DEPOT AND ITS STOCKHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT THE OFFICE DEPOT STOCKHOLDERS VOTE FOR APPROVAL OF THE SHARE
ISSUANCE AT THE OFFICE DEPOT SPECIAL MEETING.
The Office Depot Board believes that the Merger represents an attractive
strategic fit between two leading companies with similar business strategies, as
well as complementary operations and geographic presences. The Office Depot
Board believes that the combined company will have greater financial strength,
operational efficiencies, earning power and growth potential than either Office
Depot or Viking would have on its own. In particular, the Office Depot Board
believes that significant strategic benefit will come from the combination of
Office Depot's leading position in store, delivery and contract operations in
North America with Viking's leading position in mail order operations in North
America and internationally. In this regard,
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the Office Depot Board reviewed a number of potential benefits of the Merger
which it believed would contribute to the success of the combined company and
thus inure to the benefit of stockholders of both companies, including the
following:
Synergies of the Combined Company. On a pro forma basis, giving
effect to the Merger, the combined company would have had revenues in 1997
in excess of $8 billion, more than 600 stores in the United States and
Canada, and direct-mail catalog customers in 19 countries. The Office Depot
Board believes that the Merger will produce a number of important
synergies, including (i) reduced product costs as a result of greater
purchasing volume; (ii) reduced advertising and marketing expenses as a
percentage of revenues of the combined company as a result of the
elimination of redundant advertising and lower catalog production costs;
(iii) reduced distribution costs as a percentage of revenues of the
combined company resulting from the combination of distribution networks;
and (iv) reduced general and administrative expenses as a result of the
opportunity to leverage certain financial and administrative functions over
a larger operation and the elimination of duplicate costs.
Combination of the Most Favorable Attributes of the Companies. The
combined company will be able to take advantage of the best personnel and
the best operating systems and practices currently employed by Office Depot
and Viking. For example, the management team will be expanded to include
highly skilled executive officers of both Office Depot and Viking, and the
computer and information systems of the combined company will utilize the
best attributes of the systems currently used by each of Office Depot and
Viking.
Complementary Distribution Centers and Delivery Networks. The
combined company will have distribution centers and delivery operations
that service customers throughout the United States, Europe and Australia.
Savings will be realized as a result of the combined company's ability to
consolidate its delivery systems and networks and eliminate duplicate
facilities.
In reaching its decision to approve the Merger Agreement and the Share
Issuance, the Office Depot Board also considered the following factors:
(i) The recent historical performance of Office Depot Common Stock
and Viking Common Stock. See "SUMMARY -- Comparative Market Price
Information."
(ii) Certain historical and prospective financial information
regarding Office Depot and Viking; in particular, the impact of Viking's
operations on the combined company's results of operations and future cash
flow. See "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS."
(iii) Information concerning Office Depot's and Viking's respective
businesses, assets, management, competitive position and prospects.
(iv) The potential accretive impact on earnings per share for the
stockholders of both companies in 1999 and 2000. See "-- Opinions of the
Financial Advisors."
(v) Enhanced ability to expand into Europe, Australia and other
foreign markets.
(vi) Current industry, economic and market conditions, including
recent acquisitions and combinations in the industry.
(vii) The long-term growth potential of the combined company.
(viii) Viking's absence of debt and its beneficial impact on the
ability of the combined company to continue to grow and make future
acquisitions and capital investments utilizing its existing capital
resources. See "UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS."
(ix) The likelihood that the Merger could be consummated.
(x) The expectation that the Merger will be accounted for as a
pooling of interests. See "-- Accounting Treatment."
(xi) The structure of the transaction and the terms of the Merger
Agreement.
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(xii) The opinion of PJSC as to the fairness to Office Depot from a
financial point of view of the Exchange Ratio, as described below. See
"-- Opinions of the Financial Advisors" and "-- Interests of Certain
Persons in the Merger."
(xiii) The compatibility of the corporate cultures and operating
philosophies of the companies.
Prior to taking action on the Merger Agreement, the Office Depot Board
received presentations from, and reviewed the terms and conditions of the Merger
Agreement with, Office Depot's management, outside financial advisor and legal
counsel. The Office Depot Board also considered a number of potential risks
relating to the Merger discussed in "RISK FACTORS."
The foregoing discussion of the information and factors considered and
given weight by the Office Depot Board is not intended to be exhaustive. In view
of the variety of factors considered in connection with its evaluation of the
Merger, the Office Depot Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Office
Depot Board may have given different weights to different factors.
RECOMMENDATIONS OF THE VIKING BOARD; VIKING'S REASONS FOR THE MERGER
THE VIKING BOARD BELIEVES THAT THE CONSUMMATION OF THE MERGER IS IN THE
BEST INTERESTS OF VIKING AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT
THE VIKING STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER PROPOSAL AT THE VIKING
SPECIAL MEETING.
The Viking Board believes that the Merger represents an attractive
strategic fit between the two companies. The Merger will leverage the unique
geographical strength of each company as well as provide the opportunity to
service all sizes and segments of the office products business worldwide. The
Viking Board believes that the combined company, following the Merger, will have
greater financial strength, operational efficiencies, purchasing and earning
power, as well as faster growth potential, than either company would have on its
own. The Viking Board has identified a number of potential benefits of the
Merger which it believes will contribute to the success of the combined company
and thus inure to the benefit of stockholders of both companies. Such benefits
include the following:
Synergies of the Combined Company. Office Depot and Viking, as a
combined company, would have had over $8 billion in revenues for fiscal
1997, and operated in 19 countries around the world. The Viking Board
believes that the Merger should result in a number of important synergies,
including (i) reduced product costs for Viking in the United States because
of Office Depot's size in North America, and lower product costs in Europe
for Office Depot because of Viking's expansive operations in Europe, which
account for approximately 60% of its revenues; (ii) reduced distribution
costs (as a percentage of revenues of the combined company) as a result of
combining the overlapping distribution networks of the two companies; (iii)
reduced advertising and marketing expenses (as a percentage of revenues of
the combined company), primarily through the consolidation of catalog
production processes and the application of Viking's database marketing
techniques to Office Depot; (iv) reduced general and administrative
expenses (as a percentage of revenues of the combined company) resulting
from the opportunity to leverage certain financial and administrative
functions over a larger operations and the elimination of certain
duplicative costs.
International Growth and Expansion. Following the Merger, the
combined company intends to utilize Viking's extensive international
infrastructure to grow sales of office products to all businesses, small,
medium and large, through all channels, including superstores, mail order,
contract, telemarketing and electronic commerce. Management of Office Depot
and Viking expect to enter additional countries utilizing a jointly
developed strategic plan, management team and infrastructure, and further
expect to secure new customers more quickly and at a lower cost.
Combination of the Most Favorable Attributes of the Companies. The
combined company will be able to take advantage of the best personnel,
operating systems and practices currently employed by each company. For
example, the management team of the combined company following the Merger
will
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include highly skilled executive officers of both Office Depot and Viking,
and the computer and information systems of the combined company will
utilize the strongest attributes of the systems currently used by each
company.
Complementary Delivery Network. Both Office Depot and Viking have
delivery operations that service customers throughout the United States.
The consolidation of delivery networks and the concurrent elimination of
duplicate delivery truck routes will achieve cost savings.
Expand Viking's Service Levels. Utilizing Office Depot's distribution
network will result in same-day service to more U.S. markets than Viking is
currently providing.
In reaching its conclusion to approve the Merger Agreement, the Viking
Board consulted with management of Viking and its financial and legal advisors
and considered factors which include the following:
(i) The effectiveness of the Merger in implementing and accelerating
Viking's basic long-term growth strategy.
(ii) The financial performance and condition, and businesses and
prospects of Viking and Office Depot, including, but not limited to,
information with respect to their respective recent and historic stock
prices and earnings performance. The Viking Board considered the detailed
financial analyses presented by Warburg Dillon Read and Merrill Lynch,
using the pro forma financial information provided by the respective
managements of Viking and Office Depot, as well as the Viking Board's own
knowledge of Viking, Office Depot and their respective businesses.
(iii) The oral opinion of each of Warburg Dillon Read and Merrill
Lynch that, as of May 17, 1998, the Exchange Ratio was fair to the holders
of the Viking Common Stock from a financial point of view. See "-- Opinions
of the Financial Advisors."
(iv) The terms of the Merger Agreement and the Stock Option
Agreements, which are reciprocal in nature. The Viking Board also
considered certain other information regarding the Merger, including the
terms and structure of the Merger and the proposed arrangements with
respect to the Board of Directors and management structure and operations
of the combined company following the Merger. See "-- Management and
Operations Following the Merger."
(v) The effect on Viking stockholders of Viking's continuing as a
stand-alone entity compared to the effect of Viking's combining with Office
Depot, in light of the factors summarized above with respect to the
financial condition and prospects of the two companies on a stand-alone
basis and as a combined company, and the current economic, financial and
business environment.
(vi) The likelihood of the Merger being approved by the appropriate
regulatory authorities. See "-- Regulatory Approvals Required."
(vii) The expectation that the Merger will be a tax-free transaction
to Viking and its stockholders and will be accounted for as a pooling of
interests transaction. See "-- Certain Federal Income Tax Consequences" and
"-- Accounting Treatment."
(viii) The effect of the Merger on Viking's other constituencies,
including its senior management and other employees, customers and the
communities served by Viking. See "-- Interests of Certain Persons in the
Merger."
The Viking Board also considered a number of potential risks relating to
the Merger, including (i) the difficulty and management distraction inherent in
integrating two large and geographically dispersed operations and the risk that
the synergies and benefits sought in the Merger would not be fully achieved,
(ii) the risk that the Merger would not be consummated, (iii) the effect of the
public announcement of the Merger on the market price of Viking's and Office
Depot's Common Stock and (iv) the substantial charges expected to be incurred by
Office Depot and Viking in connection with the Merger. See "RISK FACTORS." The
Viking Board reached the conclusion that these risks were outweighed by the
potential benefits to be realized from the Merger.
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The foregoing discussion of the information and factors considered by the
Viking Board is not intended to be exhaustive. In view of the wide variety of
information and factors considered, the Viking Board did not find it practical
to, and did not, assign any relative or specific weights to the foregoing
factors, and individual directors may have given differing weights to different
factors.
OPINIONS OF THE FINANCIAL ADVISORS
Office Depot
PJSC has acted as financial advisor to Office Depot in connection with the
Merger. At the May 17, 1998 meeting of the Office Depot Board, PJSC delivered
its oral opinion to the Office Depot Board, subsequently confirmed in a written
opinion dated May 18, 1998 (the "PJSC Opinion"), to the effect that, based upon
and subject to various considerations set forth in such opinion, as of May 18,
1998, the Exchange Ratio is fair to Office Depot from a financial point of view.
No limitations were imposed by the Office Depot Board upon PJSC with respect to
investigations made or procedures followed by PJSC in rendering the PJSC
Opinion.
THE FULL TEXT OF THE PJSC OPINION, WHICH SETS FORTH ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND SCOPE OF THE REVIEW
BY PJSC IN RENDERING THE PJSC OPINION, IS ATTACHED TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AS ANNEX II AND IS INCORPORATED BY REFERENCE HEREIN. THE
PJSC OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO TO OFFICE
DEPOT FROM A FINANCIAL POINT OF VIEW, HAS BEEN PROVIDED TO THE OFFICE DEPOT
BOARD IN CONNECTION WITH ITS EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF OFFICE DEPOT COMMON STOCK AS TO HOW TO VOTE AT THE OFFICE DEPOT
SPECIAL MEETING. THE SUMMARY OF THE PJSC OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. HOLDERS OF OFFICE DEPOT COMMON STOCK ARE URGED TO READ THE PJSC
OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with the PJSC Opinion, PJSC: (i) reviewed certain publicly
available financial statements and other information of Office Depot and Viking,
respectively; (ii) reviewed certain internal financial statements and other
financial and operating data concerning Office Depot and Viking prepared by the
management of Office Depot and Viking, respectively; (iii) reviewed certain
financial projections for Office Depot and Viking, including estimates of
certain potential benefits of the proposed Merger, prepared by the management of
Office Depot and Viking, respectively; (iv) discussed the past and current
operations, financial condition and prospects of Office Depot and Viking with
management of Office Depot and Viking, respectively; (v) reviewed the reported
prices and trading activity of Office Depot Common Stock and Viking Common
Stock; (vi) compared the financial performance and condition of Office Depot and
Viking and the reported prices and trading activity of Office Depot Common Stock
and Viking Common Stock with that of certain other companies the equity
securities of which are publicly traded; (vii) reviewed publicly available
information regarding the financial terms of certain recent transactions in the
office supply industry and in other industries generally; (viii) participated in
certain discussions among representatives of each of Office Depot and Viking;
(ix) reviewed the Merger Agreement; and (x) performed such other analyses as
PJSC deemed appropriate for purposes of arriving at and preparing the PJSC
Opinion.
In rendering the PJSC Opinion, PJSC assumed and relied upon the accuracy
and completeness of the information reviewed by PJSC for the purposes of the
PJSC Opinion and PJSC did not assume any responsibility for independent
verification of such information. With respect to the financial projections,
including the estimates made by Office Depot's and Viking's management of
certain potential benefits of the proposed Merger, PJSC assumed that the
financial projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the future financial performance
of Office Depot and Viking, respectively. PJSC expressed no view as to, and
assumed no responsibility for, such projections or the assumptions on which they
are based. PJSC did not make an independent valuation or appraisal of the assets
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<PAGE> 41
or liabilities of Office Depot or Viking, nor was PJSC furnished with any such
valuation or appraisal. PJSC assumed that the Merger will be accounted for as a
pooling of interests for accounting purposes. The PJSC Opinion was necessarily
prepared and delivered based on economic, market and other conditions as in
effect on, and the information made available to PJSC as of, May 15, 1998.
Although subsequent developments may affect the PJSC Opinion, PJSC does not have
any obligation to update, revise or reaffirm its opinion.
The forecasts or projections furnished to PJSC for Office Depot and Viking
were prepared by the management of Office Depot and Viking. As a matter of
policy, Office Depot and Viking do not publicly disclose internal management
forecasts, projections or estimates of the type furnished to PJSC in connection
with its analysis of the Merger, and such forecasts, projections and estimates
were not prepared with a view towards public disclosure. These forecasts,
projections and estimates were based on numerous variables and assumptions which
are inherently uncertain and which may not be within the control of the
management of Office Depot and Viking, including, without limitation, general
economic, regulatory and competitive conditions. Accordingly, actual results
could vary materially from those set forth in such forecasts, projections and
estimates. See "INFORMATION REGARDING FORWARD-LOOKING STATEMENTS."
The following summarizes the significant financial analyses performed by
PJSC and reviewed with the Office Depot Board on May 17, 1998 in connection with
the delivery of the PJSC Opinion:
Viking Common Stock Performance. PJSC reviewed the closing prices and
trading volumes of Viking Common Stock from May 15, 1995 to May 14, 1998. During
the period from May 15, 1995 to May 14, 1998, the high closing price for Viking
Common Stock was $33.25 per share and the low closing price was $12.88 per
share. During the twelve months ended May 14, 1998, the high closing price for
Viking Common Stock was $25.25 per share and the low closing price was $16.63
per share. The price per share of Viking Common Stock to be paid pursuant to the
Merger Agreement (based on the Exchange Ratio of 1.00 and the closing price of
Office Depot Common Stock on May 14, 1998 of $34.00 per share) of $34.00 per
share (the "Implied Price") represented a premium of 40.2% based on the May 14,
1998 closing price of $24.25 per share of Viking Common Stock.
Office Depot Common Stock Performance. PJSC reviewed the closing prices
and trading volumes of Office Depot Common Stock from May 15, 1995 to May 14,
1998 and Office Depot's indexed price performance from July 14, 1995 to May 14,
1998 relative to the S&P 400 Index, the Contract Service Stationer Index and
Viking's indexed price performance. During the period from May 15, 1995 to May
14, 1998, the high closing price for Office Depot Common Stock was $34.50 per
share and the low closing price was $13.00 per share. During the twelve months
ended May 14, 1998, the high closing price for Office Depot Common Stock was
$34.50 per share and the low closing price was $15.25 per share.
Historical Stock Price Ratio Analysis. PJSC reviewed the ratios determined
by dividing the closing prices of Viking Common Stock by the closing prices of
Office Depot Common Stock (the "Stock Price Ratio") for a range of periods prior
to and including May 14, 1998. Such analysis indicated that for the 30 days
ending May 14, 1998 the average Stock Price Ratio was 0.711, for the 60 days
ending May 14, 1998 the average Stock Price Ratio was 0.741, for the 90 days
ending May 14, 1998 the average Stock Price Ratio was 0.765, for the 180 days
ending May 14, 1998 the average Stock Price Ratio was 0.881 and for the 365 days
ending on May 14, 1998 the average Stock Price Ratio was 0.989.
Analysis of Selected Publicly Traded Comparable Companies. Using publicly
available information, PJSC reviewed and compared selected financial data of
Viking and Office Depot with similar data of the following group of publicly
traded companies engaged in the office products industry: Boise Cascade Office
Products ("Boise"); BT Office Products, Inc. ("BT"); Corporate Express, Inc.;
U.S. Office Products Company; Office Max, Inc. and Staples, Inc. (collectively,
"PJSC Comparable Companies").
PJSC calculated and compared various financial multiples and ratios,
including, among other things, the stock price per share as a multiple of
earnings per share ("EPS") for the latest twelve months ("LTM") period and for
calendar years 1998 and 1999, based upon EPS estimates from First Call
Investment Research as of May 14, 1998, and enterprise value (which represents
total equity value plus book values of total debt, preferred stock and minority
interests, less cash) ("Enterprise Value") as a multiple of LTM revenues,
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earnings before interest and taxes ("EBIT") and earnings before interest, taxes,
depreciation and amortization ("EBITDA"). As of May 14, 1998, this analysis
resulted in (i) a range of closing stock prices to LTM EPS of 20.3x to 42.0x for
the PJSC Comparable Companies compared to 37.1x for Viking at the Implied Price;
(ii) a range of closing stock prices to 1998 estimated EPS of 15.3x to 34.4x for
the PJSC Comparable Companies compared to 32.0x for Viking at the Implied Price;
(iii) a range of closing stock prices to 1999 estimated EPS of 11.3x to 26.7x
for the PJSC Comparable Companies compared to 26.6x for Viking at the Implied
Price; (iv) a range of Enterprise Value to LTM net sales of 35.2% to 137.4% for
the PJSC Comparable Companies compared to 198.8% for Viking at the Implied
Price; (v) a range of Enterprise Value to LTM EBIT of 12.3x to 26.8x for the
PJSC Comparable Companies compared to 25.8x for Viking at the Implied Price; and
(vi) a range of Enterprise Value to LTM EBITDA of 7.9x to 20.4x for the PJSC
Comparable Companies compared to 21.3x for Viking at the Implied Price. The
multiples were based on closing stock prices as of May 14, 1998 for all of the
PJSC Comparable Companies except for BT, which was based on a closing stock
price on January 21, 1998, the trading day prior to the announcement of the
merger between NV Koninklijke KNP BT and BT.
Analysis of Selected Comparable Transactions. Using publicly available
information, PJSC reviewed certain mergers and acquisitions transactions in the
Office Products Industry. PJSC calculated the equity value paid by selected
acquirors in the transactions since 1990 as a multiple of LTM net income and the
Enterprise Value paid by selected acquirors as a multiple of LTM sales, EBIT and
EBITDA. This analysis resulted in: (i) a range of LTM net income multiples of
15.5x to 78.5x compared to 37.1x for Viking at the Implied Price; (ii) a range
of Enterprise Value to LTM sales multiples of 18.9% to 124.5% compared to 198.8%
for Viking at the Implied Price; (iii) a range of Enterprise Value to LTM EBIT
multiples of 7.9x to 58.5x compared to 25.8x for Viking at the Implied Price;
and (iv) a range of an Enterprise Value to LTM EBITDA multiples of 4.1x to 35.6x
compared to 21.3x for Viking at the Implied Price.
Discounted Cash Flow Analysis. PJSC performed a discounted cash flow
analysis to calculate the net present value per share of Viking Common Stock
based on three cases of financial projections for Viking as prepared by the
management of Office Depot for the fiscal years (ended June) 1999 to 2002 (the
"Base Case," "Downside Case" and "Upside Case" collectively, the "Three Cases").
In performing its discounted cash flow analysis, PJSC considered various
assumptions that it deemed appropriate based on a review with the management of
Office Depot of Viking's prospects and risks. PJSC believed it appropriate to
utilize various discount rates ranging from 11.0% to 13.0% and EBITDA terminal
value multiples ranging from 10.0x to 16.0x to apply to forecasted EBITDA for
the fiscal year 2002.
Based on the foregoing, this analysis yielded a range of net present values
from $21.10 to $50.56 per share for Viking if Viking were to perform on a
stand-alone basis, without giving effect to any cost savings or synergies and
integration or one-time costs as estimated by the management of Office Depot to
be realized in the Merger (the "Cost Savings and One-Time Costs"). The analysis
showed a range of net present values from $25.41 to $57.62 per share for Viking
including the Cost Savings and One-Time Costs.
Contribution Analysis. PJSC reviewed the relative contributions of Office
Depot and Viking with respect to revenues, EBIT, EBITDA and diluted net income
on a pro forma basis assuming the companies had been combined for the twelve
months ended December 31, 1997 and for each of the projected twelve months ended
December 31, 1998, 1999, 2000 and 2001, based on the financial projections for
Office Depot and the Three Cases for Viking as prepared by the management of
Office Depot, and assuming no Cost Savings and One-Time Costs. This analysis
showed that Office Depot would have contributed 82.8% to pro forma combined
revenues for the twelve months ended December 31, 1997 and between 79.8% and
82.3% to pro forma combined revenues on a projected basis, 73.0% to pro forma
combined EBIT for the twelve months ended December 31, 1997 and between 66.9%
and 76.1% to pro forma combined EBIT on a projected basis, 74.9% to pro forma
combined EBITDA for the twelve months ended December 31, 1997 and between 69.2%
and 76.8% to pro forma combined EBITDA on a projected basis, and 69.9% to pro
forma combined diluted net income for the twelve months ended December 31, 1997
and between 65.1% and 74.6% to pro forma combined diluted net income on a
projected basis. PJSC noted that, based on the Exchange Ratio, Office Depot's
total equity value would represent 67.3% of the combined equity value and Office
Depot's Enterprise Value would represent 66.6% of the combined Enterprise Value.
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Pro Forma Merger Analysis. PJSC analyzed certain pro forma effects of the
Merger on Office Depot's EPS for the fiscal years ended December 31, 1999, 2000
and 2001 assuming the Merger had been completed on December 31, 1998. Such
analysis was based upon the stand alone financial projections for Office Depot
and the Three Cases for Viking. PJSC analyzed the impact of the Merger both with
and without giving effect to the Cost Savings and One-Time Costs. Using the Base
Case, the Merger would be dilutive by 4.1%, 3.6% and 3.1% to Office Depot's
1999, 2000 and 2001 EPS, respectively, without the Cost Savings and One-Time
Costs and the Merger would be accretive by 1.3%, 3.4% and 3.4% to Office Depot's
1999, 2000 and 2001 EPS, respectively, with the Cost Savings and One-Time Costs.
Using the Downside Case, the Merger would be dilutive by 7.8%, 8.6% and 9.3%
without the Cost Savings and One-Time Costs and dilutive by 2.5%, 1.6% and 2.9%,
with the Cost Savings and One-Time Costs in 1999, 2000 and 2001, respectively.
Using the Upside Case, the Merger would be (dilutive)/accretive by (1.4%), 1.6%
and 3.9%, without the Cost Savings and One-Time Costs and accretive by 4.0%,
8.6% and 10.3% with the Cost Savings and One-Time Costs in 1999, 2000 and 2001,
respectively.
In arriving at the Fairness Opinion, PJSC performed a variety of financial
analyses, the material portions of which are summarized above. The preparation
of a fairness opinion is a complex process involving various determinations as
to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, PJSC did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to significance and relevance of each analysis and factor.
Accordingly, PJSC believes that its analysis must be considered as a whole and
that selecting portions of its analysis, without considering all such analyses,
could create an incomplete view of the process underlying the PJSC Opinion.
In performing its analyses, PJSC relied on numerous assumptions made by the
management of Office Depot and Viking and made numerous judgments of its own
with regard to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Office Depot and
Viking. Actual values will depend upon several factors, including changes in
interest rates, dividend rates, market conditions, general economic conditions
and other factors that generally influence the price of securities. The analyses
performed by PJSC are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Such analyses were prepared solely as a part of PJSC's
analysis of the fairness of the Exchange Ratio to Office Depot from a financial
point of view and were provided to the Office Depot Board in connection with the
delivery of the PJSC Opinion. The analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities might actually
be sold, which are inherently subject to uncertainty. Since such estimates are
inherently subject to uncertainty, none of Office Depot, Viking, PJSC or any
other person assumes responsibility for their accuracy. With regard to the
comparable public company analysis and the comparable transactions analysis
summarized above, PJSC selected comparable public companies on the basis of
various factors; however, no public company or transaction utilized as a
comparison is identical to Office Depot, Viking or the Merger. Accordingly, an
analysis of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the acquisition or public trading value of the comparable companies and
transactions to which Viking and the Merger are being compared. In addition, as
described above, the PJSC Opinion and the information provided by PJSC to the
Office Depot Board were two of many factors taken into consideration by the
Office Depot Board in making its determination to approve the Merger.
Consequently, the PJSC analyses described above should not be viewed as
determinative of the opinion of the Office Depot Board or the view of Office
Depot management with respect to the value of Viking.
As part of its investment banking activities, PJSC is regularly engaged in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, restructurings and valuations for corporate or other purposes. In
the past, PJSC has provided investment banking services to Office Depot for
which services PJSC has received customary fees. Peter J. Solomon, a member of
the Office Depot Board, is also the majority stockholder and Chairman of PJSC.
See "-- Interests of Certain Persons."
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Pursuant to the terms of a letter agreement dated May 14, 1998 (the "PJSC
Engagement Letter"), PJSC was retained by Office Depot as its exclusive
financial advisor and to render an opinion to the Office Depot Board with
respect to the Merger. Under the PJSC Engagement Letter, Office Depot has paid
PJSC a fairness opinion fee of $2,000,000. Upon consummation of the Merger,
Office Depot has agreed to pay PJSC a transaction fee (the "Transaction Fee")
equal to 0.50% of the aggregate consideration paid in the Merger. For purposes
of the PJSC Engagement Letter, "aggregate consideration" includes the total
consideration paid (including amounts paid to holders of options, warrants and
convertible securities), plus the principal amount of all indebtedness as set
forth on the most recent consolidated balance sheet of Viking prior to the
consummation of the Merger. Such Transaction Fee will be reduced by the
$2,000,000 already paid by Office Depot to PJSC. In the event that the Merger is
not consummated, Office Depot will pay PJSC an amount equal to 10% of any
termination or break-up fees paid to Office Depot. Office Depot has also agreed
to reimburse PJSC for reasonable expenses incurred by PJSC if the Merger is not
consummated and to indemnify PJSC and its affiliates, counsel and other
professional advisors, and their respective directors, officers, controlling
persons, agents and employees against certain liabilities and expenses,
including certain liabilities under the Federal securities laws, relating to or
arising out of such engagement.
Viking
Opinion of Merrill Lynch.
Viking retained Merrill Lynch to act as its financial advisor in connection
with the Merger. On May 16, 1998, Merrill Lynch rendered its oral opinion, which
was subsequently confirmed in writing on May 17, 1998 (the "Merrill Lynch
Opinion"), that, as of the date of such opinion and based upon and subject to
the factors and assumptions set forth therein, the Exchange Ratio was fair from
a financial point of view to the holders of Viking Common Stock.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED HERETO AS ANNEX III AND IS
INCORPORATED HEREIN BY REFERENCE. THE MERRILL LYNCH OPINION IS NECESSARILY BASED
ON MARKET, ECONOMIC AND OTHER CONDITIONS IN EFFECT ON, AND THE INFORMATION MADE
AVAILABLE TO IT AS OF, THE DATE THEREOF. SUBSEQUENT DEVELOPMENTS MAY AFFECT SUCH
OPINION. HOLDERS OF VIKING COMMON STOCK ARE URGED TO READ THE MERRILL LYNCH
OPINION IN ITS ENTIRETY AND CONSIDER IT CAREFULLY. THE FOLLOWING SUMMARY IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE MERRILL LYNCH
OPINION. THE MERRILL LYNCH OPINION WAS PROVIDED TO THE VIKING BOARD FOR ITS
INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW
OF THE EXCHANGE RATIO TO THE HOLDERS OF VIKING COMMON STOCK. THE MERRILL LYNCH
OPINION DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION OF VIKING TO
ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF
VIKING COMMON STOCK AS TO HOW SUCH HOLDER SHOULD VOTE ON THE MERGER OR AS TO ANY
OTHER MATTER IN CONNECTION WITH THE MERGER.
The Exchange Ratio was determined through negotiations between Viking and
Office Depot, and after substantial analysis and consideration was authorized by
the Viking Board. In connection with the preparation of the Merrill Lynch
Opinion, Merrill Lynch was not authorized by Viking or the Viking Board to
solicit, nor did Merrill Lynch solicit, third-party indications of interest for
the acquisition of all or any part of Viking.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Viking Board. The preparation of a fairness opinion is a
complex and analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each
35
<PAGE> 45
analysis and factor. Accordingly, Merrill Lynch believes that its analyses must
be considered as a whole and that selecting portions of its analyses, without
considering all of its analyses, would create an incomplete view of the process
underlying the Merrill Lynch Opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of Viking and Office Depot.
The analysis performed by Merrill Lynch is not necessarily indicative of actual
values, trading values or actual future results that might be achieved, all of
which may be significantly more or less favorable than suggested by such
analysis. No public company utilized as a comparison is identical to Viking or
Office Depot, and none of the comparable acquisition transactions or other
business combinations utilized as a comparison are identical to the transactions
contemplated by the Merger Agreement. Accordingly, an analysis of publicly
traded comparable companies and comparable business combinations resulting from
the transactions is not mathematical; rather such analysis involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies, or transaction, and other factors
that could affect the public trading values of the comparable companies to which
they are being compared. In connection with its analyses, Merrill Lynch utilized
estimates and forecasts of future operating results and estimated synergies
provided by the respective management of Viking and Office Depot. Analyses based
upon forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Because such analyses are inherently subject to uncertainty,
being based upon numerous factors or events beyond the control of Viking and
Office Depot, none of Merrill Lynch, Viking or Office Depot assumes
responsibility if future results or actual values are materially different from
these forecasts or assumptions. Such analyses were prepared solely as part of
Merrill Lynch's analysis of the fairness of the Exchange Ratio, from a financial
point of view, to the stockholders of Viking, and were provided to the Viking
Board in connection with the delivery of the Merrill Lynch Opinion. Merrill
Lynch's analysis does not purport to be an appraisal or to reflect the prices at
which a company might actually be sold or the prices at which any securities may
be traded in the future. In addition, as described above, the Merrill Lynch
Opinion was one of many factors taken into consideration by the Viking Board in
making its determination to approve the Merger. Consequently, the analysis
described above should not be viewed as determinative of the opinion of either
the Viking Board or management of Viking with respect to the value of Viking or
a combination of Viking with Office Depot or whether either the Viking Board or
management of Viking would have been willing to agree to a different exchange
ratio.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things: (i) reviewed certain publicly available business and financial
information relating to Viking and Office Depot that Merrill Lynch deemed to be
relevant; (ii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of Viking and Office Depot as well as the amount and timing of the cost savings
and related expenses and synergies expected to result from the Merger (the
"Expected Synergies"), furnished to Merrill Lynch by Viking and Office Depot;
(iii) conducted discussions with members of senior management of Viking and
Office Depot concerning the matters described in clauses (i) and (ii) above as
well as their respective business and prospects, before and after giving effect
to the Merger and the Expected Synergies; (iv) reviewed the market prices and
valuation multiples for shares of Viking Common Stock and shares of Office Depot
Common Stock and compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant; (v) compared the results of operations
of Viking and Office Depot with those of certain publicly traded companies that
Merrill Lynch deemed to be relevant; (vi) compared the proposed financial terms
of the Merger with the financial terms of certain other mergers and acquisitions
that Merrill Lynch deemed to be relevant; (vii) reviewed the potential pro forma
impact of the Merger; (viii) reviewed a draft of the Merger Agreement; (ix)
reviewed drafts of the Stock Option Agreements; and (x) reviewed such other
financial studies and analyses and performed such other investigations and took
into account such other matters as Merrill Lynch deemed necessary, including
Merrill Lynch's assessment of general economic, market and monetary conditions.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to Merrill
Lynch, discussed with Merrill Lynch or reviewed by or for
36
<PAGE> 46
Merrill Lynch, or publicly available, and Merrill Lynch did not assume any
responsibility for independently verifying such information or undertake an
independent appraisal of the assets or liabilities of Viking or Office Depot,
nor was Merrill Lynch furnished with any such appraisals. In addition, Merrill
Lynch did not assume any obligation to conduct, nor did Merrill Lynch conduct,
any physical inspection of the properties or facilities of Viking or Office
Depot. With respect to the financial forecasts and Expected Synergies furnished
to or discussed with Merrill Lynch by Viking and Office Depot, Merrill Lynch
assumed that they had been reasonably prepared and reflected the best currently
available estimates and judgments of Viking's or Office Depot's management as to
the expected future financial performance of Viking or Office Depot, as the case
may be, and the Expected Synergies. Merrill Lynch further assumed that the
Merger will qualify as a tax-free reorganization for United States federal
income tax purposes and will be accounted for as a pooling of interests under
generally accepted accounting principles. Merrill Lynch also assumed that the
final terms of the Merger Agreement and the Stock Option Agreement would be
substantially similar to the last drafts thereof reviewed by Merrill Lynch.
Summary of Material Analyses. Set forth below is a summary setting forth
the material analyses presented by Merrill Lynch to the Viking Board on May 17,
1998 in connection with the Merrill Lynch Opinion.
Comparable Public Company Trading Analysis. Merrill Lynch compared certain
financial and operating information and ratios of both Viking and Office Depot
with the corresponding financial and operating information of certain publicly
traded companies that Merrill Lynch deemed to be relevant. For the purpose of
this analysis, the following companies were used: Boise Office Products,
Corporate Express, Inc., Global DirectMail, Office Depot, OfficeMax, Inc.,
Staples, Inc. and U.S. Office Products (the "Comparable Companies"). Merrill
Lynch calculated multiples for such Comparable Companies of market value to 1998
estimated net income, 1999 estimated net income and enterprise value to LTM
EBITDA. Based on this analysis and publicly available Wall Street research
analyst estimates for Viking and Office Depot, Merrill Lynch calculated per
share equity values of Viking ranging from $21 to $27 and per share equity
values of Office Depot ranging from $31 to $38. Merrill Lynch derived implied
exchange ratios based on this analysis by dividing the low, midpoint, high, low
and high per share equity values of Viking by the low, midpoint, high, high and
low per share equity values of Office Depot, respectively. Based on this
analysis, Merrill Lynch calculated implied exchange ratios of 0.68x, 0.70x,
0.71x, 0.55x and 0.87x, respectively.
Comparable Acquisition Analysis. Using publicly available information,
Merrill Lynch reviewed selected mergers and acquisitions that Merrill Lynch
deemed to be relevant (the "Acquisition Comparables"). The Acquisition
Comparables included: Staples, Inc./Quill Corporation (April 7, 1998); N.V.
Koniklijke KNP BT/BT Office Products International (January 22, 1998); Boise
Cascade Office Products/Jean-Paul Guissett SA (July 2, 1997); Staples,
Inc./Office Depot, Inc. (September 4, 1996); Guilbert SA/WH Smith Business
Supplies Ltd (April 18, 1996); Micro Warehouse Inc./Inmac Corp. (November 30,
1995); Investor Group/United Stationers Inc. (March 6, 1995); Corporate Express
Inc./Siekert & Bank Inc. (January 16, 1995); Corporate Express Inc./Joyce
International Inc. (January 13, 1995); Associated Stationers Inc./ United
Stationers Inc. (January 9, 1995); Staples Inc./National Office Supply Co. Inc.
(January 24, 1994); Office Depot Inc./Eastman Office Products Corp. (July 13,
1993); Eastman Acquisition Corp./Eastman Corp. (November 20, 1992); OfficeMax
Inc./BizMart Inc. (November 2, 1992); United Stationers Inc./ SDC Distributing
Corp. (June 1, 1992); OfficeMax Inc. (K Mart Corp.)/OW Office Warehouse, Inc.
(March 25, 1992); Staples Inc./Office Mart Holdings Corp. (February 24, 1992);
Intelligent Electronics/ BizMart Inc. (May 13, 1991); and Office Depot/Office
Club (December 20, 1990). Merrill Lynch compared, among other things, the
premiums paid in the Acquisition Comparables over the public equity closing sale
price one day and one month prior to the announcement of the transactions and
the multiples of transaction value (offer value plus debt plus preferred equity
at liquidation value plus minority interest less cash and marketable securities
less option proceeds) to LTM EBITDA and net income. Based on its analysis of
such premiums and multiples, Merrill Lynch calculated a summary reference range
of implied per share values of Viking Common Stock of $19 to $34.
Discounted Cash Flow Analysis. Merrill Lynch calculated ranges of equity
value for Viking based upon the value discounted to the present of its
annualized five-year stream of projected unlevered free cash flow and
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<PAGE> 47
its projected calendar year 2002 terminal values based upon a range of multiples
of its projected calendar year 2002 EBITDA. In conducting its analysis, Merrill
Lynch relied upon two sets of assumptions and financial projections provided by
the management of Viking: the "Viking Base Case" and a second case that assumed
a higher revenue growth (the "Viking Upside Case"). Merrill Lynch applied
discount rates ranging from 12.0% to 14.0% and multiples of terminal EBITDA
ranging from 9.0x to 13.0x. Based on this analysis, Merrill Lynch calculated per
share equity values of Viking ranging from $23 to $34 for the Viking Base Case,
and from $30 to $43 for the Viking Upside Case.
Merrill Lynch calculated ranges of equity value for Office Depot based upon
the value discounted to the present of its five year stream of projected
unlevered free cash flow and its projected fiscal year 2002 terminal value based
upon a range of multiples of its projected fiscal year 2002 EBITDA. In
conducting its analysis, Merrill Lynch relied upon a set of management
projections provided by Office Depot. Merrill Lynch applied discount rates
reflecting a weighted average cost of capital ranging from 12.0% to 14.0% and
multiples of terminal EBITDA ranging from 9.0x to 13.0x. Based on this analysis,
Merrill Lynch calculated per share equity values of Office Depot ranging from
$33 to $49.
Merrill Lynch derived implied exchange ratios by dividing the low,
midpoint, high, low and high per share equity values of Viking by the low,
midpoint, high, high and low per share equity values of Office Depot,
respectively. Based on this analysis, Merrill Lynch calculated implied exchange
ratios of (i) 0.70x, 0.70x, 0.69x, 0.47x and 1.03x, respectively, in the case of
the Viking Base Case and (ii) 0.91x, 0.89x, 0.88x, 0.61x and 1.30x,
respectively, in the case of the Viking Upside Case.
Pro Forma EPS Analysis. Merrill Lynch analyzed the estimated pro forma
effect of the Merger, with and without Estimated Synergies, on the earnings per
share of the combined company. Based upon the Exchange Ratio and publicly
available Wall Street research analyst forecasts for Viking and Office Depot,
Merrill Lynch estimated that the Merger would be approximately 4.7% and 3.9%
dilutive in 1999 and 2000, respectively, without Estimated Synergies, and
approximately 1.2% and 3.0% accretive in 1999 and 2000, respectively, with
Estimated Synergies.
Pro Forma Contribution Analysis. Merrill Lynch analyzed and compared the
respective contribution of LTM revenue, EBITDA, EBIT, net income, estimated 1998
net income and estimated 1999 net income of Viking and Office Depot to the
combined company following consummation of the proposed Merger based upon
publicly available Wall Street research analyst forecasts for Viking and Office
Depot, in each case without taking into account any potential synergies
resulting from the Merger. This analysis showed that Viking would contribute
17.3% of the combined company's LTM revenue, 23.5% of the combined company's LTM
EBITDA, 24.7% of the combined company's LTM EBIT, 29.2% of the combined
company's LTM net income, 30.0% of the combined company's estimated 1998 net
income and 29.7% of the combined company's estimated 1999 net income, in each
case compared to the 34.9% pro forma ownership of the combined company by
Viking's stockholders (excluding convertible debt).
Pursuant to a letter agreement dated December 15, 1997, between Viking and
Merrill Lynch, Viking has agreed to pay Merrill Lynch for its financial advisory
services in connection with the Merger as follows: (i) a fee of $1,500,000,
payable upon the earlier of (a) the public announcement of the Merger and (b)
the date on which Merrill Lynch renders its opinion orally or in writing; and
(ii) a fee in an amount equal to 0.25% of the sum of the aggregate purchase
price paid in the Merger, against which the fee described in clause (i) will be
credited. Viking has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including reasonable fees and disbursements of its legal
counsel. Additionally, Viking has agreed to indemnify Merrill Lynch and certain
related persons for certain liabilities related to or arising out of its
engagement, including certain liabilities under federal securities laws.
Viking retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has in the past
provided financial advisory services to Viking and financial advisory and
financing services to Office
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<PAGE> 48
Depot and may continue to do so and has received, and may receive, fees for such
services. In the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and equity securities of Viking and
Office Depot for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Opinion of Warburg Dillon Read.
Viking retained Warburg Dillon Read to act as its financial advisor in
connection with the Merger. On May 17, 1998, Warburg Dillon Read rendered its
oral opinion to the Viking Board, which was subsequently confirmed in writing
(the "Warburg Dillon Read Opinion"), that as of such date and based upon and
subject to the factors and assumptions, limitations and qualifications set forth
therein, the Exchange Ratio was fair from a financial point of view to the
holders of Viking Common Stock.
THE FULL TEXT OF THE WARBURG DILLON READ OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY WARBURG DILLON READ, IS ATTACHED HERETO AS ANNEX IV AND IS
INCORPORATED HEREIN BY REFERENCE. THE WARBURG DILLON READ OPINION IS NECESSARILY
BASED ON MARKET, ECONOMIC AND OTHER CONDITIONS IN EFFECT ON, AND THE INFORMATION
MADE AVAILABLE TO IT AS OF, THE DATE THEREOF. SUBSEQUENT DEVELOPMENTS MAY AFFECT
SUCH OPINION. HOLDERS OF VIKING COMMON STOCK ARE URGED TO READ THE WARBURG
DILLON READ OPINION IN ITS ENTIRETY AND CONSIDER IT CAREFULLY. THE FOLLOWING
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
WARBURG DILLON READ OPINION. THE WARBURG DILLON READ OPINION WAS PROVIDED TO THE
VIKING BOARD FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS FROM A
FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO TO THE HOLDERS OF VIKING COMMON
STOCK. THE WARBURG DILLON READ OPINION DOES NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION OF VIKING TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY HOLDER OF VIKING COMMON STOCK AS TO HOW SUCH HOLDER SHOULD
VOTE ON THE MERGER OR AS TO ANY OTHER MATTER IN CONNECTION WITH THE MERGER.
The Exchange Ratio was determined through negotiations between Viking and
Office Depot and after substantial analysis and consideration was authorized by
the Viking Board. In connection with the preparation of the Warburg Dillon Read
Opinion, Warburg Dillon Read was not authorized by Viking or the Viking Board to
solicit, nor did Warburg Dillon Read solicit, third party indications of
interest for the acquisition of all or any part of Viking.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Warburg Dillon Read Opinion or the presentation
made by Warburg Dillon Read to the Viking Board. The preparation of a fairness
opinion is a complex and analytical process involving various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Warburg Dillon Read did not attribute
any particular weight to any analysis or factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each analysis
and factor. Accordingly, Warburg Dillon Read believes that its analysis must be
considered as a whole and that selecting a portion of its analysis, without
considering all of its analysis, would create an incomplete view of the process
underlying the Warburg Dillon Read Opinion.
In performing its analysis, Warburg Dillon Read made numerous assumptions
with respect to industry performance, general business and economic conditions,
and other matters, many of which are beyond the control of Viking and Office
Depot. The analysis performed by Warburg Dillon Read is not necessarily
indicative of actual values, trading values or actual future results that might
be achieved, all of which may be significantly more or less favorable than
suggested by such analysis. No public company utilized as a comparison is
identical to Viking or Office Depot, and none of the comparable acquisition
transactions or other
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<PAGE> 49
business combinations utilized as a comparison are identical to the transactions
contemplated by the Merger Agreement. Accordingly, an analysis of publicly
traded comparable companies and comparable business combinations resulting from
the transactions is not mathematical; rather such analysis involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies or transaction, and other factors
that could affect the public trading values of the comparable companies to which
they are being compared. In connection with its analyses, Warburg Dillon Read
utilized estimates and forecasts of future operating results and estimated
synergies provided by the respective managements of Viking and Office Depot.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
Viking and Office Depot, none of Warburg Dillon Read, Viking or Office Depot
assumes responsibility if future results or actual values are materially
different from these forecasts or assumptions. Such analyses were prepared
solely as part of Warburg Dillon Read's analysis of the fairness of the Exchange
Ratio, from a financial point of view, to the stockholders of Viking, and were
provided to the Viking Board in connection with the delivery of the Warburg
Dillon Read Opinion. Warburg Dillon Read's analysis does not purport to be an
appraisal or to reflect the prices at which a company might actually be sold or
the prices at which any securities may be traded in the future. In addition, as
described above, the Warburg Dillon Read Opinion was one of many factors taken
into consideration by the Viking Board in making its determination to approve
the Merger. Consequently, the analysis described above should not be viewed as
determinative of the opinion of either the Viking Board or management of Viking
with respect to the value of Viking or a combination of Viking with Office Depot
or whether either the Viking Board or management of Viking would have been
willing to agree to a different exchange ratio.
In arriving at its opinion, Warburg Dillon Read, among other things: (i)
reviewed certain publicly available financial statements and other information
of Viking, and of Office Depot; (ii) reviewed certain internal financial and
operating data concerning Viking prepared by the management of Viking, which
were not publicly available; (iii) reviewed certain financial projections
prepared by the management of Viking, which were not publicly available; (iv)
discussed the past and current operations and financial condition and the
prospects of Viking with senior executives of Viking; (v) reviewed certain
financial projections prepared by the management of Office Depot, which were not
publicly available; (vi) discussed the past and current operations and financial
condition and the prospects of Office Depot with senior executives of Office
Depot; (vii) reviewed the reported prices and trading activity for the Viking
Common Stock and the Office Depot Common Stock; (viii) reviewed the prices and
trading activity of the securities of certain other publicly traded companies
considered by it to be generally comparable; (ix) discussed with the senior
managements of Viking and Office Depot their respective views of the strategic
rationale for the Merger and the benefits of the Merger to Viking; (x) reviewed
the amount and timing of the cost savings and related expenses and synergies
expected to result from the Merger (the "Expected Synergies") furnished to it by
Viking and Office Depot; (xi) reviewed the financial terms, to the extent
publicly available, of certain acquisition transactions considered by it to be
generally comparable; (xii) participated in discussions and negotiations among
representatives of Viking and Office Depot and reviewed the Merger Agreement and
the Stock Option Agreements; and (xiii) conducted such other financial studies,
analyses and other investigations and considered such other information as it
deemed necessary or appropriate.
In preparing its opinion, Warburg Dillon Read relied on the accuracy and
completeness of all information supplied or otherwise made available to Warburg
Dillon Read, discussed with Warburg Dillon Read or reviewed by or for Warburg
Dillon Read, or publicly available, and Warburg Dillon Read did not assume any
responsibility for independently verifying such information or undertake an
independent appraisal of the assets or liabilities of Viking or Office Depot,
nor was Warburg Dillon Read furnished with any such appraisals. In addition,
Warburg Dillon Read did not assume any obligation to conduct, nor did Warburg
Dillon Read conduct, any physical inspection of the properties or facilities of
Viking or Office Depot. With respect to the financial forecasts and Expected
Synergies furnished to or discussed with Warburg Dillon Read by Viking and
Office Depot, Warburg Dillon Read assumed that they had been reasonably prepared
and reflected the best currently available estimates and judgment of Viking's or
Office Depot's management as to the expected future financial performance of
Viking or Office Depot, as the case may be, and the Expected Synergies.
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<PAGE> 50
Warburg Dillon Read further assumed that the Merger will qualify as a tax-free
reorganization for United States federal income tax purposes and will be
accounted for as a pooling of interests under generally accepted accounting
principles.
Summary of Material Analyses. Set forth below is a summary setting forth
the material analyses presented by Warburg Dillon Read to the Viking Board on
May 17, 1998 in connection with the Warburg Dillon Read Opinion.
Generally Comparable Public Company Trading Analysis. Warburg Dillon Read
compared certain financial and operating information and ratios of both Viking
and Office Depot with the corresponding financial and operating information of
certain publicly traded companies that Warburg Dillon Read, in its judgment,
deemed to be relevant. For the purpose of this analysis, the following companies
were used: Boise Office Products, Corporate Express, Inc., Global DirectMail,
Office Depot, OfficeMax Inc., Staples, Inc. and U.S. Office Products (the
"Comparable Companies"). Warburg Dillon Read calculated multiples for such
Comparable Companies of market value to 1998 estimated net income, 1999
estimated net income and enterprise value to LTM EBITDA. Based on this analysis
and publicly available Wall Street research analyst estimates for Viking and
Office Depot, Warburg Dillon Read calculated per share equity values of Viking
ranging from $21 to $27 and per share equity values of Office Depot ranging from
$31 to $38. Warburg Dillon Read derived implied exchange ratios based on this
analysis by dividing the low, midpoint, high, low and high per share equity
values of Viking by the low, midpoint, high, high and low per share equity
values of Office Depot, respectively. Based on this analysis, Warburg Dillon
Read calculated implied exchange ratios of 0.68x, 0.70x, 0.71x, 0.55x and 0.87x,
respectively.
Generally Comparable Acquisition Analysis. Using publicly available
information, Warburg Dillon Read reviewed selected mergers and acquisitions that
Warburg Dillon Read, in its judgment, deemed to be relevant (the "Acquisition
Comparables"). The Acquisition Comparables included: Staples, Inc./Quill
Corporation (April 7, 1998); N.V. Koniklijke KNP BT/BT Office Products
International (January 22, 1998); Boise Cascade Office Products/Jean-Paul
Guisset SA (July 2, 1997); Staples, Inc./Office Depot, Inc. (September 4, 1996);
Guilbert SA/WH Smith Business Supplies Ltd. (April 18, 1996); Micro Warehouse
Inc./Inmac Corp. (November 30, 1995); Investor Group/United Stationers Inc.
(March 6, 1995); Corporate Express Inc./Siekert & Baum Inc. (January 16, 1995);
Corporate Express Inc./Joyce International Inc. (January 13, 1995); Associated
Stationers Inc./United Stationers Inc. (January 9, 1995); Staples Inc./ National
Office Supply Co. Inc. (January 24, 1994); Office Depot Inc./Eastman Office
Products Corp. (July 13, 1993); Eastman Acquisition Corp./Eastman Corp.
(November 20, 1992); OfficeMax Inc./BizMart Inc. (November 2, 1992); United
Stationers Inc./SDC Distributing Corp. (June 1, 1992); OfficeMax Inc. (K Mart
Corp.)/OW Office Warehouse, Inc. (March 25, 1992); Staples Inc./Office Mart
Holdings Corp. (February 24, 1992); Intelligent Electronics/BizMart Inc. (May
13, 1991); and Office Depot/Office Club (December 20, 1990). Warburg Dillon Read
compared, among other things, the premiums paid in the Acquisition Comparables
over the public equity closing sale price one day and one month prior to the
announcement of the transactions and the multiples of transaction value (offer
value plus debt plus preferred equity at liquidation value plus minority
interest less cash and marketable securities less option proceeds) to LTM EBITDA
and net income. Based on its analysis of such premiums and multiples, Warburg
Dillon Read calculated a summary reference range of implied per share values of
Viking Common Stock of $19 to $34.
Discounted Cash Flow Analysis. Warburg Dillon Read calculated ranges of
equity value for Viking based upon the value discounted to the present of its
annualized five-year stream of projected unlevered free cash flow and its
projected calendar year 2002 terminal values based upon a range of multiples of
its projected calendar year 2002 EBITDA. In conducting its analysis, Warburg
Dillon Read relied upon two sets of assumptions and financial projections
provided by the management of Viking: the "Viking Base Case" and a second case
that assumed a higher revenue growth (the "Viking Upside Case"). Warburg Dillon
Read applied discount rates ranging from 12.0% to 14.0% and multiples of
terminal EBITDA ranging from 9.0x to 13.0x. Based on this analysis, Warburg
Dillon Read calculated per share equity values of Viking ranging from $23 to
$34, for the Viking Base Case, and from $30 to $43, for the Viking Upside Case.
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<PAGE> 51
Warburg Dillon Read calculated ranges of equity value for Office Depot
based upon the value discounted to the present of its five year stream of
projected unlevered free cash flow and its projected fiscal year 2002 terminal
value based upon a range of multiples of its projected fiscal year 2002 EBITDA.
In conducting its analysis, Warburg Dillon Read relied upon a set of management
projections provided by Office Depot. Warburg Dillon Read applied discount rates
reflecting a weighted average cost of capital ranging from 12.0% to 14.0% and
multiples of terminal EBITDA ranging from 9.0x to 13.0x. Based on this analysis,
Warburg Dillon Read calculated per share equity values of Office Depot ranging
from $33 to $49.
Warburg Dillon Read derived implied exchange ratios by dividing the low,
midpoint, high, low and high per share equity values of Viking by the low,
midpoint, high, high and low per share equity values of Office Depot,
respectively. Based on this analysis, Warburg Dillon Read calculated implied
exchange ratios of (i) 0.70x, 0.70x, 0.69x, 0.47x and 1.03x, respectively, in
the case of the Viking Base Case and (ii) 0.91x, 0.89x, 0.88x, 0.61x and 1.30x,
respectively, in the case of the Viking Upside Case.
Pro Forma EPS Analysis. Warburg Dillon Read analyzed the estimated pro
forma effect of the Merger, with and without Estimated Synergies, on the
earnings per share of the combined company. Based upon the Exchange Ratio and
publicly available Wall Street research analyst forecasts for Viking and Office
Depot, Warburg Dillon Read estimated that the Merger would be approximately 4.7%
and 3.9% dilutive in 1999 and 2000, respectively, without Estimated Synergies,
and approximately 1.2% and 3.0% accretive in 1999 and 2000, respectively, with
Estimated Synergies.
Pro Forma Contribution Analysis. Warburg Dillon Read analyzed and compared
the respective contribution of LTM revenue, EBITDA, EBIT, net income, estimated
1998 net income and estimated 1999 net income of Viking and Office Depot to the
combined company following consummation of the proposed Merger based upon
publicly available Wall Street research analyst forecasts for Viking and Office
Depot, in each case without taking into account any potential synergies
resulting from the Merger. This analysis showed that Viking would contribute
17.3% of the combined company's LTM revenue, 23.5% of the combined company's LTM
EBITDA, 24.7% of the combined company's LTM EBIT, 29.2% of the combined
company's LTM net income, 30.0% of the combined company's estimated 1998 net
income and 29.7% of the combined company's estimated 1999 net income, in each
case compared to the 34.9% pro forma ownership of the combined company by
Viking's stockholders (excluding convertible debt).
Pursuant to a letter agreement dated December 15, 1997, between Viking and
Warburg Dillon Read, Viking has agreed to pay Warburg Dillon Read an advisory
fee equal to 0.25% of the sum of the aggregate fair market value of any
securities issued and any other non-cash consideration delivered, and any cash
consideration paid, to Viking or its security holders in connection with the
Merger and the amount of all indebtedness of Viking or any subsidiary of Viking,
which is assumed, acquired, retired or defeased in connection with the Merger.
Viking has previously paid Warburg Dillon Read $1,500,000 for rendering its
fairness opinion, and this amount will be credited to the advisory fee. Viking
has also agreed to reimburse Warburg Dillon Read for its reasonable
out-of-pocket expenses, including reasonable fees and disbursements of its legal
counsel. Additionally, Viking has agreed to indemnify Warburg Dillon Read and
its officers, directors, employees, agents and controlling persons against
certain expenses, losses, claims, damages or liabilities in connection with its
services, including those arising under the federal securities laws.
Warburg Dillon Read is an internationally recognized investment banking
firm which, as a part of its investment banking business, regularly engages in
the evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Viking Board selected
Warburg Dillon Read on the basis of its experience and independence. In the
past, SBC Warburg Dillon Read Inc., a subsidiary of Swiss Bank Corporation, and
Dillon, Read & Co. Inc., the predecessor firm to SBC Warburg Dillon Read Inc.,
and their affiliates have provided financial advisory and financing services to
Viking and have received fees for these services. In addition, an executive of
Warburg Dillon Read serves on the Viking Board. Warburg Dillon Read and its
affiliates may actively trade or hold the equity securities of Viking and Office
Depot for their own account or the accounts of their customers and, accordingly,
may at any time hold a long or short position in such securities.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
Office Depot
PJSC, of which Peter J. Solomon, a director of Office Depot, is the
majority stockholder and Chairman, was retained by Office Depot as its exclusive
financial advisor and to render an opinion to the Office Depot Board with
respect to the fairness of the Merger. Under the PJSC Engagement Letter, upon
consummation of the Merger, Office Depot has agreed to pay PJSC the Transaction
Fee, equal to 0.50% of the aggregate consideration paid in the Merger. For
purposes of the PJSC Engagement Letter, "aggregate consideration" includes the
total consideration paid (including amounts paid to holders of options, warrants
and convertible securities), plus the principal amount of all indebtedness as
set forth on the most recent consolidated balance sheet of Viking prior to the
consummation of the Merger. In the event that the Merger is not consummated,
Office Depot will pay PJSC an amount equal to 10% of any termination or break-up
fees paid to Office Depot. Office Depot has also agreed to reimburse PJSC for
reasonable expenses incurred by PJSC in the event that the Merger is not
consummated and to indemnify PJSC and its affiliates, counsel and other
professional advisors, and their respective directors, officers, controlling
persons, agents and employees against certain liabilities and expenses,
including certain liabilities under the Federal securities laws, relating to or
arising out of such engagement. Office Depot has previously paid PJSC $2,000,000
for rendering its fairness opinion, and this amount will be credited to the
Transaction Fee.
In the past PJSC has provided financial advisory services to Office Depot
and received fees for such services.
Viking
Relationship with Co-Financial Advisor. Warburg Dillon Read acted as
co-financial advisor to the Viking Board in connection with the Merger. Viking
has agreed to pay Warburg Dillon Read an advisory fee equal to 0.25% of the sum
of the aggregate fair market value of any securities issued and any other
non-cash consideration delivered, and any cash consideration paid, to Viking or
its security holders in connection with the Merger and the amount of all
indebtedness of Viking or any subsidiary of Viking, which is assumed, acquired,
retired or defeased in connection with the Merger. Viking has previously paid
Warburg Dillon Read $1,500,000 for rendering its fairness opinion, and this
amount will be credited to the advisory fee. Viking has also agreed to reimburse
Warburg Dillon Read for its reasonable out-of-pocket expenses, including
reasonable fees and disbursements of its legal counsel. Additionally, Viking has
agreed to indemnify Warburg Dillon Read and its officers, directors, employees,
agents and controlling persons against certain expenses, losses, claims, damages
or liabilities in connection with its services, including those arising under
the federal securities laws. In the past, SBC Warburg Dillon Read Inc., a
subsidiary of Swiss Bank Corporation, and Dillon, Read & Co. Inc., the
predecessor firm to SBC Warburg Dillon Read Inc., and their affiliates have
provided financial advisory and financing services for Viking and have received
fees for these services. In addition, an executive of Warburg Dillon Read serves
on the Viking Board. Pursuant to a business combination effective June 29, 1998,
SBC Warburg Dillon Read Inc.'s successor became Warburg Dillon Read LLC.
Change In Control Agreements. Each of Viking's executive officers
currently has an agreement with Viking that provides for certain severance
payments to the executive officer if his or her employment is terminated after a
change in control of Viking. Under such agreements, if the executive's
employment is terminated within 24 months following a change in control of
Viking, the executive will receive a severance payment equal to a specified
multiple of the executive officer's "Total Compensation" (as defined in the
agreement), unless such termination is (i) because of the executive's death or
disability, (ii) by Viking for "Cause" (as defined in the agreement) or (iii) by
the executive's resignation other than for "Good Reason" (as defined in the
Agreement, and which would include a diminution of duties following the Merger).
To the extent the executive officer incurs any tax liability as a result of
payments under the agreements being treated as excess parachute payments under
Section 280G of the Code, the executive will be entitled to receive an
additional payment necessary to assure that the executive receives the same net
after tax amount the executive would have received under the agreement had the
payments not been treated as excess parachute payments.
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Under the terms of such agreements, each of Messrs. Helford, Nelson and Jarc
would be entitled to receive severance payments equal to three times his Total
Compensation, while each other executive officer would be entitled to receive an
amount equal to one and one-half times his or her Total Compensation. Each of
Messrs. Helford and Nelson also has the right under his agreement to resign
without Good Reason during a thirty-day period commencing one year after a
change in control of Viking and receive severance payments equal to the
severance payments to which he would be entitled if his resignation were for
Good Reason. The Merger will constitute a change in control of Viking within the
meaning of the foregoing agreements, and Office Depot has acknowledged the
continued effect of such agreements following the Merger.
In connection with the Merger, Office Depot and Mr. Nelson have agreed
that, although Mr. Nelson will have Good Reason to terminate his employment as a
result of a diminution of his duties resulting from the Merger, he will not
submit his voluntary resignation under his change in control agreement prior to
the second anniversary of the Merger. However, for a thirty-day period beginning
on the second anniversary of the Merger (the "Election Period"), Mr. Nelson may
resign for any reason and such resignation will be treated under his change in
control agreement as if he resigned for Good Reason immediately prior to the
second anniversary of the Merger. In addition, Mr. Nelson will be entitled to
resign prior to the second anniversary of the Merger if another event occurs
that would give him Good Reason under his change in control agreement, including
a change in control of Office Depot (determined using the same definition of
Change in Control as applied to Viking). In the event of such resignation, or if
Mr. Nelson dies or becomes disabled prior to the expiration of the Election
Period, Mr. Nelson will be entitled to receive the full benefits provided under
his change in control agreement. In addition, upon any change in control of
Office Depot following the Merger, Mr. Nelson will receive the same treatment as
the other executive officers of Office Depot with respect to accelerated vesting
of options and deferred bonus awards. See "-- Employment Agreements with Viking
Employees" for additional information.
Viking Stock Options. As of the Record Date, Viking's directors and
executive officers held stock options to purchase an aggregate of 2,316,595
shares of Viking Common Stock, of which options to purchase 1,401,494 shares
were currently exercisable. All stock options for the purchase of Viking Common
Stock outstanding on May 18, 1998 that remained outstanding on the Record Date
(6,366,050), including the options granted to Viking's directors and executive
officers (2,066,595), were granted pursuant to option agreements that provide
that such options shall become exercisable in full from and after the date of a
change in control of Viking. The approval of the Merger Proposal by the
stockholders of Viking will constitute a change in control of Viking within the
meaning of such option agreements. As a result, all of the unvested options
outstanding as of May 18, 1998 under Viking's stock option plans will become
fully vested and immediately exercisable upon stockholder approval of the
Merger. See also "THE MERGER AGREEMENT -- Stock Options and Employee Benefits"
and "VIKING OFFICE PRODUCTS, INC. -- Security Ownership of Certain Beneficial
Owners and Management." The Merger will not, however, constitute a change in
control under the terms of additional stock options to purchase 1,437,000 shares
of Viking Common Stock which were granted on July 16, 1998 by Viking to
employees consistent with past practices, although any changes in control of
Office Depot following the Merger would result in the acceleration of the
vesting of these options. See "THE MERGER AGREEMENT -- Certain Covenants."
Viking Restricted Stock. As of the Record Date, the executive officers of
Viking held an aggregate of 530,000 shares of Viking Common Stock issued under
Viking's Long-Term Stock Incentive Plan (the "Incentive Plan"), which are
subject to transfer restrictions and to forfeiture until June 30, 2007. However,
if following a change in control of Viking, an executive's employment is
terminated by Office Depot without "Cause" (as defined in the Incentive Plan) or
by the executive for "Good Reason" (as defined in the Incentive Plan), the
restriction period will be deemed to have expired with respect to the number of
shares determined by multiplying the total number of restricted shares held by
the executive by a fraction, the numerator of which is the number of whole
months from June 30, 1992 (August 31, 1994 for Mr. Weissman) (the "Start Date")
until such termination, and the denominator of which is the number of whole
months from the Start Date until June 30, 2007 (154 for Mr. Weissman and 180 for
each of the other executive officers). The approval of the Merger by the
stockholders of Viking will constitute a change in control of Viking for
purposes of the Incentive Plan. See also "THE MERGER AGREEMENT -- Stock Options
and Employee
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Benefits" and "VIKING OFFICE PRODUCTS, INC. -- Security Ownership of Certain
Beneficial Owners and Management."
Indemnification Agreements. Pursuant to the Merger Agreement, Office Depot
has agreed to indemnify each present and former director and officer of Viking
against all liabilities or expenses incurred in connection with claims relating
to matters occurring prior to the closing of the Merger, and to maintain in
effect directors' and officers' liability insurance for their benefit. See "THE
MERGER AGREEMENT -- Director and Officer Indemnification." In addition, Viking
has entered into indemnification agreements with each of its directors and
executive officers pursuant to which Viking has agreed, among other things, to
indemnify such persons to the maximum extent permitted by the California
Corporations Code.
Ownership and Voting of Stock. As of the Record Date, directors and
executive officers of Viking and their affiliates may be deemed to have or share
the beneficial ownership of approximately 6.1% of Viking Common Stock. Each of
the directors and executive officers of Viking has advised Viking that he or she
intends to vote or direct the vote of all the outstanding shares of Viking
Common Stock over which he or she has or shares voting control in favor of the
approval of the Merger Proposal. See "VIKING OFFICE PRODUCTS, INC. -- Security
Ownership of Certain Beneficial Owners and Management."
Director Charitable Award Program. Viking has established a directors'
charitable award program which is funded by insurance policies on the life of
each of the directors. Under the program, each director, including employee and
non-employee directors, who has served at least five years as a director of
Viking, is eligible to recommend up to five charitable organizations that would
share in a $1 million contribution to be made by Viking, with $100,000 paid out
upon the directors' retirement and the remaining $900,000 paid out in nine equal
annual installments commencing after the death of the director. Viking's payment
of the contributions will ultimately be recovered from the proceeds of life
insurance policies which are being maintained by Viking for this purpose, so
that the overall program will not result in a material cost to Viking or, after
the Merger, the combined company. Individual directors derive no financial
benefit from this program because all charitable deductions accrue solely to
Viking. Five of Viking's directors (all except Mr. Nelson, who first became a
director of Viking on November 14, 1996) have served the requisite five years
and participate in the program. However, Mr. Nelson will become immediately
vested in the program upon a change in control of Viking, which will occur upon
the approval of the Merger Proposal by Viking stockholders. In addition,
following a change in control, the program may not be amended or terminated with
respect to any director (or vested former director) participating at the time of
the change in control without the consent of such director. Under the terms of
the program, Office Depot is obligated to continue the directors' charitable
award program following the Merger, including the insurance policies associated
therewith. Mr. Durkin and Ms. Manley will retire as directors of Viking upon
consummation of the Merger, and, upon such retirement, a $100,000 charitable
contribution will be made by the combined company to charities designated by
each of them.
EMPLOYMENT AGREEMENTS WITH VIKING EMPLOYEES
Irwin Helford serves as Chairman and Chief Executive Officer of Viking
pursuant to the terms of an employment agreement entered into in July 1997,
which continues in effect until June 30, 2002, and automatically renews for
successive twelve-month periods thereafter unless terminated by either party.
Under the terms of the employment agreement, Mr. Helford receives an annual
salary of $800,000 and a bonus determined in accordance with Viking's Chief
Executive Officer Performance Based Bonus Plan (the "CEO Bonus Plan"), which
provides for the payment of a bonus to Mr. Helford equal to the sum of specified
percentages of his salary for each fiscal year in which Viking meets or exceeds
90% of the target amounts contained in Viking's business plan for that fiscal
year for one or more of the following: consolidated revenues, gross profit,
pretax profit and net income. A separate percentage of salary applies to each
such target, with a maximum annual bonus payable under the CEO Bonus Plan set at
$1,500,000. In addition to salary and bonus, Mr. Helford is entitled to receive
an automobile allowance at the rate of $31,200 per year, and Viking is required
to maintain insurance on Mr. Helford's life in the amount of $500,000, payable
to beneficiaries designated by Mr. Helford. In connection with the Merger,
Office Depot has agreed to assume the obligations
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of Viking under Mr. Helford's employment agreement, except that Mr. Helford's
bonus commencing in 1999 will be determined as a function of Office Depot's
earnings and return on assets.
In accordance with a split dollar life insurance arrangement between Viking
and a trust for beneficiaries named by Mr. Helford, Viking pays premiums on life
insurance policies on Mr. Helford's life. At the death of Mr. Helford or, if
certain assumptions as to life expectancy, policy dividends and other factors
are realized, at the surrender of the policies, Viking will recover the full
amount of premiums it paid.
M. Bruce Nelson, who serves as President of Viking, is entitled to a bonus
for fiscal 1998 determined in accordance with Viking's President's Performance
Based Bonus Plan (the "President's Plan") which is similar to the CEO Bonus
Plan. The maximum annual bonus payable to Mr. Nelson under the President's Plan
is $800,000. Following the Merger, the President's Plan will be replaced by the
arrangements discussed below for Mr. Nelson.
Each of M. Bruce Nelson, Ron Weissman, Graham Cundick, Doug Ramsdale and
Mark Brown, who are currently executives of Viking (the "Executives"), has
entered into a Letter Agreement and an Employment Agreement with Office Depot,
which will take effect upon the consummation of the Merger. The base salary of
the five highest paid Executives will be as follows: (i) M. Bruce
Nelson -- $600,000; (ii) Graham Cundick -- L168,125 (pounds sterling); (iii)
Doug Ramsdale -- $300,000; and (iv) Ron Weissman -- $285,000. To induce the
Executives to continue under the employ of Office Depot after the Merger, each
Letter Agreement provides that the Executive will receive a matching deferred
retention bonus calculated as follows: (i) for 1998, the combined company will
make a deferred bonus contribution equal to one half of the amount the
Executives earned under the Viking annual bonus plan (including the President's
Plan) for the Viking 1998 fiscal year plus the amount of any bonus earned under
the applicable bonus plan in effect from June 27, 1998 to December 26, 1998,
provided that Viking meets or exceeds its budgeted earnings goal for that
period; and (ii) for 1999 and 2000, the combined company will make a deferred
bonus contribution equal to the amount earned under the Office Depot annual
bonus plan, provided that Office Depot's earnings per share target is achieved
or exceeded. All deferred matching bonus contributions will vest on December 31,
2001, provided that the Executive is still actively employed by Office Depot or
its subsidiaries on such date. Prior to vesting, the matching deferred bonus
amounts will be maintained in individual accounts with a trustee and invested as
directed by the executive from an approved list of investment vehicles. Each of
the Letter Agreements further provides that Office Depot, on the Effective Date,
will grant the Executive a nonqualified stock option to purchase shares of
Office Depot Common Stock at an option price equal to the market price of Office
Depot's Common Stock on such date. The number of shares subject to each option
will be as follows: (i) M. Bruce Nelson -- 100,000 shares; (ii) Doug
Ramsdale -- 50,000 shares; (iii) Graham Cundick -- 50,000 shares; and (iv) Mark
Brown -- 25,000 shares. Each stock option will become exercisable on the third
anniversary of the date of grant, provided that the Executive is still actively
employed by Office Depot or its subsidiaries on such date, except that the
option granted to M. Bruce Nelson will become immediately exercisable if he is
terminated without "Cause" (as defined in his Employment Agreement described
below), if he resigns for "Good Reason" (as defined in his change in control
agreement) or if he dies or becomes disabled after the Election Period. In the
Letter Agreements, Office Depot acknowledges the continued effect of each
Executive's change in control agreement; provided that if the Executive receives
benefits under such change of control agreement, the Letter Agreement and the
Employment Agreement will become null and void.
Each Employment Agreement has a two-year term (the "Initial Term"),
provided that such term will be extended for one year if written notice of
termination of such Agreement is not given by one party to the other at least
six months prior to the end of the Initial Term. Each Employment Agreement
provides that if the Executive's employment is terminated (i) without Cause (as
defined in the Employment Agreement) or (ii) by the Executive for Good Reason
(as defined in the Employment Agreement), then the Executive will be entitled to
receive: (a) base salary for one year and six months (two years in the case of
M. Bruce Nelson) after such termination and the Executive's pro rata bonus
(calculated as if any target amounts had been reached); (b) vested and earned
but unpaid amounts under incentive plans, health and welfare plans, deferred
compensation plans, and other programs of Office Depot in which the Executive
participates (calculated as if any target amounts had been reached); and (c)
life insurance and medical insurance for one year and six
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months (two years in the case of M. Bruce Nelson) after such termination,
reduced by the amount of any such insurance the Executive is entitled to receive
as a result of any other employment. Each Employment Agreement also contains a
covenant by the Executive that he will not, while employed by Office Depot and
for one year after the termination of his employment with Office Depot (the
"Noncompete Period"), directly or indirectly, own any interest in, manage,
control, participate in, consult with, render services for, or in any manner
engage in any business competing with the businesses of Office Depot or its
subsidiaries within a geographical area in which Office Depot or its
subsidiaries engage or plan to engage in such businesses. In addition, each
Employment Agreement provides that during the Noncompete Period, the Executive
will not directly or indirectly through another entity: (i) induce or attempt to
induce any employee of Office Depot or any subsidiary to leave the employ of
Office Depot or such subsidiary, or in any way interfere with the relationship
between Office Depot or any subsidiary and any employee thereof; (ii) hire any
person who was an employee of Office Depot or any subsidiary at any time during
the Executive's term of employment; or (iii) induce or attempt to induce any
customer, supplier, licensee, licensor, franchisee or other business relation of
Office Depot or any subsidiary to cease doing business with Office Depot or such
subsidiary, or in any way interfere with the relationship between any such
customer, supplier, licensee or business relation and Office Depot or any
subsidiary.
STRUCTURE OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and subject to
the terms of the California Corporations Code, at the Effective Time of the
Merger, VK Acquisition Corp., a newly formed and wholly owned subsidiary of
Office Depot (the "Merger Sub"), will merge with and into Viking. Viking will
continue its corporate existence following the Merger in accordance with the
California Corporations Code as a wholly owned subsidiary of Office Depot. At
the Effective Time of the Merger, the separate corporate existence of Merger Sub
will terminate.
MERGER CONSIDERATION
Upon consummation of the Merger, except as described below, each
outstanding share of Viking Common Stock, other than shares held in Viking's
treasury or held by Office Depot, Merger Sub or any subsidiary of Office Depot
or Viking (all of which will be cancelled) or any shares with respect to which
dissenters' rights have been exercised, will be automatically converted into one
share of Office Depot Common Stock. Following the Merger, there will be no
shares of Viking Common Stock outstanding, except for the 1,000 shares of common
stock of Merger Sub which, in the Merger, will be converted into all the capital
stock of Viking and Viking will become wholly owned by Office Depot.
The Exchange Ratio was determined through arm's-length negotiations between
Office Depot and Viking.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the following
conditions:
(a) The Office Depot stockholders shall have approved the Share
Issuance, and the Viking stockholders shall have approved the Merger
Proposal.
(b) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed by,
any court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity"), the failure of which
to file, obtain or occur is reasonably likely to have a material adverse
effect on either Office Depot or Viking, shall have been filed, been
obtained or occurred.
(c) The Registration Statement shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(d) No Governmental Entity or federal, state or foreign court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any decree, judgment, injunction or other order
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(whether temporary, preliminary or permanent) or statute, rule, regulation
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(e) Each of Office Depot and Viking shall have received a letter as of
the Effective Time from Deloitte & Touche LLP, Office Depot's independent
accountants, regarding its concurrence with the conclusions of Office
Depot's management, as to the appropriateness of pooling of interests
accounting, under Accounting Principles Board Opinion No. 16, for the
Merger.
(f) The shares of Office Depot Common Stock to be issued pursuant to
the Merger shall have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance.
(g) Effective demands for payment under Chapter 13 of the California
Corporations Code shall not have been received by Viking with respect to
more than 7.5% of the outstanding shares of Viking Common Stock.
The obligation of Office Depot, Merger Sub and Viking, respectively,
to effect the Merger is subject to the satisfaction of the following
additional conditions by the other party:
(a) The representations and warranties of Office Depot, Merger Sub and
Viking shall be true and correct, except (i) for changes contemplated by
the Merger Agreement and (ii) where the failures to be true and correct,
individually or in the aggregate, have not had and are not reasonably
likely to have a material adverse effect on Office Depot or Viking or a
material adverse effect upon the consummation of the transactions
contemplated in the Merger Agreement.
(b) Each party shall have performed, in all material respects, all
obligations required to be performed by it under the Merger Agreement, and
each of Office Depot and Viking shall have received an officers'
certificate to such effect from the other.
(c) Each party shall have received a written opinion from its counsel
to the effect that the Merger will be treated for Federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a)
of the Code.
REGULATORY APPROVAL REQUIRED
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of Justice (the "Antitrust
Division") and specified waiting period requirements have been satisfied. Office
Depot and Viking filed notification and report forms under the HSR Act with the
FTC and the Antitrust Division on May 28, 1998. The initial waiting period for
each of these filings expired on June 29, 1998. Private parties may also seek to
take legal action under the antitrust laws under certain circumstances.
European and Australian Regulatory Approvals. Because Office Depot has
operations in Europe and Viking has operations in Europe and Australia, the
Merger may be subject to review by certain European and Australian governments
and agencies.
EFFECTIVE TIME OF THE MERGER
The Merger will be consummated upon the filing of an agreement of merger
with an officers' certificate of each of Viking and Merger Sub attached with the
Secretary of State of the State of California (the time of the filing of such
Certificate of Merger is referred to herein as the "Effective Time"). The
Effective Time will occur as promptly as practicable after the requisite
stockholder approvals have been obtained and all other conditions to the Merger
have been satisfied or waived.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
The Board of Directors of Office Depot following the Merger will consist of
the following twelve persons: Cynthia R. Cohen, David I. Fuente, W. Scott
Hedrick, James L. Heskett, John C. Macatee, Michael J.
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Myers, Frank P. Scruggs, Jr. and Peter J. Solomon (all of whom are currently
directors of Office Depot), and Irwin Helford, M. Bruce Nelson, Lee A. Ault III
and Neil R. Austrian (all of whom are currently directors of Viking).
Upon the closing of the Merger, David I. Fuente, who is currently Chairman
of the Board and Chief Executive Officer of Office Depot, will retain such
positions at Office Depot; Irwin Helford, who is currently Chairman of the Board
and Chief Executive Officer of Viking, will remain as Chairman of the Viking
subsidiary of Office Depot and will become Vice Chairman and a corporate
executive officer of Office Depot; John Macatee, who is currently President and
Chief Operating Officer of Office Depot, will retain such positions at Office
Depot; and M. Bruce Nelson, who is currently President and Chief Operating
Officer of Viking, will remain as President of the Viking subsidiary and will
become Chief Executive Officer of the Viking subsidiary and a corporate
executive officer of Office Depot.
It is currently anticipated that the following additional members of the
senior management of Viking will join the existing management team of Office
Depot: Doug Ramsdale -- Executive Vice President, Europe; Joseph
Murphy -- Senior Vice President, Information Technology; Mark Brown -- Vice
President, Management Information Systems; Graham Cundick -- Senior Vice
President, Marketing; Fred Abt -- Vice President, Merchandising (U.S. and
Australia); and Ron Weissman -- Senior Vice President, Logistics.
The corporate headquarters of the combined company will be located in
Delray Beach, Florida, the current headquarters of Office Depot. Certain
significant functions will continue to be located in Torrance, California, the
current headquarters of Viking.
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
assets and liabilities of Office Depot and Viking will be carried forward in the
combined company at their recorded amounts, the operating results of the
combined company will include the operating results of Office Depot and Viking
for the entire fiscal year in which the combination occurs, and the reported
operating results of the separate companies for prior periods will be combined
and restated as the operating results of the combined company. As a condition to
the Merger, Office Depot and Viking each are to receive a letter as of the
Effective Time from Deloitte & Touche LLP, Office Depot's independent
accountants, regarding its concurrence with the conclusions of Office Depot's
management as to the appropriateness of pooling of interests accounting, under
Accounting Principles Board Opinion No. 16, for the Merger. See "THE MERGER
AGREEMENT -- Conditions to Closing" and "UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS."
Certain of the affiliates of Office Depot and Viking have executed written
agreements to the effect that they will not transfer shares of common stock of
either Office Depot or Viking during the period beginning 30 days prior to the
Effective Time and ending on the date that Office Depot publishes financial
statements which reflect at least 30 days of operations of the combined company
(which agreements relate to the ability of Office Depot to account for the
Merger as a pooling of interests).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses the material United States Federal
income tax considerations of the Merger that are applicable to Office Depot,
Viking and the Viking stockholders. This discussion reflects the opinions of
Simpson Thacher & Bartlett, counsel to Office Depot, and Latham & Watkins,
counsel to Viking, attached as Exhibits 8.1 and 8.2, respectively, to the
Registration Statement of which this Joint Proxy Statement/Prospectus is a part
(the "Exhibit Opinions"). The Exhibit Opinions each include an opinion to the
effect that the Merger will constitute a reorganization (a "Reorganization") for
United States federal income tax purposes within the meaning of Section 368(a)
of the Code and that Office Depot, Merger Sub and Viking will all be parties to
the Reorganization within the meaning of Code Section 368(b). The Exhibit
Opinions are based on certain assumptions and representations and are subject to
the limitations and qualifications noted therein.
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Viking stockholders should be aware that this discussion does not deal with
all of the United States federal income tax considerations that may be relevant
to particular Viking stockholders in light of their particular circumstances,
such as stockholders who are dealers in securities or foreign persons or who
acquired their Viking Common Stock through an exercise of stock options or other
compensatory transactions. In addition, the following discussion does not
address the tax consequences of any transactions effectuated prior to or after
the Merger (whether or not such transactions were effectuated in connection with
the Merger) including, without limitation, the exercise of options or rights to
purchase Viking Common Stock in anticipation of the Merger. Finally, no foreign,
state or local tax considerations are addressed herein. ACCORDINGLY, VIKING
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER THAT MAY BE
APPLICABLE TO THEM.
The following discussion is based on the interpretation, by each company's
respective counsel, of the Code, applicable Treasury Regulations, judicial
authority and administrative rulings and practice, all as of the date hereof.
The Internal Revenue Service (the "IRS") is not bound by such discussions and is
not precluded from adopting a contrary position. In addition, there can be no
assurance that future legislative, judicial or administrative changes or
interpretations will not adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the Merger to
Office Depot and Viking stockholders.
Subject to the limitations and qualifications referred to herein, and as a
result of the Merger's qualifying as a Reorganization, the respective counsel of
Office Depot and Viking are of the opinion that, for United States federal
income tax purposes:
(a) No gain or loss will be recognized by Viking stockholders who
exchange their Viking Common Stock solely for shares of Office Depot Common
Stock pursuant to the Merger.
(b) The aggregate tax basis of the Office Depot Common Stock received
by a Viking stockholder in the Merger will be the same as the aggregate tax
basis of the Viking Common Stock surrendered in exchange therefor.
(c) The holding period of the Office Depot Common Stock received by a
Viking stockholder in the Merger will include the holding period for the
Viking Common Stock surrendered in exchange therefor, provided that the
Viking Common Stock so surrendered is held as a capital asset by such
Viking stockholder at the Effective Time.
(d) No gain or loss will be recognized by Office Depot, Merger Sub or
Viking solely as a result of the Merger.
(e) The Merger will not have any tax consequences for the Office Depot
stockholders.
Neither Office Depot nor Viking has requested a ruling from the IRS in
connection with the Merger. However, it is a condition of the respective
obligations of Office Depot and Viking to consummate the Merger that both
parties receive tax opinions to the effect that, for United States Federal
income tax purposes, the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code. The Exhibit Opinions are not intended to
satisfy these closing conditions. These closing opinions, which are collectively
referred to herein as the "Tax Opinions," neither bind the IRS nor preclude the
IRS from adopting a contrary position. As with the Exhibit Opinions, the Tax
Opinions will be subject to the assumptions and qualifications set forth in such
Tax Opinions and will be based on the accuracy of certain representations of
Office Depot, Merger Sub and Viking.
DISSENTERS' AND APPRAISAL RIGHTS
If holders of 5% or more of the outstanding shares of Viking Common Stock
entitled to vote at the Viking Special Meeting vote against the Merger Proposal
and comply with certain other procedures, Viking stockholders of record who take
such actions will be entitled to exercise dissenters' rights pursuant to the
provisions of Chapter 13 of the California Corporations Code. In accordance with
these provisions, dissenting Viking stockholders will have the right to be paid
in cash the fair market value of their shares of Viking
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Common Stock as determined by appraisal (excluding any appreciation or
depreciation as a consequence of the Merger) by fully complying with the
procedures set forth under California Corporations Code. The failure of a
dissenting Viking stockholder to timely and properly comply with such procedures
will result in the termination or waiver of such rights. In addition, the Merger
Agreement provides that a condition to closing is that holders of more than 7.5%
of the outstanding shares of Viking Common Stock shall not have elected to
exercise their dissenters' rights pursuant to the California Corporations Code.
See "THE MERGER AGREEMENT -- Conditions to the Consummation of the Merger."
DISSENTERS' RIGHTS CANNOT BE VALIDLY EXERCISED BY PERSONS OTHER THAN
STOCKHOLDERS OF RECORD REGARDLESS OF THE BENEFICIAL OWNERSHIP OF THE SHARES.
Persons who are beneficial owners of shares held of record by another person,
such as brokers, banks or nominees, should instruct the record holder to follow
the procedures outlined below if they wish to dissent from the Merger with
respect to any or all of their shares.
Dissenting stockholders must submit to Viking at its principal office, 950
West 190th Street, Torrance, California 90502, Attention: Secretary, a written
demand that Viking purchase for cash some or all of their shares. The notice
must state the number of shares held of record which the stockholder demands to
be purchased and the amount claimed to be the "fair market value" of those
shares. That statement of fair market value will constitute an offer by the
dissenting stockholder to sell such shares at that price. SUCH DEMAND WILL NOT
BE EFFECTIVE UNLESS IT IS RECEIVED NOT LATER THAN THE DATE OF THE VIKING SPECIAL
MEETING.
If Viking stockholders have a right to require Viking to purchase their
shares for cash under the dissenters' rights provisions of the California
Corporations Code, Viking will mail to each such stockholder a notice of
approval of the Merger within ten days after the date of stockholder approval,
stating the price determined by it to represent the "fair market value" of the
dissenting shares, and a brief description of the procedure to be followed if
the stockholder desires to exercise such dissenters' rights. The statement of
price will constitute an offer to purchase any dissenting shares at that price.
To perfect their dissenters' rights, stockholders of record must: (i) make
written demand for the purchase of their dissenting shares upon Viking on or
before the date of the Viking Special Meeting; (ii) vote their shares against
adoption and approval of the Merger Agreement; and (iii) within 30 days after
the mailing to stockholders by Viking of the notice of approval of the principal
terms of the Merger, submit the certificate(s) representing their dissenting
shares to Viking or its transfer agent for notation thereon that they represent
dissenting shares. The notice of approval of the Merger will specify the date by
which the submission of certificates for endorsement must be made and a
submission made after that date will not be effective for any purpose. Failure
to follow any of these procedures may result in the loss of statutory
dissenters' rights.
If a dissenting stockholder and Viking agree that shares are dissenting
shares and agree upon the price of the shares, Viking, upon surrender of the
certificates, will make payment of that amount (plus interest thereon at the
legal rate on judgments from the date of such agreement) within 30 days after
such agreement. Any agreement between dissenting stockholders and Viking fixing
the "fair market value" of any dissenting shares must be filed with the
Secretary of Viking.
If Viking denies that the shares are dissenting shares, or Viking and a
dissenting stockholder fail to agree upon the "fair market value" of the shares,
the dissenting stockholder may, within six months after the date on which notice
of approval of the Merger was mailed to the stockholder, but not thereafter,
file a complaint (or intervene in a pending action, if any) in the Superior
Court for the County of Los Angeles, State of California, requesting that the
Superior Court determine whether the shares are dissenting shares and the "fair
market value" of such dissenting shares. The Superior Court may appoint one or
more impartial appraisers to determine the "fair market value" per share of the
dissenting shares. The costs of the action will be assessed or apportioned as
the Superior Court considers equitable, but if the "fair market value" is
determined by the Superior Court to exceed 125% of the price offered in the
Merger, Viking will be required to pay such costs including, in the discretion
of the Superior Court, attorneys' fees, fees of expert witnesses and interest at
the legal rate on judgments. A dissenting stockholder must bring such an action
within six months after the date on which the notice of approval of the Merger
Agreement was mailed to the stockholder, whether or not
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Viking responds within such time to the stockholder's written demand that Viking
purchase for cash shares voted against the Merger Agreement.
Delaware law does not require that holders of Office Depot Common Stock who
object to the Merger and who vote against or abstain from voting in favor of the
Merger and the Merger Agreement be afforded any dissenters' or appraisal rights
or the right to receive cash for their shares of Office Depot Common Stock, and
Office Depot does not intend to make available such rights to its stockholders.
CERTAIN LEGAL PROCEEDINGS
On May 21, 1998, a Viking stockholder, Thaddeus Szymczak, filed a purported
class action complaint in Superior Court, State of California, County of Los
Angeles, for breaches of fiduciary duties against Viking and the Viking Board.
The complaint seeks an injunction against the Merger and the certification as a
class of all Viking stockholders. It alleges that Viking and its directors
breached their fiduciary duties to Viking stockholders by, among other things,
agreeing to an Exchange Ratio that fails to protect Viking stockholders against
a decline in the value of Office Depot stock, and failing to conduct an auction
for Viking or otherwise procuring a market assessment of the value of Viking in
an acquisition. The complaint also names Office Depot as a defendant, alleging
that it aided and abetted the Viking Board's breach of its fiduciary duties.
Office Depot and Viking believe that this complaint is without merit and
will aggressively defend against the suit and pursue the Merger.
FEDERAL SECURITIES LAW CONSEQUENCES
All shares of Office Depot Common Stock received by Viking stockholders in
the Merger will be freely transferable, except that shares of Office Depot
Common Stock received by persons who are deemed to be affiliates of Viking prior
to the Merger may be resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act (or Rule 144 in the
case of such persons who become affiliates of Office Depot) or otherwise in
compliance with (or pursuant to an exemption from) the registration requirements
of the Securities Act. Persons deemed to be affiliates of Office Depot or Viking
are those individuals or entities that control, are controlled by, or are under
common control with, such party and generally include executive officers and
directors of such party as well as certain principal stockholders of such party.
This Joint Proxy Statement/Prospectus does not cover any resales of Office Depot
Common Stock received by affiliates of Viking in the Merger.
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THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached as Annex I to this Joint Proxy Statement/Prospectus
and is incorporated herein by reference. This summary is qualified in its
entirety by reference to the Merger Agreement. Stockholders of Office Depot and
Viking are urged to read the Merger Agreement in its entirety for a more
complete description of the terms and conditions of the Merger.
GENERAL
The Merger Agreement provides that, following the approval of the Share
Issuance by the stockholders of Office Depot, the approval of the Merger
Proposal by the stockholders of Viking, and the satisfaction or waiver of the
other conditions to the Merger, Merger Sub will be merged with and into Viking,
with Viking continuing as the Surviving Corporation and a wholly owned
subsidiary of Office Depot.
If all conditions to the Merger are satisfied or waived, the Merger will
become effective at the Effective Time. See "THE MERGER -- Effective Time of the
Merger."
CONVERSION OF SHARES
Consideration/Exchange Ratio. Upon consummation of the Merger, pursuant to
the Merger Agreement, each issued and outstanding share of Viking Common Stock
(other than shares, if any, as to which dissenters' rights are perfected and
shares owned by Viking as treasury stock or by Office Depot, Merger Sub or any
other wholly owned subsidiary of Office Depot, all of which will be cancelled),
together with any rights under the Viking Rights Plan (as defined below)
associated therewith, will be converted into one share (the "Exchange Ratio") of
Office Depot Common Stock. Pursuant to the Rights Agreement, dated as of
September 4, 1996, between Office Depot and ChaseMellon Shareholder Services,
L.L.C. ("Office Depot Rights Plan") one right issued under the Office Depot
Rights Plan will be attached to each share of Office Depot Common Stock. Each
share of the common stock of Merger Sub ("Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time will be converted into one
share of common stock of the Surviving Corporation. Notwithstanding the
foregoing, if prior to the Effective Time, the outstanding shares of Office
Depot Common Stock are changed into a different number of shares or a different
class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split combination or exchange of shares, then the Exchange
Ratio will be adjusted accordingly.
Dissenting Shares. Shares of Viking Common Stock which are dissenting
shares (as defined by the California Corporations Code), if any, will not be
converted into or represent a right to receive any shares of Office Depot Common
Stock, but the holders of dissenting shares will be entitled only to such rights
as are granted by the California Corporations Code.
Exchange Procedure. As soon as reasonably practicable after the Effective
Time, a bank or trust company designated by Office Depot and Viking (the
"Exchange Agent") will mail transmittal forms and exchange instructions to each
holder of record of Viking Common Stock to be used to surrender and exchange
certificates formerly evidencing shares of Viking Common Stock for certificates
evidencing the shares of Office Depot Common Stock to which such holder has
become entitled. After receipt of such transmittal forms, each holder of
certificates formerly representing Viking Common Stock will be able to surrender
such certificates to the Exchange Agent, and each such holder will receive in
exchange therefor certificates evidencing the number of whole shares of Office
Depot Common Stock to which such holder is entitled.
After the Effective Time, each certificate formerly representing Viking
Common Stock (other than shares as to which dissenters' rights have been
perfected), until so surrendered and exchanged, will be deemed, for all
purposes, to evidence only the right to receive the number of whole shares of
Office Depot Common Stock which the holder of such certificate is entitled to
receive in the Merger. The holder of such unexchanged certificate will not be
entitled to receive any dividends or other distributions payable by Office Depot
until the certificate has been exchanged. Subject to applicable laws, following
surrender of such certificates, such dividends and distributions will be paid
without interest.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties relating to, among other things: (a) due organization, valid
existence and good standing of each of Office Depot, Viking and each of their
respective subsidiaries and certain similar corporate matters; (b) the capital
structure of each of Office Depot and Viking; (c) the authorization, execution,
delivery and enforceability of the Merger Agreement and the consummation of the
transactions contemplated by the Merger Agreement and related matters; (d)
conflicts under articles of incorporation or by-laws, required consents or
approvals and violations of any instruments or law; (e) documents and financial
statements filed by each of Office Depot and Viking with the Commission and the
accuracy of information contained therein; (f) undisclosed liabilities; (g) the
absence of certain material adverse events or changes; (h) taxes and tax
returns; (i) properties; (j) intellectual property; (k) agreements, contracts
and commitments; (l) litigation; (m) environmental matters and hazardous
materials; (n) employee benefit plans; (o) compliance with laws; (p) accounting
and tax matters relating to the Merger; (q) the accuracy of information supplied
by each of Office Depot and Viking in connection with the Registration Statement
and this Joint Proxy Statement/Prospectus; (r) labor matters; (s) insurance; (t)
the absence of existing discussions with other parties; (u) opinions of
financial advisors; (v) inapplicability to the Merger of anti-takeover laws; (w)
the Viking Rights Plan (as defined below) and the Office Depot Rights Plan; and
(x) the interim operations of Merger Sub.
CERTAIN COVENANTS
Covenants of Office Depot and Viking. Pursuant to the Merger Agreement,
each of Office Depot and Viking has agreed that, during the period from the date
of the Merger Agreement until the Effective Time, except as otherwise consented
to in writing by the other party or as contemplated by the Merger Agreement, it
and each of its respective subsidiaries will: (a) carry on its business in
substantially the same manner as previously conducted; (b) pay its debts and
taxes when due, subject to good faith disputes over such debts or taxes, and pay
or perform other obligations when due; (c) use reasonable efforts to preserve
intact its present business organization, management team and business
relationships; (d) refrain from accelerating, amending or changing the period of
exercisability of options or restricted stock granted under any employee stock
plan or authorizing cash payments in exchange for any options granted under any
employee stock plan, except as required pursuant to the plan or any related
agreement; (e) not declare or pay any dividends on or make other distributions
in respect of any of its capital stock, not effect certain other changes in its
capitalization (except with respect to a stock split of the Office Depot Common
Stock, as a result of which the Exchange Ratio is adjusted), and not purchase or
otherwise acquire any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with the termination of service; (f) not
issue, sell, authorize or propose the issuance or sale of any shares of its
capital stock or securities convertible into shares of its capital stock, or any
subscriptions, rights, warrants or options to acquire or other agreements
obligating it to issue any such shares or other convertible securities, subject
to certain exceptions (including, (i) in the case of Viking, (A) the issuance of
shares upon the exercise of stock options outstanding on the date of the Merger
Agreement and pursuant to awards granted under the 1994 Viking Employee Stock
Purchase Plan, or (B) the grant of options consistent with past practices to
employees, which options represent in the aggregate the right to acquire no more
than 1,600,000 shares of Viking Common Stock (net of cancellations) and (ii) in
the case of Office Depot (A) the grant of options pursuant to Office Depot's
Long Term Equity Incentive Plan, (B) the issuance of shares of Office Depot
Common Stock pursuant to the exercise of options or convertible securities
outstanding on the date of the Merger Agreement or (C) the issuance of shares of
capital stock having a market value upon issuance of not more than $750,000,000
(other than in mergers, consolidations or other acquisitions of a substantial
equity interest in or substantial portion of the assets of, or by any business
or any corporation, partnership or other business organization as to which such
limitation shall not apply)); (g) not sell, lease, license or otherwise dispose
of material properties or assets outside the ordinary course of business
(except, in the case of Office Depot, for sales or dispositions to subsidiaries
or in connection with sale-leaseback transactions); and (h) not amend its
charter or bylaws, except as contemplated by the Merger Agreement.
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Additional Covenants of Office Depot. Office Depot has agreed in the
Merger Agreement that, during the period from the date of the Merger Agreement
until the Effective Time, except as otherwise consented to in writing by Viking
or as contemplated by the Merger Agreement, it and each of its respective
subsidiaries will not increase or agree to increase the compensation payable to
officers, enter into any additional severance agreements with any officers,
establish, adopt or enter into any plan for the benefit of any directors or
officers except as provided in clause (f)(ii)(A) of the paragraph "Covenants of
Office Depot and Viking" above or as disclosed prior to the date of the Merger
Agreement.
Additional Covenants of Viking. In addition, Viking has agreed in the
Merger Agreement that, during the period from the date of the Merger Agreement
until the Effective Time, except as otherwise consented to in writing by Office
Depot or as contemplated by the Merger Agreement, it and each of its respective
subsidiaries will: (a) not make any acquisitions involving aggregate
consideration of more than $7,500,000; (b) not increase the compensation payable
to its officers or employees (except for increases to employees consistent with
past practices (including bonuses)), grant additional severance or termination
pay or enter into employment or severance agreements with any employees or
officers, other than payments or agreements paid to or entered into with
employees (other than officers) in the ordinary course of business in accordance
with past practices or the performance of agreements in effect on the date of
the Merger Agreement; (c) not enter into any collective bargaining agreement
(other than as required by law or extensions to existing agreements in the
ordinary course of business) or establish, adopt, enter into or amend any plan
for the benefit of its directors, officers, or employees; (d) not incur
indebtedness for money borrowed other than pursuant to credit agreements in
effect as of the date of the Merger Agreement or up to $50,000,000 in borrowings
under loan agreements entered into thereafter; (e) not initiate, compromise, or
settle any material litigation or arbitration proceeding; (f) except in the
ordinary course of business, not modify, amend or terminate any Viking Material
Contract (as defined in the Merger Agreement) or waive, release or assign any
material rights or claims; and (g) not make or commit to make any capital
expenditures that would cause the aggregate capital budget furnished by Viking
to Office Depot to be exceeded.
Certain Additional Agreements. Pursuant to the Merger Agreement, Office
Depot and Viking have each agreed to use its best efforts to: (i) take all
appropriate action to consummate the transactions contemplated by the Merger
Agreement as promptly as practicable; (ii) obtain any consents, licenses,
permits, waivers, approvals, authorizations or orders from governmental entities
or other third parties required in connection with the transactions contemplated
by the Merger Agreement; and (iii) make all necessary filings and submissions
with respect to the transactions contemplated by the Merger Agreement under
federal, state and foreign securities laws, antitrust laws and other applicable
laws. Office Depot and Viking have also agreed to use their best efforts to
obtain any governmental clearances required for the closing of the Merger, to
respond to any government requests for information, and to contest and resist
any government action which would prohibit the Merger. Notwithstanding the
foregoing, neither Office Depot nor any of its subsidiaries will be required to
divest any of their respective businesses, product lines or assets, or to take
or agree to take any other action or agree to any limitation, that could
reasonably be expected to have a material adverse effect on Office Depot or on
Office Depot combined with Viking.
NO SOLICITATION
The Merger Agreement provides that Office Depot and Viking each will not,
directly or indirectly, through any officer, director, employee, financial
advisor, representative or agent of such party: (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for an Alternative Transaction (as
defined below) involving such party or any of its subsidiaries (any of the
foregoing inquiries or proposals being referred to in the Merger Agreement as an
"Acquisition Proposal"); (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Acquisition Proposal; or (iii) agree to or recommend any Acquisition Proposal.
However, nothing contained in the Merger Agreement prevents Office Depot or
Viking, or their respective Boards of Directors, from: (A) furnishing non-public
information to, or entering into discussions or negotiations with, any person or
entity in connection with an unsolicited bona fide written Acquisition Proposal
by such person or entity or recommending an unsolicited bona fide written
Acquisition
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Proposal to the stockholders of such party, if and only to the extent that: (1)
the Board of Directors of such party believes in good faith (after consultation
with its financial advisor) that such Acquisition Proposal is reasonably capable
of being completed on the terms proposed and, after taking into account the
strategic benefits anticipated to be derived from the Merger and the long-term
prospects of Viking and Office Depot as a combined company, would, if
consummated, result in a transaction more favorable than the transaction
contemplated by the Merger Agreement (any such more favorable Acquisition
Proposal being referred to in the Merger Agreement as a "Superior Proposal") and
the Board of Directors of such party determines in good faith after consultation
with outside legal counsel that failure to take such action would be reasonably
likely to constitute a breach of the fiduciary duties of such Board of Directors
to stockholders under applicable law; (2) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, such Board of Directors receives from such person or entity an
executed confidentiality agreement with terms no less favorable to such party
than those contained in the Agreement dated as of March 9, 1998 between Office
Depot and Viking (the "Confidentiality Agreement"); and (3) prior to furnishing
such non-public information or providing access to the properties, books or
records of such party, such party has notified the other party of such
Acquisition Proposal in the manner described in the following paragraph; or (B)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
Office Depot and Viking are each required by the Merger Agreement to
promptly notify the other party (orally and in writing) upon receipt of any
Acquisition Proposal or request for non-public information or access to its
properties, books or records in connection with an Acquisition Proposal.
MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE MERGER
Board of Directors. The Merger Agreement provides that subsequent to the
Effective Time, the number of members of the combined company's board of
directors will be increased to twelve. Irwin Helford, M. Bruce Nelson, Lee A.
Ault III and Neil R. Austrian will become members of the Office Depot Board.
Officers. The Merger Agreement further provides that, upon the closing of
the Merger, Irwin Helford and M. Bruce Nelson will become corporate executive
officers of Office Depot, and Mark Brown, Graham Cundick, Ron Weissman,
Charlotte Wiethoff, Doug Ramsdale and Fred Abt will become operating officers of
Office Depot. See "THE MERGER -- Interests of Certain Persons in the Merger."
STOCK OPTIONS AND EMPLOYEE BENEFITS
Stock Options. Pursuant to the terms of the Merger Agreement, at the
Effective Time, each outstanding option to purchase shares of Viking Common
Stock (a "Viking Stock Option") under the Viking Stock Plans (as defined in the
Merger Agreement), whether vested or unvested, will constitute an option to
acquire, on the same terms and conditions as were applicable under such Viking
Stock Plan, the same number of shares of Office Depot Common Stock as the holder
of such Viking Stock Option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time at a price per share equal to (x) the aggregate exercise price
for the shares of Viking Common Stock purchasable pursuant to such Viking Stock
Option immediately prior to the Effective Time divided by (y) the number of full
shares of Office Depot Common Stock deemed purchasable pursuant to such Viking
Stock Option in accordance with the foregoing. As of the Record Date, options to
acquire 7,803,050 shares of Viking Common Stock were outstanding.
Office Depot agreed in the Merger Agreement to reserve for issuance a
sufficient number of shares of Office Depot Common Stock for delivery upon
exercise of the Viking Stock Options described above. As soon as practicable
after the Effective Time, Office Depot has agreed to file a registration
statement on Form S-8 with respect to the shares of Office Depot Common Stock
subject to such options and has agreed to use its best efforts to maintain the
effectiveness of such registration statement for so long as such options remain
outstanding. See also "THE OFFICE DEPOT CHARTER AMENDMENT AND INCENTIVE PLAN
AMENDMENT -- Reasons for the Incentive Plan Amendment."
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The Viking Board has agreed to take, prior to the Effective Time, all
necessary actions to provide for the conversion of the Viking Stock Options into
options to acquire Office Depot Common Stock as described above. No consent of
the holders of the Viking Stock Options will be required in connection with such
conversion.
The Merger Agreement provides that the shares of Viking Common Stock
awarded, issued and outstanding under the Viking Long Term Stock Incentive Plan
will be converted into Office Depot Common Stock at the Effective Time. Such
agreements will remain in full force and effect in accordance with the foregoing
terms after the Effective Time. See "THE MERGER -- Interests of Certain Persons
in the Merger."
Employee Benefits. Office Depot has agreed that, during the period
commencing at the Effective Time and ending on December 31, 1999, the employees
of Viking and its subsidiaries will continue to be provided with benefits which
are no less favorable than those currently provided by Viking and its
subsidiaries to such employees.
RIGHTS PLANS
In the Merger Agreement, the Viking Board agreed to take all further
actions reasonably requested by Office Depot in order to render the Viking
Rights Plan, dated January 20, 1997, between Viking and American Stock Transfer
and Trust Company, as amended (the "Viking Rights Plan") inapplicable to the
Merger. The Viking Board has amended the Viking Rights Plan to exclude Office
Depot from the definition of "Acquiring Person" therein, provided that Office
Depot will not be excepted from such definition if Office Depot acquires
beneficial ownership of Viking other than pursuant to the Viking Stock Option
Agreement or the Merger Agreement. Except as described above, the Viking Board
will not, without the consent of Office Depot, (a) amend the Viking Rights Plan
or (b) take any action with respect to, or make any determination under, the
Viking Rights Plan, including a redemption of the Viking Rights or any action to
facilitate an Acquisition Proposal (except as otherwise permitted by the Merger
Agreement).
DIRECTOR AND OFFICER INDEMNIFICATION
Indemnification. The Merger Agreement provides that, from and after the
Effective Time, Office Depot and Viking, as its wholly owned subsidiary after
the Merger (the "Surviving Corporation") will indemnify and hold harmless each
present and former director and officer of Viking against all costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to any matter
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that
Viking would have been permitted under the California Corporations Code and its
articles of incorporation or bylaws in effect on the date of the Merger
Agreement to indemnify such person. Office Depot and the Surviving Corporation
shall also be obligated to advance expenses as incurred to the fullest extent
permitted under applicable law, provided the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification.
Insurance. For a period of six years after the Effective Time, Office
Depot has agreed to cause the Surviving Corporation to maintain (to the extent
available in the market) in effect a directors' and officers' liability
insurance policy covering those persons who were covered as of the date of the
Merger Agreement by Viking's directors' and officers' liability insurance
policy, with coverage in an amount and scope at least as favorable as Viking's
then existing coverage; provided that neither Office Depot nor the Surviving
Corporation is required to expend in excess of 250% of the annual premium paid
by Viking as of the date of the Merger Agreement for such coverage (the "Current
Premium") (which did not exceed $135,000), and if the premium would at any time
exceed 250% of the Current Premium, the Surviving Corporation is required to
maintain insurance policies which provide the maximum coverage available at an
annual premium equal to 250% of the Current Premium.
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CONDITIONS TO CLOSING
The Merger Agreement provides that the respective obligations of Office
Depot and Viking to effect the Merger are subject to the satisfaction (or
waiver) of the following conditions: (a) the Share Issuance is approved by the
Office Depot stockholders, and the Merger Proposal is approved by the Viking
stockholders; (b) the waiting period applicable to the consummation of the
Merger under the HSR Act has expired or been terminated, and approvals and/or
clearances have been obtained from (or decisions indicating no objections to the
Merger or other indications to that effect satisfactory to Office Depot have
been made by) the European Commission and under any other antitrust or
competition law applicable to any significant operations; (c) all material
governmental authorizations, consents, orders or approvals have been obtained
and all waiting periods imposed by any Governmental Entity have expired, unless
the failure to file or obtain approval of any of the foregoing is not reasonably
likely to have a material adverse effect; (d) the Registration Statement has
become effective and is not the subject of a stop order or proceedings seeking a
stop order; (e) no order, injunction or judgment, or statute, rule or
regulation, is in effect that makes the Merger illegal or otherwise prohibits
the consummation of the Merger; (f) Office Depot and Viking have each received a
letter as of the Effective Time from Deloitte & Touche LLP, Office Depot's
independent accountants, regarding its concurrence with the conclusions of
Office Depot's management as to the appropriateness of accounting for the Merger
as a pooling of interests under Accounting Principles Board Opinion No. 16 (see
"THE MERGER -- Accounting Treatment"); (g) the shares of Office Depot Common
Stock to be issued in the Merger have been approved for listing on the New York
Stock Exchange; and (h) effective demands for payment under Chapter 13 of the
California Corporations Code have not been received by Viking with respect to
more than 7.5% of the outstanding shares of Viking Common Stock.
Office Depot/Merger Sub. In addition, the Merger Agreement provides that
the obligations of Office Depot and Merger Sub to effect the Merger are subject
to the satisfaction (or waiver) of the following conditions: (i) the
representations and warranties of Viking in the Merger Agreement are true and
correct as of the date of the Merger Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of two days after
the date on which the closing of the Merger takes place (the "Closing Date") as
though made on and as of the Closing Date, except for changes contemplated by
the Merger Agreement and breaches which, individually or in the aggregate, have
not had and are not reasonably likely to have a material adverse effect upon
either Viking or the consummation of the transactions contemplated by the Merger
Agreement (the "Viking Representation Bringdown Condition"); (ii) Viking has
performed in all material respects all obligations required to be performed by
it under the Merger Agreement at or prior to the Closing Date; and (iii) Office
Depot has received a written legal opinion to the effect that the Merger will be
treated for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code (see "THE MERGER -- Certain Federal Income
Tax Consequences").
Viking. In addition, the obligations of Viking to effect the Merger are
subject to the satisfaction or waiver of the following conditions: (i) the
representations and warranties of Office Depot and Merger Sub in the Merger
Agreement are true and correct as of the date of the Merger Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date,
except for changes contemplated by the Merger Agreement and breaches which,
individually or in the aggregate, have not had and are not reasonably likely to
have a material adverse effect upon either Office Depot or the consummation of
the transactions contemplated by the Merger Agreement (the "Office Depot
Representation Bringdown Condition"); (ii) Office Depot has performed in all
material respects all obligations required to be performed by it under the
Merger Agreement at or prior to the Closing Date; and (iii) Viking has received
a written legal opinion to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization within the meaning of
Section 368(a) of the Code. See "THE MERGER -- Certain Federal Income Tax
Consequences."
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TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the Office Depot and Viking stockholders:
(a) by mutual written consent of Office Depot and Viking; or
(b) by either Office Depot or Viking if the Merger is not consummated
by November 30, 1998 (provided that (i) either Office Depot or Viking may
extend such date to February 28, 1999, by providing written notice thereof
on or prior to November 30, 1998 (November 30, 1998, or February 28, 1999,
if such date is so extended, is referred to as the "Outside Date"), and
(ii) the right to terminate the Merger Agreement under this clause is not
available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of or resulted in the failure of the
Merger to occur on or before such date); or
(c) by either Office Depot or Viking if a court of competent
jurisdiction or other Governmental Entity has issued a nonappealable final
order, decree or ruling or taken any other nonappealable final action, in
each case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger; or
(d) by Office Depot if, at the Viking Special Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Viking in favor of the Merger Proposal is not obtained; or by Viking if, at
the Office Depot Special meeting (including any adjournment or
postponement), the requisite vote of the stockholders of Office Depot in
favor of the Share Issuance is not obtained; or
(e) by Office Depot, if: (i) the Viking Board withdraws or modifies
its recommendation of the Merger Proposal or resolves to do so; (ii) after
the receipt by Viking of an Acquisition Proposal, Office Depot requests in
writing that the Viking Board reconfirm its recommendation of the Merger
Agreement or the Merger and the Viking Board fails to do so within ten
business days after its receipt of Office Depot's request; (iii) the Viking
Board recommends to the stockholders of Viking an Alternative Transaction
(as defined below) or the Viking Board resolves to do so; (iv) a tender
offer or exchange offer for 25% or more of the outstanding shares of Viking
Common Stock is commenced (other than by Office Depot or an affiliate of
Office Depot) and the Viking Board recommends that the stockholders of
Viking tender their shares in such tender or exchange offer or the Viking
Board fails to recommend that stockholders reject such tender or exchange
offer within ten business days after receipt of Office Depot's request to
do so; or (v) for any reason Viking fails to call and hold the Viking
Special Meeting by the Outside Date (provided that Office Depot's right to
terminate the Merger Agreement under such clause (v) is not available if at
such time Viking would be entitled to terminate the Merger Agreement by
reason of a Section 8.01(g) Breach (as defined below) by Office Depot); or
(f) by Viking, if: (i) the Office Depot Board withdraws or modifies
its recommendation of the Merger Agreement or the Merger or resolves to do
so; (ii) after the receipt by Office Depot of an Acquisition Proposal,
Viking requests in writing that the Office Depot Board reconfirms its
recommendation of the Share Issuance and the Office Depot Board fails to do
so within ten business days after its receipt of Viking's request; (iii)
the Office Depot Board recommends to the stockholders of Office Depot an
Alternative Transaction or the Office Depot Board resolves to do so; (iv) a
tender offer or exchange offer for 25% or more of the outstanding shares of
Office Depot Common Stock is commenced (other than by Viking or an
affiliate of Viking) and the Office Depot Board recommends that the
stockholders of Office Depot tender their shares in such tender or exchange
offer or the Office Depot Board fails to recommend that the stockholders
reject such tender or exchange offer within ten business days after receipt
of Viking's request to do so; or (v) for any reason Office Depot fails to
call and hold the Office Depot Special Meeting by the Outside Date
(provided that Viking's right to terminate the Merger Agreement under such
clause (v) is not available if at such time Office Depot would be entitled
to terminate the Merger Agreement by reason of a Section 8.01(g) Breach (as
defined below) by Viking; or
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(g) by Office Depot or Viking, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in the Merger Agreement, which breach (i) causes the Viking
Representation Bringdown Condition (in the case of a termination by Office
Depot) or the Office Depot Representation Bringdown Condition (in the case
of a termination by Viking) not to be satisfied and (ii) has not been cured
within 20 business days following receipt by the breaching party of written
notice of such breach from the other party (such a breach is referred to
herein as a "Section 8.01(g) Breach").
In the event of any termination of the Merger Agreement by either Office
Depot or Viking as provided above, the Merger Agreement will become void and
there will be no liability or obligation (with limited exceptions) on the part
of Office Depot, Viking, Merger Sub or their respective officers, directors,
stockholders or affiliates, except as provided below with respect to expense
reimbursements and termination fees, provided that any such termination will not
limit liability for any willful breach of the Merger Agreement and provided
further that the obligations with respect to the expense reimbursements and
termination fees described below, the Stock Option Agreements and the
Confidentiality Agreement will remain in full force and effect and survive any
termination of the Merger Agreement.
"Alternative Transaction" means: (i) a transaction pursuant to which any
person (or group of persons) other than Office Depot or Viking or their
respective affiliates (a "Third Party") acquires more than 25% of the
outstanding shares of Viking Common Stock or Office Depot Common Stock, as the
case may be, pursuant to a tender offer or exchange offer or otherwise; (ii) a
merger or other business combination involving Office Depot or Viking pursuant
to which any Third Party acquires more than 25% of the outstanding shares of
Viking Common Stock or Office Depot Common Stock, as the case may be, or the
entity surviving such merger or business combination; (iii) any other
transaction pursuant to which any Third Party acquires control of assets
(including for this purpose the outstanding equity securities of subsidiaries of
Office Depot or Viking, and the entity surviving any merger or business
combination including any of them) of Office Depot or Viking having a fair
market value (as determined by the Board of Directors of Office Depot or Viking,
as the case may be, in good faith) equal to more than 25% of the fair market
value of all the assets of Office Depot or Viking, as the case may be, and its
subsidiaries, taken as a whole, immediately prior to such transaction; or (iv)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
Fees and Expenses. The Merger Agreement provides that, except as set forth
below, whether or not the Merger is consummated, all fees, costs and expenses
incurred in connection with the Merger Agreement and the transactions
contemplated thereby are to be paid by the party incurring such expenses, except
that each of Office Depot and Viking will bear and pay one-half of the costs and
expenses incurred in connection with the filing, printing and mailing of this
Joint Proxy Statement.
Viking has agreed to pay Office Depot up to $5,000,000 as reimbursement for
expenses that Office Depot actually incurs relating to the transactions
contemplated by the Merger Agreement prior to termination (including fees and
expenses of Office Depot's counsel, accountants and financial advisors, but
excluding any discretionary fees paid to such financial advisors), upon the
termination of the Merger Agreement by Office Depot: (i) under the circumstances
described in paragraph (d) above (other than in the circumstances set forth in
clause (i) of the following paragraph); or (ii) under the circumstances
described in paragraph (b) or (g) above as a result of the failure to satisfy
the Viking Representation Bringdown Condition.
In addition, Viking has agreed to pay Office Depot a termination fee of
$30,000,000 (the "Office Depot Termination Fee") upon the earliest to occur of
the following events: (i) the termination of the Merger Agreement by Office
Depot under the circumstances described in paragraph (d) above, if a proposal
for an Alternative Transaction involving Viking has been made prior to the
Viking Special Meeting; or (ii) the termination of the Merger Agreement by
Office Depot under the circumstances described in paragraph (e) above.
Thereafter, if an Alternative Transaction involving Viking is consummated within
twelve months after such termination, Viking has agreed to pay Office Depot an
additional fee of $50,000,000. Viking's payment of the Office Depot Termination
Fee as described in this paragraph is to be the sole and exclusive remedy of
Office Depot against Viking and any of its subsidiaries and their respective
directors, officers,
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employees, agents, advisors or other representatives with respect to the
occurrences giving rise to such payment (other than as set forth in the Viking
Stock Option Agreement); provided that this limitation will not limit liability
for a willful breach of the Merger Agreement by Viking.
Office Depot has agreed to pay Viking up to $5,000,000 as reimbursement for
expenses that Viking actually incurs relating to the transactions contemplated
by the Merger Agreement prior to termination (including fees and expenses of
Viking's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of the
Merger Agreement by Viking (i) under the circumstances described in paragraph
(d) above (other than in the circumstances set forth in clause (i) of the
following paragraph) or (ii) under the circumstances described in paragraph (b)
or (g) above as a result of the failure to satisfy the Office Depot
Representation Bringdown Condition.
In addition, Office Depot has agreed to pay Viking a termination fee of
$30,000,000 (the "Viking Termination Fee," together with the Office Depot
Termination Fee, the "Termination Fee") upon the earlier to occur of the
following events: (i) the termination of the Merger Agreement by Viking under
the circumstances described in paragraph (d) above, if a proposal for an
Alternative Transaction involving Office Depot has been made prior to the Office
Depot Special Meeting; or (ii) the termination of the Merger Agreement by Viking
under the circumstances described in paragraph (f) above. Thereafter, if an
Alternative Transaction involving Office Depot is consummated within twelve
months after such termination, Office Depot has agreed to pay to Viking an
additional fee of $50,000,000. Office Depot's payment of the Viking Termination
Fee as described in this paragraph is to be the sole and exclusive remedy of
Viking against Office Depot and any of its subsidiaries and their respective
directors, officers, employees, agents, advisors or other representatives with
respect to the occurrences giving rise to such payment (other than as set forth
in the Office Depot Stock Option Agreement); provided that this limitation will
not limit liability in the event of a willful breach of the Merger Agreement by
Office Depot.
The Merger Agreement provides that, if applicable, any expenses and fees
payable as described above must be paid within one business day after the first
to occur of the relevant termination events.
AMENDMENT AND WAIVER
The Merger Agreement may be amended at any time by action taken or
authorized by the respective Boards of Directors of Office Depot and Viking; but
after approval of the Share Issuance by the Office Depot stockholders or the
Merger Proposal by the Viking stockholders, no amendment may be made which by
law requires further approval by such Office Depot or Viking stockholders
without such further approval. Office Depot and Viking, by action taken or
authorized by their respective Boards of Directors, may extend the time for
performance of the obligations or other acts of the other parties to the Merger
Agreement, may waive inaccuracies in the representations or warranties contained
in the Merger Agreement and may waive compliance with any agreements or
conditions contained in the Merger Agreement.
THE STOCK OPTION AGREEMENTS
The following is a brief summary of the terms of the Office Depot and
Viking Stock Option Agreements (collectively, the "Stock Option Agreements"),
copies of which are filed as exhibits to Office Depot's current report on Form
8-K, dated May 18, 1998, which is incorporated herein by reference. This summary
is qualified in its entirety by reference to the Stock Option Agreements.
Pursuant to the Office Depot Stock Option Agreement, Viking has the right
(the "Office Depot Option"), under the circumstances described below, to acquire
up to 31,669,400 shares of Office Depot Common Stock (the "Office Depot Option
Shares") (or approximately 19.9% of the outstanding shares of Office Depot
Common Stock as of May 18, 1998, prior to giving effect to the exercise of such
option), including the associated rights under the Office Depot Rights Plan, at
a cash purchase price of $33.60 per share (the "Office Depot Option Price").
Pursuant to the Viking Stock Option Agreement, Office Depot has the right (the
"Viking Option," collectively with the Office Depot Option, the "Options"),
under the circumstances described below, to acquire up to 16,929,500 shares of
Viking Common Stock (the "Viking
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Option Shares," collectively with the Office Depot Option Shares, the "Option
Shares") (or approximately 19.9% of the outstanding shares of Viking Common
Stock as of May 18, 1998, prior to giving effect to the exercise of such
option), including the associated rights under the Viking Rights Plan, at a cash
purchase price of $33.60 per share (the "Viking Option Price," collectively with
the Office Depot Option Price, the "Option Price"). The Stock Option Agreements
would have the effect of making an acquisition of either Viking or Office Depot
by a third party more costly because of the need to acquire in any such
transaction the Option Shares that would be issued under the Stock Option
Agreements, and would also jeopardize the ability of a third party to acquire
Viking or Office Depot in a transaction accounted for as a pooling of interests.
The Options may be exercised by Viking, in the case of the Office Depot
Option or Office Depot in the case of the Viking Option (such party in each
case, the "Grantee," and, such party granting the Option, the "Grantor"), in
whole or in part, at any time or from time to time after the occurrence of an
event which would entitle the Grantee, upon termination of the Merger Agreement,
to payment of some or all of the Termination Fee and prior to the termination of
the Option in accordance with the terms of the applicable Stock Option
Agreement.
If an Alternative Transaction involving the Grantor is consummated within
twelve months after termination of the Merger Agreement such that the
$50,000,000 fee (as described in "THE MERGER AGREEMENT -- Termination;
Termination Fees and Expenses") is payable pursuant to the Merger Agreement,
then the Grantee may: (i) at any time the Option is then exercisable as
described in the preceding paragraph, elect, in lieu of exercising the Option,
to have the Grantor pay the Grantee (the "Cash Exercise") an amount in cash
equal to the Spread (as defined below) multiplied by all or a portion of the
Option Shares subject to the Option; or (ii) prior to 30 days after the first
anniversary of the Merger Termination Date (as defined in the Merger Agreement),
if Grantee has exercised the Option and purchased the Option Shares, Grantee may
sell to the Grantor (the "Grantee Put") the Option Shares for an amount in cash
equal to the higher of (A) the Alternative Purchase Price (as defined below) or
(B) the average of the closing sales prices of (x) the shares of Office Depot
Common Stock on the NYSE Composite Tape, in the case of the Office Depot Option;
and (y) the shares of the Viking Common Stock on the Nasdaq National Market, in
the case of the Viking Option; in each case, for the five trading days ending
five days prior to the date notice of the intent to exercise the Grantee Put is
given to the Grantor, multiplied by the number of such Option Shares sold by
Grantee on such date. "Spread" means the excess, if any, over the Purchase Price
of the higher of (i) if applicable, the highest price per share of Office Depot
Common Stock or Viking Common Stock, as the case may be (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by any person in
an Alternative Transaction (the "Alternative Purchase Price") or (ii) the
average of the closing sales prices of the shares of (A) in the case of the
Office Depot Option, Office Depot Common Stock on the NYSE Composite Tape; or
(B) in the case of the Viking Option, Viking Common Stock on the Nasdaq National
Market, for the five trading days ending five days prior to the date of the
Office Depot Cash Exercise Notice. If the Alternative Purchase Price includes
any property other than cash, the Alternative Purchase Price shall be the sum of
(A) the fixed cash amount, if any, included in the Alternative Purchase Price
plus (B) the fair market value of such other property determined in accordance
with the applicable Stock Option Agreement (but using the date notice is given
by the Grantee with respect to the Cash Exercise or the Grantee Put, as the case
may be).
Conditions. The Grantor's obligation to deliver the Option Shares upon
exercise of the Option is subject to the condition that: (i) no preliminary or
permanent injunction or other order issued by any federal or state court of
competent jurisdiction in the United States prohibiting the delivery of the
Option Shares is in effect; (ii) any applicable waiting periods under the HSR
Act shall have expired or been terminated; and (iii) the Grantee has become
entitled to terminate the Merger Agreement under circumstances that would
entitle Grantee to receive some or all of the Termination Fee.
First Refusal Right. If Grantee exercises the Grantee Option in whole or
in part, Grantor has a right of first refusal ("First Refusal Right") with
respect to certain sales by the Grantee of the Option Shares prior to the
earlier of: (i) 30 days after the first anniversary of the termination of the
Merger Agreement; or (ii) the occurrence of a Change in Control Event (as
defined in the applicable Stock Option Agreement) with respect to Grantor.
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Repurchase Right. In addition, if a Change in Control Event with respect
to Grantor has not occurred prior to the first anniversary of the termination of
the Merger Agreement, Grantor has the right (the "Repurchase Right"), during the
30-day period beginning on such anniversary, to purchase all (but not less than
all) of the Option Shares at a purchase price equal to the greater of: (i) the
Option Price or; (ii) the average of the closing prices for (A) in the case of
the Office Depot Option, Office Depot Common Stock on the NYSE; or (B) in the
case of the Viking Option, Viking Common Stock on the Nasdaq National Market for
the five trading days ending five days prior to the date Grantor gives notice of
its exercise of such repurchase right.
Registration Rights. The Stock Option Agreements further provide that if
the Grantee desires to sell any of the Option Shares within three years after
the purchase of such shares and such sale requires the registration of such
shares under the Securities Act, the Grantor will cooperate with the Grantee and
any underwriters in registering the Option Shares, including, among other
things, promptly filing a registration statement under the Securities Act. The
Grantor is not required to have declared effective more than two such
registration statements.
Total Profit. Notwithstanding any other provisions of the Stock Option
Agreements: (i) in no event may the Grantee's Total Profit (as defined below)
exceed $125,000,000 ("the Profit Limit") and (ii) the Option may not be
exercised for a number of Option Shares that would result in a Notional Total
Profit (as defined below) of more than the Profit Limit. "Total Profit" means
the aggregate amount (before taxes) of (i) the Termination Fee received by the
Grantee; plus (ii) (x) the amount received by Grantee for the repurchase of the
Option Shares by Grantor pursuant to the Grantee Put, the Repurchase Right or
the First Refusal Right, less (y) the purchase price paid by Grantee for such
shares; plus (iii) the amount received by Grantee in respect of a Cash Exercise;
and (iv) (x) the net cash amounts received by the Grantee pursuant to the sale
of Option Shares to an unaffiliated party, less (y) the purchase price paid by
Grantee for such shares. "Notional Total Profit" means, with respect to such
number of Option Shares as to which Grantee proposes to exercise the Option, the
Total Profit determined as of the date on which the Grantee gives its option
exercise notice, assuming that the Option was exercised on such date for the
designated number of Option Shares and assuming that such shares, together with
all other Option Shares held by Grantee and its affiliates as of such date, were
sold for cash at the closing market price for the Option Shares as of the close
of business on the preceding trading day (less customary brokerage commissions).
Termination. The Option terminates upon the earlier of: (i) the Effective
Time; (ii) the termination of the Merger Agreement pursuant to circumstances
under which the Grantee is not entitled to receive the Termination Fee; (iii)
the date on which the Grantee realizes a Total Profit in excess of the Profit
Limit; and (iv) 180 days after the date of termination of the Merger Agreement;
provided that if the Option cannot be exercised or the Option Shares cannot be
delivered to Grantee upon such exercise because of a preliminary or permanent
injunction or other court order or because the applicable waiting period under
the HSR Act has not expired or been terminated, the date referred to in clause
(iv) above shall be extended until 30 days after such impediment to exercise has
been removed.
THE OFFICE DEPOT CHARTER AMENDMENT AND INCENTIVE PLAN AMENDMENT
REASONS FOR THE CHARTER AMENDMENT
Office Depot is authorized to issue a maximum of 400,000,000 shares of
Office Depot Common Stock pursuant to the Office Depot Charter. The approval of
the Charter Amendment by the Office Depot stockholders is required by the
Delaware Corporation Law to increase the number of authorized shares of Office
Depot Common Stock from 400,000,000 shares to 800,000,000 shares. Although there
are presently enough authorized shares of Office Depot Common Stock to issue
shares to Viking stockholders in connection with the Merger, the purpose of the
Charter Amendment is to provide that additional shares of Office Depot Common
Stock will be available, if and when needed, for issuance from time to time for
any proper purpose approved by the Office Depot Board, including issuances to
raise capital or effect corporate mergers, acquisitions, or other business
combinations, stock dividends or splits and issuances under stock option and
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other employee incentive plans, and for other corporate purposes. Although there
are no present arrangements, agreements or understandings for the issuance of
additional shares of Office Depot Common Stock (other than the shares to be
issued pursuant to the Merger, the Office Depot Long-Term Equity Incentive Plan
and in connection with acquisitions in the ordinary course of business), the
Office Depot Board believes that the availability of the additional authorized
shares for issuance upon approval of the Office Depot Board without the
necessity for, or the delay inherent in, a meeting of the Office Depot
stockholders will be beneficial to Office Depot and the Office Depot
stockholders by providing Office Depot with the flexibility required to promptly
consider and respond to future business opportunities and needs as they arise.
EFFECTS OF THE CHARTER AMENDMENT
Stockholders should note that certain disadvantages may result from the
adoption of the Charter Amendment. The Charter Amendment will increase the total
number of authorized shares of Office Depot Common Stock, and Office Depot
stockholders could therefore experience a significantly greater reduction in
their interest in Office Depot with respect to earnings per share, voting,
liquidation value and book and market value per share if the additional
authorized shares are issued.
The availability for issuance of additional shares of Office Depot Common
Stock could also enable the Office Depot Board to render more difficult or
discourage an attempt to obtain control of Office Depot. For example, the
issuance of shares in a public or private sale, merger or similar transaction
would increase the number of outstanding shares, thereby possibly diluting the
interest of a party attempting to obtain control of Office Depot. Office Depot
is not aware of any pending or threatened efforts to obtain control of Office
Depot.
Each additional share of Office Depot Common Stock authorized by the
Charter Amendment would have the same rights and privileges as each share of
Office Depot Common Stock currently authorized or outstanding. The number of
authorized shares of Preferred Stock would remain unchanged at 1,000,000 shares.
VOTE REQUIRED FOR THE CHARTER AMENDMENT
The approval of the Charter Amendment will require the affirmative vote of
the holders of a majority of the outstanding shares of Office Depot Common
Stock. See "THE OFFICE DEPOT SPECIAL MEETING -- Vote Required."
REASONS FOR THE INCENTIVE PLAN AMENDMENT
In June 1998, the Office Depot Board amended the Office Depot Long-Term
Equity Incentive Plan (the "Equity Incentive Plan"), subject to stockholder
approval. The Office Depot Board determined that it was necessary to increase
the size of the Equity Incentive Plan in connection with the Merger. The
amendment increased the total number of shares of Office Depot Common Stock with
respect to which awards may be granted under the Equity Incentive Plan from
15,212,500 shares to 20,712,500 shares. As of June 27, 1998, 6,450,498 shares of
Office Depot Common Stock were available for issuance under the Equity Incentive
Plan. On May 26, 1998, the stockholders of Office Depot approved an amendment to
the Equity Incentive Plan (the "Prior Amendment") which, among other things,
increased the maximum number of shares of Common Stock that were reserved for
issuance under the Equity Incentive Plan from 10,212,500 shares to 15,212,500
shares. The Prior Amendment was approved by the Office Depot Board prior to
entering into the Merger Agreement and without taking into account the impact of
the Merger.
The Incentive Plan Amendment would approve the increase in the number of
shares of Office Depot Common Stock authorized for issuance to officers and key
employees of the combined company from 15,212,500 to 20,712,500. As of the
Record Date, approximately 5,800,000 shares of Viking Common Stock were
available for future grants or awards under the Viking stock plans. Following
the Merger, grants will no longer be made under the Viking stock plans. Pursuant
to the terms of the Merger Agreement, in the Merger each outstanding stock
option under the Viking stock plans will constitute an option to acquire, on the
same terms and conditions as were applicable under such Viking stock plan, the
same number of shares of Office Depot Common Stock as the holder of such Viking
Stock Option would have been entitled to receive pursuant
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<PAGE> 74
to the Merger had such holder exercised such option in full immediately prior to
the Effective Time. In connection with the Merger, Office Depot has agreed to
issue to certain executive officers of Viking nonqualified stock options to
purchase Office Depot Common Stock. See "THE MERGER -- Interests of Certain
Persons in the Merger;" "-- Employment Agreements with Viking Employees;" and
"THE MERGER AGREEMENT -- Stock Options and Employee Benefits.
The Incentive Plan Amendment is recommended to increase the number of
shares of Office Depot Common Stock reserved for issuance by approximately the
same number of shares anticipated to be available for issuance under the Viking
stock plans as of the Effective Time. The Office Depot Board believes that
stockholder approval of the Incentive Plan Amendment is necessary to ensure that
an adequate number of shares of Office Depot Common Stock will be available for
future grants to provide sufficient incentives to employees of Office Depot and
Viking after consummation of the Merger. Approval of the Incentive Plan
Amendment is not necessary for approval of the Share Issuance or consummation of
the Merger. However, the Incentive Plan Amendment will only become effective if
the Merger is consummated.
For information on stock prices relating to the Office Depot Common Stock,
see "SUMMARY -- Comparative Market Price Information."
DESCRIPTION OF THE EQUITY INCENTIVE PLAN
General. The Equity Incentive Plan, which the Office Depot Board adopted
and the stockholders of Office Depot approved effective October 1, 1997, as
amended, provides for grants of stock options, stock appreciation rights
("SARs") in tandem with options, restricted stock, performance awards and any
combination of the foregoing to certain directors, officers, key employees of,
and certain other key individuals who perform services for, Office Depot and its
subsidiaries. The purpose of adopting the Equity Incentive Plan was to (i) put
in place an equity incentive plan that would allow Office Depot to provide such
individuals with incentives to maximize stockholder value and otherwise
contribute to the success of Office Depot and to enable Office Depot to attract,
retain and reward the best available persons for positions of substantial
responsibility and (ii) bring Office Depot's equity incentive programs in
compliance with the amendments to the Securities and Exchange Commission Rules
promulgated under Section 16 of the Securities Exchange Act of 1934 which became
effective August 15, 1996.
The Equity Incentive Plan is administered by the Compensation Committee of
the Office Depot Board (the "Compensation Committee"). As grants to be awarded
under the Equity Incentive Plan are made entirely in the discretion of the
Compensation Committee, the recipients, amounts and values of future benefits to
be received pursuant to the Equity Incentive Plan are not determinable.
The shares of Office Depot Common Stock reserved for issuance pursuant to
the Equity Incentive Plan are subject to adjustment in the event of a
reorganization, recapitalization, stock split, stock dividend or similar change
in the corporate structure of Office Depot or the outstanding shares of Office
Depot Common Stock. Such shares may be, in whole or in part, authorized and
unissued or reacquired and held as treasury shares.
Eligibility. Directors (whether or not employees), officers and key
employees of Office Depot and its subsidiaries selected by the Compensation
Committee are eligible to receive grants pursuant to the Equity Incentive Plan,
except that only employees may receive grants of incentive stock options
pursuant to the Equity Incentive Plan. As of the Record Date, approximately
1,300 employees were eligible to participate in the Equity Incentive Plan. After
the Merger, approximately 1,800 employees of the combined company would be
eligible to participate in the Equity Incentive Plan.
Stock Options. Pursuant to the Equity Incentive Plan, the Compensation
Committee may award grants of incentive stock options conforming to the
provisions of Section 422 of the Code ("incentive options"), and other stock
options ("non-qualified options"); provided, however, that (i) the number of
shares of Common Stock underlying grants of options and/or SARs made to any
participant in any one year shall not exceed 1,000,000 shares and (ii) the
Office Depot Common Stock underlying grants of incentive options first
exercisable by any person in any one year shall not have an aggregate fair
market value (determined as of the
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date such options are granted) in excess of $100,000. The exercise price of any
option will be determined by the Compensation Committee in its discretion,
provided that the exercise price of an incentive option may not be less than
100% of the fair market value of a share of Office Depot Common Stock on the
date of grant of the option, and the exercise price of an incentive option
awarded to a person who owns stock constituting more than 10% of the voting
power of Office Depot may not be less than 110% of such fair market value on
such date. As currently amended, the Equity Incentive Plan provides that no
option or SAR may be granted in substitution for a previously granted option or
SAR if the new award would have a lower option exercise price or SAR
appreciation base than the award it replaces.
The term of each option is established by the Compensation Committee,
subject to a maximum term of ten years from the date of grant in the case of a
non-qualified option or an incentive option and five years from the date of
grant in the case of an incentive option granted to a person who owns stock
constituting more than 10% of the voting power of Office Depot. In addition, the
Equity Incentive Plan provides generally that all options cease vesting on, and
terminate 90 days after, the date on which a grantee ceases to be a director,
officer or employee of, or to otherwise perform services for, Office Depot or
its subsidiaries, although the Equity Incentive Plan provides for certain
exceptions. Except as may otherwise be provided for by the Committee: (a) in the
case of the grantee's death while still an employee, all of the grantee's
options become fully vested and exercisable and remain so for 18 months after
the date of death, provided that all incentive options must be exercised within
twelve months of the grantee's death or they will be treated as non-qualified
stock options under the plan; (b) in the event of retirement as an employee,
only the options vested as of the date of retirement will remain exercisable for
a period of 18 months after retirement, provided that all incentive options must
be exercised within 90 days of retirement or they will be treated as
non-qualified stock options; (c) upon termination for cause, all options
terminate immediately; and (d) upon a change in control of Office Depot, all
options become fully vested and exercisable.
Upon exercise of an SAR, the grantee will receive an amount in cash and/or
shares of Common Stock equal to the difference between the fair market value of
a share of Common Stock on the date of exercise and the exercise price of the
option to which it relates, multiplied by the number of shares as to which the
SAR is exercised.
Restricted Stock. Under the Equity Incentive Plan, the Compensation
Committee may award restricted stock subject to such conditions and
restrictions, and for such duration (which shall be at least twelve months
except as otherwise described below), as it determines in its discretion. A
grantee will be required to pay Office Depot at least the aggregate par value of
any shares of restricted stock within ten days of the date of grant, unless such
shares are treasury shares, except as otherwise provided by the Compensation
Committee. Except as may be otherwise provided by the Compensation Committee,
all restrictions on a grantee's restricted stock will lapse immediately prior to
a change in control of Office Depot or at such time as the grantee ceases to be
a director, officer or employee of, or otherwise perform services for, Office
Depot or its subsidiaries due to death or retirement. Except as may be otherwise
provided by the Compensation Committee, if a grantee ceases to serve as such a
director, officer or employee of, or otherwise perform services for, Office
Depot or its subsidiaries for any other reason, all of his or her restricted
stock as to which the applicable restrictions have not lapsed will be forfeited
immediately.
Performance Awards. Pursuant to the Equity Incentive Plan, the
Compensation Committee may grant performance awards contingent upon achievement
of set goals and objectives with respect to specified performance criteria, such
as return on equity, over a specified performance cycle, all as designated by
the Compensation Committee. Performance awards may include specific dollar-value
target awards, performance units, the value of which is established by the
Compensation Committee at the time of grant, and/or performance shares, the
value of which is equal to the fair market value of a share of Common Stock on
the date of grant. The value of a performance award may be fixed or may
fluctuate on the basis of specified performance criteria. The number of shares
of Office Depot Common Stock or the amount of cash that can be granted to a
participant to satisfy a performance award in any one year cannot exceed 100,000
shares or $2.0 million, respectively.
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Except as otherwise provided by the Compensation Committee, in the event of
a change in control of Office Depot, or if a grantee ceases to be a director,
officer or employee of, or otherwise perform services for, Office Depot or its
subsidiaries due to death, disability or retirement, prior to completion of a
performance cycle, the grantee will receive the portion of the performance award
payable to him or her based upon the achievement of the applicable performance
criteria over the elapsed portion of the performance cycle. If a grantee ceases
to be a director, officer or employee of, or otherwise perform services for,
Office Depot or its subsidiaries for any other reason prior to completion of a
performance cycle, the grantee will become ineligible to receive any portion of
a performance award.
Vesting. The terms and conditions of each award made under the Equity
Incentive Plan, including vesting requirements, will be set forth, consistent
with the Equity Incentive Plan, in a written agreement with the grantee. Unless
the Compensation Committee determines otherwise, no award under the Equity
Incentive Plan may vest and become exercisable within twelve months of the date
of grant; provided that all awards will vest immediately prior to a change in
control of Office Depot and in certain other circumstances upon a participant's
termination of employment or performance of services for Office Depot as
described above except as may be otherwise provided by the Compensation
Committee.
Transferability. Unless the Compensation Committee determines otherwise,
no award made pursuant to the Equity Incentive Plan will be transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order, and each award may be exercised only by the
grantee or his or her guardian or legal representative.
Amendment and Termination of the Equity Incentive Plan. No options may be
granted under the Equity Incentive Plan after the close of business on September
30, 2007 and the plan may be earlier terminated by the Office Depot Board at any
time. The Office Depot Board may amend the Equity Incentive Plan in its
discretion, except that no amendment will become effective without the approval
of Office Depot's stockholders if such approval is necessary for continued
compliance with the performance-based compensation exception of Section 162(m)
of the Code or any stock exchange listing requirements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE INCENTIVE PLAN AMENDMENT
The following discussion is intended only as a brief summary of the federal
income tax rules relevant to options or shares issued under the Equity Incentive
Plan, as based upon the Code as currently in effect. These rules are highly
technical and subject to change in the future. Because federal income tax
consequences will vary as a result of individual circumstances, grantees should
consult their personal tax advisors with respect to the tax consequences
associated with stock options. Moreover, the following summary relates only to
grantees' federal income tax treatment, and the state, local and foreign tax
consequences may be substantially different.
Non-Qualified Options. A grantee does not recognize any taxable income,
and Office Depot is not entitled to a deduction, upon the grant of a
non-qualified option. Upon the exercise of a non-qualified option, the grantee
recognizes ordinary income (subject to wage and employment tax withholding)
equal to the excess of the fair market value of the Office Depot Common Stock
acquired over the option exercise price. However, in the case of a person
subject to the short swing trading restrictions of Section 16(b) of the
Securities Exchange Act of 1934, as amended, whose grant is exempted from
matching thereunder pursuant to the six-month holding provision of Rule
16b-3(d)(3) (a "16b-3(d)(3) Person"), income is recognized, and such excess is
determined by using the fair market value on the later of the date of exercise
and the date six months after the option grant date unless such grantee elects
to be taxed based on the fair market value of the Office Depot Common Stock on
the date of exercise by filing an election with the Internal Revenue Service
within 30 days after the exercise date to recognize income on the exercise date
(a "Section 83(b) Election"). A grantee's basis in the stock received is equal
to such stock's fair market value on the date of exercise (or on the date six
months after the option grant date, if later, in the case of a grantee who is a
(16b-3(d)(3) Person and who makes no such Section 83(b) Election). Office Depot
is entitled to a deduction equal to the compensation taxable to the grantee.
If a grantee sells Office Depot Common Stock acquired pursuant to the
exercise of a non-qualified option, such grantee will recognize capital gain or
loss equal to the difference between the selling price of the stock
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and the grantee's basis in the stock. Capital gains are currently taxed at a
maximum rate of 20% in the case of stock held for more than 18 months, 28% in
the case of stock held for more than twelve months and not more than 18 months
and 39.6% in the case of stock held for not more than twelve months. The capital
gain holding period will begin on the exercise date (or, in the case of a
grantee who is a 16b-3(d)(3) Person and who does not make a Section 83(b)
Election, the later of the exercise date or the date six months after the option
grant date). Office Depot is not entitled to any deduction with respect to any
capital gain recognized by the grantee.
Capital losses on the sale of such stock may be used to offset capital
gains. If capital losses exceed capital gains, then up to $3,000 of the excess
losses may be deducted from ordinary income. Remaining capital losses may be
carried forward to future tax years.
Incentive Options. An optionee does not recognize taxable income on the
grant or exercise of an incentive option. However, the excess of the stock's
fair market value on the exercise date (the fair market value on the exercise
date or six months after the option grant date, whichever is later, is likely to
govern in the case of a 16b-3(d)(3) Person) over the option exercise price will
be included in the grantee's alternative minimum taxable income and thereby may
subject the grantee to an alternative minimum tax. Such alternative minimum tax
may be payable even though the grantee receives no cash upon the exercise of his
or her incentive option with which to pay such tax. Upon the disposition of
shares of Office Depot Common Stock acquired pursuant to the exercise of an
incentive option (i) more than one year after the date of exercise, and (ii)
more than two years after the grant date (the "Required Holding Periods"), the
grantee recognizes capital gain or loss, as the case may be, measured by the
difference between the stock's selling price and the exercise price. Office
Depot is not entitled to any tax deduction by reason of the grant or exercise of
an incentive option, or a disposition of stock received upon the exercise of an
incentive option after the Required Holding Periods have been satisfied.
If a grantee disposes of the shares of Office Depot Common Stock acquired
pursuant to the exercise of an incentive option before the expiration of the
Required Holding Periods (a "Disqualifying Disposition"), the difference between
the exercise price of such shares and the lesser of (i) the fair market value of
such shares upon the date of exercise (the fair market value on the exercise
date or six months after the option grant date, whichever is later, is likely to
govern in the case of a 16b-3(d)(3) Person) or (ii) the selling price, will
constitute compensation taxable to the grantee as ordinary income. Office Depot
is allowed a corresponding tax deduction equal to the amount of compensation
taxable to the grantee. If the selling price of the stock exceeds the fair
market value on the exercise date (or six months after the option grant date, if
later, in the case of a 16b-3(d) (3) Person), the excess will be taxable to the
grantee as capital gain. Office Depot is not allowed a deduction with respect to
any such capital gain recognized by the grantee.
Use of Shares to Pay Option Price. If a grantee delivers previously
acquired shares of Office Depot Common Stock, however acquired, in payment of
all or any part of the exercise price of a non-qualified option, the grantee
will not, as a result of such delivery, be required to recognize as taxable
income or loss any appreciation or depreciation in the value of the previously
acquired shares after their acquisition date. The grantee's tax basis in, and
holding period for, the previously acquired shares surrendered carries over to
an equal number of the option shares received on a share-for-share basis. The
fair market value of the shares received in excess of the shares surrendered
constitutes compensation taxable to the grantee as ordinary income (reduced by
any portion of the option price paid other than by delivering previously
acquired shares). Such income is recognized and such fair market value is
determined on the date of exercise, except in the case of 16b-3(d)(3) Persons as
discussed above. The tax basis for such shares is equal to their fair market
value as so determined, and such shares' holding period begins on the date on
which the fair market value of such shares is determined. Office Depot is
entitled to a tax deduction equal to the compensation recognized by the grantee.
If a grantee delivers previously acquired Office Depot Common Stock (other
than stock acquired upon exercise of an incentive option and not held for the
Required Holding Persons) in payment of all or part of the option price of an
incentive option, the grantee will not be required to recognize as taxable
income or loss any appreciation or depreciation in the value of the previously
acquired Common Stock after its acquisition date. The grantee's tax basis in,
and holding period for (for capital gain, but not Disqualifying Disposition,
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purposes), the previously acquired surrendered stock carries over to an equal
number of the option shares received on a share-for-share basis. Shares received
in excess of the shares surrendered have a tax basis equal to the amount paid
(if any) in excess of the previously acquired shares used to pay the exercise
price, and such shares' holding period will begin on the date of exercise (with
the possible exception of 16b-3(d)(3) Persons). Proposed regulations provide
that when an incentive option is exercised using previously acquired stock, a
later Disqualifying Disposition of the shares received will be deemed to have
been a disposition of the shares having the lowest basis first.
If a grantee pays the exercise price of an incentive option in whole or in
part with previously acquired Common Stock that was acquired upon the exercise
of an incentive option and that has not been held for the Required Holding
Periods, the grantee will recognize ordinary income (but not capital gain) under
the rules applicable to Disqualifying Dispositions. Office Depot will be
entitled to a corresponding deduction. The grantee's basis in the shares
received in exchange for the shares surrendered will be increased by the amount
of ordinary income the grantee recognizes.
One Million Dollar Compensation Limit. If a covered employee's total
compensation from Office Depot (including compensation related to options)
exceeds $1 million in any given year, such compensation in excess of $1 million
may not be tax deductible by Office Depot under Section 162(m) of the Code. The
"covered employees" for any given taxable year of Office Depot are Office
Depot's Chief Executive Officer and the four other most highly compensated
executive officers at the end of the taxable year. Excluded from the calculation
of total compensation for this purpose is compensation that is
"performance-based" within the meaning of Section 162(m) of the Code. Office
Depot intends that compensation realized upon the exercise of an option, SAR or
a performance award granted under the Equity Incentive Plan be regarded as
"performance-based" under Section 162(m) of the Code and that such compensation
be deductible without regard to the limits of Section 162(m) of the Code.
VOTE REQUIRED FOR THE INCENTIVE PLAN AMENDMENT
The affirmative vote of a majority of the votes cast by the holders of
shares of Office Depot Common Stock represented in person or by proxy at the
Office Depot Special Meeting is required for approval of the Incentive Plan
Amendment. Approval of the Incentive Plan Amendment is required for shares of
Office Depot Common Stock issued pursuant thereto to be listed for trading on
the New York Stock Exchange, for grants of options and SARs made pursuant
thereto to qualify as performance-based compensation deductible by Office Depot
without limitation under Section 162(m) of the Code, and to enable Office Depot
to grant options that qualify as incentive options.
THE OFFICE DEPOT BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE INCENTIVE PLAN
AMENDMENT.
OFFICE DEPOT, INC.
BUSINESS
The information in this section pertains to the business of Office Depot as
it is currently conducted without giving effect to the Merger.
Office Depot sells high-quality, brand-name office products at significant
discounts through its national chain of high-volume office products stores,
provides delivery of its products in the United States and Canada to its store,
catalog and Internet customers and is a full-service contract stationer serving
businesses throughout the United States.
Office Depot, organized as a Delaware corporation, began its operations in
1986 with its first retail office supply store. As of June 27, 1998, Office
Depot operated 619 office supply stores in 39 states, the District of Columbia
and five Canadian provinces. Through its 21 customer service centers and certain
retail stores, Office Depot delivers office products and provides value-added
services to its customers.
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Office Depot's office supply stores carry a wide selection of merchandise,
including general office supplies, business machines and computers, office
furniture and other business-related products for sale. In addition to its
office supply stores, as of June 27, 1998, Office Depot operated three
Images(TM), two Office Depot Express(TM) and five Furniture At Work(TM) stores.
Office Depot's business strategy for its office products stores has been to
enhance the sales and profitability of its existing stores and to add new stores
in locations where Office Depot can establish a significant market presence.
During 1996, Office Depot opened 60 new office supply stores, and during 1997,
Office Depot opened 42 new office supply stores, closing one store. Office Depot
currently believes it will open approximately 80 to 100 stores during 1998, 18
of which have been opened through June 27, 1998.
Office Depot's delivery business provides delivery services of office
products and a full range of contract stationer services to small, medium and
large businesses, schools and other educational institutions and governmental
agencies. Office Depot's delivery sales exceeded $2 billion in 1997. Office
Depot provides its delivery customers access to a broad selection of office
products and office furniture, including the approximately 7,000 items available
at Office Depot's retail stores and approximately 4,000 additional items which
are stocked only at Office Depot's customer service centers. In addition, Office
Depot provides its contract stationer customers with specialized resources and
services designed to aid them in achieving improved efficiencies and significant
reductions in their overall office products and office furniture costs. Office
Depot's nationwide full service contract stationer business was built primarily
through the acquisition of eight contract stationers in 1993 and 1994, and by
subsequently opening new facilities, expanding existing facilities and replacing
old facilities.
Marketing. Office Depot's marketing programs are designed to attract new
customers and to provide information to existing customers. Office Depot places
advertisements with the major local newspapers in each of its markets. These
newspaper advertisements are supplemented with local radio and television
advertising and direct marketing efforts. All print advertisements, as well as
catalog layouts, are created by Office Depot's in-house graphics department.
Office Depot periodically issues catalogs featuring merchandise offered in its
stores. Catalogs are distributed through direct-mail programs and Office Depot's
sales force and are available in each store. Upon entering a new market, Office
Depot purchases a list of businesses for an initial mailing of catalogs. This
list is continually refined and updated by incorporating the names of private
label credit card holders and store purchasing card holders and forms the basis
of a highly targeted proprietary mailing list for updated catalogs and other
promotional mailings.
Sales. In addition to the sales associates at each of its stores, Office
Depot has a direct sales force serving its contract stationer customers. In
early 1998, Office Depot expanded its Internet-based marketing and ordering
capabilities, previously available to its contract customers, to all other
market segments. The direct sales force operates out of 21 regional customer
service centers and 70 additional sales offices. All members of the sales force
are employees of Office Depot.
Services. Each Office Depot store contains a multipurpose business center
offering a wide range of printing, copying and other services. These services
include business cards, letterhead stationery and envelopes, personalized checks
and business forms, full- or self-service copies, color copies, custom stamps
and labels, signs and banners. Each store also has business machine specialists,
specially trained associates available to answer customers' questions regarding
a wide variety of technically sophisticated products.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Office Depot Common Stock as of the Record Date (except
as otherwise noted in footnotes) by: (i) each stockholder known by Office Depot
to own beneficially 5% or more of the outstanding shares of Office Depot Common
Stock; (ii) each director of Office Depot; (iii) each of the named Office Depot
executive officers as of the end of the most recent fiscal year; and (iv) all
executive officers and directors of Office Depot as a group.
<TABLE>
<CAPTION>
PRO FORMA NUMBER OF PRO FORMA PERCENTAGE
NUMBER OF SHARES PERCENTAGE OF SHARES BENEFICIALLY OF SHARES BENEFICIALLY
BENEFICIALLY CLASS OWNED AFTER GIVING OWNED AFTER GIVING
BENEFICIAL OWNER OWNED(1) OUTSTANDING(2) EFFECT TO THE MERGER EFFECT TO THE MERGER(3)
- ---------------- ---------------- -------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
FMR Corp.(4)............... 10,258,800 6.4% 19,275,950 7.9%
82 Devonshire Street
Boston, Massachusetts
02109
Friess Associates,
Inc.(5).................. 8,088,000 5.1% 8,088,000 3.3%
115 E. Snow King
Jackson, Wyoming 83001
Massachusetts Financial
Services Company(6)...... 17,430,414 10.9% 17,430,414 7.1%
500 Boylston Street
Boston, Massachusetts
02116
F. Terry Bean(7)........... 62,379 * 62,379 *
Richard M. Bennington(8)... 311,199 * 311,199 *
Cynthia R. Cohen(9)........ 21,408 * 21,408 *
David I. Fuente(10)........ 1,638,710 1.0% 1,638,710 *
Barry J. Goldstein(11)..... 532,082 * 532,082 *
W. Scott Hedrick(12)....... 66,161 * 66,161 *
James L. Heskett (13)...... 6,000 * 6,000 *
John C. Macatee............ 100,200 * 100,200 *
Michael J. Myers(14)....... 48,786 * 48,786 *
Frank P. Scruggs, Jr....... -- -- -- --
William P. Seltzer(15)..... 410,399 * 410,399 *
Peter J. Solomon(16)....... 118,314 * 118,314 *
All executive officers and
directors as a group (14
persons)(17)............. 3,333,304 2.1% 3,333,304 1.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise noted. The address of each of the persons
named in the table other than FMR Corp., Friess Associates, Inc., and
Massachusetts Financial Services Company ("MFSC") is Office Depot's
corporate headquarters' address. No effect has been given to shares
reserved for issuance under outstanding stock options except where
otherwise indicated.
(2) Based on 159,666,751 shares of Office Depot Common Stock outstanding as of
the Record Date. Shares subject to options exercisable within 60 days of
the Record Date are considered for the purpose of determining the percent
of the class held by the holder of such option, but not for the purpose of
computing the percentage held by others.
(3) Based on 244,996,727 shares of Office Depot Common Stock anticipated to be
outstanding after the Merger.
(4) Based solely upon a Schedule 13G dated February 14, 1998. Of the 10,258,800
shares shown as beneficially owned by FMR Corp., FMR Corp. has sole voting
power with respect to 20,700 of such shares and sole dispositive power with
respect to all 10,258,800 of such shares. The pro forma number of shares
beneficially owned after giving effect to the Merger includes 9,017,150
shares of Office Depot
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Common Stock to be issued to FMR Corp. in exchange for the shares of Viking
Common Stock beneficially owned by it as of the Record Date.
(5) Based solely upon a Schedule 13G dated January 29, 1998.
(6) Based solely upon a Schedule 13G dated February 14, 1998. Of the 17,430,414
shares shown as beneficially owned by MFSC, MFSC has sole voting power with
respect to 17,400,314 of such shares and sole dispositive power with
respect to all 17,430,414 of such shares.
(7) Includes options to purchase 56,667 shares issued to Mr. Bean pursuant to
the Office Depot, Inc. Omnibus Equity Plan (the "Omnibus Equity Plan") and
the Equity Incentive Plan.
(8) Includes options to purchase 303,754 shares issued to Mr. Bennington
pursuant to the Omnibus Equity Plan and the Equity Incentive Plan.
(9) Includes options to purchase 19,054 shares issued to Ms. Cohen as a
director of Office Depot.
(10) Includes options to purchase 1,280,157 shares issued to Mr. Fuente pursuant
to the Omnibus Equity Plan and the Equity Incentive Plan, 1,890 shares held
of record by his spouse, 3,990 shares held of record by his step-daughter,
and 3,050 shares held of record by an irrevocable trust for the benefit of
his step-daughter. Mr. Goldstein is the trustee of such trust. Mr. Fuente
disclaims beneficial ownership of the shares held by his spouse, his
step-daughter, and Mr. Goldstein, as trustee.
(11) Includes options to purchase 415,034 shares issued to Mr. Goldstein
pursuant to the Omnibus Equity Plan and the Equity Incentive Plan and 3,050
shares held of record by an irrevocable trust for the benefit of Mr.
Fuente's step-daughter, of which Mr. Goldstein is the trustee. As the
trustee, Mr. Goldstein has investment and voting power with respect to the
shares held by the trust.
(12) Includes options to purchase 33,394 shares issued to Mr. Hedrick as a
director of Office Depot.
(13) Includes options to purchase 5,000 shares issued to Mr. Heskett as a
director of Office Depot.
(14) Includes options to purchase 45,786 shares issued to Mr. Myers as a
director of Office Depot.
(15) Includes options to purchase 382,499 shares issued to Mr. Seltzer pursuant
to the Omnibus Equity Plan and the Equity Incentive Plan.
(16) Includes options to purchase 23,750 shares granted to Mr. Solomon as a
director of Office Depot.
(17) Includes options to purchase 2,681,761 shares.
72
<PAGE> 82
VIKING OFFICE PRODUCTS, INC.
BUSINESS
The information in this section pertains to the business of Viking as it is
currently conducted without giving effect to the Merger.
Viking sells office products to small and medium-sized businesses in the
United States, Europe and Australia through innovative direct marketing catalogs
and aggressive database marketing programs. Viking's target customers are
businesses with fewer than 100 employees, and Viking has become one of the
largest direct marketers of office products to these businesses. Viking offers a
comprehensive selection of over 10,000 office products, including general office
supplies, computer supplies, paper products, office furniture, selected business
machines, janitorial and safety supplies and presentation supplies. Viking's
strategy emphasizes frequent mailings of a variety of distinctive full color
catalogs, "fanatical customer service," prompt order fulfillment and discounted
prices.
Catalogs. Viking uses its various catalogs to market directly to both
existing and prospective customers. Each catalog is printed in full color with
an effective selling presentation, including pictures and narrative descriptions
that emphasize key product benefits and features. Viking's regular catalog
mailings include a monthly sale catalog, which is mailed to all active customers
and contains Viking's most popular items, and specialty catalogs which are
delivered to selected customers monthly. Viking's regular mailings include a
semi-annual, full-line catalog with over 500 pages, monthly customer sale
catalogs and periodic prospect mailings. In addition, Viking currently has 12
different specialty catalogs, including catalogs dedicated to office furniture,
computer supplies, custom printed business forms and stationery, paper products,
shipping and warehouse supplies (including cleaning and janitorial products) and
presentation supplies (including transparencies and overhead slides). Other
specialty catalogs are being considered and may be introduced in the future.
During fiscal 1997, Viking mailed approximately 191 million copies of over 100
different catalogs, with approximately 55% mailed to existing customers.
Marketing. Viking's marketing programs are designed to attract new
customers and to stimulate purchases from existing customers. Viking
continuously acquires new customers by selectively mailing specially designed
catalogs to prospective customers. Viking obtains the names of prospective
customers through the rental of selected mailing lists from outside marketing
information services and other sources. These lists include business buyers of
noncompeting direct mail companies, subscribers to business publications and
compiled business names.
Distribution Centers. Viking currently maintains ten distribution centers
in the United States, nine in Europe and two in Australia. Viking believes that,
as a result of its network of distribution centers, it can deliver orders to
customers the same day they call, or overnight, or within two business days to
virtually anywhere in the continental United States, United Kingdom, Ireland,
France, Belgium, Luxembourg, The Netherlands, Germany, Austria, Italy and
Australia. Viking also believes that its use of regional distribution centers
enhances Viking's domestic marketing efforts due to a preference on the part of
customers to obtain products from local or regional sources.
Customer Service. Viking believes that exceptional customer service and
customer relations are key elements of its marketing program. Viking trains its
order entry and customer relations representatives to provide prompt, efficient
and courteous service to all customers. In addition to providing toll-free
ordering, Viking maintains a separate toll-free customer service telephone
number. As part of its commitment to customer service, Viking allows a product
to be returned for any reason whatsoever, free of charge, within 30 days after
the date of purchase, and Viking provides a one-year guarantee on all products.
Competition. Viking operates in a highly competitive environment. In its
targeted market of small and medium-sized businesses, Viking believes that its
principal competitors are other direct marketing companies, traditional office
products dealers and office products superstores. To a lesser extent, Viking
also competes with contract stationers, which traditionally serve larger
businesses, mass merchandisers and warehouse clubs. Some of Viking's competitors
are larger and have greater financial resources and buying power than Viking.
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<PAGE> 83
Viking believes that its competitive position is enhanced by its ability to
satisfy its customers' office products needs with a wide variety of quality,
brand name merchandise, its discount prices and its strong commitment to
customer service.
Strategy. Viking's strategy is to earn its customers' loyalty and increase
its proportion of business by:
1. Performing exceptional services, such as same-day delivery, driver
in-office services, complete and error-free order fulfillment,
unconditional extended guarantees and free pick-up of all returns, plus
other benefits;
2. Unique, targeted, personalized catalogs that are database designed
for individual customers, offering specific products targeted to that
customer, at individual prices, generating positive and exceptional
response, as well as a significant reduction in unproductive catalog
expense; and
3. Applying all such efforts and programs in the United States, nine
European countries and Australia.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of Viking Common Stock as of the Record Date (except as
otherwise noted in the footnotes) and of Office Depot Common Stock after giving
effect to the Merger by: (i) each stockholder known by Viking to beneficially
own 5% or more of the outstanding shares of Viking Common Stock; (ii) each
director of Viking; (iii) the named Viking executive officers; and (iv) all
directors and executive officers of Viking as a group.
<TABLE>
<CAPTION>
PRO FORMA NUMBER PRO FORMA PERCENTAGE
NUMBER OF PERCENTAGE OF OF SHARES BENEFICIALLY OF SHARES BENEFICIALLY
SHARES OUTSTANDING OWNED AFTER GIVING OWNED AFTER GIVING
BENEFICIALLY COMMON EFFECT TO THE EFFECT TO THE
BENEFICIAL OWNER OWNED(1) STOCK(2) MERGER(3) MERGER(4)
- ---------------- ------------ ------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
The Capital Group Companies, Inc.(5)... 5,856,100 6.9% 5,856,100 2.4%
333 South Hope Street
Los Angeles, California 90071
The Kaufman Fund, Inc.(6).............. 5,764,100 6.8% 5,764,100 2.4%
140 E. 45th Street, 43rd Floor
New York, New York 10017
FMR Corp.(7)........................... 9,017,150 10.6% 19,275,950 7.9%
82 Devonshire Street
Boston, Massachusetts 02109
Putnam Investments, Inc.(8)............ 9,956,983 11.7% 9,956,983 4.1%
One Post Office Square
Boston, Massachusetts 02109
William Blair & Company, L.L.C.(9)..... 4,350,407 5.1% 4,350,407 1.8%
Lee A. Ault III........................ 52,800 * 68,800 *
Neil R. Austrian....................... 146,848 * 158,848 *
Charles P. Durkin, Jr.................. 124,368 * 124,368 *
Irwin Helford(10)...................... 3,298,414 3.9% 3,330,414 1.4%
Frank R. Jarc.......................... 70,201 * 163,201 *
Joan D. Manley(11)..................... 84,500 * 96,500 *
Mark Muir(10).......................... 288,649 * 326,649 *
M. Bruce Nelson........................ 198,808 * 449,808 *
Ronald Weissman(12).................... 67,901 * 105,901 *
All directors and executive officers as
a group (14 persons)(13)............. 5,297,685 6.1% 5,910,285 2.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Each person has sole investment and voting power with respect to the shares
indicated, except as otherwise noted. The inclusion herein of any shares
does not constitute an admission of beneficial ownership. Includes shares
which may be purchased upon the exercise of options which are exercisable
74
<PAGE> 84
as of the Record Date, or become exercisable within 60 days thereafter, for
the following: Mr. Ault -- 44,000 shares; Mr. Austrian -- 48,000 shares;
Mr. Helford -- 136,026 shares; Mr. Jarc -- 67,000 shares; Ms.
Manley -- 28,000 shares; Mr. Muir -- 160,907 shares; Mr. Nelson -- 196,000
shares; Mr. Weissman -- 47,480 shares; and all directors and executive
officers as a group -- 1,401,495 shares. This column does not give effect
to the acceleration of Viking options that will occur upon the approval of
the Merger Proposal by Viking stockholders. See "The Merger -- Conditions
to the Consummation of the Merger." Unless otherwise indicated, the address
of each of the persons named in the table is Viking's address.
(2) Based on 85,329,976 shares of Viking Common Stock outstanding as of the
Record Date. Shares subject to presently exercisable options are considered
for the purpose of determining the percent of the class held by the holder
of such option, but not for the purpose of computing the percentage held by
others.
(3) Gives effect to the acceleration of Viking options that will occur upon the
approval of the Merger Proposal by Viking stockholders. As a result of such
acceleration, the share numbers listed include shares which may be
purchased upon the exercise of options for the following persons: Mr.
Ault -- 60,000; Mr. Austrian -- 60,000; Mr. Helford -- 168,026; Mr.
Jarc -- 160,000; Ms. Manley -- 40,000; Mr. Muir -- 198,907, Mr.
Nelson -- 447,000; Mr. Weissman -- 85,480; and all directors and executive
officers as a group -- 2,066,595.
(4) Based on 244,996,727 shares of Office Depot Common Stock anticipated to be
outstanding after the Merger.
(5) Based solely upon a Schedule 13G dated February 10, 1998.
(6) Based solely upon a Schedule 13G dated February 3, 1998.
(7) Based solely upon a Schedule 13G dated May 10, 1998. Of the 9,017,150
shares shown as beneficially owned by FMR Corp., FMR Corp. has sole voting
power with respect to 1,450 of such shares and sole dispositive power with
respect to all 9,017,150 of such shares. The pro forma number of shares
beneficially owned after giving effect to the Merger includes 10,258,800
shares of Office Depot Common Stock beneficially owned by FMR Corp. as of
the Record Date.
(8) Based solely upon a Schedule 13G dated January 16, 1998. Of the 9,956,983
shares shown as beneficially owned by Putnam Investments, Inc. ("PII"), PII
has neither sole voting power nor sole dispositive power with respect to
any of such shares.
(9) Based solely upon a Schedule 13G dated February 14, 1998. Of the 4,350,407
shares shown as beneficially owned by William Blair & Company, L.L.C.
("William Blair"), William Blair has sole voting power with respect to
1,591,738 of such shares and sole dispositive power with respect to all
4,350,407 of such shares.
(10) Includes 100,000 shares issued under the Incentive Plan which are subject
to transfer restrictions and to forfeiture until June 30, 2007. Also
includes 2,480 shares held of record by his spouse.
(11) Includes 16,700 shares held of record by the Daniels Houlton Family
Foundation, of which Ms. Manley is Chairman of the Board. Ms. Manley has
investment and voting power with respect to the shares held by this
foundation.
(12) Includes 20,000 shares issued under the Incentive Plan which are subject to
transfer restrictions and to forfeiture until June 30, 2007.
(13) Includes 530,000 shares issued under the Incentive Plan which are subject
to transfer restrictions and to forfeiture until June 30, 2007.
75
<PAGE> 85
UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements assume a
business combination between Office Depot and Viking accounted for on a pooling
of interests basis and are based on the respective historical financial
statements and the notes thereto of Office Depot and Viking, which are
incorporated by reference in this Joint Proxy Statement/Prospectus. The
unaudited pro forma combined balance sheet combines Office Depot's March 28,
1998 unaudited consolidated balance sheet with Viking's March 31, 1998 unaudited
consolidated balance sheet. The unaudited pro forma statements of earnings
combine Office Depot's historical operating results for the fiscal quarters
ended March 29, 1998 (unaudited) and March 29, 1997 (unaudited) and the fiscal
years ended December 27, 1997, December 28, 1996 and December 30, 1995 with the
corresponding unaudited Viking operating results for the quarters ended March
31, 1998 and March 31, 1997 and the years ended December 31, 1997, December 31,
1996 and December 31, 1995, respectively. Viking historically utilizes a 52- or
53-week fiscal year ending on the last Friday in June. To conform Viking's
financial statements to Office Depot's fiscal years, Viking's historical
quarterly results were realigned according to Office Depot's fiscal year, which
is a 52- or 53-week fiscal year ending on the last Saturday in December. As a
result, all Viking periods are unaudited.
For purposes of the preparation of the unaudited pro forma combined balance
sheet, an estimate of $107.5 million is used for merger-related and integration
expenses, and the deferred tax benefit of $28 million relating to these expenses
is also included.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of the operating
results or financial position that would have been achieved if the Merger had
been consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
the combined company. The unaudited pro forma combined financial statements do
not give effect to any cost savings or other operational efficiencies or
synergistic benefits which may result from the integration of Office Depot's and
Viking's operations.
These unaudited pro forma combined financial statements are based on, and
should be read in conjunction with, the historical consolidated financial
statements and the related notes thereto of Office Depot and Viking, which are
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
76
<PAGE> 86
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 28, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------
OFFICE DEPOT VIKING ADJUSTMENTS COMBINED
------------ -------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............... $ 390,019 $ 41,109 $ 431,128
Short-term investments.................. -- 48,674 48,674
Receivables............................. 422,514 178,821 601,335
Merchandise inventories................. 1,228,658 110,559 $ (6,000)(A) 1,333,217
Deferred income taxes................... 37,129 -- 28,000(A) 65,129
Prepaid expenses........................ 16,357 20,957 37,314
---------- -------- ----------- ----------
Total current assets............ 2,094,677 400,120 22,000 2,516,797
Property and Equipment, net............... 688,726 149,284 (16,500)(A) 821,510
Goodwill, net of Amortization............. 183,430 27,407 210,837
Other Assets.............................. 89,951 6,629 96,580
---------- -------- ----------- ----------
$3,056,784 $583,440 $ 5,500 $3,645,724
========== ======== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses... $1,075,207 $147,944 $ 85,000(A) $1,308,151
Income taxes............................ 52,993 20,327 73,320
Short-term borrowings and current
maturities of long-term debt......... 2,487 -- 2,487
---------- -------- ----------- ----------
Total current liabilities....... 1,130,687 168,271 85,000 1,383,958
Long-term Debt, less Current Maturities... 28,761 -- 28,761
Deferred Taxes and Other Credits.......... 80,194 1,163 81,357
Zero coupon, Convertible Subordinated
Notes................................... 422,198 -- 422,198
Common Stockholders' Equity:
Common stock............................ 1,609 118,063 (117,213)(C) 2,459
Additional paid-in capital.............. 656,498 -- 117,213(C) 773,711
Foreign currency translation
adjustment........................... (4,037) (15,926) (19,963)
Retained earnings....................... 742,624 314,995 (79,500)(A) 978,119
Unamortized value of long-term incentive
stock grant.......................... -- (3,126) (3,126)
Less: treasury stock.................... (1,750) -- (1,750)
---------- -------- ----------- ----------
1,394,944 414,006 (79,500) 1,729,450
---------- -------- ----------- ----------
$3,056,784 $583,440 $ 5,500 $3,645,724
========== ======== =========== ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
77
<PAGE> 87
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE QUARTER ENDED MARCH 28, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
OFFICE DEPOT VIKING ADJUSTMENTS COMBINED
------------ -------- ----------- ----------
<S> <C> <C> <C> <C>
Sales........................................ $1,981,096 $417,581 $2,398,677
Cost of goods sold and occupancy costs....... 1,518,638 245,101 1,763,739
---------- -------- ----------
Gross profit................................. 462,458 172,480 634,938
Store and warehouse operating and selling
expenses................................... 306,711 117,692 424,403
Pre-opening expenses......................... 1,174 -- 1,174
General and administrative expenses.......... 55,465 19,455 74,920
Amortization of goodwill..................... 1,311 225 1,536
---------- -------- ----------
364,661 137,372 502,033
---------- -------- ----------
Operating profit............................. 97,797 35,108 132,905
Other income (expense):
Interest income............................ 4,466 1,011 5,477
Interest expense........................... (5,407) (25) (5,432)
Equity in (losses) earnings of investees,
net..................................... (4,507) -- (4,507)
Merger costs............................... -- -- --
---------- -------- ----------
Earnings before income taxes................. 92,349 36,094 128,443
Income taxes................................. 36,526 10,823 47,349
---------- -------- ----------
Net earnings................................. $ 55,823 $ 25,271 $ 81,094
========== ======== ==========
Earnings per common share(B):
Basic...................................... $ 0.35 $ 0.30 $ 0.33
Diluted.................................... $ 0.33 $ 0.29 $ 0.32
Number of shares used in computing earnings
per common share -- basic.................. 158,502 84,850 243,352
Number of shares used in computing earnings
per common share -- diluted................ 179,272 87,100 266,372
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
78
<PAGE> 88
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE QUARTER ENDED MARCH 29, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
OFFICE DEPOT VIKING ADJUSTMENTS COMBINED
------------ -------- ----------- ----------
<S> <C> <C> <C> <C>
Sales....................................... $1,772,444 $353,083 $2,125,527
Cost of goods sold and occupancy costs...... 1,372,903 204,146 1,577,049
---------- -------- ----------
Gross profit................................ 399,541 148,937 548,478
Store and warehouse operating and selling
expenses.................................. 274,617 102,451 377,068
Pre-opening expenses........................ 791 -- 791
General and administrative expenses......... 46,066 17,250 63,316
Amortization of goodwill.................... 1,312 225 1,537
---------- -------- ----------
322,786 119,926 442,712
---------- -------- ----------
Operating profit............................ 76,755 29,011 105,766
Other income (expense):
Interest income........................... 751 662 1,413
Interest expense.......................... (5,504) (41) (5,545)
Equity in (losses) earnings of investees,
net.................................... (1,245) -- (1,245)
Merger costs.............................. (6,611) -- (6,611)
---------- -------- ----------
Earnings before income taxes................ 64,146 29,632 93,778
Income taxes................................ 25,359 8,884 34,243
---------- -------- ----------
Net earnings................................ $ 38,787 $ 20,748 $ 59,535
========== ======== ==========
Earnings per common share(B):
Basic..................................... $ 0.25 $ 0.25 $ 0.25
Diluted................................... $ 0.24 $ 0.24 $ 0.24
Number of shares used in computing earnings
per common share -- basic................. 157,359 83,800 241,159
Number of shares used in computing earnings
per common share -- diluted............... 175,861 87,000 262,861
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
79
<PAGE> 89
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
OFFICE DEPOT VIKING ADJUSTMENTS COMBINED
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales..................................... $6,717,514 $1,382,805 $8,100,319
Cost of goods sold and occupancy costs.... 5,143,311 803,906 5,947,217
---------- ---------- ----------
Gross profit.............................. 1,574,203 578,899 2,153,102
Store and warehouse operating and selling
expenses................................ 1,062,877 396,983 1,459,860
Pre-opening expenses...................... 6,609 -- 6,609
General and administrative expenses....... 196,503 75,174 271,677
Amortization of goodwill.................. 5,246 900 6,146
---------- ---------- ----------
1,271,235 473,057 1,744,292
---------- ---------- ----------
Operating profit.......................... 302,968 105,842 408,810
Other income (expense):
Interest income......................... 5,157 2,418 7,575
Interest expense........................ (21,583) (82) (21,665)
Equity in (losses) earnings of
investees, net....................... (7,034) -- (7,034)
Merger costs............................ (16,094) -- (16,094)
---------- ---------- ----------
Earnings before income taxes.............. 263,414 108,178 371,592
Income taxes.............................. 103,738 32,993 136,731
---------- ---------- ----------
Net earnings.............................. $ 159,676 $ 75,185 $ 234,861
========== ========== ==========
Earnings per common share(B):
Basic................................... $ 1.01 $ 0.90 $ 0.97
Diluted................................. $ 0.97 $ 0.87 $ 0.93
Number of shares used in computing
earnings per common share -- basic...... 157,755 84,000 241,755
Number of shares used in computing
earnings per common share -- diluted.... 176,386 86,900 263,286
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
80
<PAGE> 90
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
OFFICE DEPOT VIKING ADJUSTMENTS COMBINED
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Sales..................................... $6,068,598 $1,182,333 $7,250,931
Cost of goods sold and occupancy costs.... 4,700,910 681,431 5,382,341
---------- ---------- ----------
Gross profit.............................. 1,367,688 500,902 1,868,590
Store and warehouse operating and selling
expenses................................ 951,084 341,874 1,292,958
Pre-opening expenses...................... 9,827 -- 9,827
General and administrative expenses....... 162,149 60,605 222,754
Amortization of goodwill.................. 5,247 900 6,147
---------- ---------- ----------
1,128,307 403,379 1,531,686
---------- ---------- ----------
Operating profit.......................... 239,381 97,523 336,904
Other income (expense):
Interest income......................... 1,593 2,129 3,722
Interest expense........................ (26,078) (286) (26,364)
Equity in (losses) earnings of
investees, net....................... (2,178) -- (2,178)
Merger costs............................ -- -- --
---------- ---------- ----------
Earnings before income taxes.............. 212,718 99,366 312,084
Income taxes.............................. 83,676 32,190 115,866
---------- ---------- ----------
Net earnings.............................. $ 129,042 $ 67,176 $ 196,218
========== ========== ==========
Earnings per common share(B):
Basic................................... $ 0.82 $ 0.81 $ 0.82
Diluted................................. $ 0.80 $ 0.77 $ 0.79
Number of shares used in computing
earnings per common share -- basic...... 156,828 83,000 239,828
Number of shares used in computing
earnings per common share -- diluted.... 175,220 87,350 262,570
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial
Statements.
81
<PAGE> 91
UNAUDITED PRO FORMA COMBINED STATEMENT OF EARNINGS
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
OFFICE DEPOT VIKING ADJUSTMENTS COMBINED
------------ -------- ----------- ----------
<S> <C> <C> <C> <C>
Sales....................................... $5,313,192 $920,793 $6,233,985
Cost of goods sold and occupancy costs...... 4,110,334 530,558 4,640,892
---------- -------- ----------
Gross profit................................ 1,202,858 390,235 1,593,093
Store and warehouse operating and selling
expenses.................................. 782,478 268,486 1,050,964
Pre-opening expenses........................ 17,746 -- 17,746
General and administrative expenses......... 153,344 42,370 195,714
Amortization of goodwill.................... 5,213 900 6,113
---------- -------- ----------
958,781 311,756 1,270,537
---------- -------- ----------
Operating profit............................ 244,077 78,479 322,556
Other income (expense):
Interest income........................... 1,357 2,647 4,004
Interest expense.......................... (22,551) (190) (22,741)
Equity in (losses) earnings of investees,
net.................................... (962) -- (962)
Merger costs.............................. -- -- --
---------- -------- ----------
Earnings before income taxes................ 221,921 80,936 302,857
Income taxes................................ 89,522 28,275 117,797
---------- -------- ----------
Net earnings................................ $ 132,399 $ 52,661 $ 185,060
========== ======== ==========
Earnings per common share(B):
Basic..................................... $ 0.87 $ 0.65 $ 0.79
Diluted................................... $ 0.83 $ 0.61 $ 0.75
Number of shares used in computing earnings
per common share -- basic................. 151,867 81,700 233,567
Number of shares used in computing earnings
per common share -- diluted............... 172,124 86,850 258,974
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
82
<PAGE> 92
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE A. MERGER-RELATED EXPENSES
Office Depot and Viking estimate they will incur merger-related costs of
approximately $35 million, consisting of transaction fees for investment
bankers, attorneys, accountants, financial printing and other related charges.
In addition, it is expected that as a result of the Merger, the combined
company will incur merger-related consolidation and integration expenses
estimated to be $72.5 million. For the purposes of the preparation of the
unaudited pro forma combined financial statements, an estimate of $107.5 million
is used for the sum of merger-related and integration expenses. In addition to
the transaction fees, these expenses are expected to include:
- Warehouse consolidations in overlapping markets;
- Write-offs of warehouse assets as a result of integration efforts;
- Costs associated with the elimination of certain products from the
combined merchandise assortment, including the sale below cost or other
disposition of products to be discontinued;
- Retention, relocation, severance and other personnel-related costs;
- Costs associated with integrating management information systems; and
- Other related charges.
The deferred tax benefit of $28 million relating to these expenses has also
been reflected as a pro forma adjustment in the unaudited pro forma combined
balance sheet as of March 28, 1998.
The respective managements of Office Depot and Viking anticipate that plans
and decisions will be completed and the majority of the $107.5 million will be
recorded during fiscal 1998. The unaudited pro forma combined balance sheet
gives effect to such expenses as if they had been incurred as of March 28, 1998,
but the effects of these costs have not been reflected in the unaudited pro
forma combined statements of earnings.
NOTE B. PRO FORMA EARNINGS PER COMMON SHARE
The pro forma combined basic net earnings per common share is based on the
combined weighted average number of common shares outstanding during each
period. The pro forma combined diluted net earnings per common share is
determined on the assumption that the Office Depot zero coupon, convertible
subordinated notes were converted as of the beginning of the periods and that
dilutive Office Depot and Viking stock options were exercised. Net earnings
under this assumption are adjusted for interest on the notes, net of its income
tax effect. All per share amounts reflect the 2-for-1 stock split of Viking
Common Stock in May 1996.
NOTE C. RECLASSIFICATIONS AND CONFORMING ADJUSTMENTS
Certain reclassifications were made to Viking's financial statements to
conform to Office Depot's presentations. Since Viking Common Stock has no par
value, a pro forma reclassification between common stock and additional paid-in
capital was made to conform with Office Depot's capital structure. No material
adjustments were required to conform the accounting policies of Office Depot and
Viking.
83
<PAGE> 93
DESCRIPTION OF OFFICE DEPOT CAPITAL STOCK
GENERAL
Prior to the proposed Charter Amendment, Office Depot's authorized capital
stock consists of 400,000,000 shares of Common Stock, $.01 par value per share,
and 1,000,000 shares of Preferred Stock, $.01 par value per share. After giving
effect to the proposed Charter Amendment, Office Depot's authorized capital
stock will consist of 800,000,000 shares of Common Stock, $.01 par value per
share, and 1,000,000 shares of Preferred Stock, $.01 par value per share.
COMMON STOCK
As of the Record Date, there were 159,666,751 shares of Office Depot Common
Stock outstanding held by approximately 2,741 holders of record. As of June 27,
1998, Office Depot had reserved 16,548,709 shares of unissued Office Depot
Common Stock for conversion of its zero coupon, convertible subordinated notes,
of which $426,552,000 was outstanding. As of June 27, 1998, Office Depot had
authorized 19,172,109 shares of Office Depot Common Stock for issuance to
officers and key employees in connection with options and other grants under its
stock plans. Each holder of Office Depot Common Stock is entitled to one vote
for each share on all matters voted upon by the stockholders. Office Depot has
never paid cash dividends on its Common Stock and does not anticipate paying any
cash dividends in the foreseeable future. Rather, Office Depot intends to retain
earnings and other cash resources for use in the operation and expansion of its
business.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series and
the Office Depot Board is authorized to fix the designations, voting powers,
preferences, rights and qualifications, limitations or restrictions of the
shares of the Preferred Stock of each such series. As of the Record Date, there
were no outstanding shares of Office Depot Preferred Stock and, other than the
Junior Participating Preferred Stock, Series A, discussed below under "-- Rights
Plan," no designated series of Preferred Stock.
RIGHTS PLAN
Effective September 4, 1996, Office Depot's Board adopted a Stockholder
Rights Plan. The Rights Plan provides for the issuance to stockholders of one
right for each outstanding share of Office Depot Common Stock. The rights will
become exercisable only if a person or group acquires 20% or more of Office
Depot Common Stock or announces a tender or exchange offer that would result in
ownership of 20% or more of Office Depot Common Stock. Each right, should it
become exercisable, will entitle the holder to purchase one one-thousandth of a
share of Junior Participating Preferred Stock, Series A of the Company at an
exercise price of $95.00, subject to adjustment.
In the event of an acquisition, each right will entitle the holder, other
than an acquiror, to receive a number of shares of Office Depot Common Stock
with a market value equal to twice the exercise price of the right. In addition,
in the event that Office Depot is involved in a merger or other business
combination wherein Office Depot is not the surviving corporation, or wherein
Office Depot Common Stock is changed or exchanged, or in a transaction with any
entity in which 50% or more of Office Depot's assets or earning power is sold,
each holder of a right, other than an acquiror, will have the right to receive,
at the exercise price of the right, a number of shares of common stock of the
acquiring company with a market value equal to twice the exercise price of the
right.
Office Depot's Board of Directors may redeem the rights for $0.01 per right
at any time prior to an acquisition.
DELAWARE CORPORATION LAW AND CERTAIN CHARTER PROVISIONS
Office Depot has expressly elected in its Certificate of Incorporation not
to be governed by the provisions of Section 203 of the Delaware General
Corporation Law (the "Delaware Corporation Law"), an anti-
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takeover law that prohibits stockholders having a threshold equity interest from
engaging in certain business combinations with the corporation. See "COMPARISON
OF STOCKHOLDER RIGHTS -- Interested Director and Stockholder Transactions."
The Office Depot Bylaws permit stockholder action by written consent and
provide that special meetings of stockholders may be called by the Chairman of
the Board of Directors, the Chief Executive Officer or, if directed by
resolutions of the Board of Directors, the Secretary.
Office Depot has included in its Certificate of Incorporation a provision
to eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the fullest extent permitted
by Delaware Corporation Law. The Office Depot Bylaws include a provision to
indemnify its directors and officers to the fullest extent permitted by Delaware
Corporation Law.
TRANSFER AGENT
The transfer agent for the Office Depot Common Stock is ChaseMellon
Shareholder Services, L.L.C.
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COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of certain of the material differences between
the rights of holders of Office Depot Common Stock and the rights of holders of
Viking Common Stock. Office Depot is organized under the laws of the State of
Delaware and Viking is organized under the laws of the State of California. The
rights of stockholders of the two corporations arise from both state law and the
certificate of incorporation and bylaws of Office Depot (the "Office Depot
Charter" and the "Office Depot Bylaws," respectively) and the articles of
incorporation and bylaws of Viking (the "Viking Charter" and the "Viking
Bylaws," respectively), as applicable.
The following summary does not purport to be a complete statement of the
rights of holders of Office Depot Common Stock or holders of Viking Common Stock
and is qualified in its entirety by reference to the Delaware Corporation Law
and the California Corporations Code and the respective charter and bylaw
documents of Office Depot and Viking.
DIRECTORS
Office Depot. Office Depot's Bylaws provide that the number of directors
is fixed by the Board of Directors, and the Office Depot Charter does not
provide for the classification of the Board of Directors. Directors are elected
at the annual meeting of stockholders by a plurality of the votes of the shares
present in person or represented by proxy. Any director or the entire Board of
Directors may be removed from office at any time, with or without cause, by the
holders of at least a majority of the shares then entitled to vote in an
election of directors.
Viking. Under the California Corporations Code, the board of directors of
a California corporation may fix the number of directors within a stated range
set forth in the corporation's articles of incorporation or bylaws, if the
stated range has been approved by the stockholders. Viking's Bylaws provide that
the number of directors shall be not less than four nor more than seven, do not
provide for the classification of the Board of Directors and provide that a
director may be removed if he or she has been declared of unsound mind by an
order of court or convicted of a felony. The Viking Bylaws provide that the
Viking Board shall be elected at the annual meeting of stockholders. The
candidates who receive the highest number of votes of shares up to the number of
directors to be elected by such shares will be elected. Any or all of the
directors may be removed from office without cause pursuant to Section 303(a) of
the California Corporations Code, which provides that any director or the entire
board of directors may be removed, with or without cause, with the approval of a
majority of the outstanding shares entitled to vote. No director, however, may
be removed (unless the entire board is removed) if the number of shares voted
against the removal would be sufficient to elect the director under cumulative
voting.
CHARTER AND BYLAW AMENDMENTS
The Office Depot Charter may be amended by the holders of a majority of the
outstanding shares of Office Depot Common Stock entitled to vote, provided that
any amendment that adversely affects the relative rights of holders, if any, of
the Junior Participating Preferred Stock, Series A, of Office Depot requires the
approval of two-thirds of such holders. The Office Depot Bylaws may be amended
by a majority vote of the Office Depot Board.
The Viking Charter may be amended by the holders of a majority of the
outstanding shares of Viking Common Stock, and the Viking Bylaws may be amended
by the affirmative vote or written consent of holders of a majority of the
outstanding shares of Viking Common Stock entitled to vote or by the Viking
Board. The Viking Charter may not be amended in any manner which would
materially and adversely alter or change the powers, preferences or special
rights of the Series A Preferred Stock of Viking if any is outstanding, without
the affirmative vote of the holders of a majority of such shares.
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CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A stockholder may then cast all such votes for a single
candidate or may allocate them among as many candidates as the stockholders may
choose. Without cumulative voting, the holders of a majority of the shares
present at an annual meeting or any special meeting held to elect directors
would have the power to elect all the directors to be elected at that meeting,
and no person could be elected without the support of holders of a majority of
the shares voting at such meeting.
Under the Delaware Corporation Law, there is no right to cumulative voting
unless the charter documents provide for it, and the Office Depot Charter and
Bylaws do not provide for such rights.
Under the California Corporations Code, stockholders have a right to
cumulate their votes in the election of directors so long as at least one
stockholder has given notice of such stockholder's intent to cumulate his or her
votes at the meeting prior to the voting unless a corporation meets the
requirements for a listed company and its charter documents eliminate it.
However, Viking's Bylaws provide that if Viking meets the requirements for a
listed corporation within the meaning of the California Corporation Code
cumulative voting will not be available to the stockholders, and since Viking
meets these requirements, stockholders of Viking do not have cumulative voting
rights in connection with the election of directors.
STOCKHOLDER MEETING PROCEDURES
Annual Meetings. The Office Depot Bylaws provide for an annual meeting of
stockholders to elect directors and conduct such other business as may come
before the meeting. The annual meeting is held within 160 days after the close
of the immediately preceding fiscal year. Notice of any meeting of the
stockholders must be given not less than ten days nor more than 60 days before
the noticed date of the meeting and must specify the place, date and time of the
meeting. A special meeting of the stockholders of Office Depot may be called by
the Office Depot Board, the Chairman of the Board or the President.
As required by the California Corporations Code, the Viking Bylaws provide
for an annual meeting of stockholders to elect directors and approve such other
matters as may be submitted for a vote by the stockholders. Viking has chosen to
hold its annual meeting the second week of November for the past several years.
Notice of any meeting of the stockholders must be given not less than ten days
nor more than 60 days before the noticed date of the meeting and must specify
the place, date and time of the meeting. A special meeting of the stockholders
of Viking may be called by the Viking Board, the Chairman of the Board, the
President or the holders of shares entitled to cast not less than 10% of the
votes at such meeting. The date of a special meeting is established by the
person or persons calling the meeting. A meeting called by stockholder request
must be held not less than 35 nor more than 60 days after the receipt of the
request for the meeting. Written notice of the meeting must be given promptly by
the Company and must state the general nature of the meeting. If notice is not
provided within 20 days of the receipt of the request, the person or persons
requesting the meeting may provide the notice.
Stockholder Proposals. The Office Depot Bylaws provide that a stockholder
must give advance written notice to the company if the stockholder intends to
bring any business before a meeting of stockholders or to make nominations for
the board of directors. For business to be properly brought by a stockholder at
an annual meeting, notice must be received by the secretary of Office Depot not
less than 90 days prior to the date of the previous year's annual meeting;
provided that if the date of an annual meeting differs from that of the previous
year by more than 30 days, notices by the stockholder must be so received not
later than seven days after notice of such meeting has been given (or such
greater period of time as is set forth in such notice). To be timely in
connection with a special meeting, a stockholder's notice must be received at
the principal executive offices of Office Depot not less than seven days after
notice of such meeting has been given (or such greater period of time as is set
forth in such notice).
For business to be properly brought before a Viking annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of Viking. To be timely, a stockholder's
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notice must be delivered to or mailed and received at the principal executive
offices of Viking not less than 60 days nor more than 90 days prior to the
meeting, provided if less than 70 days' notice or prior public disclosure of the
date of the annual meeting is given or made to stockholders, notice by a
stockholder, to be timely, must be received no later than the close of business
on the tenth day following the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made, whichever first
occurs. A stockholder's notice to the secretary of Viking must set forth (a) as
to each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, and
(ii) any material interest of the stockholder in such business, and (b) as to
the stockholder giving the notice (i) the name and record address of the
stockholder and (ii) the class, series and number of shares of capital stock of
the corporation which are beneficially owned by the stockholder.
VOTING BY STOCKHOLDERS
The respective Bylaws of Office Depot and Viking provide that at any
meeting of stockholders, the holders of a majority of the outstanding shares of
stock then issued, outstanding and entitled to vote, represented in person or by
proxy, shall constitute a quorum for the transaction of any business.
The Office Depot Bylaws provide that when a quorum is present, any election
of directors by stockholders shall be by a plurality of votes cast. With respect
to all other matters, the affirmative vote of the holders of shares of stock
representing a majority of the votes cast thereon is required, provided that
when a stockholder approval requirement is applicable under the stockholder
approval policy of the New York Stock Exchange, the requirements of Rule 16b-3
under the Exchange Act, any provision of the Code, or as otherwise required by
law, the vote required for approval shall be the vote specified in such
stockholder approval policy, Rule 16b-3, Code provision or other law, as the
case may be (or the highest such requirement if more than one is applicable).
The Viking Bylaws provide that when a quorum is present, the affirmative
vote of the holders of a majority of the shares represented at the meeting
(which shares voting affirmatively also constitute a majority of the required
quorum) shall be the act of the stockholders, unless the vote of a great number
or voting by classes is required by the California Corporations Code.
Pursuant to the Office Depot Bylaws, any action which may be taken at any
annual or special meeting of stockholders may be taken without a meeting, and
without prior notice and without a vote, if a consent in writing setting forth
the action so taken and bearing the dates of signature of the stockholders who
signed the consent or consents, is signed by the holders of the outstanding
shares of Office Depot having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted and is delivered to
Office Depot at its registered office in the state of Delaware or its principal
place of business.
Pursuant to the Viking Bylaws, any action which may be taken at any annual
or special meeting of stockholders may be taken without a meeting, and without
prior notice (except in certain circumstances), if a consent in writing setting
forth the action so taken, is signed by the holders of the outstanding shares of
Viking having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted; provided, however, that directors may not
be elected by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors.
RIGHT TO EXAMINE STOCKHOLDER LIST
Both the Delaware Corporation Law and the California Corporations Code
allow any stockholder to inspect the stockholders list for a purpose reasonably
related to such person's interest as a stockholder. The California Corporations
Code also provides for an absolute right to inspect and copy the corporation's
stockholder list by a person or persons holding at least 5% in the aggregate of
the corporation's outstanding voting shares or any stockholder or stockholders
holding 1% or more of such shares who have filed a
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Schedule 14A with the Commission relating to the election of directors. The
Delaware Corporation Law does not provide for any such absolute right of
inspection.
The Office Depot Bylaws provide that the record of stockholders shall be
open to the examination of any stockholder, for any purpose germane to a meeting
of the stockholders, for a period of at least ten days prior to a stockholder
meeting, either at a place within the city where the meeting is held or at
another place specified in the notice of the meeting.
The Viking Bylaws provide that the record of stockholders and other books
and records of Viking shall be open to inspection upon the written demand on
Viking of any stockholder at any reasonable time during business hours, for a
purpose reasonably related to such holder's interest as a stockholder. The right
of inspection includes the right to copy.
RIGHTS PLANS
The effectiveness and enforceability of stockholder rights plans under
Delaware law have been established in numerous reported cases. The Office Depot
rights plan is described under "DESCRIPTION OF OFFICE DEPOT CAPITAL
STOCK -- Rights Plan."
The effectiveness and enforceability of stockholder rights plans under
California law remains uncertain. The Viking Board adopted a Shareholder Rights
Agreement in January 1997, as amended, under which one Preferred Share Purchase
Right ("Viking Right") is issued in respect of each outstanding share of Viking
Common Stock. Each Viking Right entitles its holder to buy one two-hundredths of
a share of Series A Junior Participating Preferred Stock at an exercise price of
$150 per Right (subject to adjustment). The Viking Rights become exercisable if
a person or a group acquires 15% or more of Viking Common Stock. Viking's Board
will be entitled to redeem the Rights for consideration valued at $0.01 per
Viking Right at any time before the earlier of (i) the tenth day after a person
has acquired 15% or more of the outstanding Common Stock, or (ii) the final
expiration date.
If a person other than Office Depot pursuant to the terms of the Merger
Agreement or the Viking Stock Option Agreement acquires 15% or more of the
outstanding Viking Common Stock (except pursuant to certain cash offers for all
outstanding Common Stock) in a merger or other business combination transaction
which has not been approved by the Viking Board, each Viking Right will entitle
its holder to purchase, at the Viking Right's then-current exercise price, a
number of Viking common shares having a market value at that time of twice the
Viking Right's exercise price. Rights held by the 15% holder will become void
and will not be exercisable to purchase shares at the discounted purchase price.
Each Preferred Share purchased upon exercise of the Viking Rights will be
entitled to a minimum preferential quarterly dividend payment of $1.00 per
share, but will be entitled to an aggregate dividend of 200 times the dividend,
if any, declared per share of Viking Common Stock. In the event of liquidation,
the holders of Preferred Shares will be entitled to a minimum preferential
liquidation payment of $200 per share, but will be entitled to an aggregate
payment of 200 times the payment made per share of Viking Common Stock. Each
Preferred Share will have 200 votes and will vote together with shares of Viking
Common Stock. In the event of any merger, consolidation or other transaction in
which shares of Viking Common Stock are exchanged, each Preferred Share will be
entitled to receive 200 times the amount received per share of Viking Common
Stock. The rights are protected by customary antidilution provisions.
Unless Viking extends the expiration date, or redeems, exchanges or
terminates the Viking Rights before the expiration date, the Viking Rights
expire on February 3, 2007.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Office Depot. The Delaware Corporation Law authorizes a Delaware
corporation to indemnify any person who is, or is threatened to be made, a party
in any civil, criminal, administrative or investigative, pending or completed
action, suit or proceeding (other than an action by or in the right of the
corporation) by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another entity, against
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expenses (including attorneys' fees) judgments, fines, amounts paid in
settlement, actually and reasonably incurred by such person in connection with
any threatened, pending or completed action, suit or proceeding. With respect to
actions by or in the right of the corporation, the Delaware Corporation Law
authorizes indemnification of such person against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action, suit or proceeding. To be entitled to
indemnification, a person must have acted in good faith and in a manner he
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
reasonable cause to believe his conduct was unlawful. With respect to actions by
or in the right of the corporation, court approval is required as a prerequisite
to indemnification of expenses in respect of any claim as to which a person has
been adjudged liable to the corporation.
The Delaware Corporation Law requires indemnification against expenses
(including attorneys' fees) actually and reasonably incurred by any director,
officer, employee or agent of a corporation in connection with an action, suit
or proceeding or in defense of any claim, issue or matter therein against such
person for actions in such capacity to the extent that the person has been
successful on the merits or otherwise. Advancement of expenses (i.e., payment
prior to a determination on the merits) is permitted, but not required by the
Delaware Corporation Law, which further requires that any director or officer
must undertake to repay such expenses if it is ultimately determined that he or
she is not entitled to indemnification. The disinterested members of the board
of directors (or independent legal counsel or the stockholders) must determine,
in each instance where indemnification is not required by the Delaware
Corporation Law, that such director, officer, employee or agent is entitled to
indemnification. The Delaware Corporation Law provides that the indemnification
provided by statute is not exclusive.
The Office Depot Bylaws provide that each person who was or is made a party
or is threatened to be made a party to or is otherwise involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, in
connection with his or her position as a present or past director or officer of
Office Depot, shall be indemnified and held harmless by Office Depot to the
fullest extent authorized by the Delaware Corporation Law against all expense,
liability and loss (including attorneys' fees, judgments and fines) reasonably
incurred by such indemnitee. The right to indemnification includes the right to
be paid the expenses incurred in defending any such proceeding in advance of its
final disposition. Any indemnification of a director or officer of Office Depot
or advance of expenses shall be made within 30 days of the written request of
the director or officer.
The Office Depot Bylaws provide that if Office Depot denies a written
request for indemnification or advancing of expenses, the right to
indemnification or advances is enforceable by the director or officer in court,
and the costs associated with successfully establishing his or her right to
indemnification is also indemnified by Office Depot. It is a defense to any such
action that the claimant has not met the standards of conduct which make it
permissible to indemnify the claimant for the amount claimed, but the burden of
such defense is on Office Depot.
Viking. The California Corporations Code provides that a corporation (i)
has the power to indemnify a director against expenses, judgments, fines and
settlements if that person acted in good faith and in a manner the person
reasonably believed to be in the best interest of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct of
the person was unlawful, and (ii) has the power to indemnify, with certain
exceptions, any person who is a party to any action by or in the right of the
corporation, against expenses actually and reasonably incurred by the person in
connection with the defense or settlement of the action if the person acted in
good faith and in a manner the person believed to be in the best interests of
the corporation and its stockholders. The indemnification authorized by the
California Corporations Code is not exclusive and the Viking Bylaws provide that
liability of the directors for monetary damages is indemnified to the fullest
extent permissible under the California Corporations Code. The Viking Bylaws
further provide that Viking is to advance to such director or officer expenses
incurred in defending any such proceeding to the maximum extent permissible
under the California Corporations Code. Viking also has entered into
indemnification agreements with each of its directors and executive officers
pursuant to which Viking has agreed, among other things to indemnify such
persons to the maximum extent permitted by the California Corporations Code.
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DISSENTERS' AND APPRAISAL RIGHTS
Office Depot. Under the Delaware Corporation Law, a stockholder of a
corporation who does not vote in favor of or consent in writing to certain
merger transactions and who demands appraisal of his or her shares in connection
therewith may, under varying circumstances, be entitled to dissenters' rights
pursuant to which such stockholder may receive cash in the amount of the fair
value of his or her shares (as determined by a Delaware court) together with a
fair rate of interest, if any, in lieu of the consideration he or she would
otherwise receive in the transaction. Unless the corporation's certificate of
incorporation provides otherwise (and the Office Depot Charter contains no such
provision), such appraisal rights are not available in certain circumstances,
including without limitation (a) the sale, lease or exchange of all or
substantially all of the assets of a corporation, (b) the merger or
consolidation of a corporation the shares of which are either listed on a
national securities exchange or on the Nasdaq National Market or are held of
record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or on Nasdaq or held of record by more
than 2,000 holders, or (c) to stockholders of a corporation surviving a merger
if no vote of the stockholders of the surviving corporation is required to
approve the merger because the merger agreement does not amend the existing
certificate of incorporation, each share of the surviving corporation
outstanding prior to the merger is an identical outstanding or treasury share
after the merger, and the number of shares to be issued in the merger does not
exceed 20% of the shares of the surviving corporation outstanding immediately
prior to the merger and if certain other conditions are met. Under the Delaware
Corporation Law, "fair value" must be determined exclusive of any element of
value arising from the accomplishment or expectation of the relevant
transaction.
Since Office Depot is not itself undergoing a merger or consolidation under
the Delaware Corporation Law, holders of Office Depot Common Stock are not
entitled to dissenters', appraisal or other similar rights under the Delaware
Corporation Law in connection with the Merger.
Viking. Rights of Viking stockholders to dissent from the Merger and to
demand payment for their shares are governed by Chapter 13 of the California
Corporations Code, the full text of which is attached hereto as Annex V. The
summary of these rights set forth below is not intended to be complete and is
qualified in its entirety by reference to Annex V.
If holders of 5% or more of the outstanding shares of Viking Common Stock
entitled to vote at the Viking Special Meeting vote against the approval of the
Merger and comply with certain other procedures, Viking stockholders will be
entitled to exercise dissenters' rights pursuant to the provisions of Chapter 13
of the California Corporations Code. In accordance with these provisions,
dissenting Viking stockholders will have the right to be paid the "fair market
value" of their shares of Viking Common Stock by fully complying with the
procedures specified in Chapter 13 of the California Corporations Code. Under
the California Corporations Code, "fair market value" is determined as of the
day before the first announcement of the terms of the Merger, excluding any
appreciation or depreciation in consequence of the Merger, but adjusted for any
stock split, reverse stock split or share dividend which becomes effective
thereafter.
Dissenting stockholders may not withdraw their demand for payment without
the consent of the Viking Board. The rights of dissenting stockholders to demand
payment terminate if (i) the Merger is abandoned (although dissenting
stockholders are entitled upon demand to reimbursement of expenses incurred in a
good faith assertion of their dissenters' rights); (ii) the shares are
transferred prior to submission for endorsement as dissenting shares; (iii) the
dissenting stockholder withdraws, with the consent of Viking, his or her demand
for purchase of the dissenting shares; or (iv) the dissenting stockholder and
Viking do not agree as to the fair market value of such shares and a complaint
is not filed within six months of the date on which the notice of approval was
mailed.
No stockholder who has a right to demand payment for cash for such
stockholder's shares and who in fact makes such a demand will have any right to
attack the validity of the Merger or have the Merger set aside or rescinded,
except in an action to test whether the number of shares required to approve the
Merger have been legally voted in favor thereof. Any stockholder who does not
demand payment of cash for such stockholder's shares and who institutes an
action to attack the validity of the Merger or to have the Merger set aside or
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rescinded would not thereafter have any right to demand payment of cash pursuant
to the exercise of dissenters' rights.
Dissenting stockholders must vote their dissenting shares against the
Merger Agreement. Record stockholders may vote part of the shares which they are
entitled to vote in favor of the Merger Agreement or abstain from voting a part
of such shares without jeopardizing their dissenters' rights as to other shares;
however, if record stockholders vote part of the shares they are entitled to
vote in favor of the Merger Agreement and fail to specify the number of shares
they are so voting, it is conclusively presumed under California law that their
approving vote is with respect to all shares which they are entitled to vote.
Voting against the Merger Agreement will not, of itself, absent compliance with
the provisions summarized herein, satisfy the requirements of the California
Corporations Code for exercise and perfection of dissenters' rights. However,
any Viking stockholder desiring to exercise dissenters' rights must vote against
the Merger Agreement.
PREEMPTIVE RIGHTS
Under the Delaware Corporation Law and the California Corporations Code,
the stockholders of a corporation have preemptive rights with respect to new
share issuances only as and to the extent provided in the certificate or
articles of incorporation. Neither the Office Depot Charter nor the Viking
Charter grant preemptive rights to stockholders.
INTERESTED DIRECTOR AND STOCKHOLDER TRANSACTIONS
Office Depot. Office Depot has expressly elected in its Charter not to be
governed by the provisions of Section 203 of the Delaware Corporation Law.
Section 203 prevents an "Interested Stockholder" of a corporation (generally
defined to mean any beneficial owner of more than 15% of the corporation's
voting stock) from engaging in any "business combination" (as defined in Section
203) with the corporation for a period of three years following the date on
which such Interested Stockholder became an Interested Stockholder, unless: (i)
before such person became an Interested Stockholder, the Office Depot Board
approved either the business combination in question or the transaction which
resulted in the Interested Stockholder becoming an Interested Stockholder; (ii)
upon consummation of the transaction which resulted in the Interested
Stockholder becoming an Interested Stockholder, the Interested Stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding (for purposes of determining the number of
shares outstanding) shares held by directors who are also officers and employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer; or (iii) following the transaction which resulted in
the Interested Stockholder becoming an Interested Stockholder, the business
combination is (x) approved by the Board of Directors of the corporation and (y)
authorized at a meeting of stockholders by the affirmative vote of the holders
of at least 66 2/3% of the outstanding voting stock of the corporation not owned
by the Interested Stockholder. As used in Section 203, a "business combination"
includes, among others, mergers, asset sales and other transactions resulting in
a financial benefit to the Interested Stockholder.
A Delaware corporation may lend money to, or guarantee any obligation
incurred by, its officers or directors if, in the judgment of the board of
directors, such loan or guarantee may reasonably be expected to benefit the
corporation. With respect to any other contract or transaction between the
corporation and one or more of its directors or officers, such transactions are
neither void nor voidable if either (i) the director's or officer's interest is
made known to the disinterested directors or the stockholders of the
corporation, who thereafter approve the transaction in good faith, or (ii) the
contract or transaction is fair to the corporation as of the time it is approved
or ratified by either the board of directors, a committee thereof, or the
stockholders. Office Depot does not make special provision in this regard.
Viking. Under the California Corporations Code, for certain transactions
by an interested party involving a corporation with more than 100 stockholders,
the Interested Party (as defined below with respect to the term's use under the
California Corporations Code) must provide a fairness opinion to the
stockholders as required by Section 1203 of the California Corporations Code.
The California Corporations Code provides
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that, except where the fairness of the terms and conditions of the transaction
has been approved by the California Commissioner of Corporations and except in a
"short-form" merger of a parent corporation with a subsidiary in which the
parent owns at least 90% of the outstanding shares of each class of the
subsidiary's stock, if the surviving corporation or its parent corporation owns,
directly or indirectly, shares of the target corporation representing more than
50% of the voting power of the target corporation prior to the merger, the
nonredeemable common stock of a target corporation may be converted only into
nonredeemable common stock of the surviving corporation or its parent
corporation, unless all of the stockholders of the class consent. The effect of
this provision is to prohibit a cash-out merger of minority stockholders, except
where the majority stockholder already owns 90% or more of the voting power of
the target corporation and could, therefore, effect a short-form merger to
accomplish such a cash-out of minority stockholders.
An "Interested Party" for purposes of the California Corporations Code
means a person who is a party to the transaction and (i) directly or indirectly
controls the corporation, (ii) is, or is directly or indirectly controlled by,
an officer or director of the corporation or (iii) is an entity in which a
material financial interest is held by any director or executive officer of the
corporation.
The California Corporations Code permits stockholders of a corporation with
100 or more stockholders of record to approve a bylaw authorizing the board of
directors alone to approve a loan or guarantee to or on behalf of an officer
(whether or not a director) if the board determines that such a loan or
guarantee may reasonably be expected to benefit the corporation. The Viking
Bylaws do not contain such a provision to allow its Board of Directors to
authorize Viking to make a loan to or guarantee the obligation of any officer of
the corporation without obtaining stockholder approval.
The California Corporations Code also provides that contracts or
transactions between a corporation and (i) any of its directors or (ii) a
company in which a director has a material financial interest are not void or
voidable if the material facts as to the transaction and as to the director's
interest are fully disclosed and the disinterested directors or a majority of
the disinterested stockholders represented and voting at a duly held meeting
approve or ratify the transaction in good faith, or the person asserting the
validity of the contract or transaction sustains the burden of proving that the
contract or transaction was just and reasonable as to the corporation at the
time it was authorized, approved or ratified.
LEGAL MATTERS
The validity of the shares of Office Depot Common Stock to be issued in
connection with the Merger will be passed upon for Office Depot by Simpson
Thacher & Bartlett. Certain of the tax consequences of the Merger will be passed
upon for Office Depot by Simpson Thacher & Bartlett and for Viking by Latham &
Watkins.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this Joint Proxy Statement/Prospectus by reference to
Office Depot's Annual Report on Form 10-K for the fiscal year ended December 27,
1997 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedule incorporated in this Joint Proxy Statement/Prospectus by reference to
Viking's Annual Report on Form 10-K for the fiscal year ended June 27, 1997 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports, which are incorporated herein by reference, and have been so
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
Representatives of Deloitte & Touche LLP are expected to be present at the
Office Depot Special Meeting and the Viking Special Meeting, will have the
opportunity to make a statement if they desire to do so and will also be
available to respond to appropriate questions from Office Depot and Viking
stockholders.
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STOCKHOLDERS' PROPOSALS
Stockholder proposals for inclusion in proxy materials for Office Depot's
1999 Annual Meeting of Stockholders should be addressed to the Corporate
Secretary at the Company's principal executive offices, 2200 Old Germantown
Road, Delray Beach, Florida, 33445, and must be received by the Company on or
before December 24, 1998.
Due to the contemplated consummation of the Merger, Viking does not
currently expect to hold a 1998 Annual Meeting of Stockholders, as Viking voting
shares will not be publicly traded after the Merger. If the Merger is not
consummated and such a meeting is held, proposals of stockholders intended for
the 1998 Annual Meeting of Stockholders must have been received by Viking no
later than June 5, 1998 for inclusion in Viking's proxy statement and proxy
relating to that meeting.
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ANNEX I
AGREEMENT AND PLAN OF MERGER
AMONG
OFFICE DEPOT, INC.
VK ACQUISITION CORP.
AND
VIKING OFFICE PRODUCTS, INC.
MAY 18, 1998
<PAGE> 105
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. THE MERGER....................................... I-1
Section 1.01. Effective Time of the Merger........ I-1
Section 1.02. Closing............................. I-1
Section 1.03. Effects of the Merger............... I-1
Section 1.04 Directors and Officers............... I-2
ARTICLE II. CONVERSION OF SECURITIES........................ I-2
Section 2.01. Conversion of Capital Stock......... I-2
Section 2.02. Exchange of Certificates............ I-3
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF VIKING....... I-5
Section 3.01. Organization of Viking.............. I-5
Section 3.02. Viking Capital Structure............ I-5
Section 3.03. Authority; No Conflict; Required I-6
Filings and Consents...............................
Section 3.04. SEC Filings; Financial Statements... I-7
Section 3.05. No Undisclosed Liabilities.......... I-7
Section 3.06. Absence of Certain Changes or I-7
Events.............................................
Section 3.07. Taxes............................... I-8
Section 3.08. Properties.......................... I-8
Section 3.09. Intellectual Property............... I-8
Section 3.10. Agreements, Contracts and I-9
Commitments........................................
Section 3.11. Litigation.......................... I-9
Section 3.12. Environmental Matters............... I-9
Section 3.13. Employee Benefit Plans.............. I-9
Section 3.14. Compliance With Laws................ I-10
Section 3.15. Accounting and Tax Matters.......... I-10
Section 3.16. Registration Statement; Proxy I-10
Statement/Prospectus...............................
Section 3.17. Labor Matters....................... I-11
Section 3.18. Insurance........................... I-11
Section 3.19. No Existing Discussions............. I-11
Section 3.20. Opinions of Financial Advisors...... I-11
Section 3.21. Anti-Takeover Laws.................. I-11
Section 3.22. Rights Plan......................... I-11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF DEPOT AND I-11
SUB.......................................................
Section 4.01. Organization of Depot and Sub....... I-11
Section 4.02. Depot Capital Structure............. I-12
Section 4.03. Authority; No Conflict; Required I-12
Filings and Consents...............................
Section 4.04. SEC Filings; Financial Statements... I-13
Section 4.05. No Undisclosed Liabilities.......... I-13
Section 4.06. Absence of Certain Changes or I-14
Events.............................................
Section 4.07. Taxes............................... I-14
Section 4.08. Properties.......................... I-14
Section 4.09. Intellectual Property............... I-14
Section 4.10. Agreements, Contracts and I-15
Commitments........................................
Section 4.11. Litigation.......................... I-15
Section 4.12. Environmental Matters............... I-15
Section 4.13. Employee Benefit Plans.............. I-15
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Section 4.14. Compliance With Laws................ I-16
Section 4.15. Accounting and Tax Matters.......... I-16
Section 4.16. Registration Statement; Proxy I-16
Statement/Prospectus...............................
Section 4.17. Labor Matters....................... I-16
Section 4.18. Insurance........................... I-17
Section 4.19. Opinion of Financial Advisor........ I-17
Section 4.20. Rights Plan......................... I-17
Section 4.21. Interim Operations of Sub........... I-17
ARTICLE V. CONDUCT OF BUSINESS.............................. I-17
Section 5.01. Covenants of Viking................. I-17
Section 5.02. Covenants of Depot.................. I-18
Section 5.03. Cooperation......................... I-19
ARTICLE VI. ADDITIONAL AGREEMENTS........................... I-19
Section 6.01. No Solicitation..................... I-19
Section 6.02. Proxy Statement/Prospectus; I-20
Registration Statement.............................
Section 6.03. NYSE Listing and Nasdaq Quotation... I-20
Section 6.04. Access to Information............... I-21
Section 6.05. Stockholders Meetings............... I-21
Section 6.06. Legal Conditions to Merger.......... I-21
Section 6.07. Public Disclosure................... I-22
Section 6.08. Tax-Free Reorganization............. I-22
Section 6.09. Pooling Accounting.................. I-22
Section 6.10. Affiliate Agreements................ I-22
Section 6.11. NYSE Listing........................ I-23
Section 6.12. Stock Plans......................... I-23
Section 6.13. Brokers or Finders.................. I-23
Section 6.14. Indemnification..................... I-23
Section 6.15. Letter of Depot's Accountants....... I-24
Section 6.16. Letter of Viking's Accountants...... I-24
Section 6.17. Stock Option Agreements............. I-24
Section 6.18. Benefit Plans....................... I-24
Section 6.19. Rights Plan......................... I-24
ARTICLE VII. CONDITIONS TO MERGER........................... I-25
Section 7.01. Conditions to Each Party's I-25
Obligation To Effect the Merger....................
Section 7.02. Additional Conditions to Obligations I-26
of Depot and Sub...................................
Section 7.03. Additional Conditions to Obligations I-26
of Viking..........................................
ARTICLE VIII. TERMINATION AND AMENDMENT..................... I-27
Section 8.01. Termination......................... I-27
Section 8.02. Effect of Termination............... I-28
Section 8.03. Fees and Expenses................... I-28
Section 8.04. Amendment........................... I-29
Section 8.05. Extension; Waiver................... I-29
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
ARTICLE IX. MISCELLANEOUS................................... I-30
Section 9.01. Nonsurvival of Representations, I-30
Warranties and Agreements..........................
Section 9.02. Notices............................. I-30
Section 9.03. Interpretation...................... I-30
Section 9.04. Counterparts........................ I-30
Section 9.05. Entire Agreement; No Third Party I-31
Beneficiaries......................................
Section 9.06. Governing Law....................... I-31
Section 9.07. Assignment.......................... I-31
</TABLE>
Exhibit A -- Viking Stock Option Agreement
Exhibit B -- Depot Stock Option Agreement
Schedule I -- List of Directors, Corporate Executive Officers and Operating
Officers
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TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
----- -----------------
<S> <C>
Acquisition Proposal........................................ Section 6.01(a)
Affiliate................................................... Section 6.10
Affiliate Agreement......................................... Section 6.10
Agreement................................................... Preamble
Agreement of Merger......................................... Section 1.01
Alternative Transaction..................................... Section 8.03(g)
Antitrust Laws.............................................. Section 6.06(b)
Bankruptcy and Equity Exception............................. Section 3.03(a)
Certificates................................................ Section 2.02(b)
Closing..................................................... Section 1.02
Closing Date................................................ Section 1.02
Code........................................................ Preamble
Confidentiality Agreement................................... Section 6.01(a)
Constituent Corporations.................................... Section 1.03
Costs....................................................... Section 6.14(a)
Current Premium............................................. Section 6.14(b)
Depot....................................................... Preamble
Depot Balance Sheet......................................... Section 4.04(b)
Depot Common Stock.......................................... Section 2.01(b)
Depot Disclosure Schedule................................... Article IV
Depot Employee Plans........................................ Section 4.13(a)
Depot Material Adverse Effect............................... Section 4.01
Depot Material Contracts.................................... Section 4.10
Depot Preferred Stock....................................... Section 4.02(a)
Depot Right................................................. Section 2.01(c)
Depot Rights Plan........................................... Section 2.01(c)
Depot SEC Reports........................................... Section 4.04(a)
Depot Stock Option Agreement................................ Preamble
Depot Stock Plans........................................... Section 4.02(a)
Depot Stockholders' Meeting................................. Section 3.16
Depot Voting Proposal....................................... Section 6.05(a)
Exchange Ratio.............................................. Section 2.01(c)
Effective Time.............................................. Section 1.01
Environmental Law........................................... Section 3.12(b)
ERISA....................................................... Section 3.13(a)
ERISA Affiliate............................................. Section 3.13(a)
Exchange Act................................................ Section 3.03(c)
Exchange Agent.............................................. Section 2.02(a)
Exchange Fund............................................... Section 2.02(a)
Exchange Ratio.............................................. Section 2.01(c)
Governmental Entity......................................... Section 3.03(c)
Hazardous Substance......................................... Section 3.12(c)
HSR Act..................................................... Section 3.03(c)
Indemnified Parties......................................... Section 6.14(a)
IRS......................................................... Section 3.07(b)
Joint Proxy Statement....................................... Section 3.16
Material Adverse Change..................................... Section 3.06
Material Leases............................................. Section 3.08
Merger...................................................... Preamble
</TABLE>
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<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
----- -----------------
<S> <C>
NYSE........................................................ Section 2.02(e)
Order....................................................... Section 6.06(b)
Outside Date................................................ Section 8.01(b)
Registration Statement...................................... Section 3.16
Rule 145.................................................... Section 6.10
SEC......................................................... Section 3.03(c)
Securities Act.............................................. Section 3.04(a)
Stock Option Agreements..................................... Preamble
Sub......................................................... Preamble
Subsidiary.................................................. Section 3.01
Superior Proposal........................................... Section 6.01(a)
Surviving Corporation....................................... Section 1.03
Tax......................................................... Section 3.07(a)
Taxes....................................................... Section 3.07(a)
Third Party................................................. Section 8.03(g)
Viking...................................................... Preamble
Viking Balance Sheet........................................ Section 3.04(b)
Viking Common Stock......................................... Section 2.01(b)
Viking Disclosure Schedule.................................. Article III
Viking Employee Plans....................................... Section 3.13(a)
Viking Material Adverse Effect.............................. Section 3.01
Viking Material Contracts................................... Section 3.10
Viking Rights............................................... Section 3.02(b)
Viking Rights Plan.......................................... Section 3.02(b)
Viking Preferred Stock...................................... Section 3.02(a)
Viking SEC Reports.......................................... Section 3.04(a)
Viking Stock Option......................................... Section 6.12(a)
Viking Stock Option Agreement............................... Preamble
Viking Stock Plans.......................................... Section 3.02(a)
Viking Stockholders' Meeting................................ Section 3.16
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of May 18, 1998,
by and among Office Depot, Inc., a Delaware corporation ("Depot"), VK
Acquisition Corp., a California corporation and a direct, wholly-owned
subsidiary of Depot ("Sub"), and Viking Office Products, Inc., a California
corporation ("Viking").
WHEREAS, the Boards of Directors of Depot and Viking deem it advisable and
in the best interests of each corporation and its respective stockholders that
Depot and Viking combine in order to advance the long-term business interests of
Depot and Viking;
WHEREAS, the combination of Depot and Viking shall be effected by the terms
of this Agreement through a merger in which the stockholders of Viking will
become stockholders of Depot (the "Merger");
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to each of Depot's and Viking's willingness to
enter into this Agreement, Depot and Viking have entered into (i) a Stock Option
Agreement dated as of the date of this Agreement and attached hereto as Exhibit
A (the "Viking Stock Option Agreement"), pursuant to which Viking granted Depot
an option to purchase shares of common stock of Viking under certain
circumstances and (ii) a Stock Option Agreement dated as of the date of this
Agreement and attached hereto as Exhibit B (the "Depot Stock Option Agreement"
and together with the Viking Stock Option Agreement, the "Stock Option
Agreements") pursuant to which Depot granted Viking an option to purchase shares
of common stock of Depot under certain circumstances;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.01. Effective Time of the Merger. Subject to the provisions of
this Agreement, a merger agreement in such form as is required by Sections 1101,
1102 and 1103 of the General Corporation Law of California (the "Agreement of
Merger") shall be duly executed by the Surviving Corporation (as defined in
Section 1.03) and Sub and thereafter delivered to the Secretary of State of the
State of California for filing, as early as practicable on the Closing Date (as
defined in Section 1.02). The Merger shall become effective upon the filing of
the Agreement of Merger with the Secretary of State of the State of California
(the "Effective Time").
SECTION 1.02. Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m., E.S.T., on a date to be specified by Depot and Viking,
which shall be no later than the second business day after satisfaction of the
latest to occur of the conditions set forth in Sections 7.01, 7.02(b) (other
than the delivery of the officers' certificate referred to therein) and 7.03(b)
(other than the delivery of the officers' certificate referred to therein)
(provided that the other closing conditions set forth in Article VII have been
met or waived as provided in Article VII at or prior to the Closing) (the
"Closing Date"), at the offices of Simpson Thacher & Bartlett at the address
indicated in Section 9.02 unless another date, place or time is agreed to in
writing by Depot and Viking.
SECTION 1.03. Effects of the Merger. At the Effective Time (i) the
separate existence of Sub shall cease and Sub shall be merged with and into
Viking (Sub and Viking are sometimes referred to below as the "Constituent
Corporations" and Viking following the Merger is sometimes referred to below as
the "Surviving
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Corporation"), (ii) the Articles of Incorporation of Viking shall be amended so
that Article Third of such Articles of Incorporation reads in its entirety as
follows: "The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 1,000, all of which shall consist
of Common Stock," and, as so amended, such Articles of Incorporation shall be
the Articles of Incorporation of the Surviving Corporation, and (iii) the Bylaws
of Sub as in effect immediately prior to the Effective Time shall be the Bylaws
of the Surviving Corporation.
SECTION 1.04. Directors and Officers. (a) Prior to the Effective Time,
Depot shall (i) increase the number of the members of the Board of Directors of
Depot to twelve and (ii) take such action as may be necessary such that the four
individuals named on Schedule I attached hereto are elected to the Board of
Directors of Depot as of the Effective Time.
(b) The individuals named on Schedule I as executive officers of Viking
shall be corporate executive officers or operating officers of Depot as
indicated on Schedule I as long as they are employed by Depot or Viking.
ARTICLE II.
CONVERSION OF SECURITIES
SECTION 2.01. Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of Viking Common Stock (as defined in Section 2.01(b)) or capital stock
of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Depot-Owned Stock. All shares
of Common Stock of Viking ("Viking Common Stock") that are owned by Viking
as treasury stock and any shares of Viking Common Stock owned by Depot, Sub
or any other wholly-owned Subsidiary (as defined in Section 3.01) of Depot
shall be canceled and retired and shall cease to exist and no stock of
Depot or other consideration shall be delivered in exchange therefor. All
shares of Common Stock, par value $.01 per share, of Depot ("Depot Common
Stock") owned by Viking shall be unaffected by the Merger.
(c) Exchange Ratio for Viking Common Stock. Subject to Section 2.02,
each issued and outstanding share of Viking Common Stock (other than
shares, if any, as to which dissenters' rights, if any, are perfected and
shares to be canceled in accordance with Section 2.01(b)), together with
the Viking Rights (as defined below) attached thereto or associated
therewith, shall be converted into the right to receive one share (the
"Exchange Ratio") of Depot Common Stock. Pursuant to the Rights Agreement
dated as of September 4, 1996 between Depot and ChaseMellon Shareholder
Services, L.L.C. (the "Depot Rights Plan"), one right issued under the
Depot Rights Plan (a "Depot Right") will be attached to each share of Depot
Common Stock issued upon conversion of Viking Common Stock in accordance
with this Section 2.01(c), and all references in the Agreement to Depot
Common Stock shall be deemed to include the Depot Rights. All such shares
of Viking Common Stock and all Viking Rights, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Depot Common Stock and any cash in lieu of
fractional shares of Depot Common Stock to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance
with Section 2.02, without interest. Notwithstanding the foregoing, if
between the date of this Agreement and the Effective Time the outstanding
shares of Depot Common Stock shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, combination or
exchange of shares, then the Exchange Ratio contemplated shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares.
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(d) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of Viking Common Stock which are dissenting shares (as
defined in Section 1300(b) of the General Corporation Law of California),
if any, shall not be converted into or represent a right to receive any
shares of Depot Common Stock, but the holders thereof shall be entitled
only to such rights as are granted by the General Corporation Law of
California. Each holder of dissenting shares who becomes entitled to
payment therefor pursuant to the General Corporation Law of California
shall receive payment from the Surviving Corporation in accordance with the
General Corporation Law of California; provided, however, that (i) if any
such holder of dissenting shares shall have failed to establish his
entitlement to appraisal rights as provided in the General Corporation Law
of California, (ii) if any such holder of dissenting shares shall have
effectively withdrawn his demand for appraisal thereof or lost his right to
appraisal and payment therefor under the General Corporation Law of
California or (iii) if neither any holder of dissenting shares nor the
Surviving Corporation shall have filed a petition demanding a determination
of the value of all dissenting shares within the time provided in the
General Corporation Law of California, such holder or holders (as the case
may be) shall forfeit the right to appraisal of such shares of Viking
Common Stock and such shares of Viking Common Stock shall thereupon be
deemed to have been converted, as of the Effective Time, into and represent
shares of Depot Common Stock, without interest thereon, as provided in
Section 2.01(c) hereof.
SECTION 2.02. Exchange of Certificates. The procedures for exchanging
outstanding shares of Viking Common Stock for Depot Common Stock pursuant to the
Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Depot shall deposit
with a bank or trust company designated by Depot and Viking (the "Exchange
Agent"), for the benefit of the holders of shares of Viking Common Stock,
for exchange in accordance with this Section 2.02, through the Exchange
Agent, certificates representing the shares of Depot Common Stock (such
shares of Depot Common Stock, together with any dividends or distributions
with respect thereto, being hereinafter referred to as the "Exchange Fund")
issuable pursuant to Section 2.01 in exchange for outstanding shares of
Viking Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Viking Common Stock (the "Certificates")
whose shares were converted pursuant to Section 2.01 into the right to
receive shares of Depot Common Stock (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to
the Exchange Agent and shall be in such form and have such other provisions
as Depot and Viking may reasonably specify) and (ii) instructions for
effecting the surrender of the Certificates in exchange for certificates
representing shares of Depot Common Stock (plus cash in lieu of fractional
shares, if any, of Depot Common Stock as provided below). Upon surrender of
a Certificate for cancellation to the Exchange Agent or to such other agent
or agents as may be appointed by Depot, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that
number of whole shares of Depot Common Stock which such holder has the
right to receive pursuant to the provisions of this Article II, and the
Certificate so surrendered shall immediately be canceled. In the event of a
transfer of ownership of Viking Common Stock which is not registered in the
transfer records of Viking, a certificate representing the proper number of
shares of Depot Common Stock may be issued to a transferee if the
Certificate representing such Viking Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer
taxes have been paid. Until surrendered as contemplated by this Section
2.02, each Certificate shall be deemed at any time after the Effective Time
to represent only the right to receive upon such surrender the certificate
representing shares of Depot Common Stock and cash in lieu of any
fractional shares of Depot Common Stock as contemplated by this Section
2.02.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect
to Depot Common Stock with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with respect to the
shares
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of Depot Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to subsection
(e) below until the holder of record of such Certificate shall surrender
such Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the record holder
of the certificates representing whole shares of Depot Common Stock issued
in exchange therefor, without interest, (i) at the time of such surrender,
the amount of any cash payable in lieu of a fractional share of Depot
Common Stock to which such holder is entitled pursuant to subsection (e)
below and the amount of dividends or other distributions with a record date
after the Effective Time previously paid with respect to such whole shares
of Depot Common Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective
Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Depot Common Stock.
(d) No Further Ownership Rights in Viking Common Stock. All shares of
Depot Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms hereof (including any cash paid pursuant to
subsection (c) or (e) of this Section 2.02) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of
Viking Common Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a
record date prior to the Effective Time which may have been declared or
made by Viking on such shares of Viking Common Stock in accordance with the
terms of this Agreement (to the extent permitted under Section 5.01) prior
to the date hereof and which remain unpaid at the Effective Time, and from
and after the Effective Time there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the
shares of Viking Common Stock which were outstanding immediately prior to
the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Section 2.02.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Depot Common Stock shall be issued upon the surrender
for exchange of Certificates, and such fractional share interests will not
entitle the owner thereof to vote or to any other rights of a stockholder
of Depot. Notwithstanding any other provision of this Agreement, each
holder of shares of Viking Common Stock exchanged pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Depot Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of Depot Common Stock
multiplied by the average of the last reported sales prices of Depot Common
Stock, as reported on the New York Stock Exchange ("NYSE"), on each of the
ten trading days immediately preceding the date of the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the stockholders of Viking for 180 days
after the Effective Time shall be delivered to Depot, upon demand, and any
stockholders of Viking who have not previously complied with this Section
2.02 shall thereafter look only to Depot for payment of their claim for
Depot Common Stock, any cash in lieu of fractional shares of Depot Common
Stock and any dividends or distributions with respect to Depot Common
Stock.
(g) No Liability. Neither Depot nor Viking shall be liable to any
holder of shares of Viking Common Stock or Depot Common Stock, as the case
may be, for such shares (or dividends or distributions with respect
thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(h) Withholding Rights. Each of Depot and the Surviving Corporation
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Viking Common
Stock such amounts as it is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by Surviving
Corporation or Depot, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the
holder of the
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shares of Viking Common Stock in respect of which such deduction and
withholding was made by Surviving Corporation or Depot, as the case may be.
(i) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond
in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to
such Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Depot Common Stock and any
cash in lieu of fractional shares, and unpaid dividends and distributions
on shares of Depot Common Stock deliverable in respect thereof pursuant to
this Agreement.
(j) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange by any Affiliate (as defined in
Section 6.10) of Viking shall not be exchanged until Depot has received an
Affiliate Agreement (as defined in Section 6.10) from such Affiliate.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF VIKING
Viking represents and warrants to Depot and Sub that the statements
contained in this Article III are true and correct except as set forth herein
and in the disclosure schedule delivered by Viking to Depot on or before the
date of this Agreement (the "Viking Disclosure Schedule"). The Viking Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III and the disclosure in any
paragraph shall qualify other paragraphs in this Article III only to the extent
that it is reasonably apparent from a reading of such disclosure that it also
qualifies or applies to such other paragraphs.
SECTION 3.01. Organization of Viking. Each of Viking and its Subsidiaries
(as defined below) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite corporate power to own, lease and operate its property and to carry on
its business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, properties, financial condition, or results of
operations of Viking and its Subsidiaries, taken as a whole (a "Viking Material
Adverse Effect"). Except as set forth in the Viking SEC Reports (as defined in
Section 3.04) filed prior to the date hereof, neither Viking nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by
Viking or its Subsidiaries and comprising less than five percent (5%) of the
outstanding stock of such company. As used in this Agreement, the word
"Subsidiary" means, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such party or
any other Subsidiary of such party is a general partner (excluding partnerships,
the general partnership interests of which held by such party or any Subsidiary
of such party do not have a majority of the voting interest in such partnership)
or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
SECTION 3.02. Viking Capital Structure. (a) The authorized capital stock
of Viking consists of 120,000,000 shares of Common Stock and 10,000,000 shares
of Preferred Stock ("Viking Preferred Stock"). As of May 7, 1998, (i) 85,073,091
shares of Viking Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable and (ii) no shares of Viking Common
Stock were held in the treasury of Viking or by Subsidiaries of Viking. The
Viking Disclosure Schedule shows the number of shares of Viking Common Stock
reserved for future issuance pursuant to stock options and restricted stock
awards granted and outstanding as of May 12, 1998 and the plans under which such
options or shares of restricted
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stock were granted or issued (collectively, the "Viking Stock Plans"). No
material change in such capitalization has occurred between March 31, 1998 and
the date of this Agreement. As of the date of this Agreement, none of the shares
of Viking Preferred Stock is issued and outstanding. All shares of Viking Common
Stock subject to issuance as specified above are duly authorized and, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be validly issued, fully paid and nonassessable.
There are no obligations, contingent or otherwise, of Viking or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Viking
Common Stock or the capital stock of any Subsidiary or to provide funds to or
make any material investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
obligations of Subsidiaries entered into in the ordinary course of business. All
of the outstanding shares of capital stock of each of Viking's Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable and all such
shares (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by Viking or another Subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in Viking's
voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 3.02 or as reserved for future
grants of options under the Viking Stock Plans or the Viking Stock Option
Agreement, and except for the rights (the "Viking Rights") issued and issuable
under the Rights Agreement dated January 20, 1997 between Viking and American
Stock Transfer and Trust Company (the "Viking Rights Plan"), there are no equity
securities of any class of Viking or any of its Subsidiaries, or any security
exchangeable into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. There are no options, warrants, equity securities,
calls, rights, commitments or agreements of any character to which Viking or any
of its Subsidiaries is a party or by which it is bound obligating Viking or any
of its Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock of Viking or any of its Subsidiaries
or obligating Viking or any of its Subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement. To the best knowledge of Viking, there are no voting
trusts, proxies or other voting agreements or understandings with respect to the
shares of capital stock of Viking.
SECTION 3.03. Authority; No Conflict; Required Filings and Consents. (a)
Viking has all requisite corporate power and authority to enter into this
Agreement and the Viking Stock Option Agreement and to consummate the
transactions contemplated by this Agreement and the Viking Stock Option
Agreement. The execution and delivery of this Agreement and the Viking Stock
Option Agreement and the consummation of the transactions contemplated by this
Agreement and the Viking Stock Option Agreement by Viking have been duly
authorized by all necessary corporate action on the part of Viking, subject only
to the approval of the Merger by Viking's stockholders under the General
Corporation Law of California. This Agreement and the Viking Stock Option
Agreement have been duly executed and delivered by Viking and constitute the
valid and binding obligations of Viking, enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles (the "Bankruptcy and Equity
Exception").
(b) The execution and delivery of this Agreement and the Viking Stock
Option Agreement by Viking does not, and the consummation of the transactions
contemplated by this Agreement and the Viking Stock Option Agreement will not,
(i) conflict with, or result in any violation or breach of, any provision of the
Articles of Incorporation or Bylaws of Viking, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Viking or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Viking or any
of its Subsidiaries or any of its or their properties or assets, except in the
case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which are not, individually or in
the aggregate, reasonably likely to have a Viking Material Adverse Effect.
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(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Viking or any of its Subsidiaries in connection
with the execution and delivery of this Agreement and the Viking Stock Option
Agreement or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the pre-merger notification report under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR
Act"), (ii) the filing of the Agreement of Merger with the California Secretary
of State, (iii) the filing of the Joint Proxy Statement (as defined in Section
3.16 below) with the Securities and Exchange Commission (the "SEC") in
accordance with the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (iv) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws and the laws of any foreign country and the European Union, and (v) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not be reasonably likely to have a Viking Material
Adverse Effect.
SECTION 3.04. SEC Filings; Financial Statements. (a) Viking has filed and
made available to Depot all forms, reports and documents required to be filed by
Viking with the SEC since January 1, 1995 other than registration statements on
Form S-8 (collectively, the "Viking SEC Reports"). The Viking SEC Reports (i) at
the time filed, complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act, as the case may be, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Viking SEC Reports or necessary in order to make the statements in such Viking
SEC Reports, in the light of the circumstances under which they were made, not
misleading. None of Viking's Subsidiaries is required to file any forms, reports
or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Viking SEC Reports complied as to form in
all material respects with the applicable published rules and regulations of the
SEC with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Viking and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
audited balance sheet of Viking as of June 27, 1997 is referred to herein as the
"Viking Balance Sheet."
SECTION 3.05. No Undisclosed Liabilities. Except as disclosed in the
Viking SEC Reports filed prior to the date hereof, and except for normal or
recurring liabilities incurred since June 27, 1997 in the ordinary course of
business consistent with past practices, Viking and its Subsidiaries do not have
any liabilities, either accrued, contingent or otherwise (whether or not
required to be reflected in financial statements in accordance with generally
accepted accounting principles), and whether due or to become due, which
individually or in the aggregate are reasonably likely to have a Viking Material
Adverse Effect.
SECTION 3.06. Absence of Certain Changes or Events. Except as disclosed
in the Viking SEC Reports filed prior to the date hereof, since the date of the
Viking Balance Sheet, Viking and its Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and, since such date, there has not been (i) any material adverse
change in the financial condition, results of operations, business or properties
(a "Material Adverse Change") of Viking and its Subsidiaries, taken as a whole
(other than changes that are the effect or result of economic factors affecting
the economy as a whole) or any development or combination of developments of
which the management of Viking is aware that, individually or in the aggregate,
has had, or is reasonably likely to have, a Viking Material Adverse Effect
(other than developments that are the effect or result of actions to be taken by
Depot or economic factors affecting the economy as a whole); (ii) any damage,
destruction or loss (whether or not covered by insurance) with respect to Viking
or any of its Subsidiaries having a Viking Material Adverse Effect; (iii) any
material change by Viking in its accounting methods, principles or practices to
which Depot has not previously
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consented in writing; (iv) any revaluation by Viking of any of its assets having
a Viking Material Adverse Effect; or (v) any other action or event that would
have required the consent of Depot pursuant to Section 5.01 of this Agreement
had such action or event occurred after the date of this Agreement and that,
individually or in the aggregate, has had or is reasonably likely to have a
Viking Material Adverse Effect.
SECTION 3.07. Taxes. (a) For the purposes of this Agreement, a "Tax" or,
collectively, "Taxes," means any and all material federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, gains, franchise, withholding, payroll, recapture, employment, excise,
unemployment insurance, social security, business license, occupation, business
organization, stamp, environmental and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Viking and each of its Subsidiaries have (i) filed all federal, state,
local and foreign tax returns and reports required to be filed by them prior to
the date of this Agreement (taking into account extensions), (ii) paid or
accrued all Taxes due and payable, and (iii) paid or accrued all Taxes for which
a notice of assessment or collection has been received (other than amounts being
contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which are
not reasonably likely, individually or in the aggregate, to have a Viking
Material Adverse Effect. Neither the Internal Revenue Service (the "IRS") nor
any other taxing authority has asserted any claim for Taxes, or to the actual
knowledge of the executive officers of Viking, is threatening to assert any
claims for Taxes, which claims, individually or in the aggregate, are reasonably
likely to have a Viking Material Adverse Effect. Viking and each of its
Subsidiaries have withheld or collected and paid over to the appropriate
governmental authorities (or are properly holding for such payment) all Taxes
required by law to be withheld or collected, except for amounts which are not
reasonably likely, individually or in the aggregate, to have a Viking Material
Adverse Effect. Neither Viking nor any of its Subsidiaries has made an election
under Section 341(f) of the Code, except for any such election which shall not
have a Viking Material Adverse Effect. There are no liens for Taxes upon the
assets of Viking or any of its Subsidiaries (other than liens for Taxes that are
not yet due or that are being contested in good faith by appropriate
proceedings), except for liens which are not reasonably likely, individually or
in the aggregate, to have a Viking Material Adverse Effect.
SECTION 3.08. Properties. (a) Viking has provided to Depot a true and
complete list of all real property leased by Viking or its Subsidiaries pursuant
to leases providing for the occupancy of facilities in excess of 20,000 square
feet (collectively "Material Leases"). Viking is not in default under any of
such leases, except where the existence of such defaults, individually or in the
aggregate, is not reasonably likely to have a Viking Material Adverse Effect.
(b) Viking has provided to Depot a true and complete list of all real
property that Viking or any of its Subsidiaries owns. With respect to each such
item of real property, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Viking Material Adverse Effect:
(a) Viking or the identified Subsidiary has good and clear record and marketable
title to such property, insurable by a recognized national title insurance
company at standard rates, free and clear of any security interest, easement,
covenant or other restriction, except for recorded easements, covenants and
other restrictions which do not materially impair the current uses or occupancy
of such property; and (b) the improvements constructed on such property are in
good condition, and all mechanical and utility systems servicing such
improvements are in good condition, free in each case of material defects.
SECTION 3.09. Intellectual Property. Viking owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software programs
or applications and tangible or intangible proprietary information or material
that are necessary to conduct the business of Viking as currently conducted,
subject to such exceptions that would not be reasonably likely to have a Viking
Material Adverse Effect.
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SECTION 3.10. Agreements, Contracts and Commitments. Viking has not
breached, or received in writing any claim or notice that it has breached, any
of the terms or conditions of any material agreement, contract or commitment
filed as an exhibit to the Viking SEC Reports ("Viking Material Contracts") in
such a manner as, individually or in the aggregate, are reasonably likely to
have a Viking Material Adverse Effect. Each Viking Material Contract that has
not expired by its terms is in full force and effect.
SECTION 3.11. Litigation. Except as described in the Viking SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Viking pending or as to which Viking has
received any written notice of assertion, which, individually or in the
aggregate, is reasonably likely to have a Viking Material Adverse Effect or a
material adverse effect on the ability of Viking to consummate the transactions
contemplated by this Agreement.
SECTION 3.12. Environmental Matters. (a) Except as disclosed in the
Viking SEC Reports filed prior to the date hereof and except for such matters
that, individually or in the aggregate, are not reasonably likely to have a
Viking Material Adverse Effect: (i) Viking and its Subsidiaries comply and
within all applicable statutes of limitations periods have complied with all
applicable Environmental Laws (as defined in Section 3.12(b)); (ii) Hazardous
Substances (as defined in Section 3.12(c)) are not present at any of the
properties currently or formerly owned or operated by Viking or any of its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures); (iii) neither Viking nor its Subsidiaries are subject to liability
for any Hazardous Substance disposal or contamination on any third party
property; (iv) neither Viking nor any of its Subsidiaries has been associated
with any release or threat of release of any Hazardous Substance; (v) neither
Viking nor any of its Subsidiaries has received any notice, demand, letter,
claim or request for information alleging that Viking or any of its Subsidiaries
may be in violation of or liable under any Environmental Law; (vi) neither
Viking nor any of its Subsidiaries is subject to any orders, decrees,
injunctions or other arrangements with any Governmental Entity or is subject to
any indemnity or other agreement with any third party relating to liability
under any Environmental Law or relating to Hazardous Substances; and (vii) there
are no circumstances or conditions involving Viking or any of its Subsidiaries
that could reasonably be expected to result in any claims, liability,
investigations, costs or restrictions on the ownership, use or transfer of any
property of Viking or any of its Subsidiaries pursuant to any Environmental Law.
(b) As used herein, the term "Environmental Law" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization, opinion,
common law or agency requirement relating to: (A) the protection, investigation
or restoration of the environment, health and safety, or natural resources, or
(B) noise, odor, wetlands, pollution, contamination or any injury or threat of
injury to persons or property.
(c) As used herein, the term "Hazardous Substance" means: (A) any substance
that is listed, classified or regulated pursuant to or that could result in
liability under any Environmental Law; (B) any petroleum product or by-product,
asbestos-containing material, lead-containing paint or plumbing, polychlorinated
biphenyls, radioactive materials or radon; or (C) any other substance which is
the subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
SECTION 3.13. Employee Benefit Plans. (a) Viking has listed in Section
3.13 of the Viking Disclosure Schedule all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar employee
benefit plans, and all unexpired severance agreements, written or otherwise, for
the benefit of, or relating to, any current or former employee of Viking or any
trade or business (whether or not incorporated) which is a member or which is
under common control with Viking (an "ERISA Affiliate") within the meaning of
Section 414 of the Code, or any Subsidiary of Viking (together, the "Viking
Employee Plans").
(b) With respect to each Viking Employee Plan, Viking has made available to
Depot, a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the IRS, (ii) such Viking Employee Plan, (iii) each trust agreement
and group annuity contract, if any, relating to such Viking Employee Plan and
(iv) the most recent actuarial report or valuation relating to a Viking Employee
Plan subject to Title IV of ERISA.
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(c) With respect to the Viking Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Viking, there exists
no condition or set of circumstances in connection with which Viking could be
subject to any liability that is reasonably likely to have a Viking Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Viking Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Viking, which obligations are reasonably likely to have a Viking
Material Adverse Effect.
(e) Except as disclosed in Viking SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Viking nor
any of its Subsidiaries is a party to any oral or written (i) agreement with any
officer or other key employee of Viking or any of its Subsidiaries, the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Viking of the nature contemplated by this
Agreement, (ii) agreement with any officer of Viking providing any term of
employment or compensation guarantee extending for a period longer than one year
from the date hereof and for the payment of compensation in excess of $100,000
per annum, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
SECTION 3.14. Compliance With Laws. Viking has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Viking Material Adverse Effect.
SECTION 3.15. Accounting and Tax Matters. To its knowledge, after
consulting with its independent auditors, neither Viking nor any of its
Affiliates (as defined in Section 6.10) has taken or agreed to take any action
which would (i) prevent Depot from accounting for the business combination to be
effected by the Merger as a pooling of interests or (ii) prevent the Merger from
constituting a transaction qualifying as a reorganization under 368(a) of the
Code.
SECTION 3.16. Registration Statement; Proxy Statement/Prospectus. The
information to be supplied by Viking for inclusion in the registration statement
on Form S-4 pursuant to which shares of Depot Common Stock issued in the Merger
will be registered under the Securities Act (the "Registration Statement"),
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading. The information
supplied by Viking for inclusion in the joint proxy statement/prospectus to be
sent to the stockholders of Depot and Viking in connection with the meeting of
Viking's stockholders to consider this Agreement and the Merger (the "Viking
Stockholders' Meeting") and in connection with the meeting of Depot's
stockholders (the "Depot Stockholders' Meeting") to consider the issuance of
shares of Depot Common Stock pursuant to the Merger (the "Joint Proxy
Statement") shall not, on the date the Joint Proxy Statement is first mailed to
stockholders of Viking or Depot, at the time of the Viking Stockholders' Meeting
and the Depot Stockholders' Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements made in the
Joint Proxy Statement not false or misleading; or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the Viking Stockholders' Meeting or
the Depot Stockholders' Meeting which has become false or misleading. If at any
time prior to the Effective Time any event relating to Viking or any of its
Affiliates, officers or
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directors should be discovered by Viking which should be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement, Viking shall promptly inform Depot.
SECTION 3.17. Labor Matters. Neither Viking nor any of its Subsidiaries
is a party to or otherwise bound by any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization, nor is any such contract or agreement presently being negotiated,
nor is there, nor has there been in the last five years, a representation
question respecting any of the employees of Viking or its Subsidiaries, and, to
the best knowledge of the executive officers of Viking, there are no campaigns
being conducted to solicit cards from employees of Viking or its Subsidiaries to
authorize representation by any labor organization, nor is Viking or its
Subsidiaries a party to, or bound by, any consent decree with, or citation by,
any governmental agency relating to employees or employment practices. Nor, as
of the date hereof, is Viking or any of its Subsidiaries the subject of any
material proceeding asserting that Viking or any of its Subsidiaries has
committed an unfair labor practice or is seeking to compel it to bargain with
any labor union or labor organization nor, as of the date of this Agreement, is
there pending or, to the knowledge of the executive officers of Viking,
threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving Viking or any of its Subsidiaries.
SECTION 3.18. Insurance. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by Viking or any of its Subsidiaries are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incidental to the business of Viking and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Viking Material Adverse Effect.
SECTION 3.19. No Existing Discussions. As of the date hereof, Viking is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section
6.01(a)).
SECTION 3.20. Opinions of Financial Advisors. The financial advisors of
Viking, Merrill Lynch, Pierce, Fenner & Smith Incorporated and SBC Warburg
Dillon Read Inc., have delivered to Viking opinions dated the date of this
Agreement to the effect that the Exchange Ratio is fair to the holders of Viking
Common Stock from a financial point of view.
SECTION 3.21. Anti-Takeover Laws. No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation is
applicable to Viking or (by reason of Viking's participation therein) the Merger
or the other transactions contemplated by this Agreement.
SECTION 3.22. Rights Plan. The entering into of this Agreement and the
Viking Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby do not and will not result in the grant of any
rights to any person under the Viking Rights Plan or enable or require the
Viking Rights to be exercised, distributed or triggered.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF DEPOT AND SUB
Depot and Sub represent and warrant to Viking that the statements contained
in this Article IV are true and correct, except as set forth herein and in the
disclosure schedule delivered by Depot to Viking on or before the date of this
Agreement (the "Depot Disclosure Schedule"). The Depot Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article IV and the disclosure in any paragraph shall qualify
other paragraphs in this Article IV only to the extent that it is reasonably
apparent from a reading of such disclosure that it also qualifies or applies to
such other paragraphs.
SECTION 4.01. Organization of Depot and Sub. Each of Depot and Sub and
Depot's other Subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation, has
all requisite corporate power to own, lease and operate its property and to
carry on its
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business as now being conducted and as proposed to be conducted, and is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, properties, financial condition, or results of
operations of Depot and its Subsidiaries, taken as a whole (a "Depot Material
Adverse Effect"). Except as set forth in the Depot SEC Reports (as defined in
Section 4.04) filed prior to the date hereof, neither Depot nor any of its
Subsidiaries directly or indirectly owns any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by Depot
or its Subsidiaries and comprising less than five percent (5%) of the
outstanding stock of such company.
SECTION 4.02. Depot Capital Structure. (a) The authorized capital stock
of Depot consists of 400,000,000 shares of Common Stock, $.01 par value, and
1,000 shares of Preferred Stock, $.01 par value ("Depot Preferred Stock"). As of
May 7, 1998, (i) 159,142,921 shares of Depot Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable, and
(ii) 2,163,447 shares of Depot Common Stock were held in the treasury of Depot
or by Subsidiaries of Depot. The Depot Disclosure Schedule shows the number of
shares of Depot Common Stock reserved for future issuance pursuant to stock
options granted and outstanding as of December 27, 1997 and the plans under
which such options were granted (collectively, the "Depot Stock Plans"). No
material change in such capitalization has occurred between March 31, 1998 and
the date of this Agreement. As of the date of this Agreement, none of the shares
of Depot Preferred Stock is issued and outstanding. All shares of Depot Common
Stock subject to issuance as specified above are duly authorized and, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be validly issued, fully paid and nonassessable.
There are no obligations, contingent or otherwise, of Depot or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Depot
Common Stock or the capital stock of any Subsidiary or to provide funds to or
make any material investment (in the form of a loan, capital contribution or
otherwise) in any such Subsidiary or any other entity other than guarantees of
obligations of Subsidiaries entered into in the ordinary course of business. All
of the outstanding shares of capital stock of each of Depot's Subsidiaries are
duly authorized, validly issued, fully paid and nonassessable and all such
shares (other than directors' qualifying shares in the case of foreign
Subsidiaries) are owned by Depot or another Subsidiary free and clear of all
security interests, liens, claims, pledges, agreements, limitations in Depot's
voting rights, charges or other encumbrances of any nature.
(b) Except as set forth in this Section 4.02 or as reserved for future
grants of options under the Depot Stock Plans or the Depot Stock Option
Agreement, and except for the Depot Rights issued and issuable under the Depot
Rights Plan, there are no equity securities of any class of Depot or any of its
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. There are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Depot or any of its Subsidiaries is a party or by which it is
bound obligating Depot or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Depot or any of its Subsidiaries or obligating Depot or any of its Subsidiaries
to grant, extend, accelerate the vesting of or enter into any such option,
warrant, equity security, call, right, commitment or agreement. To the best
knowledge of Depot, there are no voting trusts, proxies or other voting
agreements or understandings with respect to the shares of capital stock of
Depot.
SECTION 4.03. Authority; No Conflict; Required Filings and
Consents. (a) Each of Depot and Sub has all requisite corporate power and
authority to enter into this Agreement and (in the case of Depot) the Depot
Stock Option Agreement and to consummate the transactions contemplated by this
Agreement and (in the case of Depot) the Depot Stock Option Agreement. The
execution and delivery of this Agreement and (in the case of Depot) the Depot
Stock Option Agreement and the consummation of the transactions contemplated by
this Agreement and (in the case of Depot) the Depot Stock Option Agreement by
Depot and Sub have been duly authorized by all necessary corporate action on the
part of each of Depot and Sub (including the approval of the Merger by Depot as
the sole stockholder of Sub), subject only to the approval of the Depot Voting
Proposal (as defined in Section 6.05) by Depot's stockholders. This Agreement
and (in the case of Depot) the Depot Stock Option Agreement have been duly
executed and delivered by each of
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Depot and Sub, as the case may be, and constitute the valid and binding
obligations of each of Depot and Sub, enforceable in accordance with their
terms, subject to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement and (in the case of Depot)
the Depot Stock Option Agreement by each of Depot and Sub does not, and the
consummation of the transactions contemplated by this Agreement and (in the case
of Depot) the Depot Stock Option Agreement will not, (i) conflict with, or
result in any violation or breach of, any provision of the Certificate of
Incorporation or Bylaws of Depot or Sub, (ii) result in any violation or breach
of, or constitute (with or without notice or lapse of time, or both) a default
(or give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Depot or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Depot or any
of its Subsidiaries or any of its or their properties or assets, except in the
case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which are not, individually or in
the aggregate, reasonably likely to have a Depot Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Depot or any of its Subsidiaries in connection with the execution and
delivery of this Agreement and (in the case of Depot) the Depot Stock Option
Agreement or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the pre-merger notification report under
the HSR Act, (ii) the filing of the Registration Statement with the SEC in
accordance with the Securities Act, (iii) the filing of the Agreement of Merger
with the California Secretary of State, (iv) the filing of the Joint Proxy
Statement with the SEC in accordance with the Exchange Act, (v) such consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the laws of any
foreign country and the European Union, and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not be reasonably likely to have a Depot Material Adverse Effect.
SECTION 4.04. SEC Filings; Financial Statements. (a) Depot has filed and
made available to Viking all forms, reports and documents required to be filed
by Depot with the SEC since January 1, 1995 other than registration statements
on Form S-8 (collectively, the "Depot SEC Reports"). The Depot SEC Reports (i)
at the time filed, complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated in such Depot SEC Reports or necessary in order to make
the statements in such Depot SEC Reports, in the light of the circumstances
under which they were made, not misleading. None of Depot's Subsidiaries is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Depot SEC Reports complied as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Depot and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments which were not or are not expected to be material in amount. The
audited balance sheet of Depot as of December 27, 1997 is referred to herein as
the "Depot Balance Sheet."
SECTION 4.05. No Undisclosed Liabilities. Except as disclosed in the
Depot SEC Reports filed prior to the date hereof, and except for normal or
recurring liabilities incurred since December 27, 1997 in the ordinary course of
business consistent with past practices, Depot and its Subsidiaries do not have
any
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liabilities, either accrued, contingent or otherwise (whether or not required to
be reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate are reasonably likely to have a Depot Material Adverse Effect.
SECTION 4.06. Absence of Certain Changes or Events. Except as disclosed
in the Depot SEC Reports filed prior to the date hereof, since the date of the
Depot Balance Sheet, Depot and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any Material Adverse Change in Depot and
its Subsidiaries, taken as a whole (other than changes that are the effect or
result of economic factors affecting the economy as a whole) or any development
or combination of developments of which the management of Depot is aware that,
individually or in the aggregate, has had, or is reasonably likely to have, a
Depot Material Adverse Effect (other than developments that are the effect or
result of actions to be taken by Viking or economic factors affecting the
economy as a whole); (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to Depot or any of its Subsidiaries having a
Depot Material Adverse Effect; (iii) any material change by Depot in its
accounting methods, principles or practices to which Viking has not previously
consented in writing; (iv) any revaluation by Depot of any of its assets having
a Depot Material Adverse Effect; or (v) any other action or event that would
have required the consent of Viking pursuant to Section 5.02 of this Agreement
had such action or event occurred after the date of this Agreement and that,
individually or in the aggregate, has had or is reasonably likely to have a
Depot Material Adverse Effect.
SECTION 4.07. Taxes. Depot and each of its Subsidiaries have (i) filed
all federal, state, local and foreign tax returns and reports required to be
filed by them prior to the date of this Agreement (taking into account
extensions), (ii) paid or accrued all Taxes due and payable, and (iii) paid or
accrued all Taxes for which a notice of assessment or collection has been
received (other than amounts being contested in good faith by appropriate
proceedings), except in the case of clause (i), (ii) or (iii) for any such
filings, payments or accruals which are not reasonably likely, individually or
in the aggregate, to have a Depot Material Adverse Effect. Neither the IRS nor
any other taxing authority has asserted any claim for Taxes, or to the actual
knowledge of the executive officers of Depot, is threatening to assert any
claims for Taxes, which claims, individually or in the aggregate, are reasonably
likely to have a Depot Material Adverse Effect. Depot and each of its
Subsidiaries have withheld or collected and paid over to the appropriate
governmental authorities (or are properly holding for such payment) all Taxes
required by law to be withheld or collected, except for amounts which are not
reasonably likely, individually or in the aggregate, to have a Depot Material
Adverse Effect. Neither Depot nor any of its Subsidiaries has made an election
under Section 341(f) of the Code, except for any such election which shall not
have a Depot Material Adverse Effect. There are no liens for Taxes upon the
assets of Depot or any of its Subsidiaries (other than liens for Taxes that are
not yet due or that are being contested in good faith by appropriate
proceedings), except for liens which are not reasonably likely, individually or
in the aggregate, to have a Depot Material Adverse Effect.
SECTION 4.08. Properties. (a) Depot is not in default under any Material
Leases, except where the existence of such defaults, individually or in the
aggregate, is not reasonably likely to have a Depot Material Adverse Effect.
(b) Depot has provided to Viking a true and complete list of all real
property that Depot or any of its Subsidiaries owns. With respect to each such
item of real property, except for such matters that, individually or in the
aggregate, are not reasonably likely to have a Depot Material Adverse Effect:
(a) Depot or the identified Subsidiary has good and clear record and marketable
title to such property, insurable by a recognized national title insurance
company at standard rates, free and clear of any security interest, easement,
covenant or other restriction, except for recorded easements, covenants and
other restrictions which do not materially impair the current uses or occupancy
of such property; and (b) the improvements constructed on such property are in
good condition, and all mechanical and utility systems servicing such
improvements are in good condition, free in each case of material defects.
SECTION 4.09. Intellectual Property. Depot owns, or is licensed or
otherwise possesses legally enforceable rights to use, all trademarks, trade
names, service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, know-how, computer software programs
or applica-
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tions, and tangible or intangible proprietary information or material that are
necessary to conduct the business of Depot as currently conducted, subject to
such exceptions that would not be reasonably likely to have a Depot Material
Adverse Effect.
SECTION 4.10. Agreements, Contracts and Commitments. Depot has not
breached, or received in writing any claim or notice that it has breached, any
of the terms or conditions of any material agreement, contract or commitment
filed as an exhibit to the Depot SEC Reports ("Depot Material Contracts") in
such a manner as, individually or in the aggregate, are reasonably likely to
have a Depot Material Adverse Effect. Each Depot Material Contract that has not
expired by its terms is in full force and effect.
SECTION 4.11. Litigation. Except as described in the Depot SEC Reports
filed prior to the date hereof, there is no action, suit or proceeding, claim,
arbitration or investigation against Depot pending or as to which Depot has
received any written notice of assertion, which, individually or in the
aggregate, is reasonably likely to have a Depot Material Adverse Effect or a
material adverse effect on the ability of Depot to consummate the transactions
contemplated by this Agreement.
SECTION 4.12. Environmental Matters. Except as disclosed in the Depot SEC
Reports filed prior to the date hereof and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Depot
Material Adverse Effect: (i) Depot and its Subsidiaries have complied with all
applicable Environmental Laws; (ii) Hazardous Substances are not present at any
of the properties currently or formerly owned or operated by Depot or any of its
Subsidiaries (including soils, groundwater, surface water, buildings or other
structures); (iii) neither Depot nor its Subsidiaries are subject to liability
for any Hazardous Substance disposal or contamination on any third party
property; (iv) neither Depot nor any of its Subsidiaries has been associated
with any release or threat of release of any Hazardous Substance; (v) neither
Depot nor any of its Subsidiaries has received any notice, demand, letter, claim
or request for information alleging that Depot or any of its Subsidiaries may be
in violation of or liable under any Environmental Law; (vi) neither Depot nor
any of its Subsidiaries is subject to any orders, decrees, injunctions or other
arrangements with any Governmental Entity or is subject to any indemnity or
other agreement with any third party relating to liability under any
Environmental Law or relating to Hazardous Substances; and (vii) there are no
circumstances or conditions involving Depot or any of its Subsidiaries that
could reasonably be expected to result in any claims, liability, investigations,
costs or restrictions on the ownership, use or transfer of any property of Depot
or any of its Subsidiaries pursuant to any Environmental Law.
SECTION 4.13. Employee Benefit Plans. (a) Depot has listed in Section
4.13 of the Depot Disclosure Schedule all employee benefit plans (as defined in
Section 3(3) of ERISA) and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance and other similar
employee benefit plans, and all unexpired severance agreements, written or
otherwise, for the benefit of, or relating to, any current or former employee of
Depot or any ERISA Affiliate of Depot, or any Subsidiary of Depot (together, the
"Depot Employee Plans").
(b) With respect to each Depot Employee Plan, Depot has made available to
Viking, a true and correct copy of (i) the most recent annual report (Form 5500)
filed with the IRS, (ii) such Depot Employee Plan, (iii) each trust agreement
and group annuity contract, if any, relating to such Depot Employee Plan and
(iv) the most recent actuarial report or valuation relating to a Depot Employee
Plan subject to Title IV of ERISA.
(c) With respect to the Depot Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Depot, there exists no
condition or set of circumstances in connection with which Depot could be
subject to any liability that is reasonably likely to have a Depot Material
Adverse Effect under ERISA, the Code or any other applicable law.
(d) With respect to the Depot Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Depot, which obligations are reasonably likely to have a Depot
Material Adverse Effect.
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(e) Except as disclosed in Depot SEC Reports filed prior to the date of
this Agreement, and except as provided for in this Agreement, neither Depot nor
any of its Subsidiaries is a party to any oral or written (i) agreement with any
officer or other key employee of Depot or any of its Subsidiaries, the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Depot of the nature contemplated by this
Agreement, (ii) agreement with any officer of Depot providing any term of
employment or compensation guarantee extending for a period longer than one year
from the date hereof or for the payment of compensation in excess of $100,000
per annum, or (iii) agreement or plan, including any stock option plan, stock
appreciation right plan, restricted stock plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of the benefits of which
will be accelerated, by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
SECTION 4.14. Compliance With Laws. Depot has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Depot Material Adverse Effect.
SECTION 4.15. Accounting and Tax Matters. To its knowledge, after
consulting with its independent auditors, neither Depot nor any of its
Affiliates has taken or agreed to take any action which would (i) prevent Depot
from accounting for the business combination to be effected by the Merger as a
pooling of interests, or (ii) prevent the Merger from constituting a transaction
qualifying as a reorganization under Section 368(a) of the Code.
SECTION 4.16. Registration Statement; Proxy Statement/Prospectus. The
information in the Registration Statement (except for information supplied by
Viking for inclusion in the Registration Statement, as to which Depot makes no
representation) shall not at the time the Registration Statement is declared
effective by the SEC contain any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under which they were made, not misleading. The
information (except for information supplied by Viking for inclusion in the
Joint Proxy Statement, as to which Depot makes no representation) in the Joint
Proxy Statement shall not, on the date the Joint Proxy Statement is first mailed
to stockholders of Depot or Viking, at the time of the Depot Stockholders'
Meeting and the Viking Stockholder's Meeting and at the Effective Time, contain
any statement which, at such time and in light of the circumstances under which
it shall be made, is false or misleading with respect to any material fact, or
omit to state any material fact necessary in order to make the statements made
in the Joint Proxy Statement not false or misleading; or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Depot Stockholders' Meeting
or the Viking Stockholders' Meeting which has become false or misleading. If at
any time prior to the Effective Time any event relating to Depot or any of its
Affiliates, officers or directors should be discovered by Depot which should be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement, Depot shall promptly inform Viking.
SECTION 4.17. Labor Matters. Neither Depot nor any of its Subsidiaries is
a party to or otherwise bound by any collective bargaining agreement, contract
or other agreement or understanding with a labor union or labor organization,
nor is any such contract or agreement presently being negotiated, nor is there,
nor has there been in the last five years, a representation question respecting
any of the employees of Depot or its Subsidiaries, and, to the best knowledge of
the executive officers of Depot, there are no campaigns being conducted to
solicit cards from employees of Depot or its Subsidiaries to authorize
representation by any labor organization, nor is Depot or its Subsidiaries a
party to, or bound by, any consent decree with, or citation by, any governmental
agency relating to employees or employment practices. Nor, as of the date
hereof, is Depot or any of its Subsidiaries the subject of any material
proceeding asserting that Depot or any of its Subsidiaries has committed an
unfair labor practice or is seeking to compel it to bargain with any labor union
or labor organization nor, as of the date of this Agreement, is there pending
or, to the knowledge of the executive
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officers of Depot, threatened, any material labor strike, dispute, walkout, work
stoppage, slow-down or lockout involving Depot or any of its Subsidiaries.
SECTION 4.18. Insurance. All material fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance policies maintained by Depot or any of its Subsidiaries are
with reputable insurance carriers, provide full and adequate coverage for all
normal risks incident to the business of Depot and its Subsidiaries and their
respective properties and assets, and are in character and amount at least
equivalent to that carried by persons engaged in similar businesses and subject
to the same or similar perils or hazards, except for any such failures to
maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Depot Material Adverse Effect.
SECTION 4.19. Opinion of Financial Advisor. The financial advisor of
Depot, Peter J. Solomon Company Limited, has delivered to Depot an opinion,
dated the date of this Agreement, to the effect that the Exchange Ratio is fair
to Depot from a financial point of view.
SECTION 4.20. Rights Plan. The entering into of this Agreement and the
Depot Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby do not and will not result in the grant of any
rights to any person under the Depot Rights Plan or enable or require the Depot
Rights to be exercised, distributed or triggered.
SECTION 4.21. Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
ARTICLE V.
CONDUCT OF BUSINESS
SECTION 5.01. Covenants of Viking. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Viking agrees as to itself and its respective
Subsidiaries (except to the extent that Depot shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
Taxes when due subject to good faith disputes over such debts or Taxes, to pay
or perform its other obligations when due, and, to the extent consistent with
such business, use all reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, and others having
business dealings with it. Viking shall promptly notify the other party of any
material event or occurrence not in the ordinary course of business of Viking.
Except as expressly contemplated by this Agreement, Viking shall not (and shall
not permit any of its respective Subsidiaries to), without the written consent
of Depot:
(a) Accelerate, amend or change the period of exercisability or
vesting of options or restricted stock granted under any employee stock
plan of such party or authorize cash payments in exchange for any options
granted under any of such plans except as required by the terms of such
plans or any related agreements in effect as of the date of this Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to such party;
(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the grant of options consistent with past
practices to
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employees, which options represent in the aggregate the right to acquire no
more than 1,600,000 shares (net of cancellations) of Viking Common Stock,
or (ii) the issuance of shares of Viking Common Stock pursuant to the
exercise of options outstanding on the date of this Agreement and the 1994
Viking Employee Stock Purchase Plan;
(d) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial equity interest in or substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any assets (other than inventory and other
items in the ordinary course of business), except for all such acquisitions
involving aggregate consideration of not more than $7,500,000;
(e) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for transactions in the ordinary course of
business;
(f) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees in accordance with past practices (including
bonuses), (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any employees or
officers, other than payments or agreements paid to or entered into with
employees (other than officers) in the ordinary course of business in
accordance with past practices or the performance of agreements in effect
on the date of this Agreement, (iii) enter into any collective bargaining
agreement (other than as required by law or extensions to existing
agreements in the ordinary course of business), (iv) establish, adopt,
enter into or amend any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) Amend or propose to amend its charter or bylaws, except as
contemplated by this Agreement;
(h) Incur any indebtedness for borrowed money other than pursuant to
credit agreements in effect as of the date hereof or up to $50 million
(which may be denominated in foreign currency) in borrowings under loan
agreements entered into hereafter;
(i) Initiate, compromise, or settle any material litigation or
arbitration proceeding;
(j) Except in the ordinary course of business, modify, amend or
terminate any Viking Material Contract or waive, release or assign any
material rights or claims;
(k) Make or commit to make any capital expenditures that would cause
the aggregate capital budget furnished by Viking to Depot to be exceeded;
or
(l) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (k) above.
SECTION 5.02. Covenants of Depot. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, Depot agrees as to itself and its respective Subsidiaries
(except to the extent that Viking shall otherwise consent in writing), to carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, to pay its debts and Taxes when due subject
to good faith disputes over such debts or Taxes, to pay or perform its other
obligations when due, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practices and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, and others having business dealings with it.
Depot shall promptly notify the other party of any material event or occurrence
not in the ordinary course of business of Depot. Except as expressly
contemplated by this Agreement, Depot shall not (and shall not permit any of its
respective Subsidiaries to), without the written consent of Viking:
(a) Accelerate, amend or change the period of exercisability or
vesting of options or restricted stock granted under any employee stock
plan of such party or authorize cash payments in exchange for any
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options granted under any of such plans except as required by the terms of
such plans or any related agreements in effect as of the date of this
Agreement;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock (other than
a stock dividend or stock split as a result of which the Exchange Ratio is
adjusted pursuant to Section 2.01(c)) or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to such
party;
(c) Issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the grant of options pursuant to Depot's Long
Term Equity Incentive Plan as proposed to be amended in Depot's Proxy
Statement dated April 23, 1998, (ii) the issuance of shares of Depot Common
Stock pursuant to the exercise of options or convertible securities
outstanding on the date of this Agreement; or (iii) issuances of shares of
capital stock having a market value upon issuance of not more than
$750,000,000 in the aggregate (other than in mergers, consolidations or
other acquisitions of a substantial equity interest in or substantial
portion of the assets of, or by any business or any corporation,
partnership or other business organization or division, as to which this
limitation shall not apply);
(d) Sell, lease, license or otherwise dispose of any of its material
properties or assets, except for transactions in the ordinary course of
business and except for sales or dispositions to Subsidiaries or in
connection with sale-leaseback transactions;
(e) (i) Increase or agree to increase the compensation payable or to
become payable to its officers, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance agreements
with, any officers, (iii) establish, adopt, enter into or amend any bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the benefit
of any directors or officers except as referred to in Section 5.02(c) or as
disclosed prior to the date of this Agreement;
(f) Amend or propose to amend its charter or bylaws, except as
contemplated by this Agreement; or
(g) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (f) above.
SECTION 5.03. Cooperation. Subject to compliance with applicable law,
from the date hereof until the Effective Time, each of Depot and Viking shall
confer on a regular and frequent basis with one or more representatives of the
other party to report on the general status of ongoing operations and shall
promptly provide the other party or its counsel with copies of all filings made
by such party with any Governmental Entity in connection with this Agreement,
the Merger and the transactions contemplated hereby and thereby.
ARTICLE VI.
ADDITIONAL AGREEMENTS
SECTION 6.01. No Solicitation. (a) Depot and Viking each shall not,
directly or indirectly, through any officer, director, employee, financial
advisor, representative or agent of such party (i) solicit, initiate, or
encourage any inquiries or proposals that constitute, or could reasonably be
expected to lead to, a proposal or offer for an Alternative Transaction (as
defined below) involving such party or any of its Subsidiaries (any of the
foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to or recommend any Acquisition Proposal;
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provided, however, that nothing contained in this Agreement shall prevent Depot
or Viking, or their respective Board of Directors, from (A) furnishing
non-public information to, or entering into discussions or negotiations with,
any person or entity in connection with an unsolicited bona fide written
Acquisition Proposal by such person or entity or recommending an unsolicited
bona fide written Acquisition Proposal to the stockholders of such party, if and
only to the extent that (1) the Board of Directors of such party believes in
good faith (after consultation with its financial advisor) that such Acquisition
Proposal is reasonably capable of being completed on the terms proposed and,
after taking into account the strategic benefits anticipated to be derived from
the Merger and the long-term prospects of Viking and Depot as a combined
company, would, if consummated, result in a transaction more favorable than the
transaction contemplated by this Agreement (any such more favorable Acquisition
Proposal being referred to in this Agreement as a "Superior Proposal") and the
Board of Directors of such party determines in good faith after consultation
with outside legal counsel that failure to take such action would be reasonably
likely to constitute a breach of the fiduciary duties of such Board of Directors
to stockholders under applicable law, (2) prior to furnishing such non-public
information to, or entering into discussions or negotiations with, such person
or entity, such Board of Directors receives from such person or entity an
executed confidentiality agreement with terms no less favorable to such party
than those contained in the Agreement dated March 9, 1998 between Depot and
Viking (the "Confidentiality Agreement"), and (3) prior to furnishing such
non-public information or providing access to the properties, books or records
of such party, such party has complied with the provisions of Section 6.01(b);
or (B) complying with Rule 14e-2 promulgated under the Exchange Act with regard
to an Acquisition Proposal.
(b) Depot and Viking shall each notify the other party immediately after
receipt by Depot or Viking (or their advisors) of any Acquisition Proposal or
any request for nonpublic information in connection with an Acquisition Proposal
or for access to the properties, books or records of such party by any person or
entity that informs such party that it is considering making, or has made, an
Acquisition Proposal. Such notice shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
Conditions of such proposal, inquiry or contact. Such party shall, to the extent
permitted by law, continue to keep the other party hereto informed, on a current
basis, of the status of any such discussions or negotiations and the terms being
discussed or negotiated.
SECTION 6.02. Proxy Statement/Prospectus; Registration Statement. (a) As
promptly as practicable after the execution of this Agreement, Depot and Viking
shall prepare and file with the SEC the Joint Proxy Statement, and Depot shall
prepare and file with the SEC the Registration Statement, in which the Joint
Proxy Statement will be included as a prospectus, provided that Depot may delay
the filing of the Registration Statement until approval of the Joint Proxy
Statement by the SEC. Depot and Viking shall use all reasonable efforts to cause
the Registration Statement to become effective as soon after such filing as
practicable. The Joint Proxy Statement, and any amendment or supplement thereto,
shall include the recommendation of the Board of Directors of Viking in favor of
this Agreement and the Merger and the recommendation of the Board of Directors
of Depot in favor of the issuance of shares of Depot Common Stock pursuant to
the Merger; provided that the Board of Directors of Viking may withdraw such
recommendation if (but only if) (i) the Board of Directors of Viking has
received a Superior Proposal, and (ii) such Board of Directors upon advice of
its outside legal counsel determines that it is reasonably likely that a failure
to recommend such Superior Proposal would constitute a breach of its fiduciary
duties under applicable law, and the Board of Directors of Depot may withdraw
such recommendation if (but only if) (i) the Board of Directors of Depot has
received a Superior Proposal, and (ii) such Board of Directors upon advice of
its outside legal counsel determines that it is reasonably likely that a failure
to recommend such Superior Proposal would constitute a breach of its fiduciary
duties under applicable law.
(b) Depot and Viking shall make all necessary filings with respect to the
Merger under the Securities Act, the Exchange Act, applicable state blue sky
laws and the rules and regulations thereunder.
SECTION 6.03. NYSE Listing and Nasdaq Quotation. Viking agrees to
continue the quotation of Viking Common Stock on the Nasdaq National Market
during the term of this Agreement. Depot agrees to continue the listing of Depot
Common Stock on the NYSE during the term of this Agreement.
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SECTION 6.04. Access to Information. Upon reasonable notice, Viking and
Depot shall each (and shall cause each of their respective Subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Viking and Depot shall
(and shall cause each of their respective Subsidiaries to) furnish promptly to
the other (a) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of federal securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Unless otherwise required by law, the parties will hold any such information
which is nonpublic in confidence in accordance with the Confidentiality
Agreement. No information or knowledge obtained in any investigation pursuant to
this Section 6.04 shall affect or be deemed to modify any representation or
warranty contained in this Agreement or the conditions to the obligations of the
parties to consummate the Merger.
SECTION 6.05. Stockholders Meetings. (a) Viking and Depot each shall call
a meeting of its respective stockholders to be held as promptly as practicable
for the purpose of voting, in the case of Viking, upon this Agreement and the
Merger and, in the case of Depot, upon the issuance of shares of Depot Common
Stock pursuant to the Merger (the "Depot Voting Proposal"). Subject to Section
6.02(a), Depot and Viking shall use all reasonable efforts to solicit proxies in
favor of such matters. Depot and Viking shall coordinate and cooperate with
respect to the timing of such meetings and shall use their best efforts to hold
such meetings on the same day and as soon as practicable after the date hereof.
The Viking stockholder vote required for the approval of the Agreement and
Merger shall be a majority of the shares of Viking Common Stock outstanding on
the record date for the meeting. The Depot stockholder vote required for
approval of the Depot Voting Proposal shall be a majority of the shares of Depot
Common Stock present or represented at a meeting of stockholders at which a
quorum is present.
(b) Depot may also submit additional routine proposals to its stockholders
at the Depot Stockholders' Meeting, separate from the proposal referred to in
Section 6.05(a), provided that Depot shall consult with Viking as to the
submission of such proposals. The approval by Depot's stockholders of such
additional proposals shall not be a condition to the closing of the Merger under
this Agreement.
SECTION 6.06. Legal Conditions to Merger. (a) Viking and Depot shall each
use their best efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary and proper under
applicable law to consummate and make effective the transactions contemplated
hereby as promptly as practicable, (ii) obtain from any Governmental Entity or
any other third party any consents, licenses, permits, waivers, approvals,
authorizations, or orders required to be obtained or made by Viking or Depot or
any of their Subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby including, without limitation, the Merger, and (iii) as promptly as
practicable, make all necessary filings, and thereafter make any other required
submissions, with respect to this Agreement and the Merger required under (A)
the Securities Act and the Exchange Act, and any other applicable federal or
state securities laws, (B) the HSR Act and any related governmental request
thereunder, and (C) any other applicable law. Viking and Depot shall cooperate
with each other in connection with the making of all such filings, including
providing copies of all such documents to the non-filing party and its advisors
prior to filing and, if requested, to accept all reasonable additions, deletions
or changes suggested in connection therewith. Viking and Depot shall use their
best efforts to furnish to each other all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable law (including all information required to be included in the
Joint Proxy Statement and the Registration Statement) in connection with the
transactions contemplated by this Agreement.
(b) Depot and Viking agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective best efforts to obtain
any government clearances or approvals required for Closing under the HSR Act,
the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, and any other Federal, state or foreign law or,
regulation or decree designed to prohibit, restrict or regulate actions for the
purpose or effect of monopolization or restraint of trade (collectively,
"Antitrust Laws"), to respond to any government requests for information under
any Antitrust Law, and to
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contest and resist any action, including any legislative, administrative or
judicial action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") that restricts, prevents or prohibits the consummation
of the Merger or any other transactions contemplated by this Agreement under any
Antitrust Law. The parties hereto will consult and cooperate with one another,
and consider in good faith the views of one another, in connection with any
analyses, appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in connection
with proceedings under or relating to any Antitrust Law. Notwithstanding
anything to the contrary in this Section 6.06, neither Depot nor any of its
Subsidiaries shall be required to divest any of their respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation, that could reasonably be expected to have a material adverse
effect on Depot or on Depot combined with Viking after the Effective Time.
(c) Each of Viking and Depot shall give (or shall cause their respective
Subsidiaries to give) any notices to third parties, and use, and cause their
respective Subsidiaries to use, their best efforts to obtain any third party
consents related to or required in connection with the Merger that are (A)
necessary to consummate the transactions contemplated hereby, (B) disclosed or
required to be disclosed in the Viking Disclosure Schedule or the Depot
Disclosure Schedule, as the case may be, or (C) required to prevent a Viking
Material Adverse Effect or a Depot Material Adverse Effect from occurring prior
to or after the Effective Time.
SECTION 6.07. Public Disclosure. Depot and Viking shall agree on the form
and content of the initial joint press release regarding the transactions
contemplated hereby, and thereafter shall consult with each other before issuing
any press release or otherwise making any public statement with respect to the
Merger or this Agreement and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
SECTION 6.08. Tax-Free Reorganization. Depot and Viking shall each use
its best efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368(a) of the Code, such that a holder of Viking Common
Stock will not recognize gain for income tax purposes as a result of the Merger
unless and to the extent such holder receives consideration other than Depot
Common Stock and Depot Rights pursuant to the Merger.
SECTION 6.09. Pooling Accounting. From and after the date hereof and
until the Effective Time, neither Viking nor Depot, nor any of their respective
Subsidiaries or other Affiliates shall knowingly take any action, or knowingly
fail to take any action, that is reasonably likely to jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes.
SECTION 6.10. Affiliate Agreements. Upon the execution of this Agreement,
Depot and Viking will provide each other with a list of those persons who are,
in Depot's or Viking's respective reasonable judgment, "affiliates" of Depot or
Viking, respectively, within the meaning of Rule 145 (each such person who is an
"affiliate" of Depot or Viking within the meaning of Rule 145 is referred to as
an "Affiliate") promulgated under the Securities Act ("Rule 145"). Depot and
Viking shall provide each other such information and documents as Viking or
Depot shall reasonably request for purposes of reviewing such list and shall
notify the other party in writing regarding any change in the identity of its
Affiliates prior to the Closing Date. Viking and Depot shall each use its best
efforts to deliver or cause to be delivered to each other by June 15, 1998 (and
in any case prior to the Effective Time) from each of its Affiliates, an
executed Affiliate Agreement, in form and substance satisfactory to Depot and
Viking, by which each Affiliate of Viking agrees to comply with the applicable
requirements of Rule 145 and such requirements as may be necessary for the
Merger to be treated as a pooling of interests for accounting purposes and each
Affiliate of Depot agrees to comply with such requirements as may be necessary
for the Merger to be treated as a pooling of interests for accounting purposes
(an "Affiliate Agreement"). Depot shall be entitled to place appropriate legends
on the certificates evidencing any Depot Common Stock to be received by such
Affiliates of Viking pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Depot
Common Stock, consistent with the terms of the Affiliate Agreements (provided
that such legends or stop transfer instructions shall be removed, two years
after the Effective Date, upon the request of any stockholder that is not then
an Affiliate of Depot).
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SECTION 6.11. NYSE Listing. Depot shall use its best efforts to cause the
shares of Depot Common Stock to be issued in the Merger to be approved for
listing on the NYSE, subject to official notice of issuance, prior to the
Closing Date.
SECTION 6.12. Stock Plans. (a) At the Effective Time, each outstanding
option to purchase shares of Viking Common Stock (a "Viking Stock Option") under
the Viking Stock Plans, whether vested or unvested, shall constitute an option
to acquire, on the same terms and conditions as were applicable under such
Viking Stock Option, the same number of shares of Depot Common Stock as the
holder of such Viking Stock Option would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full immediately prior to
the Effective Time (rounded downward to the nearest whole number), at a price
per share (rounded upward to the nearest whole cent) equal to (y) the aggregate
exercise price for the shares of Viking Common Stock purchasable pursuant to
such Viking Stock Option immediately prior to the Effective Time divided by (z)
the number of full shares of Depot Common Stock deemed purchasable pursuant to
such Viking Stock Option in accordance with the foregoing.
(b) As soon as practicable after the Effective Time, Depot shall deliver to
the participants in Viking Stock Plans appropriate notice setting forth such
participants' rights pursuant thereto and the grants pursuant to Viking Stock
Plans shall continue in effect on the same terms and conditions (subject to the
adjustments required by this Section 6.12 after giving effect to the Merger).
(c) Depot shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Depot Common Stock for delivery under Viking
Stock Plans assumed in accordance with this Section 6.12. As soon as practicable
after the Effective Time, Depot shall file a registration statement on Form S-8
(or any successor or other appropriate forms), or another appropriate form with
respect to the shares of Depot Common Stock subject to such options and shall
use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options remain
outstanding.
(d) The Board of Directors of Viking shall, prior to or as of the Effective
Time, take all necessary actions, if any, pursuant to and in accordance with the
terms of the Viking Stock Plans and the instruments evidencing the Viking Stock
Options, to provide for the conversion of the Viking Stock Options into options
to acquire Depot Common Stock in accordance with this Section 6.12, and that no
consent of the holders of the Viking Stock Options is required in connection
with such conversion.
(e) The shares of Viking Common Stock awarded, issued and outstanding under
the Viking Long Term Stock Incentive Plan shall be converted into Depot Common
Stock on the Effective Date as provided in Article II of this Agreement and
shall remain subject to restriction and forfeiture and to the lapse or
expiration of such restrictions and risk of forfeiture on the terms and
conditions provided in the agreements under which such shares were awarded and
issued. Such agreements shall remain in full force and effect in accordance with
these terms after the Effective Date
SECTION 6.13. Brokers or Finders. Each of Depot and Viking represents, as
to itself, its Subsidiaries and its Affiliates, that no agent, broker,
investment banker, financial advisor or other firm or person is or will be
entitled to any broker's or finder's fee or any other commission or similar fee
in connection with any of the transactions contemplated by this Agreement except
Merrill Lynch, Pierce, Fenner & Smith Incorporated and SBC Warburg Dillon Read
Inc. whose fees and expenses will be paid by Viking in accordance with Viking's
agreements with such firms, and Peter J. Solomon Company Limited, whose fees and
expenses will be paid by Depot in accordance with Depot's agreement with such
firm. Each of Depot and Viking agrees to indemnify and hold the other harmless
from and against any and all claims, liabilities or obligations with respect to
any such fees, commissions or expenses asserted by any person on the basis of
any act or statement alleged to have been made by such party or any of its
Affiliates.
SECTION 6.14. Indemnification. (a) From and after the Effective Time,
Depot agrees that it will, and will cause the Surviving Corporation to,
indemnify and hold harmless each present and former director and officer of
Viking (the "Indemnified Parties"), against any costs or expenses (including
attorneys' fees), judgments, fines, losses, claims, damages, liabilities or
amounts paid in settlement (collectively, "Costs")
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incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that Viking would have been permitted under
California law and its articles of incorporation or bylaws in effect on the date
hereof to indemnify such Indemnified Party (and Depot and the Surviving
Corporation shall also advance expenses as incurred to the fullest extent
permitted under applicable law, provided the Indemnified Party to whom expenses
are advanced provides an undertaking to repay such advances if it is ultimately
determined that such Indemnified Party is not entitled to indemnification).
(b) For a period of six years after the Effective Time, Depot shall cause
the Surviving Corporation to maintain (to the extent available in the market) in
effect a directors' and officers' liability insurance policy covering those
persons who are currently covered by Viking's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered to Depot) with
coverage in amount and scope at least as favorable as Viking's existing
coverage; provided, that in no event shall Depot or the Surviving Corporation be
required to expend in excess of 250% of the annual premium currently paid by
Viking for such coverage (the "Current Premium") (which Current Premium does not
exceed $135,000); and if such premium would at any time exceed 250% of the
Current Premium, then the Surviving Corporation shall maintain insurance
policies which provide the maximum and best coverage available at an annual
premium equal to 250% of the Current Premium.
(c) The provisions of this Section 6.14 are intended to be an addition to
the rights otherwise available to the current and former officers and directors
of Viking by law, charter, statute, bylaw or agreement, and shall operate for
the benefit of, and shall be enforceable by, each of the Indemnified Parties,
their heirs and their representatives.
SECTION 6.15. Letter of Depot's Accountants. Depot shall use reasonable
best efforts to cause to be delivered to Viking and Depot a letter of Deloitte &
Touche LLP, Depot's independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to Viking, in form reasonably satisfactory to Viking and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
In connection with Viking's efforts to obtain such letter, if requested by
Deloitte & Touche, Depot shall provide a representation letter to Deloitte &
Touche LLP complying with SAS 72, if then required.
SECTION 6.16. Letter of Viking's Accountants. Viking shall use reasonable
best efforts to cause to be delivered to Depot and Viking a letter of Deloitte &
Touche LLP, Viking's independent auditors, dated a date within two business days
before the date on which the Registration Statement shall become effective and
addressed to Depot, in form reasonably satisfactory to Depot and customary in
scope and substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration Statement.
In connection with Depot's efforts to obtain such letter, if requested by
Deloitte & Touche, Viking shall provide a representation letter to Deloitte &
Touche complying with the SAS 72, if then required.
SECTION 6.17. Stock Option Agreements. Viking and Depot each agrees to
fully perform their respective obligations under the Stock Option Agreements.
SECTION 6.18. Benefit Plans. Depot agrees that, during the period
commencing at the Effective Time and ending December 31, 1999, the employees of
Viking and its Subsidiaries will continue to be provided with benefits under
health insurance, vision care, life insurance, employee assistance programs,
flexible spending accounts, disability, vacation, holiday, profit-sharing,
section 401(k), dental and sick pay plans and stock option plans which are no
less favorable than those currently provided by Viking and its Subsidiaries to
such employees.
SECTION 6.19. Rights Plan. The Board of Directors of Viking has amended
the Viking Rights Plan, and shall take all further action (in addition to that
referred to in Section 3.22) reasonably requested in writing by Depot, in order
to render the Viking Rights Plan inapplicable to the Merger and the other
transactions
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contemplated by this Agreement and the Stock Option Agreements to the extent
provided herein. Except as provided above with respect to the Merger and other
transactions contemplated by this Agreement and the Stock Option Agreements, the
Board of Directors of Viking shall not, without the consent of Depot (a) amend
the Viking Rights Plan or (b) take any action with respect to, or make any
determination under, the Viking Rights Plan, including a redemption of the
Viking Rights or any action to facilitate an Acquisition Proposal (except as
otherwise permitted by this Agreement).
ARTICLE VII.
CONDITIONS TO MERGER
SECTION 7.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction or waiver prior to the Closing
Date of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Viking Common Stock and the Depot
Voting Proposal shall have been approved by the affirmative vote of the
holders of a majority of the shares of Depot Common Stock present or
represented at the Depot Stockholders' Meeting at which a quorum is
present.
(b) Regulatory Approvals. The waiting period applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated, and approvals and/or clearances shall have been obtained from
(or decisions indicating no objections to the Merger or other indications
to that effect satisfactory to Depot shall have been made by) the European
Commission (if applicable) and under any other antitrust or competition law
applicable to any significant operations.
(c) Approvals. Other than the filing provided for by Section 1.02,
all authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Entity the failure of which to file, obtain or occur is
reasonably likely to have a Depot Material Adverse Effect or Viking
Material Adverse Effect shall have been filed, been obtained or occurred.
(d) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order.
(e) No Injunctions. No Governmental Entity or federal, state or
foreign court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Order or statute, rule, regulation
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(f) Pooling Letters. Depot and Viking shall have received a letter
from Deloitte & Touche LLP, addressed to Depot regarding its concurrence
with Depot's management conclusions, as to the appropriateness of the
pooling of interests accounting, under Accounting Principles Board Opinion
No. 16 for the Merger, as contemplated to be effected as of the date of the
letter, it being agreed that Depot and Viking shall each provide reasonable
best cooperation to Deloitte & Touche LLP to enable them to issue such a
letter.
(g) NYSE. The shares of Depot Common Stock to be issued in the Merger
shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(h) Dissenting Shares. Effective demands for payment under Chapter 13
of the General Corporation Law of California shall not have been received
by Viking with respect to more than 7.5% of the outstanding shares of
Viking Common Stock.
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SECTION 7.02. Additional Conditions to Obligations of Depot and Sub. The
obligations of Depot and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Depot and Sub:
(a) Representations and Warranties. The representations and
warranties of Viking set forth in this Agreement shall be true and correct
as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except for, (i)
changes contemplated by this Agreement and (ii) where the failures to be
true and correct, individually or in the aggregate, have not had and are
not reasonably likely to have a Viking Material Adverse Effect or a
material adverse effect upon the consummation of the transactions
contemplated hereby; and Depot shall have received a certificate signed on
behalf of Viking by the chief executive officer and the chief financial
officer of Viking to such effect.
(b) Performance of Obligations of Viking. Viking shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date; and Depot shall have
received a certificate signed on behalf of Viking by the chief executive
officer and the chief financial officer of Viking to such effect.
(c) Tax Opinion. Depot shall have received a written opinion from
Simpson Thacher & Bartlett, counsel to Depot, to the effect that the Merger
will be treated for Federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code; provided
that if Simpson Thacher & Bartlett does not render such opinion, this
condition shall nonetheless be deemed satisfied if Latham & Watkins renders
such opinion to Depot (it being agreed that Depot and Viking shall each
provide reasonable cooperation to Latham & Watkins or Simpson Thacher &
Bartlett, as the case may be, to enable them to render such opinion).
SECTION 7.03. Additional Conditions to Obligations of Viking. The
obligation of Viking to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived, in writing, exclusively
by Viking:
(a) Representations and Warranties. The representations and
warranties of Depot and Sub set forth in this Agreement shall be true and
correct as of the date of this Agreement and (except to the extent such
representations speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, except for, (i) changes
contemplated by this Agreement and (ii) where the failures to be true and
correct, individually or in the aggregate, have not had and are not
reasonably likely to have a Depot Material Adverse Effect or a material
adverse effect upon the consummation of the transactions contemplated
hereby; and Viking shall have received a certificate signed on behalf of
Depot by the chief executive officer and the chief financial officer of
Depot to such effect.
(b) Performance of Obligations of Depot and Sub. Depot and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Viking shall have received a certificate signed on behalf of Depot by the
chief executive officer and the chief financial officer of Depot to such
effect.
(c) Tax Opinion. Viking shall have received the opinion of Latham &
Watkins, counsel to Viking, to the effect that the Merger will be treated
for Federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the Code; provided that if Latham & Watkins
does not render such opinion, this condition shall nonetheless be deemed
satisfied if Simpson Thacher & Bartlett renders such opinion to Viking (it
being agreed that Depot and Viking shall each provide reasonable
cooperation to Latham & Watkins or Simpson Thacher & Bartlett, as the case
may be, to enable them to render such opinion).
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ARTICLE VIII.
TERMINATION AND AMENDMENT
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 8.01(b) through 8.01(g),
by written notice by the terminating party to the other party), whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Viking or Depot:
(a) by mutual written consent of Depot and Viking; or
(b) by either Depot or Viking if the Merger shall not have been
consummated by November 30, 1998 (provided that either Depot or Viking may
extend such date to February 28, 1999 by providing written notice thereof
to the other party on or prior to November 30, 1998). November 30, 1998, as
it may be so extended, shall be referred to herein as the "Outside Date"
(provided that the right to terminate this Agreement under this Section
8.01(b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the
failure of the Merger to occur on or before such date); or
(c) by either Depot or Viking if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order,
decree or ruling or taken any other nonappealable final action, in each
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger; or
(d) by Depot, if, at the Viking Stockholders' Meeting (including any
adjournment or postponement), the requisite vote of the stockholders of
Viking in favor of this Agreement and the Merger shall not have been
obtained; or by Viking if, at the Depot Stockholders' Meeting (including
any adjournment or postponement), the requisite vote of the stockholders of
Depot in favor of the Depot Voting Proposal shall not have been obtained;
or
(e) by Depot, if (i) the Board of Directors of Viking shall have
withdrawn or modified its recommendation of this Agreement or the Merger or
such Board shall have resolved to do so; (ii) after the receipt by Viking
of an Acquisition Proposal, Depot requests in writing that the Board of
Directors of Viking reconfirm its recommendation of this Agreement or the
Merger and the Board of Directors of Viking fails to do so within 10
business days after its receipt of Depot's request; (iii) the Board of
Directors of Viking shall have recommended to the stockholders of Viking an
Alternative Transaction (as defined in Section 8.03(g)) or such Board shall
have resolved to do so; (iv) a tender offer or exchange offer for 25% or
more of the outstanding shares of Viking Common Stock is commenced (other
than by Depot or an Affiliate of Depot) and the Board of Directors of
Viking recommends that the stockholders of Viking tender their shares in
such tender or exchange offer or the Board of Directors fails to recommend
that stockholders reject such tender or exchange offer within 10 business
days after receipt of Depot's request to do so; or (v) for any reason
Viking fails to call and hold the Viking Stockholders' Meeting by the
Outside Date (provided that Depot's right to terminate this Agreement under
such clause (v) shall not be available if at such time Viking would be
entitled to terminate this Agreement under Section 8.01(g)); or
(f) by Viking, if (i) the Board of Directors of Depot shall have
withdrawn or modified its recommendation of the Depot Voting Proposal or
such Board shall have resolved to do so; (ii) after the receipt by Depot of
an Acquisition Proposal, Viking requests in writing that the Board of
Directors of Depot reconfirm its recommendation of the Depot Voting
Proposal and the Board of Directors of Depot fails to do so within 10
business days after its receipt of Viking's request; (iii) the Board of
Directors of Depot shall have recommended to the stockholders of Depot an
Alternative Transaction (as defined in Section 8.03(g)) or such Board shall
have resolved to do so; (iv) a tender offer or exchange offer for 25% or
more of the outstanding shares of Depot Common Stock is commenced (other
than by Viking or an Affiliate of Viking) and the Board of Directors of
Depot recommends that the stockholders of Depot tender their shares in such
tender or exchange offer or the Board of Directors fails to recommend that
stockholders reject such tender or exchange offer within 10 business days
after receipt of Viking's request
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to do so; or (v) for any reason Depot fails to call and hold the Depot
Stockholders' Meeting by the Outside Date (provided that Viking's right to
terminate this Agreement under such clause (v) shall not be available if at
such time Depot would be entitled to terminate this Agreement under Section
8.01(g)); or
(g) by Depot or Viking, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other
party set forth in this Agreement, which breach (i) causes the conditions
set forth in Section 7.02(a) or (b) (in the case of termination by Depot)
or 7.03(a) or (b) (in the case of termination by Viking) not to be
satisfied, and (ii) shall not have been cured within 20 business days
following receipt by the breaching party of written notice of such breach
from the other party.
SECTION 8.02. Effect of Termination. In the event of termination of this
Agreement as provided in Section 8.01, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Depot, Viking,
Sub or their respective officers, directors, stockholders or Affiliates, except
as set forth in Sections 6.13 and 8.03; provided that any such termination shall
not limit liability for any willful breach of this Agreement; and provided
further that, the provisions of Sections 6.13 and 8.03, of this Agreement, the
Stock Option Agreements and the Confidentiality Agreement shall remain in full
force and effect and survive any termination of this Agreement.
SECTION 8.03. Fees and Expenses. (a) Except as set forth in this Section
8.03, all fees and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated, except that each of Depot
and Viking will bear and pay one-half of the costs and expenses incurred in
connection with the filing, printing and mailing of the Joint Proxy Statement
(including SEC filing fees).
(b) Viking shall pay Depot up to $5,000,000 as reimbursement for expenses
of Depot actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and expenses
of Depot's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Depot pursuant to (i) Section 8.01(d) as a result of the
failure to receive the requisite vote for approval of this Agreement and the
Merger by the stockholders of Viking at the Viking Stockholders' Meeting (other
than in the circumstances set forth in Section 8.03(c)(i)) or (ii) Section
8.01(b) or Section 8.01(g) as a result of the failure to satisfy the condition
set forth in Section 7.02(a).
(c) Upon the earliest to occur of the following events:
(i) the termination of this Agreement by Depot pursuant to Section
8.01(d), if prior to the Viking Stockholders' Meeting a proposal for an
Alternative Transaction (as defined below) reasonably capable of being
performed involving Viking or which is a Superior Proposal shall have been
made; or
(ii) the termination of this Agreement by Depot pursuant to Section
8.01(e), Viking shall pay to Depot a termination fee of $30,000,000 and, in
the event an Alternative Transaction involving Viking is consummated within
12 months after such termination, Viking shall pay to Depot an additional
fee of $50,000,000.
Viking's payment of a termination fee pursuant to this subsection shall be
the sole and exclusive remedy of Depot against Viking and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise to
such payment (other than as set forth in the Viking Stock Option Agreement);
provided such limit shall not limit liability for a willful breach of this
Agreement.
(d) Depot shall pay Viking up to $5,000,000 as reimbursement for expenses
of Viking actually incurred relating to the transactions contemplated by this
Agreement prior to termination (including, but not limited to, fees and expenses
of Viking's counsel, accountants and financial advisors, but excluding any
discretionary fees paid to such financial advisors), upon the termination of
this Agreement by Viking pursuant to (i) Section 8.01(d) as a result of the
failure to receive the requisite vote for approval of the Depot Voting
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Proposal by the stockholders of Depot at the Depot Stockholders' Meeting (other
than in the circumstances set forth in Section 8.03(e)(i)) or (ii) Section
8.01(b) or Section 8.01(g) as a result of the failure to satisfy the condition
set forth in Section 7.03(a).
(e) Upon the earliest to occur of the following events:
(i) the termination of this Agreement by Viking pursuant to Section
8.01(d), if prior to the Depot Stockholders' Meeting a proposal for an
Alternative Transaction (as defined below) reasonably capable of being
performed involving Depot or which is a Superior Proposal shall have been
made; or
(ii) the termination of this Agreement by Viking pursuant to Section
8.01(f),
Depot shall pay to Viking a termination fee of $30,000,000 and, in the event an
Alternative Transaction involving Depot is consummated within 12 months after
such termination, Depot shall pay to Viking an additional fee of $50,000,000.
Depot's payment of a termination fee pursuant to this subsection shall be
the sole and exclusive remedy of Viking against Depot and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise to
such payment (other than as set forth in the Depot Stock Option Agreement);
provided such limit shall not limit liability for a willful breach of this
Agreement.
(f) The expenses and fees, if applicable, payable pursuant to Section
8.03(b), 8.03(c), 8.03(d) or 8.03(e) shall be paid within one business day after
the first to occur of the events described in Section 8.03(b), 8.03(c)(i) or
(ii), 8.03(d) or 8.03(e)(i) or (ii).
(g) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than Depot
or Viking or their respective affiliates (a "Third Party"), acquires more than
25% of the outstanding shares of Viking Common Stock or Depot Common Stock, as
the case may be, pursuant to a tender offer or exchange offer or otherwise, (ii)
a merger or other business combination involving Depot or Viking pursuant to
which any Third Party acquires more than 25% of the outstanding shares of Viking
Common Stock or Depot Common Stock, as the case may be, or the entity surviving
such merger or business combination, (iii) any other transaction pursuant to
which any Third Party acquires control of assets (including for this purpose the
outstanding equity securities of Subsidiaries of Depot or Viking, and the entity
surviving any merger or business combination including any of them) of Depot or
Viking having a fair market value (as determined by the Board of Directors of
Depot or Viking, as the case may be, in good faith) equal to more than 25% of
the fair market value of all the assets of Depot or Viking, as the case may be,
and its Subsidiaries, taken as a whole, immediately prior to such transaction,
or (iv) any public announcement of a proposal, plan or intention to do any of
the foregoing or any agreement to engage in any of the foregoing.
SECTION 8.04. Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Viking or of Depot, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
SECTION 8.05. Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
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ARTICLE IX.
MISCELLANEOUS
SECTION 9.01. Nonsurvival of Representations, Warranties and
Agreements. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections
1.04, 2.01, 2.02, 6.08, 6.14, 6.17, 6.18 and Article IX, and the agreements of
the Affiliates delivered pursuant to Section 6.10. The Confidentiality Agreement
shall survive the execution and delivery of this Agreement.
SECTION 9.02. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or mailed by registered or certified mail
(return receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Depot or Sub, to
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Attn: Barry Goldstein, Executive Vice President
Telecopy: (561) 266-1850
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attn: John W. Carr, Esq.
Telecopy: (212) 455-2502
(b) if to Viking, to
Viking Office Products, Inc.
950 West 190th Street
Torrance, California 90502
Attn: Bruce Nelson, President
Telecopy: (310) 324-2396
with a copy to:
Latham & Watkins
701 B Street, Suite 2100
San Diego, CA 92101-8197
Attn: Hugh Steven Wilson, Esq.
Telecopy: (619) 696-7419
SECTION 9.03. Interpretation. When a reference is made in this Agreement
to Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to May
18, 1998.
SECTION 9.04. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more
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counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
SECTION 9.05. Entire Agreement; No Third Party Beneficiaries. This
Agreement (including the documents and the instruments referred to herein) (a)
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 6.14 are not
intended to confer upon any person other than the parties hereto any rights or
remedies hereunder; provided that the Confidentiality Agreement shall remain in
full force and effect until the Effective Time. Each party hereto agrees that,
except for the representations and warranties contained in this Agreement,
neither Viking nor Depot makes any other representations or warranties, and each
hereby disclaims any other representations and warranties made by itself or any
of its officers, directors, employees, agents, financial and legal advisors or
other representatives, with respect to the execution and delivery of this
Agreement, the documents and the instruments referred to herein, or the
transactions contemplated hereby or thereby, notwithstanding the delivery or
disclosure to the other or the other's representatives of any documentation or
other information with respect to any one or more of the foregoing.
SECTION 9.06. Governing Law. Except to the extent that the General
Corporation Law of California shall govern the Merger, this Agreement shall be
governed and construed in accordance with the laws of the State of Delaware
without regard to any applicable conflicts of law.
SECTION 9.07. Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
IN WITNESS WHEREOF, Depot, Sub and Viking have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
Office Depot, Inc.
By: /s/ David I. Fuente
------------------------------------
Title: Chairman of the Board
By: /s/ Barry J. Goldstein
------------------------------------
Title: Secretary
VK Acquisition Corp.
By: /s/ David I. Fuente
------------------------------------
Title: President
By: /s/ Barry J. Goldstein
------------------------------------
Title: Secretary
Viking Office Products, Inc.
By: /s/ Irwin Helford
------------------------------------
Title: Chairman of the Board
By: /s/ Charlotte Wiethoff
------------------------------------
Title: Secretary
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SCHEDULE I
DIRECTORS
Irwin Helford
M. Bruce Nelson
Lee A. Ault III
Neil R. Austrian
---------------------
CORPORATE EXECUTIVE OFFICERS
Irwin Helford
M. Bruce Nelson
---------------------
OPERATING OFFICERS
Mark Brown
Mark Muir
Graham Cundick
Ron Weissman
Charlotte Wiethoff
Doug Ramsdale
Fred Abt
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ANNEX II
OPINION OF PETER J. SOLOMON COMPANY LIMITED
May 18, 1998
Board of Directors
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Lady and Gentlemen:
We understand that Office Depot, Inc. ("Office Depot") has entered into an
Agreement and Plan of Merger (the "Agreement"), dated as of May 18, 1998, by and
among Office Depot, VK Acquisition Corp., a wholly owned direct subsidiary of
Office Depot ("Merger Sub"), and Viking Office Products, Inc. ("Viking")
pursuant to which Merger Sub will be merged with and into Viking (the "Merger")
and Viking will continue as the surviving corporation and a wholly owned
subsidiary of Office Depot. Subject to the terms and conditions of the
Agreement, each issued and outstanding share of Viking's common stock, no par
value ("Viking Common Stock") will be converted into and represent the right to
receive 1.00 shares (the "Exchange Ratio") of common stock, par value $0.01 per
share, of Office Depot ("Office Depot Common Stock").
You have asked us to advise you with respect to the fairness of the
Exchange Ratio to Office Depot from a financial point of view.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Office Depot and Viking, respectively;
(ii) reviewed certain internal financial statements and other
financial and operating data concerning Office Depot and Viking prepared by
the management of Office Depot and Viking, respectively;
(iii) reviewed certain financial projections for Office Depot and
Viking, including estimates of certain potential benefits of the proposed
Merger, prepared by the management of Office Depot and Viking,
respectively;
(iv) discussed the past and current operations, financial condition
and prospects of Office Depot and Viking, including the strategic rationale
for the Merger, with management of Office Depot and Viking, respectively;
(v) reviewed the reported prices and trading activity of Office Depot
Common Stock and Viking Common Stock;
(vi) compared the financial performance and condition of Office Depot
and Viking and the reported prices and trading activity of Office Depot
Common Stock and Viking Common Stock with that of certain other companies
the equity securities of which are publicly traded;
(vii) reviewed publicly available information regarding the financial
terms of certain recent transactions in the office supply industry and in
other industries generally;
(viii) participated in certain discussions among representatives of
each of Office Depot and Viking;
(ix) reviewed the Agreement; and
(x) performed such other analyses as we have deemed appropriate.
We have assumed and relied upon the accuracy and completeness of the
information reviewed by us for the purposes of this opinion and we have not
assumed any responsibility for independent verification of such information.
With respect to the financial projections, including the estimates made by
Office Depot's and Viking's management of certain potential benefits of the
proposed Merger, we have assumed that the financial
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projections were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Office
Depot and Viking, respectively. We have not made an independent valuation or
appraisal of the assets or liabilities of Office Depot or Viking, nor have we
been furnished with any such valuation or appraisal. We have assumed that the
Merger will be accounted for as a pooling of interests for accounting purposes.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of May 15, 1998.
We have acted as financial advisor to Office Depot in connection with this
transaction and will receive a fee for our services, portions of which are
contingent upon closing of the Merger and the delivery of this opinion. In the
past, we have provided financial advisory services to Office Depot and have
received fees for rendering these services.
Our advisory services and the opinion expressed herein are provided solely
for the information and assistance of the Board of Directors of Office Depot and
are not on behalf of and are not intended to confer rights or remedies upon any
other entity or persons, and may not be used for any other purpose without our
prior written consent. This letter does not constitute a recommendation to any
holder of Office Depot Common Stock as to how any such holder should vote on the
issuance of Office Depot Common Stock in the Merger.
Based on, and subject to, the foregoing, we are of the opinion that on the
date hereof, the Exchange Ratio is fair to Office Depot from a financial point
of view.
Very truly yours,
PETER J. SOLOMON COMPANY LIMITED
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ANNEX III
OPINION OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
May 17, 1998
Board of Directors
Viking Office Products, Inc.
950 West 190th Street
Torrance, California 90502
Ladies and Gentlemen:
Viking Office Products, Inc. (the "Company"), Office Depot, Inc. (the
"Issuer") and a wholly owned subsidiary of the Issuer (the "Merger Sub") propose
to enter into an agreement (the "Agreement") pursuant to which Merger Sub will
be merged with the Company in a transaction (the "Merger") in which each
outstanding share of the Company's common stock, no par value (the "Shares"),
will be converted into the right to receive 1.00 share (the "Exchange Ratio") of
the common stock of the Issuer, par value $.01 per share (the "Issuer Shares").
In connection with the Merger, the parties also propose to enter into option
agreements (each an "Option Agreement") pursuant to which each of the Company
and the Issuer have granted the other an option to purchase up to 19.9% of the
outstanding shares of its common stock under certain circumstances, all as set
forth more fully in the Option Agreements.
You have asked us whether, in our opinion, the Exchange Ratio is fair to
the shareholders of the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
1. Reviewed certain publicly available business and financial
information relating to the Company and the Issuer that we deemed relevant;
2. Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company and the Issuer as well as the amount and timing of
the cost savings and related expenses and synergies expected to result from
the Merger (the "Expected Synergies"), furnished to us by the Company and
the Issuer;
3. Conducted discussions with members of senior management of the
Company and the Issuer concerning the matters described in clauses (1) and
(2) as well as their respective business and prospects, before and after
giving effect to the Merger and the Expected Synergies;
4. Reviewed the market prices and valuation multiples for the Shares
and the Issuer Shares and compared them with those of certain publicly
traded companies that we deemed relevant;
5. Compared the results of operations of the Company and the Issuer
with that of certain companies that we deemed relevant;
6. Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions that we deemed relevant;
7. Reviewed the potential pro forma impact of the Merger;
8. Reviewed the Agreement;
9. Reviewed the Option Agreements; and
10. Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us, discussed with us
or reviewed by us or for us, or publicly available, and we
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have not assumed any responsibility for independently verifying such information
or undertaken an independent appraisal of the assets or liabilities of the
Company or the Issuer nor have we been furnished with any such appraisals. In
addition, we have not assumed any obligation to conduct, nor have we conducted,
any physical inspection of the properties or facilities of the Company or the
Issuer. With respect to the financial forecasts and Expected Synergies furnished
to us or discussed with us by the Company and the Issuer, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of the Company's or the Issuer's management as to the
expected future financial performance of the Company or the Issuer, as the case
may be, and the Expected Synergies. We have further assumed that the merger will
qualify as a tax-free reorganization for United States federal income tax
purposes and will be accounted for as a pooling-of-interests under generally
accepted accounting principals. We have also assumed that the final terms of the
Agreement and the Option Agreements will be substantially similar to the last
drafts reviewed by us.
Our opinion is necessarily based upon market, economic and other
considerations as they exist and can be evaluated on, and on the information
made available to us as of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We have acted as financial advisor to the Company in connection with the
Merger and will receive fees for such services, a significant portion of which
is contingent upon consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement. We
have, in the past, provided financial advisory services to the Company and
financial advisory and financing services to the Issuer and may continue to do
so and have received, and may receive, fees for the rendering of such services.
In the ordinary course of our securities business, we may actively trade debt or
equity securities of the Issuer and the Company for our own account and the
accounts of our customers, and we therefore may from time to time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger and does not constitute a recommendation to
any shareholder of the Company as to how such shareholder should vote on the
proposed Merger or any matter related thereto.
We are not expressing any opinion as to the price at which the Issuer
Shares will trade following the announcement or consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the shareholders of the Company.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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ANNEX IV
OPINION OF SBC WARBURG DILLON READ INC.
May 17, 1998
Board of Directors
Viking Office Products, Inc.
950 West 190th Street
Torrance, CA 90502
Madam and Gentlemen:
We understand that Viking Office Products, Inc. ("Viking" or the
"Company"), Office Depot, Inc. ("Office Depot") and VK Acquisition Corp.
("Acquisition Corp.") have entered into an Agreement and Plan of Merger, dated
May 17, 1998 (the "Merger Agreement"), which provides, among other things, for
the merger (the "Merger") of Acquisition Corp. with and into Viking, as a result
of which Viking will become a wholly owned subsidiary of Office Depot. In the
Merger, each outstanding share of common stock, no par value (the "Common
Stock"), of Viking (other than treasury shares or any shares held by Office
Depot or any direct or indirect wholly owned subsidiary of Office Depot or as to
which dissenters' rights have been perfected) will be converted into 1.00 shares
(the "Exchange Ratio") of common stock, par value $0.01 per share, of Office
Depot ("Office Depot Common Stock"). In connection with the Merger, Viking and
Office Depot also propose to enter into a stock option agreement (the "Office
Depot Option Agreement") pursuant to which Viking will grant Office Depot an
option to acquire, under certain circumstances, a number of Viking Common Stock
representing approximately 19.9% of the total Viking Common Stock outstanding,
and a stock option agreement (the "Viking Option Agreement") pursuant to which
Office Depot will grant Viking an option to acquire, under certain
circumstances, a number of Office Depot Common Stock representing approximately
19.9% of the total Office Depot Common Stock outstanding. The terms and
conditions of the Merger and of the option grants are more fully set forth in
the Merger Agreement, the Office Depot Option Agreement and the Viking Option
Agreement.
You have requested our opinion as to whether, as of the date hereof, the
Exchange Ratio offered to the holders of shares of Common Stock pursuant to the
Merger Agreement is fair, from a financial point of view, to such holders.
In arriving at our opinion, we have, among other things:
(i) reviewed certain publicly available financial statements and other
information of the Company and of Office Depot;
(ii) reviewed certain internal financial and operating data concerning
the Company prepared by the management of the Company, which were not
publicly available;
(iii) reviewed certain financial projections prepared by the
management of the Company, which were not publicly available;
(iv) discussed the past and current operations and financial condition
and the prospects of the Company with senior executives of the Company;
(v) reviewed certain financial projections prepared by the management
of Office Depot, which were not publicly available;
(vi) discussed the past and current operations and financial condition
and the prospects of Office Depot with senior executives of Office Depot;
(vii) reviewed the reported prices and trading activity for the Common
Stock and the Office Depot Common Stock;
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(viii) reviewed the prices and trading activity of the securities of
certain other publicly traded companies considered by us to be generally
comparable;
(ix) discussed with the senior managements of the Company and Office
Depot their respective views of the strategic rationale for the Merger and
the benefits of the Merger to the Company;
(x) reviewed the amount and timing of the cost savings and related
expenses and synergies expected to result from the Merger (the "Expected
Synergies"), furnished to us by the Company and Office Depot;
(xi) reviewed the financial terms, to the extent publicly available,
of certain acquisition transactions considered by us to be generally
comparable;
(xii) participated in discussions and negotiations among
representatives of the Company and Office Depot and reviewed the Merger
Agreement, the Viking Option Agreement and the Office Depot Option
Agreement; and
(xiii) conducted such other financial studies, analyses, and other
investigations, and considered information as we have deemed necessary or
appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the information reviewed
by us for the purposes of this opinion, and have, with your consent, relied on
its being complete and accurate in all material requests. With your consent, we
have relied upon the assumptions of the management of Viking and Office Depot
regarding the Expected Synergies. With your consent, we have assumed that the
Merger will be treated as tax-free to both the Company and its stockholders and
will be accounted for as a pooling-of-interest. With your consent, we have not
made any independent valuation or appraisal of the assets or liabilities
(contingent or otherwise) of the Company, nor have we been furnished with any
such appraisals. With respect to the financial projections, estimates, pro forma
effects and calculations of Expected Synergies provided to or otherwise reviewed
by or discussed with us, we have assumed, with your consent, they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of the Company and Office Depot as to the
future financial performance of the Company and Office Depot, respectively, and
the Expected Synergies. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors of Viking to solicit, nor
have we solicited, third-party indications of interest for the acquisition of
all or any part of the Company.
We have acted as financial advisor to the Board of Directors of Viking in
connection with this transaction and will receive a fee for our services. In the
past, SBC Warburg Dillon Read Inc., a subsidiary of Swiss Bank Corporation
("SBCWDR") and Dillon, Read & Co. Inc., the predecessor firm to SBCWDR, and
their affiliates have provided financial advisory and financing services for
Viking and have received fees for the rendering of these services. In addition,
an executive of SBCWDR serves on the Board of Viking. In the ordinary course of
business, SBCWDR, its employees, its successors and its affiliates may hold or
have traded securities of Office Depot and/or Viking for their own accounts and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion does not address the Company's underlying business decision to
effect the Merger or constitute a recommendation to any stockholder of the
Company as to how such stockholder should vote with respect to the Merger.
Further, our opinion does not imply any conclusions as to the likely trading
range for Office Depot Common Stock following the consummation of the Merger,
which may vary depending on numerous factors which generally influence the
prices of securities.
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Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio offered to the holders of shares of Common Stock
of Viking, pursuant to the Merger Agreement is fair, from a financial point of
view, to such holders.
Very truly yours,
SBC WARBURG DILLON READ INC.
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ANNEX V
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
SECTION 1300. RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner or Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payments are filed with respect to five percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within ten days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
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determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such sections.
The statement of price constitutes an offer by the corporation to purchase at
the price stated any dissenting shares as defined in subdivision (b) of Section
1300, unless they lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares of the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE -- TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of the dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
SECTION 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
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praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT -- PAYMENT -- COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which the judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to the
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDERS' STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of the fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
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SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholders' demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES
This Chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization of short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon ten days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
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(c) If one or the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a persons who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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APPENDIX A
OFFICE DEPOT, INC.
AMENDED LONG-TERM EQUITY INCENTIVE PLAN
1. PURPOSE.
This plan shall be known as the Office Depot, Inc. Long-Term Equity
Incentive Plan (the "Plan"). The purpose of the Plan shall be to promote the
long-term growth and profitability of Office Depot, Inc. (the "Company") and its
Subsidiaries by (i) providing certain directors, officers and key employees of,
and certain other key individuals who perform services for, the Company and its
Subsidiaries with incentives to maximize stockholder value and otherwise
contribute to the success of the Company and (ii) enabling the Company to
attract, retain and reward the best available persons for positions of
substantial responsibility. Grants of incentive or nonqualified stock options,
stock appreciation rights ("SARs"), either alone or in tandem with options,
restricted stock, performance awards, or any combination of the foregoing may be
made under the Plan.
2. DEFINITIONS.
(a) "BOARD OF DIRECTORS" and "BOARD" mean the board of directors of Office
Depot.
(b) "CAUSE" means the occurrence of one of the following events:
(i) Conviction of a felony or any crime or offense lesser than a
felony involving the property of the Company or a Subsidiary; or
(ii) Conduct that has caused demonstrable and serious injury to the
Company or a Subsidiary, monetary or otherwise; or
(iii) Willful refusal to perform or substantial disregard of duties
properly assigned, as determined by the Company; or
(iv) Breach of duty of loyalty to the Company or a Subsidiary or other
act of fraud or dishonesty with respect to the Company or a Subsidiary.
(c) "CHANGE IN CONTROL" means, except as may otherwise be provided by the
Committee, the occurrence of one of the following events:
(i) if any "person" or "group" as those terms are used in Sections
13(d) and 14(d) of the Exchange Act, other than an Exempt Person, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50%
or more of the combined voting power of the Company's then outstanding
securities; or
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board and any new directors
whose election by the Board or nomination for election by the Company's
stockholders was approved by at least two-thirds of the directors then
still in office who either were directors at the beginning of the period or
whose election was previously so approved, cease for any reason to
constitute a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation; provided, however,
a Change of Control shall not be deemed to have occurred (A) if such merger
or consolidation would result in all or a portion of the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) either directly or indirectly
more than 50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation, or (B) if the corporate existence of the Company is not
affected and following the merger or consolidation the Company's chief
executive officers retain their positions with the Company and the
directors of the Company prior to such merger or consolidation
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constitute at least a majority of the board of the Company or the entity
that directly or indirectly controls the Company after such merger or
consolidation; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all the Company's assets, other than a
sale to an Exempt Person.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means the Compensation Committee of the Board. The
membership of the Committee shall be constituted so as to comply at all times
with the applicable requirements of Rule 16b-3 under the Exchange Act and
Section 162(m) of the Code.
(f) "COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company, and any other shares into which such stock may be changed by reason of
a recapitalization, reorganization, merger, consolidation or any other change in
the corporate structure or capital stock of the Company.
(g) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(h) "EXEMPT PERSON" means any employee benefit plan of the Company or a
trustee or other administrator or fiduciary holding securities under an employee
benefit plan of the Company.
(i) "FAIR MARKET VALUE" of a share of Common Stock of the Company means, as
of the date in question, the officially-quoted closing selling price of the
stock (or if no selling price is quoted, the bid price) on the principal
securities exchange on which the Common Stock is then listed for trading
(including for this purpose the Nasdaq National Market) (the "Market") for the
immediately preceding trading day or, if the Common Stock is not then listed or
quoted in the Market, the Fair Market Value shall be the fair value of the
Common Stock determined in good faith by the Board; provided, however, that when
shares received upon exercise of an option are immediately sold in the open
market, the net sale price received may be used to determine the Fair Market
Value of any shares used to pay the exercise price or withholding taxes and to
compute the withholding taxes.
(j) "INCENTIVE STOCK OPTION" means an option conforming to the requirements
of Section 422 of the Code and any successor thereto.
(k) "NON-EMPLOYEE DIRECTOR" has the meaning given to such term in Rule
16b-3 under the Exchange Act.
(l) "NONQUALIFIED STOCK OPTION" means any stock option other than an
Incentive Stock Option.
(m) "OTHER COMPANY SECURITIES" mean securities of the Company other than
Common Stock, which may include, without limitation, unbundled stock units or
components thereof, debentures, preferred stock, warrants and securities
convertible into or exchangeable for Common Stock or other property.
(n) "PRIOR PLAN(S)" means the Office Depot, Inc. Omnibus Equity Plan, the
Office Depot, Inc. Directors Stock Option Plan or any other plan which these
plans subsumed or replaced.
(o) "RETIREMENT" means retirement as defined under any Company pension plan
or retirement program or termination of one's employment on retirement with the
approval of the Committee.
(p) "SUBSIDIARY" means a corporation or other entity of which outstanding
shares or ownership interests representing 50% or more of the combined voting
power of such corporation or other entity entitled to elect the management
thereof, or such lesser percentage as may be approved by the Committee, are
owned directly or indirectly by the Company.
3. ADMINISTRATION.
The Plan shall be administered by the Committee; provided that the Board
may, in its discretion, at any time and from time to time, resolve to administer
the Plan, in which case the term "Committee" shall be deemed to mean the Board
for all purposes herein. The Committee shall consist of at least two directors.
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Subject to the provisions of the Plan, the Committee shall be authorized to (i)
select persons to participate in the Plan, (ii) determine the form and substance
of grants made under the Plan to each participant, and the conditions and
restrictions, if any, subject to which such grants will be made, (iii) modify
the terms of grants made under the Plan, (iv) interpret the Plan and grants made
thereunder, (v) make any adjustments necessary or desirable in connection with
grants made under the Plan to eligible participants located outside the United
States and (vi) adopt, amend, or rescind such rules and regulations, and make
such other determinations, for carrying out the Plan as it may deem appropriate.
Decisions of the Committee on all matters relating to the Plan shall be in the
Committee's sole discretion and shall be conclusive and binding on all parties.
The validity, construction, and effect of the Plan and any rules and regulations
relating to the Plan shall be determined in accordance with applicable federal
and state laws and rules and regulations promulgated pursuant thereto. No member
of the Committee and no officer of the Company shall be liable for any action
taken or omitted to be taken by such member, by any other member of the
Committee or by any officer of the Company in connection with the performance of
duties under the Plan, except for such person's own willful misconduct or as
expressly provided by statute.
The expenses of the Plan shall be borne by the Company. The Plan shall not
be required to establish any special or separate fund or make any other
segregation of assets to assume the payment of any award under the Plan, and
rights to the payment of such awards shall be no greater than the rights of the
Company's general creditors.
4. SHARES AVAILABLE FOR THE PLAN.
Subject to adjustments as provided in Section 15, as of any date the total
number of shares of Common Stock with respect to which awards may be granted
under the Plan (the "Shares") shall equal the excess (if any) of 20,712,500,
over (i) the number of shares of Common Stock subject to outstanding awards
under the Plan or the Prior Plans, (ii) the number of shares of Common Stock in
respect of which options and stock appreciation rights have been exercised under
the Plan or the Prior Plans, and (iii) the number of shares of Common Stock
issued pursuant to performance awards or issued subject to forfeiture
restrictions which have lapsed under the Plan or the Prior Plans. Such Shares
may be in whole or in part authorized and unissued, or shares which are held by
the Company as treasury shares. If any grant under the Plan or any Prior Plan
expires or terminates unexercised, becomes unexercisable or is forfeited as to
any Shares, such unpurchased or forfeited Shares shall thereafter be available
for further grants under the Plan unless, in the case of options granted under
the Plan or any Prior Plan, related SARs are exercised.
Without limiting the generality of the foregoing provisions of this Section
4 or the generality of the provisions of Sections 3, 6 or 17 or any other
section of this Plan, the Committee may, at any time or from time to time, and
on such terms and conditions (that are consistent with and not in contravention
of the other provisions of this Plan) as the Committee may, in its sole
discretion, determine, enter into agreements (or take other actions with respect
to the options) for new options containing terms (including exercise prices)
more (or less) favorable than the outstanding options.
5. PARTICIPATION.
Participation in the Plan shall be limited to those directors (including
Non-Employee Directors), officers (including non-employee officers) and key
employees of, and other key individuals performing services for, the Company and
its Subsidiaries selected by the Committee (including participants located
outside the United States). Nothing in the Plan or in any grant thereunder shall
confer any right on a participant to continue in the employ of or the
performance of services for the Company or shall interfere in any way with the
right of the Company to terminate the employment or performance of services of a
participant at any time. By accepting any award under the Plan, each participant
and each person claiming under or through him or her shall be conclusively
deemed to have indicated his or her acceptance and ratification of, and consent
to, any action taken under the Plan by the Company, the Board or the Committee.
Incentive Stock Options or Nonqualified Stock Options, SARs, alone or in
tandem with options, restricted stock awards, performance awards, or any
combination thereof, may be granted to such persons and
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for such number of Shares as the Committee shall determine (such individuals to
whom grants are made being sometimes herein called "optionees" or "grantees," as
the case may be). Determinations made by the Committee under the Plan need not
be uniform and may be made selectively among eligible individuals under the
Plan, whether or not such individuals are similarly situated. A grant of any
type made hereunder in any one year to an eligible participant shall neither
guarantee nor preclude a further grant of that or any other type to such
participant in that year or subsequent years.
6. INCENTIVE AND NONQUALIFIED OPTIONS.
The Committee may from time to time grant to eligible participants
Incentive Stock Options, Nonqualified Stock Options, or any combination thereof;
provided that the Committee may grant Incentive Stock Options only to eligible
employees of the Company or its subsidiaries (as defined for this purpose in
Section 424(f) of the Code). In any one calendar year, the Committee shall not
grant to any one participant, options or SARs to purchase a number of shares of
Common Stock in excess of 1,000,000 shares. The options granted shall take such
form as the Committee shall determine, subject to the following terms and
conditions.
It is the Company's intent that Nonqualified Stock Options granted under
the Plan not be classified as Incentive Stock Options, that Incentive Stock
Options be consistent with and contain or be deemed to contain all provisions
required under Section 422 of the Code and any successor thereto, and that any
ambiguities in construction be interpreted in order to effectuate such intent.
If an Incentive Stock Option granted under the Plan does not qualify as such for
any reason, then to the extent of such nonqualification, the stock option
represented thereby shall be regarded as a Nonqualified Stock Option duly
granted under the Plan, provided that such stock option otherwise meets the
Plan's requirements for Nonqualified Stock Options.
(a) Price. The price per Share deliverable upon the exercise of each
option ("exercise price") shall be established by the Committee, except that in
the case of the grant of any Incentive Stock Option, the exercise price may not
be less than 100% of the Fair Market Value of a share of Common Stock as of the
date of grant of the option, and in the case of the grant of any Incentive Stock
Option to an employee who, at the time of the grant, owns more than 10% of the
total combined voting power of all classes of stock of the Company or any of its
Subsidiaries, the exercise price may not be less than 110% of the Fair Market
Value of a share of Common Stock as of the date of grant of the option, in each
case unless otherwise permitted by Section 422 of the Code.
(b) Payment. Options may be exercised, in whole or in part, upon payment
of the exercise price of the Shares to be acquired. Unless otherwise determined
by the Committee, payment shall be made (i) in cash (including check, bank draft
or money order), (ii) by delivery of outstanding shares of Common Stock with a
Fair Market Value on the date of exercise equal to the aggregate exercise price
payable with respect to the options' exercise, (iii) by simultaneous sale
through a broker reasonably acceptable to the Committee of Shares acquired on
exercise, as permitted under Regulation T of the Federal Reserve Board, (iv) by
authorizing the Company to withhold from issuance a number of Shares issuable
upon exercise of the options which, when multiplied by the Fair Market Value of
a share of Common Stock on the date of exercise is equal to the aggregate
exercise price payable with respect to the options so exercised or (v) by any
combination of the foregoing. Options may also be exercised upon payment of the
exercise price of the Shares to be acquired by delivery of the optionee's
promissory note, but only to the extent specifically approved by and in
accordance with the policies of the Committee.
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (ii) above, (A) only a whole number of
share(s) of Common Stock (and not fractional shares of Common Stock) may be
tendered in payment, (B) such grantee must present evidence acceptable to the
Company that he or she has owned any such shares of Common Stock tendered in
payment of the exercise price (and that such tendered shares of Common Stock
have not been subject to any substantial risk of forfeiture) for at least six
months prior to the date of exercise, and (C) Common Stock must be delivered to
the Company. Delivery for this purpose may, at the election of the grantee, be
made either by (A) physical delivery of the certificate(s) for all such shares
of Common Stock tendered in payment of the price, accompanied by duly executed
instruments of transfer in a form acceptable to the Company, or (B) direction
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to the grantee's broker to transfer, by book entry, such shares of Common Stock
from a brokerage account of the grantee to a brokerage account specified by the
Company. When payment of the exercise price is made by delivery of Common Stock,
the difference, if any, between the aggregate exercise price payable with
respect to the option being exercised and the Fair Market Value of the share(s)
of Common Stock tendered in payment (plus any applicable taxes) shall be paid in
cash. No grantee may tender shares of Common Stock having a Fair Market Value
exceeding the aggregate exercise price payable with respect to the option being
exercised (plus any applicable taxes).
In the event a grantee elects to pay the exercise price payable with
respect to an option pursuant to clause (iv) above, (A) only a whole number of
Share(s) (and not fractional Shares) may be withheld in payment and (B) such
grantee must present evidence acceptable to the Company that he or she has owned
a number of shares of Common Stock at least equal to the number of Shares to be
withheld in payment of the exercise price (and that such owned shares of Common
Stock have not been subject to any substantial risk of forfeiture) for at least
six months prior to the date of exercise. When payment of the exercise price is
made by withholding of Shares, the difference, if any, between the aggregate
exercise price payable with respect to the option being exercised and the Fair
Market Value of the Share(s) withheld in payment (plus any applicable taxes)
shall be paid in cash. No grantee may authorize the withholding of Shares having
a Fair Market Value exceeding the aggregate exercise price payable with respect
to the option being exercised (plus any applicable taxes). Any withheld Shares
shall no longer be issuable under such option.
(c) Terms of Options. The term during which each option may be exercised
shall be determined by the Committee, but, except as otherwise provided herein,
in no event shall an option be exercisable in whole or in part, in the case of a
Nonqualified Stock Option or an Incentive Stock Option (other than as described
below), more than ten years from the date it is granted or, in the case of an
Incentive Stock Option granted to an employee who at the time of the grant owns
more than 10% of the total combined voting power of all classes of stock of the
Company or any of its Subsidiaries, if required by the Code, more than five
years from the date it is granted. All rights to purchase Shares pursuant to an
option shall, unless sooner terminated, expire at the date designated by the
Committee. The Committee shall determine the date on which each option shall
become exercisable and may provide that an option shall become exercisable in
installments. The Shares constituting each installment may be purchased in whole
or in part at any time after such installment becomes exercisable, subject to
such minimum exercise requirements as may be designated by the Committee. Unless
otherwise provided herein or in the terms of the related grant, an optionee may
exercise an option only if he or she is, and has continuously since the date the
option was granted, been a director, officer or employee of or performed other
services for the Company or a Subsidiary. Prior to the exercise of an option and
delivery of the Shares represented thereby, the optionee shall have no rights as
a stockholder with respect to any Shares covered by such outstanding option
(including any dividend or voting rights).
(d) Limitations on Grants. If required by the Code, the aggregate Fair
Market Value (determined as of the grant date) of Shares for which an Incentive
Stock Option is exercisable for the first time during any calendar year under
all equity incentive plans of the Company and its Subsidiary Corporations (as
defined in Section 424 of the Code) may not exceed $100,000.
(e) Termination; Change in Control. Except as may otherwise be provided by
the Committee:
(i) If a participant ceases to be a director, officer or employee of,
or to perform other services for, the Company and any Subsidiary due to the
death of the participant, all of the participant's options and SARs shall
become fully vested and exercisable and shall remain so for a period of 24
months from the date of such death but in no event after the expiration
date of the options or SARs.
(ii) If a participant ceases to be a director, officer or employee of,
or to perform other services for, the Company and any Subsidiary upon the
occurrence of his or her Retirement, (A) all of the participant's options
and SARs that were exercisable on the date of Retirement shall remain
exercisable for, and shall otherwise terminate at the end of, a period of
up to 90 days after the date of Retirement, but in no event after the
expiration date of the options or SARs and (B) all of the participant's
options and SARs that were not exercisable on the date of Retirement shall
be forfeited immediately upon such Retirement.
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(iii) If a participant ceases to be a director, officer or employee
of, or to perform other services for, the Company or a Subsidiary due to
Cause, all of the participant's options and SARs shall be forfeited
immediately upon such cessation, whether or not then exercisable.
(iv) If a participant ceases to be a director, officer or employee of,
or to otherwise perform services for, the Company or a Subsidiary for any
reason other than death, Retirement or Cause, (A) all of the participant's
options and SARs that were exercisable on the date of such cessation shall
remain exercisable for, and shall otherwise terminate at the end of, a
period of 90 days after the date of such cessation, but in no event after
the expiration date of the options or SARs and (B) all of the participant's
options and SARs that were not exercisable on the date of such cessation
shall be forfeited immediately upon such cessation. The Committee may, at
its sole discretion, determine (i) whether any leave of absence (including
short-term or long-term disability or medical leave) shall constitute a
termination of employment for purposes of this Plan and (ii) the impact, if
any, of any such leave on outstanding awards under the Plan.
(v) If there is a Change in Control, all of the participant's options
and SARs shall become fully vested and exercisable immediately prior to
such Change in Control and shall remain so until the expiration date of the
options and SARs.
(f) Grant of Reload Options. The Committee may provide (either at the time
of grant or exercise of an option), in its discretion, for the grant to a
grantee who exercises all or any portion of an option ("Exercised Options") and
who pays all or part of such exercise price with shares of Common Stock, of an
additional option (a "Reload Option") for a number of shares of Common Stock
equal to the sum (the "Reload Number") of the number of shares of Common Stock
tendered or withheld in payment of such exercise price for the Exercised Options
plus, if so provided by the Committee, the number of shares of Common Stock, if
any, tendered or withheld by the grantee or withheld by the Company in
connection with the exercise of the Exercised Options to satisfy any federal,
state or local tax withholding requirements. The terms of each Reload Option,
including the date of its expiration and the terms and conditions of its
exercisability and transferability, shall be the same as the terms of the
Exercised Option to which it relates, except that (i) the grant date for each
Reload Option shall be the date of exercise of the Exercised Option to which it
relates and (ii) the exercise price for each Reload Option shall be the Fair
Market Value of the Common Stock on the grant date of the Reload Option.
7. STOCK APPRECIATION RIGHTS.
The Committee shall have the authority to grant SARs under this Plan,
either alone or to any optionee in tandem with options (either at the time of
grant of the related option or thereafter by amendment to an outstanding
option). SARs shall be subject to such terms and conditions as the Committee may
specify.
No SAR may be exercised unless the Fair Market Value of a share of Common
Stock of the Company on the date of exercise exceeds the exercise price of the
SAR or, in the case of SARs granted in tandem with options, any options to which
the SARs correspond. Prior to the exercise of the SAR and delivery of the cash
and/or Shares represented thereby, the participant shall have no rights as a
stockholder with respect to Shares covered by such outstanding SAR (including
any dividend or voting rights).
SARs granted in tandem with options shall be exercisable only when, to the
extent and on the conditions that any related option is exercisable. The
exercise of an option shall result in an immediate forfeiture of any related SAR
to the extent the option is exercised, and the exercise of an SAR shall cause an
immediate forfeiture of any related option to the extent the SAR is exercised.
Upon the exercise of an SAR, the participant shall be entitled to a
distribution in an amount equal to the difference between the Fair Market Value
of a share of Common Stock on the date of exercise and the exercise price of the
SAR or, in the case of SARs granted in tandem with options, any option to which
the SAR is related, multiplied by the number of Shares as to which the SAR is
exercised (less any applicable taxes). The Committee shall decide whether such
distribution shall be in cash, in Shares having a Fair Market
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Value equal to such amount, in Other Company Securities having a Fair Market
Value equal to such amount or in a combination thereof.
All SARs will be exercised automatically on the last day prior to the
expiration date of the SAR or, in the case of SARs granted in tandem with
options, any related option, so long as the Fair Market Value of a share of
Common Stock on that date exceeds the exercise price of the SAR or any related
option, as applicable. An SAR granted in tandem with options shall expire at the
same time as any related option expires and shall be transferable only when, and
under the same conditions as, any related option is transferable.
8. RESTRICTED STOCK.
The Committee may at any time and from time to time grant Shares of
restricted stock under the Plan to such participants and in such amounts as it
determines. Each grant of restricted stock shall specify the applicable
restrictions on such Shares, the duration of such restrictions (which shall be
at least 1 year except as otherwise provided in the third paragraph of this
Section 8), and the time or times at which such restrictions shall lapse with
respect to all or a specified number of Shares that are part of the grant.
The participant will be required to pay the Company the aggregate par value
of any Shares of restricted stock (or such larger amount as the Board may
determine to constitute capital under Section 154 of the Delaware General
Corporation Law, as amended) within ten days of the date of grant, unless such
Shares of restricted stock are treasury shares. Unless otherwise determined by
the Committee, certificates representing Shares of restricted stock granted
under the Plan will be held in escrow by the Company on the participant's behalf
during any period of restriction thereon and will bear an appropriate legend
specifying the applicable restrictions thereon, and the participant will be
required to execute a blank stock power therefor. Except as otherwise provided
by the Committee, during such period of restriction the participant shall have
all of the rights of a holder of Common Stock, including but not limited to the
rights to receive dividends and to vote, and any stock or other securities
received as a distribution with respect to such participant's restricted stock
shall be subject to the same restrictions as then in effect for the restricted
stock.
Except as may otherwise be provided by the Committee, (a) immediately prior
to a Change in Control or at such time as a participant ceases to be a director,
officer or employee of, or to otherwise perform services for, the Company and
its Subsidiaries due to death or Retirement during any period of restriction,
all restrictions on Shares granted to such participant shall lapse, and (b) at
such time as a participant ceases to be a director, officer or employee of, or
to otherwise perform services for, the Company or its Subsidiaries for any other
reason, all Shares of restricted stock granted to such participant on which the
restrictions have not lapsed shall be immediately forfeited to the Company.
9. PERFORMANCE AWARDS.
Performance awards may be granted to participants at any time and from time
to time as determined by the Committee. The Committee shall have complete
discretion in determining the size and composition of performance awards so
granted to a participant and the appropriate period over which performance is to
be measured (a "performance cycle"). Performance awards may include (i) specific
dollar-value target awards (ii) performance units, the value of each such unit
being determined by the Committee at the time of issuance, and/or (iii)
performance Shares, the value of each such Share being equal to the Fair Market
Value of a share of Common Stock.
The value of each performance award may be fixed or it may be permitted to
fluctuate based on a performance factor (e.g., return on equity) selected by the
Committee. In any one calendar year, the Committee shall not grant to any one
participant more than 100,000 performance Shares.
The Committee shall establish performance goals and objectives for each
performance cycle on the basis of one or more of the following five measurements
of the Company's performance for the relevant period, as such measurements may
be adjusted for merger costs as presented on the Company's audited financial
statements: pre-tax earnings, net earnings, earnings per share, return on assets
and return on equity. During any performance cycle, the Committee shall have the
authority to adjust the performance goals and objectives
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for such cycle for such reasons as it deems equitable to the extent permitted
under Section 162(m) of the Code.
The Committee shall determine the portion of each performance award that is
earned by a participant on the basis of the Company's performance over the
performance cycle in relation to the performance goals for such cycle. The
earned portion of a performance award may be paid out in Shares, cash, Other
Company Securities, or any combination thereof, as the Committee may determine.
A participant must be a director, officer or employee of, or otherwise
perform services for, the Company or its Subsidiaries at the end of the
performance cycle in order to be entitled to payment of a performance award
issued in respect of such cycle; provided, however, that, except as otherwise
provided by the Committee, (a) if a participant ceases to be a director, officer
or employee of, or to otherwise perform services for, the Company and its
Subsidiaries upon his or her death or Retirement prior to the end of the
performance cycle, the participant shall earn a proportionate portion of the
performance award based upon the elapsed portion of the performance cycle and
the Company's performance over that portion of such cycle and (b) in the event
of a Change in Control, a participant shall earn no less than the portion of the
performance award that the participant would have earned if the performance
cycle(s) had terminated as of the date of the Change in Control.
10. WITHHOLDING TAXES.
(a) Participant Election. The Committee may provide that a participant may
be permitted to elect to deliver shares of Common Stock (or have the Company
withhold shares acquired upon exercise of an option or SAR or deliverable upon
grant or vesting of restricted stock, as the case may be) to satisfy, in whole
or in part, the amount the Company is required to withhold for taxes in
connection with the exercise of an option or SAR or the delivery of restricted
stock upon grant or vesting, as the case may be. Such election must be made on
or before the date the amount of tax to be withheld is determined. Once made,
the election shall be irrevocable. The fair market value of the shares to be
withheld or delivered will be the Fair Market Value as of the date the amount of
tax to be withheld is determined. In the event a participant elects to deliver
shares of Common Stock pursuant to this Section 10(a), such delivery must be
made subject to the conditions and pursuant to the procedures set forth in
Section 6(b) with respect to the delivery of Common Stock in payment of the
exercise price of options.
(b) Company Requirement. The Company may require, as a condition to any
grant or exercise under the Plan, to the payment of any SAR or to the delivery
of certificates for Shares issued hereunder, that the grantee make provision for
the payment to the Company, either pursuant to Section 10(a) or this Section
10(b), of any federal, state or local taxes of any kind required by law to be
withheld with respect to any grant or payment or any delivery of Shares. The
Company, to the extent permitted or required by law, shall have the right to
deduct from any payment of any kind (including salary or bonus) otherwise due to
a grantee, an amount equal to any federal, state or local taxes of any kind
required by law to be withheld with respect to any grant or payment or to the
delivery of Shares under the Plan, or to retain or sell without notice a
sufficient number of the Shares to be issued to such grantee to cover any such
taxes, the payment of which has not otherwise been provided for in accordance
with the terms of the Plan, provided that the Company shall not sell any such
Shares if such sale would be considered a sale by such grantee for purposes of
Section 16 of the Exchange Act that is not exempt from matching thereunder.
11. WRITTEN AGREEMENT; VESTING.
Each employee to whom a grant is made under the Plan shall enter into a
written agreement with the Company that shall contain such provisions, including
without limitation vesting requirements, consistent with the provisions of the
Plan, as may be approved by the Committee. Unless the Committee may otherwise
provide and except as otherwise provided in Sections 6, 7, 8 and 9 in connection
with a Change of Control or certain occurrences of termination, no grant under
this Plan may be exercised, and no restrictions relating thereto may lapse,
within six months of the date such grant is made.
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12. TRANSFERABILITY.
Unless the Committee determines otherwise, no option, SAR, performance
award, or restricted stock granted under the Plan shall be transferable by a
participant otherwise than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code. Unless
the Committee determines otherwise, an option, SAR, or performance award may be
exercised only by the optionee or grantee thereof or his guardian or legal
representative; provided that Incentive Stock Options may be exercised by such
guardian or legal representative only if permitted by the Code and any
regulations promulgated thereunder.
13. LISTING, REGISTRATION AND QUALIFICATION.
If the Committee determines that the listing, registration or qualification
upon any securities exchange or under any law of Shares subject to any option,
SAR, performance award or restricted stock grant is necessary or desirable as a
condition of, or in connection with, the granting of same or the issue or
purchase of Shares thereunder, no such option or SAR may be exercised in whole
or in part, no such performance award may be paid out and no Shares may be
issued unless such listing, registration or qualification is effected free of
any conditions not acceptable to the Committee.
It is the intent of the Company that the Plan comply in all respects with
Section 162(m) of the Code, that awards made hereunder comply in all respects
with Rule 16b-3 under the Exchange Act, that any ambiguities or inconsistencies
in construction of the Plan be interpreted to give effect to such intention and
that if any provision of the Plan is found not to be in compliance with Section
162(m), such provision shall be deemed null and void to the extent required to
permit the Plan to comply with Section 162(m), as the case may be.
14. TRANSFER OF EMPLOYEE.
The transfer of an employee from the Company to a Subsidiary, from a
Subsidiary to the Company, or from one Subsidiary to another shall not be
considered a termination of employment; nor shall it be considered a termination
of employment if an employee is placed on military, disability or sick leave or
such other leave of absence which is considered by the Committee as continuing
intact the employment relationship.
15. ADJUSTMENTS.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of assets,
or any other change in the corporate structure or shares of the Company, the
Committee shall make such adjustment as it deems appropriate in the number and
kind of Shares or other property reserved for issuance under the Plan, in the
number and kind of Shares or other property covered by grants previously made
under the Plan, and in the exercise price of outstanding options and SARs. Any
such adjustment shall be final, conclusive and binding for all purposes of the
Plan. In the event of any merger, consolidation or other reorganization in which
the Company is not the surviving or continuing corporation or in which a Change
in Control is to occur, all of the Company's obligations regarding options, SARs
performance awards, and restricted stock that were granted hereunder and that
are outstanding on the date of such event shall, on such terms as may be
approved by the Committee prior to such event, be assumed by the surviving or
continuing corporation or canceled in exchange for property (including cash).
Without limitation of the foregoing, in connection with any transaction of
the type specified by clause (iii) of the definition of a Change in Control in
Section 2(c), the Committee may, in its discretion, (i) cancel any or all
outstanding options under the Plan in consideration for payment to the holders
thereof of an amount equal to the portion of the consideration that would have
been payable to such holders pursuant to such transaction if their options had
been fully exercised immediately prior to such transaction, less the aggregate
exercise price that would have been payable therefor, or (ii) if the amount that
would have been payable to the option holders pursuant to such transaction if
their options had been fully exercised immediately prior thereto would be less
than the aggregate exercise price that would have been payable therefor, cancel
any or all such options for no consideration or payment of any kind. Payment of
any amount payable pursuant to the
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<PAGE> 163
preceding sentence may be made in cash or, in the event that the consideration
to be received in such transaction includes securities or other property, in
cash and/or securities or other property in the Committee's discretion.
16. TERMINATION AND MODIFICATION OF THE PLAN.
The Board of Directors or the Committee, without approval of the
stockholders, may modify or terminate the Plan, except that no modification
shall become effective without prior approval of the stockholders of the Company
if stockholder approval would be required for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
listing requirement of the principal stock exchange on which the Common Stock is
then listed.
17. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN.
The terms of any outstanding award under the Plan may be amended from time
to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any award and/or payments thereunder or of the date of lapse of restrictions
on Shares); provided that, except as otherwise provided in Section 15, no such
amendment shall adversely affect in a material manner any right of a participant
under the award without his or her written consent. The Committee may, with the
grantee's consent, cancel any award under the Plan and issue a new award in
substitution therefor upon such terms as the Committee may in its sole
discretion determine, provided that the substituted award shall satisfy all
applicable Plan requirements as of the date such new award is made; and further
provided, notwithstanding the foregoing or any other provision of this Plan,
that in no event shall an option or stock appreciation right be granted in
substitution for a previously granted option or stock appreciation right, with
the old award being canceled or surrendered as a condition of receiving the new
award, if the new award would have a lower option exercise price or stock
appreciation right appreciation base than the award it replaces. The foregoing
is not intended to prevent equitable adjustment of awards upon the occurrence of
certain events as herein provided, for example, without limitation, adjustments
pursuant to Section 15.
18. COMMENCEMENT DATE; TERMINATION DATE.
The date of commencement of the Plan shall be October 1, 1997, subject to
approval by the stockholders of the Company. Unless previously terminated upon
the adoption of a resolution of the Board terminating the Plan, no Incentive
Stock Options shall be issued under this plan after the close of business on
September 30, 2007. No termination of the Plan shall materially and adversely
affect any of the rights or obligations of any person, without his consent,
under any grant of options or other incentives theretofore granted under the
Plan.
19. GOVERNING LAW.
The Plan shall be governed by the corporate laws of the State of Delaware,
without giving effect to any choice of law provisions.
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<PAGE> 164
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, the directors and officers of Office Depot are
entitled, under certain circumstances, to be indemnified by Office Depot against
all expenses and liabilities incurred or imposed upon them as a result of suits
brought against them as such directors or officers, if they act in good faith
and in a manner they reasonably believe to be in or not opposed to the best
interests of Office Depot, and, with respect to any criminal action or
proceeding, have no reasonable cause to believe their conduct was unlawful,
except that no indemnification shall be made against expenses in respect of any
claim, issue or matter as to which they shall have been adjudged to be liable to
Office Depot, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to be indemnified for such expenses which
such court shall deem proper. Any such indemnification may be made by Office
Depot only as authorized in each specified case upon a determination by the
stockholders or disinterested directors or a committee or a committee of such
directors designated by a majority of such directors that indemnification is
proper in the circumstances because the indemnitee has met the applicable
statutory standard of conduct. Expenses incurred by a director or an officer of
Office Depot in a suit or proceeding may be paid by Office Depot in advance of
the final disposition of such suit or proceeding upon receipt of an undertaking
by or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
Office Depot.
Article Eight of the Office Depot Charter provides that to the fullest
extent permitted by Delaware law, a director shall not be liable to Office Depot
or its stockholders for monetary damages for a breach of fiduciary duty by such
a director as a director.
The Bylaws of Office Depot provide that the officers and directors of
Office Depot and certain others shall be indemnified substantially to the same
extent permitted by Delaware law.
Office Depot maintains a standard policy of officers' and directors'
liability insurance.
ITEM 21(a). EXHIBITS
See Exhibit Index
ITEM 21(b). FINANCIAL STATEMENT SCHEDULES
All financial statement schedules of Office Depot and Viking which are
required to be included herein are included in the Annual Report of Office Depot
on Form 10-K for the fiscal year ended December 27, 1997 or the Annual Report on
Form 10-K of Viking for the fiscal year ended June 27, 1997, respectively, which
are incorporated herein by reference.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered)
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<PAGE> 165
and any deviation from the low or high sales price and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters in addition to the information called for by the other items
of the applicable form.
(6) That every prospectus: (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such an amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(7) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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<PAGE> 166
(8) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
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<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Delray Beach, State of
Florida, on July 20, 1998.
OFFICE DEPOT, INC.
By: /s/ DAVID I. FUENTE
------------------------------------
David I. Fuente
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David I. Fuente and Barry J. Goldstein, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including pre-effective and post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact, and each of them, and agents or their substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ DAVID I. FUENTE Chairman of the Board and Chief July 17, 1998
- ------------------------------------------ Executive Officer
David I. Fuente
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ BARRY J. GOLDSTEIN Executive Vice President -- Finance, July 17, 1998
- ------------------------------------------ Chief Financial Officer, Secretary and
Barry J. Goldstein Treasurer
DIRECTORS:
/s/ JOHN C. MACATEE Director, President and Chief Operating July 17, 1998
- ------------------------------------------ Officer
John C. Macatee
/s/ CYNTHIA R. COHEN Director July 17, 1998
- ------------------------------------------
Cynthia R. Cohen
/s/ W. SCOTT HEDRICK Director July 17, 1998
- ------------------------------------------
W. Scott Hedrick
</TABLE>
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<PAGE> 168
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JAMES L. HESKETT Director July 17, 1998
- ------------------------------------------
James L. Heskett
/s/ MICHAEL J. MYERS Director July 17, 1998
- ------------------------------------------
Michael J. Myers
/s/ FRANK P. SCRUGGS, JR. Director July 17, 1998
- ------------------------------------------
Frank P. Scruggs, Jr.
/s/ PETER J. SOLOMON Director July 17, 1998
- ------------------------------------------
Peter J. Solomon
</TABLE>
II-5
<PAGE> 169
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 18, 1998, by
and among the Company, VK Acquisition Corp. and Viking
Office Products, Inc., attached as Annex I to the Joint
Proxy Statement/Prospectus contained in this Registration
Statement.
2.2 Office Depot Stock Option Agreement, dated as of May 18,
1998, between Viking Office Products,Inc., as Grantee and
Office Depot, Inc., as Grantor.(1)
2.3 Viking Stock Option Agreement, dated as of May 18, 1998,
between Office Depot, Inc., as Grantee and Viking Office
Products, Inc., as Grantor.(1)
3.1 Restated Certificate of Incorporation, as amended to
date.(2)
3.2 Bylaws.(3)
4.4 Rights Agreement dated as of September 4, 1996 between
Office Depot, Inc. and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, including the form of Certificate
of Designation, Preferences and Rights of Junior
Participating Preferred Stock, Series A attached thereto as
Exhibit A, the form of Rights Certificate attached thereto
as Exhibit B and the Summary of Rights attached thereto as
Exhibit C.(4)
5.1 Validity Opinion of Simpson Thacher & Bartlett, regarding
the legality of the shares of Office Depot Common Stock
being exchanged for shares of Viking Common Stock and listed
on the New York Stock Exchange.
8.1 Form of Tax Opinion of Simpson Thacher & Bartlett.
8.2 Form of Tax Opinion of Latham & Watkins.
10.13 Form of Employment Agreement by and between Office Depot and
each of M. Bruce Nelson, Ron Weissman, Graham Cundick, Doug
Ramsdale and Mark Brown.
23.1 Independent Auditors' Consent in connection with Office
Depot, Inc.
23.2 Independent Auditors' Consent in connection with Viking
Office Products, Inc.
23.3 Consent of Simpson Thacher & Bartlett (included in Exhibits
5.1 and 8.1).
23.4 Consent of Latham & Watkins (included in Exhibit 8.2).
23.5 Consent of Peter J. Solomon Company Limited.
23.6 Consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
23.7 Consent of SBC Warburg Dillon Read Inc.
24.1 Power of Attorney (included in Signature Page).
99.1 Form of Office Depot Proxy Card.
99.2 Form of Viking Proxy Card.
99.3 Opinion of The Peter J. Solomon Company Limited, attached as
Annex II to the Joint Proxy Statement/Prospectus contained
in this Registration Statement.
99.4 Opinion of Merrill Lynch, Pierce Fenner & Smith
Incorporated, attached as Annex III to the Joint Proxy
Statement/Prospectus contained in this Registration
Statement.
</TABLE>
<PAGE> 170
<TABLE>
<C> <S>
99.5 Opinion of SBC Warburg Dillon Read Inc., attached as Annex
IV to the Joint Proxy Statement/Prospectus contained in this
Registration Statement.
99.6 Consents of persons named to become directors of Office
Depot, Inc. who have not signed this Registration Statement.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to Office Depot, Inc.'s Current Report on Form
8-K, dated as of May 18, 1998.
(2) Incorporated by reference to the respective exhibit to the Company's Proxy
Statement for its 1995 Annual Meeting of Stockholders.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on August 12, 1996.
(4) Incorporated by reference to the Company's Current Report on Form 8-K, dated
as of September 4, 1996.
<PAGE> 171
Upon request, the Company will furnish a copy of any exhibit to this report
upon the payment of reasonable copying and mailing expenses.
<PAGE> 1
Exhibit 5.1
[Letterhead of Simpson Thacher & Bartlett]
(212) 455-2000
July 22, 1998
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Ladies and Gentlemen:
We have acted as counsel to Office Depot, Inc., a Delaware corporation
("Office Depot"), in connection with the Agreement and Plan of Merger dated May
18, 1998 (the "Merger Agreement") by and among Office Depot, Viking Office
Products, Inc., a California corporation ("Viking"), and VK Acquisition Corp.
("Merger Sub"). This opinion letter is furnished to you in connection with a
registration statement on Form S-4 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended, for the registration of 91,696,026 shares of common stock,
$0.01 par value per share (the "Shares"), of Office Depot. The Shares are to be
issued in connection with the Merger Agreement which provides, among other
things, for the merger of Merger Sub with and into Viking, as a result of which
Viking will become a wholly owned subsidiary of Office Depot. Capitalized terms
used but not defined herein shall have the meanings given to such terms in the
Merger Agreement.
We have examined, and have relied as to matters of fact upon, an
executed copy of the Merger Agreement, the Registration Statement, and originals
or copies, certified or otherwise identified to our satisfaction, of such
corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of Office Depot, and have made such other and further
investigations, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that the Shares being issued by
Office Depot have been duly authorized and, when issued in accordance with the
Merger Agreement, including, without limitation, following the approval by the
stockholders of Office Depot of the issuance of the Shares to Viking
stockholders pursuant to the Merger Agreement and completion of the Merger, will
be legally issued, fully paid and nonassessable.
This opinion letter is rendered to you in connection with the above
described transaction. We hereby consent to the filing of this opinion letter
as an exhibit to the Registration Statement, and to the use of our name therein
and in the related joint proxy statement/prospectus under the caption "Legal
Matters."
We are members of the Bar of the State of New York, and we do not
express any opinion herein concerning any law other than the law of the State
of New York and the federal law of the United States.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
<PAGE> 1
Exhibit 8.1
[LETTERHEAD OF SIMPSON THACHER & BARTLETT]
July 22, 1998
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, Florida 33445
Re: Merger of VK Acquisition Corp.
with and into Viking Office Products, Inc.
Ladies and Gentlemen:
You have requested our opinion, as counsel to Office Depot, Inc., a
Delaware corporation ("Office Depot"), as to the material United States federal
income tax consequences of the merger (the "Merger") of VK Acquisition Corp., a
Delaware corporation and a direct, wholly owned subsidiary of Office Depot
("Merger Sub"), with and into Viking Office Products, Inc., a California
corporation ("Viking"), pursuant to the terms and provisions of the Agreement
and Plan of Merger, dated as of May 18, 1998, by and among Office Depot, Merger
Sub and Viking (the "Merger Agreement"). All capitalized terms used but not
defined herein shall have the meaning ascribed to such terms in the Merger
Agreement.
In delivering this opinion letter, we have examined and relied upon the
accuracy and completeness of the facts, information, covenants and
representations contained in originals or copies, certified or otherwise
identified to our satisfaction, of the Merger Agreement, the Joint Proxy
Statement/Prospectus and such other documents as we have deemed necessary or
appropriate to form the basis for the opinions expressed
<PAGE> 2
2 July 22, 1998
herein. In addition, as to certain facts material to our opinions, we have
relied upon the accuracy of written representations made by an authorized
officer of each of Office Depot and Viking in letters dated the date hereof and
addressed to us, copies of which are attached hereto as Exhibits A and B,
respectively. Our opinions are conditioned upon, among other things, the
accuracy and completeness, as of the Effective Time, of the facts, information,
covenants and representations referred to above.
In our examination of such materials, we have assumed the genuineness of
all signatures, the legal capacity of all natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents. In rendering our opinions, we
also have assumed that the Merger and the transactions related to the Merger or
contemplated by the Merger Agreement will be consummated (i) in accordance with
the terms of the Merger Agreement and that none of the terms and conditions
contained therein has been or will be waived or modified in any respect and (ii)
as described in the Joint Proxy Statement/Prospectus. Any change in the facts
set forth or assumed herein could affect our conclusions. We have not
independently verified any factual matters relating to the Merger in connection
with or apart from our preparation of this opinion. Consequently, our opinion
does not take into account any matters not set forth herein which might have
been disclosed by independent verification.
Based upon and subject to the foregoing, we are of the opinion that: (i)
the Merger will constitute a "reorganization" within the meaning of Section
368(a) of the
<PAGE> 3
3 July 22, 1998
Code; (ii) Office Depot, Merger Sub and Viking will each be a party to such
reorganization within the meaning of Section 368(b) of the Code; (iii) no gain
or loss will be recognized by Office Depot, Merger Sub or Viking solely as a
result of the Merger; (iv) no gain or loss will be recognized by the Viking
stockholders upon the exchange of their shares of Viking Common Stock solely for
shares of Office Depot Common Stock pursuant to the Merger; (v) the adjusted tax
basis of the Office Depot Common Stock received in the Merger by a Viking
stockholder will be the same as the adjusted tax basis of the shares of Viking
Common Stock surrendered by such stockholder in exchange therefor; (vi) the
holding period for shares of Office Depot Common Stock received in the Merger by
a Viking stockholder will include the holding period of the shares of Viking
Common Stock surrendered by such stockholder in exchange therefor, provided such
shares of Viking Common Stock were held as a capital asset by such stockholder
at the Effective Time; and (vii) the Merger will not have any United States
federal income tax consequences for the stockholders of Office Depot. These
opinions may not be applicable to Viking stockholders who receive their shares
of Office Depot Common Stock pursuant to the exercise of employee stock options
or otherwise as compensation or who are not citizens or residents of the United
States. Our opinions are based upon the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Regulations promulgated thereunder and other
relevant judicial and administrative rulings or pronouncements, all as in effect
on the date hereof. These authorities are all subject to change and such change
may be made with retroactive effect.
<PAGE> 4
4
July 22, 1998
We are members of the Bar of the State of New York, and we do not express any
opinions herein concerning any law other than the federal law of the United
States. In addition, except for the opinions set forth herein, we do not
express any other opinions in connection with the Merger or the transactions
contemplated by the Merger Agreement or described in the Joint Proxy
Statement/Prospectus.
This opinion letter (and the opinions expressed herein) is being delivered
to you in connection with the Merger. This opinion letter (and the opinions
expressed herein) may not be relied upon by you or used, circulated, quoted or
otherwise referred to for any other purpose without our prior written consent.
We hereby consent to the filing of this opinion letter as an exhibit to the
Joint Proxy Statement/Prospectus and to the use of our name in the Joint Proxy
Statement/Prospectus under the caption "The Merger--Certain Federal Income Tax
Consequences".
Very truly yours,
SIMPSON THACHER & BARTLETT
<PAGE> 5
Exhibit A to
Exhibit 8.1
[LETTERHEAD OF OFFICE DEPOT, INC.]
July 22, 1998
Re: The Merger of VK Acquisition Corp.
with and into Viking Office Products, Inc.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Ladies and Gentlemen:
The following facts and representations are being furnished to you in
connection with the preparation of your tax opinion regarding the material
United States federal income tax consequences of the merger (the "Merger") of VK
Acquisition Corp. ("Merger Sub") with and into Viking Office Products, Inc.
("Viking") pursuant to the Agreement and Plan of Merger, dated as of May 18,
1998, by and among Office Depot, Inc. ("Office Depot"), Merger Sub and Viking
(the "Merger Agreement"). We understand that you will be relying on such facts
and representations in delivering this opinion. Unless otherwise defined herein,
capitalized terms shall have the meanings ascribed to them in the Merger
Agreement.
The undersigned, a duly authorized officer of Office Depot, hereby
represents and warrants, after due inquiry and investigation of such matters,
that, as of the Effective Time:
1. The Merger will be effected in accordance with the Merger
Agreement.
2. The fair market value of the Office Depot Common Stock
received by each stockholder of Viking in the Merger will be approximately equal
to the fair market value of Viking Common Stock surrendered by such stockholder
in the Merger.
3. Following the Merger, Viking will hold at least 90% of the
fair market value of the net assets and at least 70% of the fair market value of
the gross assets held by Viking and Merger Sub, as the case may be, immediately
prior to the Merger. For purposes of this representation, amounts paid by Viking
or Merger Sub to shareholders of Viking who receive cash or other property,
amounts paid by Viking or Merger Sub to dissenting shareholders of Viking,
amounts used by Viking and Merger Sub to pay expenses incurred in connection
with the Merger and all redemptions and distributions
<PAGE> 6
Simpson Thacher & Bartlett -2- July 22, 1998
(except for regular, normal dividends) made by Viking will be considered assets
held by Viking or Merger Sub, as the case may be, immediately prior to the
Merger.
4. Neither Office Depot nor any corporation affiliated with
Office Depot will (i) be under any obligation or will have entered into any
agreement or understanding to redeem or repurchase any of the Office Depot
Common Stock issued to stockholders of Viking in the Merger or to make any
extraordinary distributions in respect of such Office Depot Common Stock or (ii)
have any plan or intention to reacquire any of the Office Depot Common Stock
issued in the Merger.
5. Office Depot has no plan or intention to (i) liquidate Viking,
(ii) merge Viking with or into another corporation, (iii) sell or otherwise
dispose of the stock of Viking, except for transfers of such stock to
corporations controlled by Office Depot, or (iv) cause Viking to sell or
otherwise dispose of any of its assets, or any assets that it acquired from
Merger Sub, except for dispositions in the ordinary course of its business or
transfers of assets to a corporation controlled by Viking.
6. Following the Merger, Viking will continue its historic
business or use a significant portion of its historic business assets in a
business.
7. Prior to the Merger, Office Depot will own all of the
outstanding stock of Merger Sub.
8. Merger Sub is being formed solely to effect the Merger and it
will not conduct any business or other activities prior to the Merger. Merger
Sub will have no liabilities that will be assumed by Viking and it will not
transfer any assets to Viking in the Merger that are subject to any liabilities.
9. Pursuant to the Merger, at least 80% of the Viking Common
Stock will be exchanged solely for Office Depot Common Stock. For purposes of
this representation, shares of Viking Common Stock exchanged for cash or other
property originating with Office Depot will be treated as outstanding Viking
Common Stock on the Effective Date.
10. To the knowledge of Office Depot, at the Effective Time,
Viking will not have any warrants, options, convertible securities or any other
type of right pursuant to which any person could acquire any stock of Viking.
11. Neither Office Depot nor any of its affiliates own, or have
owned during the past five years, any stock of Viking.
<PAGE> 7
Simpson Thacher & Bartlett -3- July 22, 1998
12. To the knowledge of Office Depot, Viking has no plan or
intention to issue any additional shares of stock that would cause Office Depot
to own less than (i) 80% of the total combined voting power of all classes of
Viking stock entitled to vote or (ii) 80% of any other class of stock of Viking.
13. Office Depot, Merger Sub and Viking and the stockholders of
Viking will pay their respective expenses, if any, incurred in connection with
the Merger.
14. There will be no intercorporate indebtedness existing between
Office Depot or its subsidiaries and Viking or its subsidiaries that was issued,
acquired or will be settled at a discount.
15. Neither Office Depot nor Merger Sub will (i) elect, or have in
effect an election, to be treated as a "regulated investment company" or as a
"real estate investment trust" or file any tax return consistent with such
treatment or (ii) be a corporation 50% or more of the fair market value of whose
total assets are stock or securities and 80% or more of the fair market value of
whose total assets are assets held for investment. In making the determinations
described in (ii) above, (x) the stock and securities of any subsidiary of
Office Depot or Merger Sub shall be disregarded and Office Depot or Merger Sub,
as the case may be, shall be deemed to own its ratable share of such
subsidiary's assets and (y) a corporation shall be considered to be subsidiary
of Office Depot or Merger Sub, as the case may be, if Office Depot and/or Merger
Sub owns 50% or more of the combined voting power of all classes of the stock of
such subsidiary that are entitled to vote, or 50% or more of the total value of
all of the outstanding stock of such subsidiary. In addition, in determining the
fair market value of Office Depot's and Merger Sub's total assets for the
purposes of making this representation, Office Depot and Merger Sub shall
exclude any cash and cash items (such as receivables), government securities
and, to the extent provided in the applicable Treasury regulations, any assets
acquired (through incurring indebtedness or otherwise) for the purposes of
causing Office Depot or Merger Sub to not be characterized as an entity
described in (i) or (ii) of the first sentence of this paragraph or causing
Office Depot or Merger Sub to meet the requirements of Section 368(a)(2)(F)(ii)
of the Internal Revenue Code of 1986, as amended (the "Code").
16. Office Depot, Merger Sub and Viking will not be under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
17. The fair market value of the assets of Viking will equal or
exceed the sum of its liabilities plus the amount of liabilities, if any, to
which such assets will be subject.
<PAGE> 8
Simpson Thacher & Bartlett -4- July 22, 1998
18. None of the compensation to be received by any
shareholder-employees of Viking will be separate consideration for, or allocable
to, any of their shares of the Viking Common Stock; none of the Office Depot
Common Stock to be received by any shareholder-employees of Viking will be
separate consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of Viking will be for services
actually rendered (or to be rendered) and will be commensurate with amounts paid
to third parties bargaining at arm's-length for similar services.
Office Depot acknowledges that your tax opinion may not accurately
describe the tax consequences of the Merger if any of the foregoing facts or
representations is inaccurate.
Very truly yours,
Office Depot, Inc.
-------------------------------
By:
Title:
<PAGE> 9
Exhibit B to
Exhibit 8.1
[LETTERHEAD OF VIKING OFFICE PRODUCTS, INC.]
July 22, 1998
Re: The Merger of VK Acquisition Corp.
with and into Viking Office Products, Inc.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Ladies and Gentlemen:
The following facts and representations are being furnished to you in
connection with the preparation of your tax opinion regarding the material
United States federal income tax consequences of the merger (the "Merger") of VK
Acquisition Corp. ("Merger Sub") with and into Viking Office Products, Inc.
("Viking") pursuant to the Agreement and Plan of Merger, dated as of May 18,
1998, by and among Office Depot, Inc. ("Office Depot"), Merger Sub and Viking
(the "Merger Agreement"). We understand that you will be relying on such facts
and representations in delivering this opinion. Unless otherwise defined herein,
capitalized terms shall have the meanings ascribed to them in the Merger
Agreement.
The undersigned, a duly authorized officer of Viking, hereby represents
and warrants, after due inquiry and investigation of such matters, that, as of
the Effective Time:
1. The Merger will be effected in accordance with the Merger
Agreement.
2. The fair market value of the Office Depot Common Stock
received by each stockholder of Viking in the Merger will be approximately equal
to the fair market value of Viking Common Stock surrendered by such stockholder
in the Merger.
3. Following the Merger, Viking will hold at least 90% of the
fair market value of the net assets and at least 70% of the fair market value of
the gross assets held by Viking and Merger Sub, as the case may be, immediately
prior to the Merger. For purposes of this representation, amounts paid by Viking
or Merger Sub to shareholders of Viking who receive cash or other property,
amounts paid by Viking or Merger Sub to dissenting shareholders of Viking,
amounts used by Viking and Merger Sub to pay
<PAGE> 10
Simpson Thacher & Bartlett -2- July 22, 1998
expenses incurred in connection with the Merger and all redemptions and
distributions (except for regular, normal dividends) made by Viking will be
considered assets held by Viking or Merger Sub, as the case may be, immediately
prior to the Merger.
4. To the knowledge of Viking, neither Office Depot nor any
corporation affiliated with Office Depot will (i) be under any obligation or
will have entered into any agreement or understanding to redeem or repurchase
any of the Office Depot Common Stock issued to stockholders of Viking in the
Merger or to make any extraordinary distributions in respect of such Office
Depot Common Stock or (ii) have any plan or intention to reacquire any of the
Office Depot Common Stock issued in the Merger.
5. To the knowledge of Viking, Office Depot has no plan or
intention to (i) liquidate Viking, (ii) merge Viking with or into another
corporation, (iii) sell or otherwise dispose of the stock of Viking, except for
transfers of such stock to corporations controlled by Office Depot, or (iv)
cause Viking to sell or otherwise dispose of any of its assets, or any assets
that it acquired from Merger Sub, except for dispositions in the ordinary course
of its business or transfers of assets to a corporation controlled by Viking.
6. To the knowledge of Viking, following the Merger, Viking will
continue its historic business or use a significant portion of its historic
business assets in a business.
7. Pursuant to the Merger, at least 80% of the Viking Common
Stock will be exchanged solely for Office Depot Common Stock. For purposes of
this representation, shares of Viking Common Stock exchanged for cash or other
property originating with Office Depot will be treated as outstanding Viking
Common Stock on the Effective Date.
8. At the Effective Time, Viking will not have any warrants,
options, convertible securities or any other type of right pursuant to which any
person could acquire any stock of Viking.
9. To the knowledge of Viking, neither Office Depot nor any of
its affiliates own, or have owned during the past five years, any stock of
Viking.
10. To the knowledge of Viking, Viking has no plan or intention to
issue any additional shares of stock that would cause Office Depot to own less
than (i) 80% of the total combined voting power of all classes of Viking stock
entitled to vote or (ii) 80% of any other class of stock of Viking.
<PAGE> 11
Simpson Thacher & Bartlett -3- July 22, 1998
11. Office Depot, Merger Sub and Viking and the stockholders of
Viking will pay their respective expenses, if any, incurred in connection with
the Merger.
12. There will be no intercorporate indebtedness existing between
Office Depot or its subsidiaries and Viking or its subsidiaries that was issued,
acquired or will be settled at a discount.
13. Viking will not (i) elect, or have in effect an election, to
be treated as a "regulated investment company" or as a "real estate investment
trust" or file any tax return consistent with such treatment or (ii) be a
corporation 50% or more of the fair market value of whose total assets are stock
or securities and 80% or more of the fair market value of whose total assets are
assets held for investment. In making the determinations described in (ii)
above, (x) the stock and securities of any subsidiary of Viking shall be
disregarded and Viking shall be deemed to own its ratable share of such
subsidiary's assets and (y) a corporation shall be considered to be a subsidiary
of Viking, if Viking owns 50% or more of the combined voting power of all
classes of the stock of such subsidiary that are entitled to vote, or 50% or
more of the total value of all of the outstanding stock of such subsidiary. In
addition, in determining the fair market value of Viking's total assets for the
purposes of making this representation, Viking shall exclude any cash and cash
items (such as receivables), government securities and, to the extent provided
in the applicable Treasury regulations, any assets acquired (through incurring
indebtedness or otherwise) for the purposes of causing Viking to not be
characterized as an entity described in (i) or (ii) of the first sentence of
this paragraph or causing Viking to meet the requirements of Section
368(a)(2)(F)(ii) of the Internal Revenue Code of 1986, as amended (the "Code").
14. Viking will not be under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. The fair market value of the assets of Viking will equal or
exceed the sum of its liabilities plus the amount of liabilities, if any, to
which such assets will be subject.
16. To the knowledge of Viking, none of the compensation to be
received by any shareholder-employees of Viking will be separate consideration
for, or allocable to, any of their shares of the Viking Common Stock; none of
the Office Depot Common Stock to be received by any shareholder-employees of
Viking will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employees of Viking will
be for services actually rendered (or to be rendered) and will be commensurate
with amounts paid to third parties bargaining at arm's-length for similar
services.
<PAGE> 12
Simpson Thacher & Bartlett -4- July 22, 1998
Viking acknowledges that your tax opinion may not accurately describe
the tax consequences of the Merger if any of the foregoing facts or
representations is inaccurate.
Very truly yours,
Viking Office Products, Inc.
------------------------------
By:
Title:
<PAGE> 1
Exhibit 8.2
[LATHAM & WATKINS LETTERHEAD]
July 22, 1998
Viking Office Products, Inc.
950 West 190th Street
Torrance, California 90502
Re: Tax Consequences of Merger of Viking Office
Products, Inc. and Office Depot, Inc.
Gentlemen:
You have requested our opinion with respect to certain federal
income tax consequences of the proposed merger and reorganization pursuant to
the Agreement and Plan of Merger, dated as of May 18, 1998 (the "Agreement"),
among Viking Office Products, Inc., a California corporation ("Viking"), Office
Depot, Inc., a Delaware corporation ("Depot"), and V.K. Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Depot ("Sub"), as described
in the Joint Proxy Statement/Prospectus filed by Depot and Viking (the "Proxy
Statement") forming part of the Registration Statement on Form S-4 under the
Securities Act of 1933, as amended, as filed by Depot and Viking with the
Securities and Exchange Commission, dated July 22, 1998 (the "Registration
Statement"). Specifically, you have requested our opinion as to whether, for
federal income tax purposes, the Merger qualifies as a reorganization within
the meaning of section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), to which each of Viking, Depot and Sub will be a party within the
meaning of Section 368(b) of the Code. This opinion is being furnished pursuant
to section 7.03(c) of the Agreement. For purposes of this opinion, all
capitalized terms, unless otherwise specified, have the meanings assigned to
them in the Proxy Statement.
In rendering our opinion, we have examined and relied upon the
accuracy and completeness of the facts, information and representations
contained in the Agreement, the Registration Statement and the Proxy Statement.
In connection with this opinion, Depot and
<PAGE> 2
LATHAM & WATKINS
Viking Office Products, Inc.
July 22, 1998
Page 2
Viking have made statements and representations to us with respect to certain
factual matters, which statements and representations we have neither
investigated nor verified, and which are set forth in the exhibits attached to
this opinion. The opinions expressed herein are conditioned on the initial and
continuing accuracy of the facts, information and representations set forth in
the documents referred to above. We have assumed that all such statements and
representations qualified by the knowledge and belief of Depot, Viking or Sub
will be complete and accurate as of the Effective Time as though not so
qualified. In our examination, we have assumed the genuineness of all
signatures, the conformity to original documents of all documents submitted
genuineness of all signatures, the conformity to original documents submitted
to us as certified or photostatic copies and the authenticity of the originals
of such documents.
In rendering our opinion, we have considered the applicable provisions of
the Code, the Treasury Regulations promulgated thereunder, pertinent judicial
authorities and published rulings and other pronouncements of the Internal
Revenue Service, all as of the date hereof. We express no opinion as to the tax
consequences of the Merger under any laws other than the federal income tax
laws of the United States.
This opinion does not address the tax consequences of any transaction
effected prior to or after the Merger (whether or not such transactions were
effected in connection with the Merger), including, without limitation, the
exercise of options or rights to purchase Viking Common Stock in anticipation of
the Merger. This opinion also does not address the United States federal income
tax considerations applicable to stockholders subject to special treatment under
United States federal income tax law, including, for example, Viking
stockholders who acquired their Viking Common Stock through an exercise of
employee stock options or rights or otherwise as compensation, stockholders who
are dealers in securities, insurance companies, stockholders who are foreign
persons and stockholders who hold their stock as part of a hedge, straddle or
conversion transaction.
Based solely on and subject to the foregoing and provided that the Merger
is consummated in the manner set forth in the Proxy Statement, we are of the
opinion that, assuming the Merger qualifies as a merger under state law, for
federal income tax purposes, the Merger will be treated as a reorganization
within the meaning of section 368(a) of the Code and each of Viking, Depot and
Sub will be a "party to the reorganization" within the meaning of section
368(b) of the Code. Accordingly: (a) no gain or loss will be recognized by
Viking stockholders who exchange their Viking Common Stock solely for shares of
Depot Common Stock pursuant to the Merger; (b) the aggregate tax basis of the
Depot Common Stock received by a Viking stockholder in the Merger will be the
same as the aggregate tax basis of the Viking Common Stock surrendered in
exchange therefor; (c) the holding period of the Depot Common Stock received
by a Viking stockholder in the Merger will include the holding period for the
Viking Common Stock surrendered in exchange therefor, provided that the Viking
Common
<PAGE> 3
LATHAM & WATKINS
Viking Office Products, Inc.
July 22, 1998
Page 3
Stock so surrendered is held as a capital asset by such Viking stockholder
at the Effective Time; (d) no gain or loss will be recognized by Depot, Sub
or Viking solely as a result of the Merger; and (e) the Merger will not
have any tax consequences for the Depot stockholders.
Except as set forth above, we express no other opinion as to the tax
consequences of the Merger and related transactions to any party under
federal, state, local or foreign laws. Our opinion is not binding on the
Internal Revenue Service or the courts, and there is no assurance that the
Internal Revenue Service will not assert a contrary position. Furthermore,
no assurance can be given that future legislative, judicial or
administrative changes, on either a prospective or retroactive basis would
not adversely affect the accuracy of the conclusions herein. If all the
transactions described in the Agreement are not consummated in accordance
with the terms of such Agreement or if all of the representations,
warranties, statements and assumptions upon which we relied are not true
and accurate at all relevant times, our opinion might be adversely affected
and may not be relied upon.
We are furnishing this opinion solely to Viking and its stockholders
in connection with the Merger, and this opinion is not to be relied upon by
any other person for any other purpose. We consent to the filing of this
opinion as an exhibit to the Registration Statement and to the use of our
name under the caption "The Merger--Certain Federal Income Tax
Consequences" in the Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 10.13
FORM OF EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of _____________, 1998 between Office
Depot, Inc., a Delaware corporation (the "Company"), and _____________
("Executive").
In consideration of the mutual covenants contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Employment
The Company shall employ Executive, and Executive hereby accepts
employment with the Company, upon the terms and conditions set forth in this
Agreement for the period beginning on the date hereof and ending as provided in
paragraph 4 hereof (the "Employment Term").:
2. Position and Duties
(a) During the Employment Period, Executive shall serve as a [ ] and
shall have the normal duties, responsibilities and authority of a [ ] of the
Company, subject to the power of the Company's chief executive officer ("CEO")
to expand or limit such duties, responsibilities and authority.
(b) Executive shall devote Executive's best efforts and Executive's
full business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity) to the business and affairs
of the Company and its Subsidiaries; provided that Executive shall, with the
prior approval of the CEO, be allowed to serve as (i) a director or officer of
any non-profit organization including trade, civic, educational or charitable
organizations, or (ii) a director of any corporation which is not competing with
the Company or any of its Subsidiaries in the office product and office supply
industry so long as such duties do not materially interfere with the performance
of Executive's duties or responsibilities under this Agreement. Executive shall
perform Executive's duties and responsibilities under this Agreement to the best
of Executive's abilities in a diligent, trustworthy, businesslike and efficient
manner.
(c) For purposes of this Agreement, "Subsidiaries" shall mean any
corporation of which the securities having a majority of the voting power in
electing directors are, at the time of determination, owned by the Company,
directly or through one or more Subsidiaries.
3. Base Salary and Benefits
(a) Initially, Executive's base salary shall be $__________________
per annum (the "Base Salary"), which salary shall be payable in regular
installments in accordance with the Company's general payroll practices and
shall be subject to customary withholding. Executive's Base Salary shall be
reviewed at least annually by the CEO and shall be subject to adjustment as the
CEO shall determine based on among other things, market practice and
<PAGE> 2
2
performance. In addition, during the Employment Term, Executive shall be
entitled to participate in certain of the Company's long term incentive programs
established currently or in the future by the Company for which officers of the
Company then at Executive's level are generally eligible (including, but not
limited to, stock option, restricted stock, performance unit/share plans or
long-term cash plans).
(b) In addition to the Base Salary, Executive shall be entitled to
participate in the Company's Management Incentive Plan (the "Bonus Plan") as
administered by the Compensation Committee. If the Compensation Committee (or
the Company's Board of Directors (the "Board")) modifies such Bonus Plan during
the Employment Term, Executive shall continue to participate at a level no lower
than the highest established for any officer of the Company then at Executive's
level.
(c) Executive shall be entitled to paid vacation in accordance with
the Company's general payroll practices for officers of the Company then at
Executive's level.
(d) The Company shall reimburse Executive for all reasonable
expenses incurred by Executive in the course of performing Executive's duties
under this Agreement which are consistent with the Company's policies in effect
from time to time with respect to travel, entertainment and other business
expenses, subject to the Company's requirements with respect to reporting and
documentation of such expenses.
(e) Executive will be entitled to all benefits currently or in the
future maintained for officers of the Company then at Executive's level,
including without limitation: medical and dental insurance, life insurance and
short-term and long-term disability insurance, supplemental health and life
insurance, profit sharing and retirement benefits.
4. Term
(a) The Employment Term shall end on the [ ] anniversary of the date
of this Agreement; provided that (i) the Employment Term shall be extended for
one year in the event that written notice of the termination of this Agreement
is not given by one party hereof to the other at least six months prior to the
end of the Employment Term; provided further that (ii) the Employment Term shall
terminate prior to such date (A) upon Executive's death or permanent disability
or incapacity (as determined by the Board in its good faith judgment), (B) upon
the mutual agreement of the Company and Executive, (C) by the Company's
termination of this Agreement for Cause (as defined below) or without Cause or
(D) by Executive's termination of this Agreement for Good Reason (as defined
below) or without Good Reason.
(b) If the Employment Term is terminated by the Company without
Cause or is terminated by the Executive for Good Reason, Executive (and
Executive's family with respect to clause (iii) below) shall be entitled to
receive (i) Executive's Base Salary through the [ ] anniversary of such
termination and Executive's Pro Rata Bonus, if and only if Executive has not
breached the provisions of paragraph 5, 6 and 7 hereof, (ii) vested and earned
(in accordance with the Company's applicable plan or program) but unpaid amounts
under incentive plans, health and welfare plans, deferred compensation plans,
and other employer programs of the Company which Executive participates (other
than the Pro Rata Bonus) and (iii) life insurance and medical
<PAGE> 3
3
insurance through the [ ] anniversary of such termination pursuant to the
Company's insurance programs to the extent Executive participated immediately
prior to the date of such termination; provided that the insurance Executive or
Executive's family is entitled to pursuant to this clause (iii) shall be reduced
by the amount of any such insurance Executive or Executive's family is entitled
to receive as a result of any other employment. The amounts payable pursuant to
paragraph 4(b)(i) and (ii) shall be payable, at the Company's discretion, in one
lump sum payment within 30 days following termination of the Employment Term or
in any other manner consistent with the Company's normal payment policies.
(c) If the Employment Term is terminated by the Company for Cause or
by the Executive without Good Reason, Executive shall be entitled to receive (i)
Executive's Base Salary through the date of such termination and (ii) vested and
earned (in accordance with the Company's applicable plan or program) but unpaid
amounts under incentive plans, health and welfare plans, deferred compensation
plans, and other employer programs of the Company which Executive participates;
provided, however, Executive shall not be entitled to payment of a Pro Rata
Bonus.
(d) If the Employment Term is terminated upon Executive's death or
permanent disability or incapacity (as determined by the Board in its good faith
judgment), Executive, or Executive's estate if applicable, shall be entitled to
receive the sum of (i) Executive's Base Salary through the date of such
termination and (ii) vested and earned (in accordance with the Company's
applicable plan or program) but unpaid amounts under incentive plans, health and
welfare plans, deferred compensation plans, and other employer programs of the
Company which Executive participates. The amount payable pursuant to this
paragraph 4(d) shall be payable, at the Company's discretion, in one lump sum
payment within 30 days following termination of the Employment Term or in any
other manner consistent with the Company's normal payment policies.
(e) Except as otherwise provided herein, fringe benefits and bonuses
hereunder (if any) which accrue or become payable after the termination of the
Employment Term shall cease upon such termination.
(f) For purposes of the Agreement, Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of
its affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the CEO which
specifically identifies the manner in which the Board or the CEO believes
that the Executive has not substantially performed the Executive's Duties,
or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act of failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interest of the
<PAGE> 4
4
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the CEO or
based upon the advice of counsel for the Company shall be conclusively presumed
to be done, or omitted to be done, by the Executive in good faith and in the
best interest of the Company.
(g) For purposes of this Agreement, "Good Reason" shall mean a
material breach by the Company of a material provision of this Agreement which
has not been cured by the Company within thirty (30) days after written notice
of noncompliance has been given by Executive to the Company.
(h) For purposes of the Agreement, "Pro Rata Bonus" shall mean the
sum of (i) the pro rata portion (calculated as if the "target" amount under such
plan has been reached) under any current annual incentive plan from the
beginning of the year of termination through the date of termination and (ii) if
and to the extent Executive is vested, the pro rata portion (calculated as if
the "target" amount under such plan has been reached) under any long-term
incentive plan or performance plan from the beginning of the period of
determination through the date of termination.
5. Confidential Information. Executive acknowledges that the
information, observations and data obtained by Executive while employed by the
Company and its Subsidiaries concerning the business or affairs of the Company
or any other Subsidiary ("Confidential Information") are the property of the
Company or such Subsidiary. Therefore, Executive agrees that Executive shall not
disclose to any unauthorized person or use for Executive's own purposes any
Confidential Information without the prior written consent of the Board or the
CEO, unless and to the extent that the aforementioned matters become generally
known to and available for use by the public other than as a result of
Executive's acts or omissions. Executive shall deliver to the Company at
termination of the Employment Term, or at any other time the Company may
request, all memoranda, notes, plans, record, reports, computer tapes, printouts
and software and other documents and data (and copies therein) in any form or
medium relating to the Confidential Information, Work Product (as defined below)
or the business of the Company or any Subsidiary that Executive may then possess
or have under Executive's control.
6. Inventions and Patents. Executive acknowledges that all
inventions, innovations, improvements, development, methods, designs, analyses,
drawings, reports and all similar or related information (whether or not
patentable) that relate to the Company's or any of its Subsidiaries' actual or
anticipated business, research and development or existing or future products or
services and that are conceived, developed or made by Executive while employed
by the Company and its Subsidiaries ("Work Product") belong to the Company or
such Subsidiary. Executive shall promptly disclose such Work Product to the
Board or the CEO and perform all actions reasonably requested by the Board or
the CEO (whether during or after the Employment Term) to establish and confirm
such ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).
7. Non-Compete, Non-Solicitation.
(a) In further consideration of the compensation to be paid to
Executive
<PAGE> 5
5
hereunder, Executive acknowledges that in the course of Executive's employment
with the Company Executive shall become familiar with the Company's trade
secrets and with other Confidential Information concerning the Company and its
Subsidiaries and that Executive's services shall be of special, unique and
extraordinary value to the Company and its Subsidiaries. Therefore, Executive
agrees that, during the Employment Term and for one year thereafter (the
"Noncompete Period"), Executive shall not directly or indirectly own any
interest in, manage, control, participate in, consult with, render services for,
or in any manner engage in any business competing with the businesses of the
Company or its Subsidiaries, as such businesses exist or are in process on the
date of the termination of Executive's employment, within any geographical area
in which the Company or its Subsidiaries engage or plan to engage in such
businesses. Nothing herein shall prohibit Executive from being a passive owner
of not more than 2% of the outstanding stock of any class of a corporation which
is publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any Subsidiary at any time during the Employment Term
or (iii) induce or attempt to induce any customer, supplier, licensee, licensor,
franchisee or other business relation of the Company or any Subsidiary to cease
doing business with the Company or such Subsidiary, or in any way interfere with
the relationship between any such customer, supplier, licensee or business
relation and the Company or any Subsidiary (including, without limitation,
making any negative statements or communications about the Company or its
Subsidiaries).
(c) If, at the time of enforcement of this paragraph 7, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained in this paragraph 7 are(?)
reasonable.
(d) In the event of the breach or a threatened breach by Executive
of any of the provisions of this paragraph 7, the Company, in addition and
supplementary to other rights and remedies existing in its favor, may apply to
any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
for the provisions hereof (without posting a bond or other security). In
addition, in the event of any alleged breach or violation by Executive of this
paragraph 7, the Noncompete Period shall be tolled until such breach or
violation has been duly cured.
8. Executive's Representations. Executive hereby represents and
warrants to the Company that (i) the execution, delivery and performance of this
Agreement by Executive do not and shall not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which Executive is bound, (ii)
Executive is not a party to or bound by any employment agreement, noncompete
agreement or confidentiality agreement with any other person or entity and (iii)
upon the execution and delivery of this Agreement by the Company, this Agreement
shall be the valid and
<PAGE> 6
6
binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that Executive has had an
opportunity to consult with independent legal counsel regarding Executive's
rights and obligations under this Agreement and that Executive fully understands
the terms and conditions contained herein.
9. Survival. Paragraphs 5, 6 and 7 and paragraphs 9 through 16 shall
survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Term.
10. Notices. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed by first class mail,
return receipt requested, to the recipient at the address below indicated:
Notice to Executive:
Name: ____________________________________
Address:__________________________________
__________________________________
__________________________________
Notice to the Company:
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Chief Financial Officer
and
Office Depot, Inc.
2200 Germantown Road
Delray Beach, Florida 33445
Attention: Executive Vice President - Human Resources
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement shall be deemed to have been given when so delivered
or mailed.
11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not effect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
12. Complete Agreement. This Agreement and those documents expressly
<PAGE> 7
7
referred to herein and other documents of even date herewith embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
13. No Strict Construction. The language used in this Agreement
shall be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
party.
14. Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
15. Successors and Assigns. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive, the Company and their
respective heirs, successors and assigns, except that Executive may not assign
Executive's rights or delegate Executive's obligations hereunder without the
prior written consent of the Company.
16. Choice of Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
exhibits and schedules hereto shall be governed by, and construed in accordance
with, the laws of the State of Florida, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the State of Florida or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Florida.
17. Amendment and Waiver. The provisions of this Agreement may be
amended or waived only with the prior written consent of the Company and
Executive, and no course of conduct or failure or delay in enforcing the
provisions of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
* * * * *
<PAGE> 8
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
OFFICE DEPOT, INC.
By:______________________________
Name:
Its:
EXECUTIVE
---------------------------------
Name:
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Office Depot on Form S-4 of our report dated February 12, 1998 appearing in
and incorporated by reference in the Annual Report on Form 10-K of Office Depot,
Inc. for the year ended December 27, 1997, and to the reference to us under the
heading "Experts" in the Joint Proxy Statement/Prospectus, which is part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Miami, Florida
July 20, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Office Depot, Inc. on Form S-4 of our reports dated August 20, 1997 appearing
in and incorporated by reference in the Annual Report on Form 10-K of Viking
Office Products, Inc. for the year ended June 27, 1997 and to the reference to
us under the heading "Experts" in the Joint Proxy Statement/Prospectus, which is
part of this Registration Statement.
DELOITTE & TOUCHE LLP
Los Angeles, California
July 20, 1998
<PAGE> 1
Exhibit 23.5
[LETTERHEAD OF PETER J. SOLOMON COMPANY LIMITED]
July 21, 1998
Board of Directors
Office Depot, Inc.
2200 Old Germantown Road
Delray Beach, FL 33445
Lady and Gentlemen:
We hereby consent to the references to our firm and to the inclusion of the
opinion of our firm dated May 18, 1998 in the Joint Proxy Statement/Prospectus
of Office Depot, Inc. (which is also the Joint Proxy Statement/Prospectus of
Viking Office Products, Inc.) filed with the Securities and Exchange Commission
on the date hereof. In the foregoing consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
PETER J. SOLOMON COMPANY LIMITED
<PAGE> 1
Exhibit 23.6
CONSENT OF MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
We hereby consent to the use of our opinion dated May 17, 1998 to the Board
of Directors of Viking Office Products, Inc., a California corporation, includes
as Annex III to the Joint Proxy Statement/Prospectus which forms a part of the
Registration Statement on Form S-4 of Office Depot, Inc., a Delaware
corporation, relating to the merger of VK Acquisition Corp., a California
corporation and a wholly-owned subsidiary of Office Depot, with and into Viking
and to the references to such opinion in such Joint Proxy Statement/Prospectus.
In giving this consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder (collectively, the "Act"), nor do we admit that we are
experts with respect to any part of such registration statement within the
meaning of the term "experts" as used in the Act.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
Date: July 21, 1998
<PAGE> 1
Exhibit 23.7
Consent of Warburg Dillon Read LLC
We hereby consent to the use of Annex IV containing our opinion letter
dated May 17, 1998 to the Board of Directors of Viking Office Products Inc., a
California corporation, in the Joint Proxy Statement/Prospectus constituting a
part of the Registration Statement on Form S-4 relating to the merger of VK
Acquisition Corp., a California corporation and a wholly-owned subsidiary of
Office Depot, Inc., a Delaware corporation, with and into Viking Office
Products, Inc. and to the references to our firm in such Proxy
Statement/Prospectus. In giving this consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act promulgated thereunder. Pursuant to a business combination
effective June 29, 1998, SBC Warburg Dillon Read Inc.'s successor became
Warburg Dillon Read LLC.
Warburg Dillon Read LLC
New York, New York
July 21, 1998
<PAGE> 1
Exhibit 99.1
PROXY
OFFICE DEPOT, INC.
2200 OLD GERMANTOWN ROAD
DELRAY BEACH, FLORIDA 33445
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Barry J. Goldstein and David I. Fuente, with
full power of substitution, as attorneys, agents and proxies to vote on behalf
of the undersigned at the special meeting of the stockholders (the
"Stockholders") of Office Depot, Inc. ("Office Depot") called by the Board of
Directors of Office Depot (the "Office Depot Board"), to be held at 2200 Old
Germantown Road, Delray Beach, Florida 33445, on August 26, 1998 at 11 a.m.
Eastern time, or any adjournment thereof, for the following purposes:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
[up arrow] FOLD AND DETACH HERE [up arrow]
INSTRUCTIONS
1. Signatures of Stockholders of Record. In order to be valid, each proxy
must be signed by the Stockholder of record on July 20, 1998. The
signature must correspond exactly with the name(s) as written on the label
affixed to the proxy representing the shares of Office Depot Common Stock
without alteration. If shares of Office Depot Common Stock are owned of
record by two or more joint owners, all such owners must sign a single
proxy in respect of such shares. If shares of Office Depot Common Stock
are registered in different names, it will be necessary to complete, sign
and submit as many separate proxies as there are different registrations.
If a proxy is to be signed by a trustee, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or other
person acting in a fiduciary capacity, such person should so indicate when
signing, and proper evidence satisfactory to the Office Depot Board of
such person's authority so to act must be submitted along with the proxy.
2. Delivery. Delivery of a proxy to an address other than the address set
forth on the proxy does not constitute a valid delivery. Only proxies
received at such address on or prior to the meeting date will be valid.
The method of delivery of a proxy is at the option and risk of the
tendering Stockholder. If delivery is by mail, registered mail with return
receipt requested is recommended. In all cases, sufficient time should be
allowed to ensure timely delivery.
3. Requests for Assistance or Additional Copies. Requests for assistance or
additional copies of the Joint Proxy Statement or the proxy may be
directed to Charlotte Brown at CIC Investor Communications, Inc. at: (201)
896-5670 or to the following address:
Office Depot, Inc.
c/o CIC Investor Communications, Inc.
111 Commerce Road
Carlstadt, New Jersey 07072-2746
Attention: Charlotte Brown
<PAGE> 2
Please mark
your votes as /X/
indicated in
this example.
THE OFFICE DEPOT BOARD RECOMMENDS THE PROPOSED SHARE ISSUANCE.
1. To approve the issuance of shares (the "Share Issuance") of Office Depot's
Common Stock (the "Office Depot Common Stock") in exchange for shares of
common stock of Viking Office Products, Inc. ("Viking") (on the basis of
one share of Office Depot Common Stock for each share of Viking common
stock pursuant to the Agreement and Plan of Merger, dated as of May 18,
1998, between Office Depot and Viking).
APPROVE / / DISAPPROVE / /
THE OFFICE DEPOT BOARD RECOMMENDS THE PROPOSED CHARTER AMENDMENT.
2. To approve an amendment (the "Charter Amendment") to Section 4.1 of the
certificate of incorporation of Office Depot to increase the number of
authorized shares of Office Depot Common Stock from 400,000,000 to
800,000,000.
APPROVE / / DISAPPROVE / /
THE OFFICE DEPOT BOARD RECOMMENDS THE PROPOSED INCENTIVE PLAN AMENDMENT.
3. To approve an amendment (the "Incentive Plan Amendment") to the Office
Depot Long-Term Equity Incentive Plan to increase the number of shares of
Office Depot Common Stock reserved for issuance to officers and key
employees following the Merger from 15,212,500 to 20,712,500.
APPROVE / / DISAPPROVE / /
4. Any other business that may properly come before the meeting.
This proxy (the "Proxy"), when properly executed and duly returned, will be
voted in the manner directed herein by the undersigned Stockholder. If no
direction is made on this Proxy, this Proxy will be voted FOR the proposed Share
Issuance, Charter Amendment and Incentive Plan Amendment.
Signature(s) Dated , 1998
--------------------------------- -----------
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE LABEL AFFIXED TO THIS PROXY.
WHEN SHARES ARE HELD BY JOINT TENANTS, ALL OWNERS MUST SIGN. WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE
OF SUCH. IF A CORPORATION, PLEASE SIGN NAME BY AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
[up arrow] FOLD AND DETACH HERE [up arrow]
<PAGE> 1
Exhibit 99.2
PROXY
VIKING OFFICE PRODUCTS, INC.
950 WEST 190TH STREET
TORRANCE, CALIFORNIA 90502
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Frank Jarc and Charlotte Wiethoff, and each of
them, with full power of substitution, as attorneys, agents and proxies to vote
on behalf of the undersigned at the special meeting of the stockholders (the
"Stockholders") of Viking Office Products, Inc. ("Viking") called by the Board
of Directors of Viking (the "Viking Board"), to be held at Viking's executive
offices, 950 West 190th Street, Torrance, California 90502, on August 26, 1998
at 8:00 a.m., Pacific time (11:00 a.m. Eastern time), or any adjournment
thereof, for the following purposes:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
[up arrow] FOLD AND DETACH HERE [up arrow]
INSTRUCTIONS
1. Signatures of Stockholders of Record. In order to be valid, each proxy
must be signed by the Stockholder of record on July 20, 1998. The
signature must correspond exactly with the name(s) as written on the label
affixed to the proxy representing the shares without alteration. If shares
are owned of record by two or more joint owners, all such owners must sign
a single proxy in respect of such shares. If shares are registered in
different names, it will be necessary to complete, sign and submit as many
separate proxies as there are different registrations.
If a proxy is to be signed by a trustee, executor, administrator,
guardian, attorney-in-fact, agent, officer of a corporation or other
person acting in a fiduciary capacity, such person should so indicate when
signing, and proper evidence satisfactory to the Board of Directors of
such person's authority so to act must be submitted along with the proxy.
2. Delivery. Delivery of a proxy to an address other than the address set
forth on the proxy does not constitute a valid delivery. Only proxies
received at such address on or prior to the meeting date will be valid.
The method of delivery of a proxy is at the option and risk of the
tendering Stockholder. In all cases, sufficient time should be allowed to
insure timely delivery.
3. Requests for Assistance or Additional Copies. Requests for assistance or
additional copies of the Joint Proxy Statement or the proxy may be
directed to Charlotte Brown at CIC Investor Communications, Inc. at: (201)
896-5670 or to the following address:
Viking Office Products, Inc.
c/o CIC Investor Communications, Inc.
111 Commerce Road
Carlstadt, New Jersey 07072-2746
Attention: Charlotte Brown
<PAGE> 2
Please mark
your votes as / X /
indicated in
this example.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE MERGER AND THE MERGER
PROPOSAL.
1. To approve the merger (the "Merger Proposal") of VK Acquisition Corp., a
wholly owned subsidiary of Office Depot, Inc., with and into Viking, which
will become the surviving corporation in the Merger and a wholly owned
subsidiary of Office Depot, pursuant to the terms of the Agreement and
Plan of Merger, dated as of May 18, 1998, among Office Depot, Inc., VK
Acquisition Corp. and Viking (the "Merger Agreement").
APPROVE / / DISAPPROVE / /
2. Any other business that may properly come before the meeting.
This proxy (the "Proxy"), when properly executed and duly returned, will be
voted in the manner directed herein by the undersigned Stockholder. If no
direction is made on this Proxy, this Proxy will be voted FOR the Merger
Proposal.
Signature(s) Dated , 1998
--------------------------------- -------------
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE LABEL AFFIXED TO THIS PROXY.
WHEN SHARES ARE HELD BY JOINT TENANTS, ALL OWNERS MUST SIGN. WHEN SIGNING AS AN
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE
OF SUCH. IF A CORPORATION, PLEASE SIGN NAME BY AUTHORIZED OFFICER. IF A
PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
[up arrow] FOLD AND DETACH HERE [up arrow]
<PAGE> 1
Exhibit 99.6
CONSENT OF PERSONS NAMED
AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, the undersigned hereby consent to be named in the Registration
Statement on Form S-4 as a person about to become a director of Office Depot,
Inc. upon consummation of the Merger.
Dated: July 21, 1998
/s/ Irwin Helford
----------------------------------------
/s/ M. Bruce Nelson
----------------------------------------
/s/ Lee A. Ault III
----------------------------------------
/s/ Neil R. Austrian
----------------------------------------
