<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997
REGISTRATION NO. 333-36463
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
U.S. OFFICE PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5112 52-1906050
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of organization) Classification Code Number) Incorporation or
Identification
Number)
</TABLE>
1025 THOMAS JEFFERSON STREET, NW, SUITE 600 EAST, WASHINGTON, D.C. 20007 (202)
339-6700
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
<TABLE>
<S> <C>
JONATHAN J. LEDECKY MICHAEL DOOLING
Chairman of the Board Chairman of the Board
U.S. Office Products Company Mail Boxes Etc.
1025 Thomas Jefferson Street, NW 6060 Cornerstone Court West
Suite 600 East San Diego, CA 92121-3795
Washington, D.C. 20007 (619) 455-8800
(202) 339-6700
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
LINDA L. GRIGGS, ESQ. J. JAY HERRON, ESQ.
Morgan, Lewis & Bockius LLP O'Melveny & Myers LLP
1800 M Street, NW 610 Newport Center Drive, Suite 1700
Washington, D.C. 20036 Newport Beach, CA 92660
(202) 467-7000 (714) 760-9600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective
and certain other conditions under the Merger Agreement are satisfied or waived.
------------------------
If the securities being registered on this Form are being 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, 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. / / _________
------------------------
Pursuant to Rule 416(a), the number of shares registered herein shall be
adjusted to include any additional shares which may become issuable as a result
of stock splits, stock dividends, or similar transactions.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MAIL BOXES ETC.
6060 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121-3795
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER , 1997
TO THE SHAREHOLDERS OF MAIL BOXES ETC.:
A Special Meeting of Shareholders of Mail Boxes Etc. (the "Company" or
"MBE") will be held at the Company's offices at 6060 Cornerstone Court West, San
Diego, California 92121 on , November , 1997, at 9:00 a.m., Pacific
Standard Time (together with any adjournment or postponement thereof, the
"Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve the principal terms of the
Agreement and Plan of Merger, dated May 22, 1997 as amended as of October 9,
1997 (the "Merger Agreement"), relating to the merger of a wholly owned
subsidiary of U.S. Office Products Company ("USOP") with and into MBE. Under
the original terms of the Merger Agreement, the outstanding shares of common
stock, no par value per share, of MBE, are to be converted into shares of
common stock, $.001 par value per share, of USOP, subject to certain
conditions and adjustments as set forth in the Merger Agreement. On October
7, 1997, USOP announced a three-for-two stock split in the form of a stock
dividend (the "stock split") payable on November 6, 1997 to record holders
as of October 23, 1997. To give effect to the stock split, USOP and MBE
amended the Merger Agreement as of October 9, 1997 all as more fully set
forth in the accompanying Proxy Statement/Prospectus and in the Merger
Agreement, a copy of which is included as Appendix I to the Proxy
Statement/Prospectus; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on September 30, 1997
are entitled to notice of and to vote at the Special Meeting.
By Order of the MBE Board of
Directors,
Bruce M. Rosenberg
Vice President, General Counsel and
Secretary
San Diego, California
October , 1997
IT IS DESIRABLE THAT AS MANY SHAREHOLDERS AS POSSIBLE BE REPRESENTED AT THE
SPECIAL MEETING. THEREFORE, WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE SIGN AND RETURN THE ACCOMPANYING PROXY CARD. YOU MAY
REVOKE OR CHANGE YOUR PROXY AT ANY TIME BEFORE IT IS EXERCISED. IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON. A RETURN
ENVELOPE IS ENCLOSED FOR YOUR USE AND NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES. PLEASE RESPOND AS SOON AS POSSIBLE.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
MAIL BOXES ETC.
6060 CORNERSTONE COURT WEST
SAN DIEGO, CALIFORNIA 92121-3795
OCTOBER , 1997
TO THE SHAREHOLDERS OF MAIL BOXES ETC.:
You are cordially invited to attend a Special Meeting of Shareholders of
Mail Boxes Etc. (the "Company" or "MBE") on , November , 1997, at
9:00 a.m., Pacific Standard Time, at the Company's offices at 6060 Cornerstone
Court West, San Diego, California 92121 (together with any adjournment or
postponement thereof, the "Special Meeting").
As described in the enclosed Proxy Statement/Prospectus, at the Special
Meeting you will be asked to consider and vote upon a proposal to approve the
principal terms of the merger of a newly created, wholly owned subsidiary of
U.S. Office Products Company ("USOP") with and into MBE (the "Merger") as
provided in the Agreement and Plan of Merger, dated as of May 22, 1997 as
amended as of October 9, 1997 (the "Merger Agreement"). Upon completion of the
Merger, MBE will become a wholly owned subsidiary of USOP. Under the original
terms of the Merger Agreement, each outstanding share of common stock of MBE was
to be converted into one share of common stock of USOP, subject to certain
conditions and adjustments as set forth in the Merger Agreement. On October 7,
1997, USOP announced a three-for-two stock split in the form of a stock dividend
(the "stock split") payable on November 6, 1997, to record holders as of October
23, 1997. To give effect to the stock split, USOP and MBE amended the Merger
Agreement as of October 9, 1997 so that each outstanding share of common stock
of MBE will be converted into 1.5 shares of common stock of USOP, subject to
certain conditions and adjustments as set forth in the Merger Agreement. The
Merger Agreement and the proposed Merger are discussed in more detail in the
accompanying Proxy Statement/Prospectus and its appendices (the "Proxy
Statement/ Prospectus").
In light of the proposed Merger, the Company has not scheduled and, if the
Merger is approved by shareholders and consummated, does not anticipate holding,
its Annual Meeting of Shareholders.
A summary of certain provisions of Chapter 13 of the California General
Corporation Law pertaining to the rights of dissenting shareholders in
connection with the proposed Merger is included in the Proxy
Statement/Prospectus in the section entitled "The Merger--Dissenters' Rights of
Appraisal." The complete text of Chapter 13 of the California General
Corporation Law is included as Appendix III to the Proxy Statement/Prospectus.
The Merger is intended to be a tax-free reorganization for federal income
tax purposes. See "The Merger--Certain Federal Income Tax Consequences" in the
accompanying Proxy Statement/Prospectus.
IN UNANIMOUSLY APPROVING THE MERGER AGREEMENT, YOUR BOARD OF DIRECTORS HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF MBE AND ALL OF ITS
SHAREHOLDERS AND RECOMMENDS THAT THE SHAREHOLDERS OF MBE VOTE TO APPROVE THE
PRINCIPAL TERMS OF THE MERGER AND THE TRANSACTIONS IT CONTEMPLATES.
The Merger Agreement and financial and other information concerning the
businesses of MBE and USOP are included in the Proxy Statement/Prospectus and
other documents filed by MBE and USOP with the Securities and Exchange
Commission. Please review the Proxy Statement/Prospectus carefully.
The affirmative vote of the holders of a majority of the outstanding shares
of MBE common stock is required to approve the principal terms of the Merger.
Therefore, failure to return the proxy card will have the same effect as a vote
against the Merger. Accordingly, we urge you to complete, sign and date the
enclosed proxy card and return it in the enclosed return envelope, whether or
not you plan to attend the Special Meeting. Your vote is important.
Sincerely,
Anthony W. DeSio
VICE CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
<PAGE>
MAIL BOXES ETC.
PROXY STATEMENT
------------------------
U.S. OFFICE PRODUCTS COMPANY
PROSPECTUS
UP TO 19,530,457 SHARES OF COMMON STOCK
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of Mail Boxes Etc., a California corporation (the "Company" or "MBE"),
and Santa Fe Acquisition Corp. ("Sub"), a newly created, wholly owned subsidiary
of U.S. Office Products Company, a Delaware corporation ("USOP" or "U.S. Office
Products"), pursuant to an Agreement and Plan of Merger, dated as of May 22,
1997 (the "Merger Agreement"), by and among USOP, Sub and the Company. As of
October 9, 1997, USOP, MBE and Sub amended the Merger Agreement (the amended
Merger Agreement is hereafter referred to as the "Merger Agreement"). On October
7, 1997, USOP announced a three-for-two stock split in the form of a stock
dividend (the "stock split") payable on November 6, 1997 to record holders as of
October 23, 1997. The October 9, 1997 amendment to the Merger Agreement included
changes made to take account of the stock split. The information in this Proxy
Statement/Prospectus describes the terms of the Merger on a post-stock split
basis except where otherwise indicated.
In the Merger, USOP will exchange 1.5 shares of its common stock, par value
$.001 per share ("USOP Common Stock"), for each share of the Company's common
stock, no par value per share (the "MBE Common Stock" or the "Company Common
Stock"), if the average of the daily closing prices (as reported on the Nasdaq
National Market) of a share of USOP Common Stock during the Averaging Period (as
defined below) is between $15.33 and $19.33. Prior to the declaration of the
stock split and the amendment of the Merger Agreement, each share of Company
Common Stock was to be exchanged for 1 share of USOP Common Stock, subject to
adjustment if the Average Price of USOP Common Stock (as defined below) was less
than $23.00 or more than $29.00. The revised terms--adjusting the Exchange Ratio
to 1.5 shares of USOP Common Stock for each share of Company Common Stock,
subject to adjustment if the Average Price of USOP Common Stock is less than
$15.33 or more than $19.33--reflect the impact of the stock split and preserve
the economic terms of the Merger, as originally agreed to by USOP and MBE prior
to the declaration of the stock split.
The Averaging Period is the period consisting of the 20 trading days ending
either two business days before the date of the Company's special meeting (the
"Special Meeting") of shareholders (if the closing of the Merger takes place
within five business days of the Special Meeting) or two business days before
the closing date of the Merger (if the closing takes place more than five
business days after the Special Meeting). The term "Average Price of USOP Common
Stock" means the average of the daily closing prices (as reported on the Nasdaq
National Market) of USOP Common Stock during the Averaging Period, with the
closing prices on all days prior to November 7, 1997 (the ex-dividend date)
being divided by 1.5 to give effect to the stock split. Prior to November 7,
1997, the closing prices of USOP Common Stock will be reported on the Nasdaq
National Market without giving effect to the stock split. To convert the daily
closing prices of USOP Common Stock on all days prior to November 7, 1997 into a
post-split equivalent price, the closing price on each such day will be divided
by 1.5 and the resulting adjusted closing price will be used to determine the
Average Price of USOP Common Stock.
If the Average Price of USOP Common Stock is more than $19.33, the number of
shares of USOP Common Stock for which each share of MBE Common Stock will be
exchanged in the Merger (the "Exchange Ratio") will be adjusted as described
below. If the Average Price of USOP Common Stock is less than $15.33, the
Exchange Ratio may be adjusted as described below. Because the Averaging Period
for determining the Average Price of USOP Common Stock may extend until as late
as two business days before the closing of the Merger, the Exchange Ratio will
not be known with certainty until as late as such time. Therefore, at the time
they vote, MBE shareholders will not know the number of shares of USOP Common
Stock that they will receive in the Merger. The following toll-free number is
available for MBE shareholders to obtain a daily closing price for the USOP
Common Stock: 800/874-1667. As described herein, the maximum value of the USOP
Common Stock (based upon the Average Price of USOP
<PAGE>
Common Stock) to be received by MBE shareholders in the Merger is capped at
$29.00 per share of MBE Common Stock. However, there is no minimum value (based
upon the Average Price of USOP Common Stock) for the USOP Common Stock to be
received by shareholders in the Merger, and such value could be less than $23.00
per share of MBE Common Stock. See "Risk Factors--Special Considerations with
Respect to the Merger--Risks Associated with Exchange Ratio," "--Merger Approval
Confers Discretion on Company Board to Terminate or Proceed with Merger if
Average Price of USOP Common Stock is Below $15.33," "The Mail Boxes Etc.
Special Meeting--Matters to be Considered" and "The Merger Agreement--Conversion
of Shares."
Based upon the number of outstanding shares of USOP Common Stock and MBE
Common Stock as of September 30, 1997, the record date for the Special Meeting
(the "Record Date"), and assuming the Exchange Ratio is equal to 1.5, up to
18,886,582 shares of USOP Common Stock will be issued to the Company's
shareholders in the Merger (assuming currently exercisable options to purchase
1,786,129 shares of MBE Common Stock are fully exercised) representing
approximately 17.0% of the shares of USOP Common Stock that would be outstanding
immediately following the closing of the Merger. On October 6, 1997, the last
reported sale price of the MBE Common Stock on the Nasdaq National Market was
$28.25 per share, and the last reported sale price of the USOP Common Stock on
the Nasdaq National Market on the same day was $35.125 per share (which price
does not reflect the stock split).
The Merger is subject to a number of conditions. Among these conditions are
(i) the approval of the principal terms of the Merger by the shareholders of
MBE, (ii) the continuing accuracy, generally as of the closing date of the
Merger, of the representations and warranties made by USOP and MBE in the Merger
Agreement, (iii) the receipt of all required governmental approvals, and (iv)
the receipt of certain advice regarding the tax and accounting consequences of
the Merger. In addition, if holders of more than five percent of the outstanding
shares of MBE Common Stock vote against approval of the principal terms of the
Merger, USOP may, in its discretion, elect to terminate the Merger Agreement.
U.S. Office Products has filed a Registration Statement on Form S-4 (such
registration statement and all exhibits and amendments thereto are referred to
herein as the "Registration Statement") pursuant to the Securities Act of 1933,
as amended (the "Securities Act"), covering the issuance of up to 19,530,457
shares of USOP Common Stock, in connection with the Merger. This Proxy
Statement/Prospectus also constitutes a prospectus of USOP comprising a part of
the Registration Statement.
Certain major shareholders of MBE beneficially owning, as of the Record
Date, an aggregate of approximately 34% of the outstanding shares of MBE Common
Stock have executed and delivered agreements and irrevocable proxies to USOP
obligating these shareholders, among other things, to vote their shares of MBE
Common Stock in favor of the Merger (hereinafter, the "Voting Agreements"). See
"The Merger--Voting Agreements."
All information contained in this Proxy Statement/Prospectus relating to
USOP has been supplied by USOP, and all information relating to the Company has
been supplied by the Company.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY MBE SHAREHOLDERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS AND THE ACCOMPANYING FORM OF PROXY ARE FIRST
BEING MAILED TO SHAREHOLDERS OF THE COMPANY ON OR ABOUT OCTOBER , 1997. A
SHAREHOLDER WHO HAS GIVEN A PROXY MAY REVOKE IT AT ANY TIME BEFORE IT IS
EXERCISED.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................ 1
SUMMARY................................ 3
The Companies...................... 3
The Special Meeting................ 4
The Merger......................... 5
MARKET PRICE DATA...................... 9
MAIL BOXES ETC. SELECTED FINANCIAL
DATA................................. 10
U.S. OFFICE PRODUCTS COMPANY SELECTED
FINANCIAL DATA....................... 12
SELECTED UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION................ 14
COMPARATIVE PER SHARE DATA............. 15
RISK FACTORS........................... 16
Special Considerations with Respect
to U.S. Office Products
Company.......................... 16
Special Considerations with Respect
to Mail Boxes Etc................ 20
Special Considerations with Respect
to the Merger.................... 24
THE COMPANIES.......................... 27
MBE................................ 27
USOP............................... 27
Sub................................ 28
THE MAIL BOXES ETC. SPECIAL MEETING.... 29
General............................ 29
Matters to be Considered........... 29
Recommendation of the Board of
Directors of Mail Boxes Etc...... 29
Record Date; Voting Rights;
Proxies; Independent Public
Accountants...................... 29
Personal Solicitations and Shared
Costs............................ 30
THE MERGER............................. 31
General Description of the
Merger........................... 31
Stock Options...................... 31
Effective Time of the Merger....... 31
Procedures for Exchange of
Certificates..................... 31
Background of the Merger........... 32
Recommendation of the Board of
Directors of MBE and MBE's
Reasons for the Merger........... 34
Opinion of Financial Advisor....... 35
Approval of the Board of Directors
of U.S. Office Products Company
and U.S. Office Products' Reasons
for the Merger................... 38
Shares to be Voted by Directors and
Executive Officers............... 39
Federal Income Tax Consequences.... 39
Accounting Treatment............... 40
Conflicts of Interest.............. 40
Voting Agreements.................. 41
Certain Other Agreements........... 41
Federal Securities Law
Consequences..................... 42
Governmental and Regulatory
Approval......................... 42
Dissenters' Rights of Appraisal.... 42
DEMAND FOR PURCHASE.............. 43
VOTE AGAINST APPROVAL OF THE
MERGER......................... 44
NOTICE OF APPROVAL............... 44
SUBMISSION OF STOCK
CERTIFICATES................... 44
PURCHASE OF DISSENTING SHARES.... 44
THE MERGER AGREEMENT................... 46
General............................ 46
Conversion of Shares............... 46
Stock Options...................... 47
Representations and Warranties..... 47
Certain Covenants.................. 47
Director and Officer
Indemnification.................. 49
Conditions......................... 49
Termination........................ 50
Fees and Expenses.................. 51
Amendment and Waiver............... 52
U.S. OFFICE PRODUCTS COMPANY PRO FORMA
COMBINED FINANCIAL STATEMENTS
(UNAUDITED).......................... 53
DESCRIPTION OF U.S. OFFICE PRODUCTS
STOCK................................ 62
General............................ 62
Common Stock....................... 62
Preferred Stock.................... 62
Transfer Agent and Registrar....... 62
COMPARATIVE RIGHTS OF STOCKHOLDERS OF
U.S. OFFICE PRODUCTS AND MAIL BOXES
ETC.................................. 63
SHAREHOLDER PROPOSALS.................. 70
LEGAL MATTERS.......................... 70
EXPERTS................................ 70
APPENDICES............................. 72
</TABLE>
<PAGE>
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS 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 USOP, THE COMPANY OR ANY OTHER PERSON.
THIS 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
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 USOP OR THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
USOP and the Company are each subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by USOP and the Company with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, NW, Judiciary
Plaza, Washington, DC 20549; at the Regional Office of the Commission at 7 World
Trade Center, Suite 1300, New York, NY 10048; and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies of such materials may
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, NW, Washington, DC 20549 or from the
Commission's World Wide Web site at http://www.sec.gov. Shares of USOP Common
Stock and MBE Common Stock are traded on the Nasdaq National Market, and
reports, proxy statements and other information filed by USOP and MBE with the
Commission can also be inspected at the office of The Nasdaq Stock Market, 1735
K Street, NW, Washington, DC 20006.
USOP has filed with the Commission the Registration Statement with respect
to the shares of USOP Common Stock to be issued pursuant to the Merger
Agreement. This Proxy Statement/Prospectus does not contain all of the
information set forth in the Registration Statement. For further information
with respect to USOP, USOP Common Stock and the Company, reference is hereby
made to the Registration Statement (including its exhibits). Statements
contained in this Proxy Statement/Prospectus or in any document incorporated by
reference into this 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 documents filed by USOP with the Commission (File No. 0-25372)
are incorporated by reference into this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended April 26, 1997 filed
with the Commission on July 8, 1997 and amended on August 26, 1997;
2. Current Reports on Form 8-K dated April 26, 1997 (filed with the
Commission on May 29, 1997) and July 17, 1997 (filed with the Commission on July
21, 1997);
1
<PAGE>
3. Quarterly Report on Form 10-Q for the fiscal quarter ended July 26, 1997
filed with the Commission on September 10, 1997;
4. Historical financial statements required by Item 3-05 of Regulation S-X
of Whitcoulls Group Limited as of June 30, 1996 and 1995 and for the years then
ended contained in USOP's Current Report on Form 8-K dated January 29, 1997
filed with the Commission on January 30, 1997; and
5. The description of USOP's Common Stock under the caption "Description of
Registrant's Securities to be Registered" in the U.S. Office Products Company
Amendment No. 1 to the Registration Statement on Form 8-A, dated February 13,
1995, and the Company's Quarterly Report on Form 10-Q for the interim period
ended July 27, 1996 disclosing, among other things, an amendment to the
Company's Amended and Restated Certificate of Incorporation.
The following documents filed by MBE with the Commission (File No. 0-14821)
are incorporated by reference into this Proxy Statement/Prospectus:
1. Annual Report on Form 10-K for the fiscal year ended April 30, 1997 filed
with the Commission on July 9, 1997;
2. Current Report on Form 8-K dated May 22, 1997 filed with the Commission
on May 28, 1997;
3. Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 1997
filed with the Commission on September 12, 1997; and
4. The description of MBE's Common Stock contained in MBE's Registration
Statement on Form 8-A, dated July 20, 1986.
All documents and reports subsequently filed by USOP or the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference into this 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 incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this 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 Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES 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 PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST,
WITHOUT CHARGE. IN THE CASE OF DOCUMENTS RELATING TO USOP, REQUESTS SHOULD BE
DIRECTED TO U.S. OFFICE PRODUCTS COMPANY, 1025 THOMAS JEFFERSON STREET, NW,
SUITE 600 EAST, WASHINGTON, DC 20007, ATTENTION: SECRETARY, PHONE NUMBER
202/339-6700. IN THE CASE OF DOCUMENTS RELATING TO MBE, REQUESTS SHOULD BE
DIRECTED TO MAIL BOXES ETC., 6060 CORNERSTONE COURT WEST, SAN DIEGO, CALIFORNIA
92121, ATTENTION: SECRETARY, PHONE NUMBER 619/455-8800. IN ORDER TO ENSURE
TIMELY DELIVERY OF ANY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY OCTOBER
, 1997.
2
<PAGE>
SUMMARY
THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS INCLUDE
STATEMENTS ABOUT THE OPPORTUNITIES RESULTING FROM THE MERGER AND THE ANALYSES
USED BY MBE'S FINANCIAL ADVISORS. WHEN USED IN THIS PROXY STATEMENT/PROSPECTUS,
THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "CONTINUE," "INTEND," "WILL" AND
"EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO USOP, THE COMPANY OR THE
MANAGEMENT OF USOP OR THE COMPANY ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. NEITHER THE COMPANY NOR USOP UNDERTAKES ANY OBLIGATION TO REVISE
THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY FUTURE EVENTS OR CIRCUMSTANCES.
THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF USOP OR THE COMPANY COULD
DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR IMPLIED BY, THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN "RISK FACTORS." THIS PROXY
STATEMENT/PROSPECTUS ALSO CONTAINS PRO FORMA FINANCIAL INFORMATION THAT GIVES
RETROACTIVE EFFECT TO CERTAIN EVENTS, INCLUDING THE MERGER. SUCH INFORMATION IS
NOT NECESSARILY INDICATIVE OF THE RESULTS THAT WOULD HAVE BEEN ATTAINED IF THE
IDENTIFIED EVENTS HAD ACTUALLY OCCURRED AT THE BEGINNING OF THE PERIODS
PRESENTED OR OF THE FUTURE RESULTS OF USOP AND MBE AFTER THE MERGER. SEE "U.S.
OFFICE PRODUCTS COMPANY PRO FORMA COMBINED FINANCIAL STATEMENTS."
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS OR
INCORPORATED BY REFERENCE HEREIN.
THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THIS PROXY STATEMENT/PROSPECTUS
AND THE APPENDICES HERETO IN THEIR ENTIRETY.
THE COMPANIES
MBE
MBE is the world's largest franchisor of business, communication and postal
service centers with more than 3,300 centers operating worldwide. Currently, the
Company's franchisees sell over $1.3 billion in products and services to their
customer base. These products and services include packing and shipping, money
transfers, photocopying, faxing, mail receiving services, office supplies and
other related products and services. The franchisees also service large
corporations requiring a national distribution system to dispense a variety of
products and services to their customers and field-based employees and have an
installed base of approximately 400,000 postal box holders at their facilities
worldwide. The principal executive office of MBE is located at 6060 Cornerstone
Court West, San Diego, California 92121, and its telephone number is
619/455-8800. As used in this Proxy Statement/Prospectus, each of the terms
"Mail Boxes Etc.", "MBE" and "the Company" refers to Mail Boxes Etc. and its
wholly owned subsidiaries unless the context requires otherwise.
U.S. OFFICE PRODUCTS
USOP is one of the fastest growing suppliers of a broad range of office and
educational products and business services to corporate, commercial, industrial
and educational customers. Since its founding in October 1994, USOP has emerged
as a leading consolidator of several highly fragmented industries that serve the
needs of its customers. USOP operates throughout the United States, New Zealand,
Australia, Canada and the United Kingdom, selling a full range of more than
34,000 office and educational products and business services to its customers.
The Company currently has over 17,000 employees. The principal executive office
of USOP is located at 1025 Thomas Jefferson Street, NW, Suite 600 East,
Washington, DC 20007, and its telephone number is 202/339-6700. Unless the
context otherwise requires, each of the terms "U.S. Office Products" and "USOP"
refers to U.S. Office Products Company, a Delaware corporation, its
subsidiaries, affiliates and predecessors.
3
<PAGE>
THE SPECIAL MEETING
TIME, PLACE AND DATE
The Special Meeting of the MBE shareholders will be held at the Company's
offices at 6060 Cornerstone Court West, San Diego, California 92121 on
November , 1997, at 9:00 a.m., Pacific Standard Time. See "The Mail Boxes Etc.
Special Meeting--General."
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, holders of MBE Common Stock will consider and vote
upon a proposal to approve the principal terms of the Merger. Upon completion of
the Merger, MBE will become a wholly owned subsidiary of USOP. Shareholders will
also consider and vote upon any other matter that may properly come before the
Special Meeting. See "The Mail Boxes Etc. Special Meeting--Matters to be
Considered."
VOTE REQUIRED; RECORD DATE
The approval of the principal terms of the Merger will require the
affirmative vote of the holders of a majority of the outstanding shares of MBE
Common Stock entitled to vote on such matter. Only holders of MBE Common Stock
as of the close of business on the Record Date will be entitled to notice of,
and to vote at, the Special Meeting. See "The Mail Boxes Etc. Special Meeting."
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Board of Directors of the Company (the "Company Board") believes that
the terms of the Merger are fair to, and in the best interests of, the Company
and its shareholders. By a unanimous vote of the Company Board at a meeting held
on May 21, 1997, the Company Board approved the Merger Agreement and recommends
a vote FOR approval of the principal terms of the Merger.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, directors and executive officers of MBE were
beneficial owners of approximately 19% of the outstanding shares of MBE Common
Stock. As of the Record Date, directors and executive officers of USOP and their
affiliates were not beneficial owners of any of the outstanding shares of MBE
Common Stock.
THE VOTING AGREEMENTS
Certain major shareholders of MBE beneficially owning, as of the Record
Date, an aggregate of approximately 34% of the outstanding shares of MBE Common
Stock have executed and delivered the Voting Agreements to USOP obligating these
shareholders, among other things, to vote their shares of MBE Common Stock in
favor of the Merger. These agreements terminate if the Merger Agreement is
terminated. See "The Merger--Conflicts of Interest" and "--Voting Agreements."
OPINION OF MBE'S FINANCIAL ADVISOR
MBE retained ABN AMRO Chicago Corporation ("AACC") to act as its financial
advisor in connection with a possible transaction to enhance shareholder value.
As part of this engagement, MBE requested that AACC render its opinion as to the
fairness to MBE's shareholders of the Exchange Ratio to be received in the
Merger.
As part of its evaluation of the proposed terms of the Merger, AACC rendered
an opinion that, as of May 22, 1997, and subject to certain assumptions, factors
and limitations set forth in its written opinion as
4
<PAGE>
described below, the Exchange Ratio to be received by MBE shareholders is fair
to such shareholders from a financial point of view. See "The Merger--Opinion of
Financial Advisor."
THE FULL TEXT OF THE WRITTEN OPINION OF AACC, DATED MAY 22, 1997, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX II TO THIS
PROXY STATEMENT/PROSPECTUS AND SHOULD BE READ IN ITS ENTIRETY. AACC'S OPINION
DOES NOT REFLECT THE STOCK SPLIT ANNOUNCED BY USOP ON OCTOBER 7, 1997. AACC'S
OPINION WAS PREPARED FOR THE COMPANY BOARD AND ADDRESSES ONLY THE FAIRNESS OF
THE EXCHANGE RATIO TO THE HOLDERS OF MBE COMMON STOCK FROM A FINANCIAL POINT OF
VIEW. THE AACC OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE PROPOSED MERGER AND
DOES NOT CONSTITUTE AN OPINION AS TO WHAT THE VALUE OF USOP COMMON STOCK
ACTUALLY WILL BE WHEN ISSUED TO MBE SHAREHOLDERS IN THE MERGER. THE SUMMARY OF
THE OPINION OF AACC SET FORTH IN THIS PROXY STATEMENT/ PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
THE MERGER
GENERAL
The Merger Agreement contemplates the merger of Sub, a wholly owned and
newly created subsidiary of USOP, with and into the Company whereby the Company
will survive the Merger. Once the Merger is completed, the Company will become a
wholly owned subsidiary of USOP.
Under the terms of the Merger Agreement, USOP will exchange 1.5 shares of
USOP Common Stock for each share of MBE Common Stock in the Merger if the
Average Price of USOP Common Stock is between $15.33 and $19.33. If the Average
Price of USOP Common Stock is more than $19.33, the Company's shareholders will
receive for each share of MBE Common Stock that number of shares of USOP Common
Stock equal to 1.5 times the quotient of $19.33 divided by the Average Price of
USOP Common Stock. If the Average Price of USOP Common Stock is less than $15.33
and if MBE elects to terminate the Merger Agreement, USOP has the option, but
not the obligation, to adjust the Exchange Ratio to be equal to 1.5 times the
quotient of $15.33 divided by the Average Price of USOP Common Stock. If USOP
adjusts the Exchange Ratio as described, MBE must accept the adjustment and,
assuming all other conditions are satisfied or waived, proceed with the Merger.
If the Average Price of USOP Common Stock is less than $15.33 and MBE does not
elect to terminate the Merger Agreement, the Exchange Ratio will not change.
Shareholders should note that, under the terms of the Merger Agreement, the
maximum value (based on the Average Price of USOP Common Stock) of the USOP
Common Stock to be received by MBE shareholders in the Merger is capped at
$29.00 per share of MBE Common Stock, while there is no minimum value of such
stock to be received in the Merger. Because the Averaging Period for determining
the Average Price of USOP Common stock may extend until as late as two business
days before the closing of the Merger, the Exchange Ratio will not be known with
certainty until as late as such time. Therefore, at the time they vote, MBE
shareholders will not know the number of shares of USOP Common Stock that they
will receive in the Merger. The following toll-free number is available for MBE
shareholders to obtain a daily closing price for the USOP Common Stock:
800/874-1667. See "Risk Factors--Special Considerations with Respect to the
Merger--Risks Associated with Exchange Ratio," "--Merger Approval Confers
Discretion on Company Board to Terminate or Proceed with Merger if Average Price
of USOP Common Stock is Below $15.33" and "The Mail Boxes Etc. Special Meeting--
Matters to be Considered." Each of the shareholders of MBE Common Stock who
would be entitled to receive a fractional share of USOP Common Stock upon
surrender of such shareholder's shares of MBE Common Stock will receive, in lieu
thereof, cash in an amount equal to the value of such fractional share. See "The
Merger Agreement--General" and "--Conversion of Shares."
The Merger will become effective on the date when the parties file with the
California Secretary of State all of the documents required to be filed by the
California General Corporation Law (the "CGCL") (such documents, the "Merger
Documents"), or at such other time as Sub and MBE agree should be
5
<PAGE>
specified in the Merger Documents (the date and time of such filing, or such
later date or time as may be set forth in the filing, will be referred to as the
"Effective Time"). Assuming all conditions to the Merger contained in the Merger
Agreement are satisfied or waived prior thereto, it is currently anticipated
that the Effective Time will occur as soon as practicable following the MBE
Special Meeting.
CONFLICTS OF INTEREST
In considering the recommendation of the Company Board with respect to the
Merger, shareholders should be aware that certain members of the Company's
management and the Company Board have interests in the Merger that are in
addition to their interests in the Merger as shareholders of the Company
generally. These interests arise from, among other things, certain employee
benefit plans, indemnification arrangements and other matters that USOP will
assume or has agreed to provide after the Merger. See "The Merger--Conflicts of
Interest."
GOVERNMENTAL AND REGULATORY APPROVAL
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be completed until notifications have
been given and certain information has been furnished to the FTC and the
Antitrust Division of the U.S. Department of Justice (the "Antitrust Division")
and specified waiting period requirements have been satisfied. USOP and MBE
filed notification and report forms under the HSR Act with the FTC and the
Antitrust Division on June 20, 1997. The FTC and the Antitrust Division granted
early termination of the HSR Act waiting period on July 3, 1997. Thus, the
waiting period requirements of the HSR Act have been satisfied. Nevertheless, at
any time before or after consummation of the Merger, the FTC, the Antitrust
Division or state attorneys' general could take such action under the antitrust
laws as they deem necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger. Private parties may also seek
to take legal action under the antitrust laws under certain circumstances.
Based on the information available to them, USOP and MBE believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the completion of the
Merger on antitrust grounds will not be made or that, if such challenge were
made, USOP and MBE would prevail or would not be required to accept certain
conditions, including the divestitures of certain assets, in order to complete
the Merger.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
purposes. Under this method of accounting, following completion of the Merger,
the financial conditions, results of operations and cash flows of USOP and MBE
will be reflected for accounting purposes as if MBE had always been a wholly
owned subsidiary of USOP. USOP has been advised by its independent accountants
that they believe the Merger will qualify as a pooling-of-interests under
generally accepted accounting principles. MBE has been advised by its
independent accountants that MBE meets the criteria for a pooling-of-interests.
USOP's obligation to complete the Merger is conditioned on, among other things,
(i) the receipt by USOP and MBE, at the Effective Time, of written confirmation
from their respective independent accountants of the advice described above, and
(ii) no events having occurred which would establish with reasonable certainty
that the Merger could not be treated as a pooling-of-interests.
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization in which no gain or
loss will be recognized by USOP or MBE and no gain or loss will be recognized by
MBE shareholders, except with respect to cash received in lieu of fractional
shares. MBE has received an opinion of its counsel, O'Melveny & Myers LLP,
6
<PAGE>
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 summary of the substance of such opinion, see "The
Merger--Federal Income Tax Consequences."
CONDITIONS TO THE MERGER
The obligations of USOP and MBE to consummate the Merger are subject to
various conditions. Among these conditions are (i) the approval of the principal
terms of the Merger by the shareholders of MBE, (ii) the continuing accuracy,
generally as of the closing date of the Merger, of the representations and
warranties made by USOP and MBE in the Merger Agreement, (iii) the receipt of
all required governmental approvals, and (iv) confirmation of the accountants'
advice and receipt of the tax opinion described above. See "The Merger
Agreement--Conditions."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time (a) by mutual written consent of USOP and MBE; (b) by MBE or USOP if the
Merger has not occurred by November 30, 1997 (unless the failure to consummate
the Merger is the result of a breach of a covenant or a willful and material
breach of any representation or warranty set forth in the Merger Agreement by
the party seeking to terminate the Merger Agreement); (c) if the Average Price
of USOP Common Stock is less than $15.33 and USOP determines not to adjust the
Exchange Ratio to be equal to the 1.5 times the quotient of $15.33 divided by
the Average Price of USOP Common Stock after receipt of MBE's notice that it
intends to terminate the Merger Agreement; or (d) upon the occurrence of certain
other events described below. See "The Merger Agreement--Termination."
If the Merger Agreement is terminated pursuant to specified termination
provisions in the Merger Agreement, MBE will be required to pay a cash
termination fee and certain other cash amounts to USOP. Such cash termination
fee and other cash amounts will be at least equal to $4,623,262 and may be
significantly higher under certain circumstances. See "The Merger
Agreement--Termination."
DISCRETION OF COMPANY BOARD TO TERMINATE OR PROCEED WITH MERGER IF AVERAGE
PRICE OF USOP COMMON STOCK IS BELOW $15.33
If the Average Price of USOP Common Stock is below $15.33, the Company Board
may elect to (i) terminate the Merger Agreement, in which event the Merger would
be terminated unless USOP were to agree to adjust the Exchange Ratio to provide
the MBE shareholders with at least $23.00 in value (based on the Average Price
of USOP Common Stock) per share of MBE Common Stock, or (ii) proceed with the
Merger with an Exchange Ratio equal to 1.5, without any adjustment. Subject to
compliance with its fiduciary duties to shareholders, the Company Board does not
currently plan to submit to a further shareholder vote the Company Board's
decision whether to terminate or proceed with the Merger if the Average Price of
USOP Common Stock is below $15.33. See "Risk Factors--Special Considerations
with Respect to the Merger--Merger Approval Confers Discretion on Company Board
to Terminate or Proceed with Merger if Average Price of USOP Common Stock is
Below $15.33" and "The Mail Boxes Etc. Special Meeting--Matters to be
Considered."
DISSENTERS' RIGHTS
Under the CGCL, shareholders of record of MBE who do not wish to accept
shares of USOP in the Merger will have the right to have the fair value of their
MBE shares appraised by judicial determination and paid to them in cash only if
demands for payment are duly filed with respect to five percent or more of the
outstanding shares of MBE Common Stock. In order to perfect such dissenters'
rights, holders of MBE Common Stock must comply with certain procedural
requirements, including filing written notice with MBE not later than the date
of the Special Meeting of an intention to dissent and demand payment of the
7
<PAGE>
fair value of their shares, voting against approval of the principal terms of
the Merger and making a written demand for payment and depositing the
certificates representing such shares within 30 days after notice is given by
USOP and MBE of the results of the vote at the Special Meeting. See "The
Merger--Dissenters' Rights of Appraisal" and Appendix III.
FEDERAL SECURITIES LAW CONSEQUENCES
This Proxy Statement/Prospectus, unless appropriately amended or
supplemented, does not cover any resales by MBE shareholders of any shares of
USOP Common Stock that they receive in the Merger, and no person is authorized
to make any use of this Proxy Statement/Prospectus in connection with any such
resale.
All shares of USOP Common Stock received by MBE shareholders in the Merger
will be freely transferable, except that persons who are deemed to be
"affiliates" (as such term is defined for purposes of the pooling-of-interests
requirements and the Securities Act) of MBE prior to the Merger may resell
shares they receive only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Securities Act, or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of MBE generally
include individuals or entities who or that control, are controlled by, or are
under common control with, MBE and may include certain officers, directors and
principal shareholders of MBE. In addition, except for certain permitted DE
MINIMIS sales (subject to compliance with federal securities laws), such
affiliates will not be permitted to sell shares they receive in the Merger until
USOP has released results of operations that reflect the combined post-Merger
operations of USOP and MBE for a minimum of 30 days.
LISTING
It is a condition to the Merger that the shares of USOP Common Stock to be
issued in the Merger be authorized for quotation and trading on the Nasdaq
National Market.
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of shareholders of MBE currently are governed by the CGCL, as
well as the Restated Articles of Incorporation of MBE (the "MBE Charter") and
the Restated Bylaws of MBE (the "MBE Bylaws"). Upon consummation of the Merger,
shareholders of MBE will become stockholders of USOP, and their rights as
stockholders of USOP will be governed by the Delaware General Corporation Law
(the "DGCL"), the Amended and Restated Certificate of Incorporation of USOP (the
"USOP Charter") and the Amended and Restated Bylaws of USOP (the "USOP Bylaws").
For a discussion of various differences between the rights of shareholders of
MBE and the rights of stockholders of USOP, see "Comparative Rights of
Stockholders of U.S. Office Products and Mail Boxes Etc."
CERTAIN OTHER AGREEMENTS
Each of the affiliates of MBE has agreed not to transfer or otherwise
dispose of or reduce such affiliate's risk relating to (i) any shares of MBE
Common Stock within 30 days prior to the Effective Time, and (ii) any shares of
USOP Common Stock until USOP has released results of operations that reflect the
combined post-Merger operations of USOP and MBE for a minimum of 30 days, except
for certain DE MINIMIS transactions as permitted under the affiliate agreements.
In addition, each of the affiliates has agreed to certain federal securities law
restrictions on the resale of USOP Common Stock. See "The Merger--Federal
Securities Law Consequences." The restrictions on resale are intended to
preserve the characterization of the Merger for federal income tax purposes as a
tax-free reorganization, to comply with the requirements for
pooling-of-interests accounting treatment and to comply with restrictions on the
resale of securities imposed by the federal securities laws.
8
<PAGE>
MARKET PRICE DATA
The shares of USOP Common Stock are traded on the Nasdaq National Market
under the symbol "OFIS." The shares of MBE Common Stock are traded on the Nasdaq
National Market under the symbol "MAIL." The table below sets forth, for the
fiscal quarters indicated, the high and low closing prices of shares of USOP
Common Stock and MBE Common Stock as reported by the Nasdaq National Market.
These prices do not reflect the stock split payable by USOP on November 6, 1997.
<TABLE>
<CAPTION>
U.S. OFFICE PRODUCTS MAIL BOXES ETC.
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
1996
First Quarter.......................................................... $ 15.625 $ 10.625 $ 12.812 $ 8.25
Second Quarter......................................................... 17.25 13.75 14.375 11.625
Third Quarter.......................................................... 26.125 16.312 15.75 12.375
Fourth Quarter......................................................... 38.875 23.125 18.875 12.50
1997
First Quarter.......................................................... 44.875 25.25 23.75 16.50
Second Quarter......................................................... 37.375 25.312 25.875 19.00
Third Quarter.......................................................... 36.75 26.75 24.312 18.75
Fourth Quarter......................................................... 33.50 20.50 23.25 17.625
1998
First Quarter.......................................................... 31.75 22.75 27.875 18.00
Second Quarter (through October 6, 1997)............................... 35.125 26.00 28.50 24.625
</TABLE>
On May 21, 1997, the last full trading day prior to the execution and
delivery of the Merger Agreement and the public announcement of the proposed
Merger, the last reported sale price of USOP Common Stock on the Nasdaq National
Market was $24.50 per share, and the last reported sale price of MBE Common
Stock on the Nasdaq National Market was $19.625 per share.
On October 6, 1997, the most recent practicable date prior to the printing
of this Proxy Statement/ Prospectus, the last reported sale price of USOP Common
Stock on the Nasdaq National Market was $35.125 per share (which price does not
reflect the stock split), and the last reported sale price of MBE Common Stock
on the Nasdaq National Market was $28.25 per share.
Because the market price of USOP Common Stock is subject to fluctuation, the
market value of the shares of USOP Common Stock that holders of MBE Common Stock
will receive in the Merger may increase or decrease prior to and following
consummation of the Merger. THE COMPANY'S SHAREHOLDERS ARE URGED TO OBTAIN A
CURRENT MARKET QUOTATION FOR USOP COMMON STOCK. The following toll-free number
is available for MBE shareholders to obtain a daily closing price for the USOP
Common Stock: 800/874-1667. See also "Risk Factors--Special Considerations with
Respect to the Merger--Risks Associated with Exchange Ratio."
9
<PAGE>
MAIL BOXES ETC.
SELECTED FINANCIAL DATA
The Selected Financial Data for the fiscal years ended April 30, 1995, 1996
and 1997 have been derived from MBE's consolidated financial statements that
have been audited by Ernst & Young LLP, independent auditors. The consolidated
financial statements for the fiscal years ended April 30, 1995, 1996 and 1997
are incorporated by reference into this Proxy Statement/Prospectus. The
financial statements for the 1993 and 1994 fiscal years are not incorporated
herein by reference. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
incorporated by reference herein.
The Selected Financial Data for the three months ended July 31, 1996 and
July 31, 1997 have been derived from unaudited consolidated financial
statements, which financial statements are incorporated by reference into this
Proxy Statement/Prospectus. The unaudited combined financial statements have
been prepared on the same basis as the audited consolidated financial statements
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations for the periods presented.
10
<PAGE>
MAIL BOXES ETC.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED APRIL 30, ENDED
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
JULY 31, JULY 31,
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
STATEMENT OF INCOME DATA:
Revenue:
Royalty and marketing fees.................... $ 15,935 $ 19,972 $ 24,673 $ 30,947 $ 35,254 $ 7,600 $ 8,694
Franchise fees................................ 9,790 7,837 8,670 8,557 9,915 1,795 2,342
Sales of supplies and equipment............... 9,416 10,820 10,020 10,839 12,775 3,030 2,513
Interest income on leases and other........... 4,063 3,972 5,424 6,975 8,687 1,988 1,876
Company centers............................... 1,051 1,059 1,564 1,789 1,206 366 255
--------- --------- --------- --------- --------- --------- ---------
Total revenue................................... 40,255 43,660 50,351 59,107 67,837 14,779 15,680
Costs and expenses:
Franchise operations........................ 8,484 10,480 12,506 14,881 18,463 4,081 4,083
Franchise development....................... 4077 3,896 5,090 5,883 6,383 1,289 1,476
Cost of supplies and equipment sold......... 7697 8,914 7,915 8,465 9,585 2,277 1,844
Marketing................................... 3,112 3,713 4,630 4,068 6,219 1,421 1,275
General and administrative.................. 4,776 6,105 7,878 10,293 9,060 2,170 2,340
Company centers............................. 1,019 1,026 1,598 1,842 1,265 396 263
Nonrecurring litigation settlement
expenses/Merger costs..................... 5,000(1) 2,510(2)
--------- --------- --------- --------- --------- --------- ---------
Total costs and expenses........................ 29,165 34,134 39,617 45,432 55,975 11,634 13,791
Operating income................................ 11,090 9,526 10,734 13,675 11,862 3,145 1,889
Interest on investments and other............... 509 642 447 674 963 256 322
Income before income taxes...................... 11,599 10,168 11,181 14,349 12,825 3,401 2,211
Provision for income taxes...................... 4,716 4,136 4,411 5,620 4,834 1,331 1,122
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ 6,883 $ 6,032 $ 6,770 $ 8,729 $ 7,991 $ 2,070 $ 1,089
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income per share............................ $ 0.56 $ 0.49 $ 0.60 $ 0.77 $ 0.68 $ 0.18 $ 0.09
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares outstanding............. 12,381 12,433 11,357 11,403 11,780 11,741 12,075
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 30, AS OF JULY 31,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997 1996 1997
--------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Total assets................................... $ 56,178 $ 55,211 $ 64,294 $ 75,766 $ 85,675 $ 77,416 $ 90,285
Long-term debt................................. -- -- 1,337 1,402 3,916 1,328 3,738
Shareholders' equity........................... 49,508 50,115 52,145 61,363 71,138 63,710 72,978
Working capital................................ 26,674 24,102 22,565 33,143 41,235 36,210 44,196
</TABLE>
- ------------------------
(1) During the second quarter of fiscal year 1997, MBE settled a long-standing
lawsuit involving 33 former franchisees. The settlement resulted in a net
after-tax charge of approximately $3,000.
(2) These expenses represent costs related to the Merger, including legal,
accounting and financial advisory fees, severance costs and other
miscellaneous costs.
11
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SELECTED FINANCIAL DATA
The Selected Financial Data for the fiscal years ended April 30, 1995 and
1996 and April 26, 1997 have been derived from USOP's consolidated financial
statements that have been audited by Price Waterhouse LLP, independent
accountants. The Price Waterhouse LLP report on the financial statements is
based in part on the reports of other independent accountants, which reports are
incorporated by reference into this Proxy Statement/Prospectus. The consolidated
financial statements for the fiscal years ended April 30, 1995 and 1996 and
April 26, 1997 are incorporated by reference into this Proxy Statement/
Prospectus. The Selected Financial Data for the fiscal years ended April 30,
1993 and 1994 have been derived from the combined financial statements which are
not incorporated herein by reference. The data should be read in conjunction
with the consolidated financial statements, related notes and other financial
information incorporated by reference herein.
The Selected Financial Data for the three months ended July 27, 1996 and
July 26, 1997 have been derived from unaudited consolidated financial
statements, which financial statements are incorporated by reference into this
Proxy Statement/Prospectus. The unaudited combined financial statements have
been prepared on the same basis as the audited consolidated financial statements
and, in the opinion of management, contain all adjustments, consisting only of
normal recurring accruals, necessary for a fair presentation of the financial
position and results of operations for the periods presented.
The Selected Financial Data does not reflect the stock split.
12
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
SELECTED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED
------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 26, JULY 27, JULY 26,
1993 1994 1995 1996 1997 1996 1997
------------- ------------- --------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 707,541 $ 811,463 $1,041,304 $1,686,430 $2,835,875 $ 568,502 $ 863,595
Cost of revenues..................... 504,177 580,185 762,724 1,246,647 2,031,713 406,642 620,336
------------- ------------- --------- --------- --------- --------- ---------
Gross profit....................... 203,364 231,278 278,580 439,783 804,162 158,860 243,259
Selling, general and administrative
expenses........................... 185,163 202,521 237,864 372,180 655,101 128,626 193,571
Non-recurring acquisition costs...... 8,057 16,245 1,656 4,405
Restructuring costs.................. 3,214 4,395
------------- ------------- --------- --------- --------- --------- ---------
Operating income................... 18,201 28,757 40,716 56,332 128,421 28,578 45,283
Interest expenses.................... 6,015 6,067 8,319 20,123 45,901 8,832 10,504
Interest income...................... (657) (812) (1,135) (4,425) (7,632) (4,439) (629)
Other income....................... (1,075) (653) (1,389) (1,730) (3,689) (169) (1,482)
------------- ------------- --------- --------- --------- --------- ---------
Income before provision for income
taxes and extraordinary items...... 13,918 24,155 34,921 42,364 93,841 24,354 36,890
Provision for income taxes........... 2,362 2,514 3,754 7,487 35,103 7,789 15,948
------------- ------------- --------- --------- --------- --------- ---------
Income before extraordinary items.... 11,556 21,641 31,167 34,877 58,738 16,565 20,942
Extraordinary items -- losses on
early terminations of credit
facilities, net of income taxes.... 701 1,450
------------- ------------- --------- --------- --------- --------- ---------
Net income........................... $ 11,556 $ 21,641 $ 31,167 $ 34,176 $ 57,288 $ 16,565 $ 20,942
------------- ------------- --------- --------- --------- --------- ---------
------------- ------------- --------- --------- --------- --------- ---------
Weighted average common shares
outstanding........................ 45,583 61,174 57,484 73,440
Income per share before extraordinary
items.............................. $ 0.77 $ 0.96 $ 0.29 $ 0.29
Extraordinary items.................. 0.02 0.02
------------- ------------- --------- --------- --------- --------- ---------
Net income per share................. $ 0.75 $ 0.94 $ 0.29 $ 0.29
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 26, JULY 26,
1993 1994 1995 1996 1997 1997
----------- ----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................... $ 51,846 $ 63,366 $ 87,778 $ 291,973 $ 323,747 $ 232,467
Total assets............................................. 221,571 249,251 364,722 990,850 1,810,352 2,014,700
Long-term debt less current portion...................... 27,979 36,289 42,850 227,736 389,150 387,300
Stockholders' equity..................................... 68,394 77,735 128,512 394,746 921,148 952,940
</TABLE>
- ------------------------
(1) As a result of the substantial continuing interests in USOP of the former
stockholders of the four companies acquired by USOP for a combination of
USOP Common Stock and cash concurrent with the closing of its initial public
offering (the "IPO") (the "Combined Companies"), the historical financial
information of the Combined Companies and the historical financial
information of the businesses that were acquired after the closing of the
IPO in business combinations accounted for under the pooling-of-interests
method (the "Pooled Companies") have been combined on a historical cost
basis in accordance with generally accepted accounting principles ("GAAP")
to present this financial data as if the Combined Companies and the Pooled
Companies had always been members of the same operating group. The financial
information of the businesses acquired in the business combinations
accounted for under the purchase method is included from the dates of their
respective acquisitions.
13
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma combined financial information of
USOP gives effect to the Merger, assuming the exchange of one share of USOP
Common Stock for each share of MBE Common Stock and the accounting of the Merger
as a pooling-of-interests, and certain other transactions described in the
unaudited pro forma combined financial statements appearing elsewhere in this
Proxy Statement/Prospectus. The selected unaudited pro forma combined financial
information is not necessarily indicative of the operating results or financial
position that would have occurred if the Merger or the other transactions
reflected in such pro forma information had taken place at the beginning of the
periods presented or that will occur after consummation of the Merger. See "U.S.
Office Products Company Pro Forma Combined Financial Statements."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS ENDED
------------------------------------------ ----------------------
<S> <C> <C> <C> <C> <C>
APRIL 30, APRIL 30, APRIL 26, JULY 27, JULY 26,
1995 1996 1997 1996 1997
------------- ------------- ------------ ---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED STATEMENT OF
INCOME DATA:
Revenues..................................... $ 1,143,984 $ 1,798,791 $ 3,514,585 $ 863,196 $ 898,065
Gross profit................................. 322,733 487,221 1,021,899 253,332 257,707
Operating income............................. 53,221 72,929 196,166 48,953 53,526
Income before extraordinary items............ 27,532 34,113 93,731 22,964 25,704
</TABLE>
<TABLE>
<CAPTION>
JULY 26,
1997
------------
<S> <C>
UNAUDITED PRO FORMA COMBINED
BALANCE SHEET DATA:
Working capital..................................................................................... $ 272,925
Total assets........................................................................................ 2,016,772
Long-term debt less current portion................................................................. 387,300
Stockholders' equity................................................................................ 1,025,918
</TABLE>
14
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth for USOP and MBE certain historical and pro
forma equivalent per share data on both a pre-stock split and post-stock split
basis. Neither USOP nor MBE has paid cash dividends on its shares of common
stock for the periods presented below. The information should be read in
conjunction with the selected financial data and the pro forma combined
financial information appearing elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ --------------------------
<S> <C> <C> <C> <C>
U.S. OFFICE
PRODUCTS MBE COMBINED MBE
----------- ----- ------------- -----------
Income before extraordinary item per common and common equivalent
share(1):
Year ended April 30,
1997.......................................................... $ .96 $ .68 $ 1.09 $ 1.09
1996.......................................................... .77 .77 .57 .57
1995.......................................................... N/A .60 N/A N/A
Three months ended
July 26, 1997 (July 31, 1997 for MBE)......................... .29 .09 .30 .30
July 27, 1996 (July 31, 1996 for MBE)......................... .29 .18 .27 .27
Income before extraordinary item per common and common equivalent
share adjusted to reflect the 3:2 stock split announced on October
7, 1997(2):
Year ended April 30,
1997.......................................................... .73 1.09
1996.......................................................... .38 .57
1995.......................................................... N/A N/A
Three months ended
July 26, 1997 (July 31, 1997 for MBE)......................... .20 .30
July 27, 1996 (July 31, 1996 for MBE)......................... .18 .27
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Book value per share(1):
July 26, 1997 (July 31, 1997 for MBE)................ 13.08 6.43 11.95 11.95
April 26, 1997 (April 30, 1997 for MBE).............. 13.05 6.30 N/A N/A
Book value per share adjusted to reflect the 3:2 stock split
announced on October 7, 1997(2):
July 26, 1997 (July 31, 1997 for MBE)................ 7.97 11.95
April 26, 1997 (April 30, 1997 for MBE).............. N/A N/A
</TABLE>
- ------------------------
(1) The pro forma combined information gives effect to the Merger (assuming no
3:2 stock split, the exchange of one share of USOP Common Stock for each
share of MBE Common Stock and the accounting for the Merger as a
pooling-of-interests) and certain other transactions described in the
unaudited pro forma combined financial statements appearing elsewhere in
this Proxy Statement/ Prospectus. The pro forma MBE column is intended to
show the pro forma income before extraordinary item and book value
attributable to each share of MBE Common Stock that will be exchanged for
USOP Common Stock in the Merger. Because it is assumed that each share of
MBE Common Stock will be exchanged for one share of USOP Common Stock, the
pro forma income before extraordinary item and book value per share under
this column are the same as the pro forma income before extraordinary item
and book value per share under the pro forma combined column.
(2) The pro forma combined information gives effect to the 3:2 stock split, the
Merger (assuming the exchange of 1.5 shares of USOP Common Sock for each
share of MBE Common Stock and the accounting for the Merger as a
pooling-of-interests) and certain other transactions described in the
unaudited pro forma combined Financial Statements appearing elsewhere in
this Proxy Statement/ Prospectus.
15
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED
OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS, SHOULD BE
CONSIDERED BY HOLDERS OF MBE COMMON STOCK IN EVALUATING WHETHER TO APPROVE THE
MERGER AND THEREBY BECOME HOLDERS OF USOP COMMON STOCK. THESE FACTORS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED OR INCORPORATED BY
REFERENCE INTO THIS PROXY STATEMENT/PROSPECTUS.
SPECIAL CONSIDERATIONS WITH RESPECT TO U.S. OFFICE PRODUCTS COMPANY.
Relevant risk factors to the operation of USOP's business include the following:
DEPENDENCE UPON ACQUISITIONS FOR FUTURE GROWTH
USOP's increase in revenues and the markets it serves since its formation
has depended upon the acquisition of additional businesses offering a broad
array of office and educational products and business services. There can be no
assurance that definitive agreements for additional acquisitions will be
executed or that additional acquisitions will be completed. In addition, there
can be no assurance that USOP's management and financial controls, personnel,
computer systems and other corporate support systems will be adequate to manage
the continuing increase in the size and scope of its operations and acquisition
activity.
USOP depends on acquisitions and organic growth to increase its earnings.
There can be no assurance that it will complete acquisitions in a manner that
coincides with the end of its fiscal quarters. The failure to complete
acquisitions on a timely basis could have a material adverse effect on USOP's
quarterly results. Likewise, delays in implementing planned integration
strategies and activities also could adversely affect its quarterly earnings.
In addition, there can be no assurance that future acquisitions will occur
at the same pace or be available to USOP on favorable terms, if at all. If USOP
is unable to use USOP Common Stock as consideration in acquisitions, for
example, because it believes that the market price of USOP Common Stock is too
low or because the owners of potential acquisition targets conclude that the
market price of USOP Common Stock is too volatile, USOP would need to use cash
to make acquisitions and, therefore, would be unable to negotiate acquisitions
that it would account for under the pooling-of-interests method of accounting
(which is available only for all-stock acquisitions). This might adversely
affect the pace of USOP's acquisition program and the impact of acquisitions on
USOP's quarterly results. In addition, the consolidation of the domestic
contract stationer industry has reduced the number of larger companies available
for sale, which could lead to higher prices being paid for the acquisition of
the remaining domestic, independent companies.
RISKS RELATED TO EXPANSION INTO NEW PRODUCT AND SERVICE AREAS AND TO
ACQUISITIONS
USOP has increased the range of products and services it offers through
acquisitions of companies offering products and services that are complementary
to the office supply services that USOP has offered since it began operations.
USOP's ability to manage an aggressive consolidation program in markets other
than the domestic contract stationer market has not yet been fully tested.
USOP's efforts to sell additional products and services to existing customers
are in their early stages and there can be no assurance that such efforts will
be successful. In addition, USOP expects that certain of its products and
services will not be easily cross-sold and may be marketed and sold
independently of other products and services.
In addition, there can be no assurance that companies that have been
acquired or that may be acquired in the future will achieve sales and
profitability levels that justify the purchase prices paid by USOP. Acquisitions
may involve a number of special risks that could have a material adverse effect
on USOP's operations and financial performance, including adverse short-term
effects on its reported operating results; diversion of management's attention;
difficulties with the retention, hiring and training of key personnel; risks
associated with unanticipated problems or legal liabilities; and amortization of
16
<PAGE>
acquired intangible assets. Finally, although USOP conducts due diligence and
generally requires representations, warranties and indemnifications from the
former owners of acquired companies, there can be no assurance that such owners
will have accurately represented the financial and operating conditions of their
companies. If an acquired company's financial or operating results were
misrepresented, the acquisition could have a material adverse effect on the
results of operations and financial condition of USOP.
RISKS RELATED TO INTERNATIONAL EXPANSION
As of September 3, 1997, USOP conducted international operations in New
Zealand, Australia, Canada and, through its 49% interest in Dudley Stationery
Limited ("Dudley"), in the United Kingdom. USOP's international operations have
grown substantially since USOP's inception. International revenues increased
from $197.3 million, or 11.7% of consolidated revenues, in fiscal 1996, to
$829.9 million, or 29.3% of consolidated revenues in fiscal 1997. USOP expects
to continue to focus significant attention and resources on international
expansion in the future and expects foreign sales to continue to represent a
significant portion of USOP's total sales. Expansion into international markets
involves additional risks relating to currency exchange rates; new and different
legal, regulatory and competitive requirements; difficulties in staffing and
managing foreign operations; different business lines; and other factors.
RISKS RELATED TO INTEGRATION OF ACQUISITIONS AND LIMITED COMBINED OPERATING
HISTORY
USOP was founded in October 1994 and conducted no operations prior to the
acquisition of its founding companies in February 1995. From its initial public
offering through the end of its most recent fiscal year, USOP acquired 159
companies. Since the end of its 1997 fiscal year, USOP has continued to make
acquisitions. In most cases, the managers of the acquired companies have
continued to operate their companies after being acquired by USOP. There can be
no assurance that USOP will be able to integrate all of these companies within
its operations without substantial costs, delays or other problems. In addition,
there can be no assurance that USOP's executive management group can continue to
oversee USOP and effectively implement its operating or growth strategies in
each of the markets that it serves. There also can be no assurance that the
rapid pace of acquisitions will not adversely affect USOP's continuing efforts
to integrate acquisitions and manage those acquisitions profitably.
DEPENDENCE UPON IMPLEMENTATION AND OPERATION OF SYSTEMS
USOP believes that the successful operation of the businesses that it has
acquired and intends to acquire depends in part on the implementation of
computerized inventory management and order processing systems and warehouse
management and distribution systems. USOP may experience delays, complications
or expenses in implementing, integrating and operating its various systems, any
of which could have a material adverse effect on USOP's results of operations
and financial condition. In addition, interruptions or disruptions in systems
operations could adversely affect the financial results of particular locations.
Finally, USOP expects that its operating and technology systems will require
modification, improvement or replacement as USOP expands or as new technologies
make these systems obsolete. Such modifications, improvements or replacements
may require substantial expenditures to design and implement and may require
interruptions in operations during periods of implementation, any of which could
have a material adverse effect on USOP's results of operations and financial
condition.
SUBSTANTIAL COMPETITION AND INDUSTRY CONSOLIDATION
USOP operates in a highly competitive environment. In the markets in which
it operates, USOP generally competes with a large number of smaller, independent
companies, many of which are well-established in their markets. In addition, in
the contract stationer market, USOP currently competes with five large office
products companies, each of which has significant financial resources. Several
of its large competitors operate in many of its geographic and product markets,
and other competitors may choose to enter USOP's geographic and product markets
in the future. In addition, as a result of this competition,
17
<PAGE>
USOP may lose customers or have difficulty acquiring new customers. As a result
of competitive pressures on the pricing of products, USOP's revenues or margins
may decline.
USOP faces significant competition to acquire additional businesses as the
office products industry undergoes continuing consolidation. Significant
competition exists, or is expected to develop, in the other markets that USOP
serves or is planning to enter as consolidation occurs (or accelerates) in those
markets. A number of USOP's major competitors are actively pursuing acquisitions
outside of the United States. These companies, or other large companies, may
compete with USOP for acquisitions in markets other than the market for office
products. Such competition could lead to higher prices being paid for acquired
companies.
In response to industry and market changes, including industry consolidation
and the continued volatility in the market prices of shares of common stock of
companies in the industry, USOP considers, from time to time, additional
strategies to enhance stockholder value in light of such changes. These include,
among others, strategic alliances and joint ventures; spin-offs; purchase, sale,
or merger transactions with other large companies; a recapitalization of USOP;
and other similar transactions. In considering any of these strategies, USOP
evaluates the consequences of such strategies including, among other things, the
leverage that would result from such a transaction, the tax effects of the
transaction, and the accounting consequences of the transaction, including
whether the transaction would result in the need for USOP to restate its
financial statements to account for prior transactions under the purchase rather
than the pooling-of-interests method or would eliminate USOP's ability to use
the pooling-of-interest method of accounting to account for acquisitions in the
future. In addition, such strategies could have various other significant
consequences, including changes in the management, control or operational or
acquisition strategies of USOP. There can be no assurance that any one of these
strategies will be undertaken, or that, if undertaken, any such strategy will be
completed successfully.
CONSIDERATION FOR OPERATING COMPANIES EXCEEDS ASSET VALUE
The purchase prices of USOP's acquisitions have not been established by
independent appraisals, but generally have been determined through arm's length
negotiations between USOP's management and representatives of such companies.
The consideration paid for each such company has been based primarily on the
value of such company as a going concern and not on the value of the acquired
assets. Valuations of these companies determined solely by appraisals of the
acquired assets would have been less than the consideration paid for the
companies. No assurance can be given that the future performance of such
companies will be commensurate with the consideration paid. Moreover, USOP has
incurred and expects to continue to incur significant amortization charges
resulting from consideration paid in excess of the fair value of the net assets
of the companies acquired in business combinations accounted for under the
purchase method of accounting.
QUARTERLY FLUCTUATIONS IN OPERATING RESULTS
USOP's business is subject to seasonal influences. USOP's revenues and
profitability in its core office products business have been lower in the first
two quarters of its fiscal year, primarily due to the lower level of business
activity in North America during the summer months. The seasonality of the core
office products business, however, is expected to be impacted by the seasonality
of its other operations, which have been expanding through acquisitions. For
example, the revenues and profitability of USOP's school supplies and school
furniture business have been higher during USOP's first and second quarters and
significantly lower in its third and fourth quarters, and the revenues and
profitability of USOP's operations in New Zealand and Australia have generally
been higher in USOP's third quarter. As USOP's mix of business evolves through
future acquisitions, these seasonal fluctuations may continue to change.
Quarterly results also may be materially affected by the timing of
acquisitions, the timing and magnitude of costs related to such acquisitions,
variations in the prices paid by USOP for the products it sells, the mix of
products sold, general economic conditions and the retroactive restatement in
accordance with generally accepted accounting principles of USOP's consolidated
financial statements for acquisitions
18
<PAGE>
accounted for under the pooling-of-interests method. Moreover, the operating
margins of companies acquired by USOP may differ substantially from those of
USOP, which could contribute to the further fluctuation in its quarterly
operating results. Therefore, results for any quarter are not necessarily
indicative of the results that USOP may achieve for any subsequent fiscal
quarter or for a full fiscal year. Fluctuations caused by variations in
quarterly operating results may have a material adverse effect on the market
price of USOP Common Stock.
VOLATILITY OF STOCK PRICE
The market price of USOP Common Stock is subject to significant
fluctuations. These fluctuations can be caused by variations in stock market
conditions, changes in financial estimates by securities analysts or failures by
USOP or its competitors to meet such estimates, quarterly operating results,
announcements by USOP or its competitors, general conditions in the office
products and services industry and other factors. Since the beginning of fiscal
1997 through September 3, 1997, USOP Common Stock has traded in the range of
$20.00 to $45.50 per share. The stock market in recent years has experienced
extreme price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of publicly traded companies.
These broad fluctuations may have a material adverse effect on the market price
of USOP Common Stock.
NEED FOR ADDITIONAL FINANCING TO CONTINUE ACQUISITION STRATEGY
USOP expects that it will continue to finance acquisitions in the United
States by using cash as well as shares of USOP Common Stock. In addition, USOP
expects that future acquisitions outside of the United States may be entirely or
substantially for cash consideration. In certain circumstances, USOP may be
unable to use stock as consideration for acquisitions. See "-- Dependence upon
Acquisitions for Future Growth." If it does not have sufficient cash resources
to pay the cash consideration for acquisitions, USOP may be unable to continue
the current pace of its aggressive acquisition program, which could have a
material adverse impact on it and the market price of USOP Common Stock.
Assuming that the current pace of its acquisitions continues, USOP may need
debt or equity financing in order to continue its acquisition program. There can
be no assurance that it will be able to obtain such financing if and when it is
needed or that any such financing will be available on terms it deems
acceptable.
RELIANCE ON KEY PERSONNEL
USOP's operations depend on the continued efforts of Jonathan J. Ledecky,
its Chairman of the Board and Chief Executive Officer, its other executive
officers and the senior management of certain of its subsidiaries. Furthermore,
USOP's operations will likely depend on the senior management of certain of the
companies that may be acquired in the future.
Although Mr. Ledecky devotes substantially all of his time and attention to
USOP's business, Mr. Ledecky is the Non-Executive Chairman of U.S.A. Floral
Products, Inc. ("USA Floral"), a company co-founded by Mr. Ledecky in April 1997
to create a national consolidator and operator of floral products distribution
businesses, and Chairman of Consolidation Capital Corporation ("CCC"), a company
founded by Mr. Ledecky in February 1997 to build consolidated enterprises
through the acquisition of businesses in a variety of fragmented industries,
other than the industries in which USOP is currently involved and certain other
industries. USA Floral has filed a registration statement under the Securities
Act to register 4.6 million shares for sale to the public at a disclosed
estimated price per share of between $10.00 and $12.00. Mr. Ledecky owns 1.1
million shares of the common stock of USA Floral. CCC has filed a registration
statement under the Securities Act to register 25 million shares for sale to the
public at a disclosed estimated price per share of $20.00. Mr. Ledecky owns
approximately 4.4 million shares of the common stock of CCC. CCC has stated that
it intends to hire an executive management team with acquisition experience.
19
<PAGE>
If Mr. Ledecky or any of the other people described above becomes unable to
continue in his or her present role, or if USOP is unable to attract and retain
other skilled employees, its business could be adversely affected. USOP
currently has key man life insurance covering Mr. Ledecky in the amount of $20
million, but it does not have and does not intend to obtain key man life
insurance covering any of its other executive officers or other members of
senior management of its subsidiaries.
CONTROL BY MANAGEMENT AND STOCKHOLDERS
As of September 3, 1997, officers and directors of USOP and its subsidiaries
beneficially owned approximately 26% of the outstanding shares of USOP Common
Stock. These stockholders acting together may be able to elect a sufficient
number of directors to control USOP's Board of Directors and to approve or
disapprove any matter submitted to a vote of stockholders.
RISKS RELATED TO UNIONIZED EMPLOYEES
A small number of USOP's employees are members of labor unions. If unionized
employees were to engage in a strike or other work stoppage, or if other
employees were to become unionized, USOP could experience a disruption of
operations or higher labor costs, which could have a material adverse effect on
operations.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF USOP COMMON
STOCK
USOP has an aggressive acquisition program under which it has issued
approximately 48 million of its approximately 73 million outstanding shares as
of September 3, 1997. As of September 3, 1997, approximately 2.5 million of the
shares issued in acquisitions were subject to contractual restrictions on the
transfer thereof. The contractual restrictions expire at various times,
generally up to two years from the date of issuance of the shares. In addition,
as of September 3, 1997, approximately 500,000 of the 48 million shares of USOP
Common Stock issued in acquisitions were subject to restrictions on transfer
because they were issued in acquisitions accounted for under the
pooling-of-interests method of accounting. Under the pooling-of-interests method
of accounting, the affiliates of the acquired companies, which are, in most
cases, all of the stockholders of the companies acquired by USOP, must be free
to sell or otherwise transfer shares of USOP Common Stock received in the
acquisition, subject to their compliance with the federal securities laws, as
soon as USOP releases results of operations that reflect the combined
post-acquisition operations of USOP and the acquired company for a minimum of 30
days. The approximately 500,000 shares (750,000 shares after the stock split) of
USOP Common Stock will become freely transferable (subject to certain volume and
other restrictions of Rule 145(d) under the Securities Act) upon USOP's public
announcement of results of operations reflecting 30 days of combined
post-acquisition operations of it and the acquired companies. In addition, if
the Merger is completed at an Exchange Ratio of 1.5, approximately 7.6 million
shares (including approximately 1.6 million shares subject to currently
exercisable options) to be received by affiliates of MBE will become freely
transferable upon USOP's public announcement of results of operations reflecting
30 days of combined post-Merger operations. USOP expects to complete additional
acquisitions in the future that will be accounted for under the
pooling-of-interests method. If a significant number of shares of USOP Common
Stock are issued in acquisitions that are completed in close proximity to each
other, such shares will become freely tradeable at the same time. If a large
number of shares are sold in the market by stockholders (such as former
affiliates of MBE) as soon as their shares become freely transferable, the price
of shares of USOP Common Stock could be adversely affected.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
The Board of Directors of USOP has the authority to issue up to 500,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further stockholder action. The rights of
the holders of USOP Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any shares of preferred stock that may
be issued in the
20
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future. The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of USOP.
SPECIAL CONSIDERATIONS WITH RESPECT TO MAIL BOXES ETC. Relevant risk
factors to the operation of the Company's business include the following:
RECENT CHANGES TO SENIOR MANAGEMENT AND ASSOCIATED RISKS
The operating results of any company are heavily dependent upon the efforts
and success of its senior management team. In the past 12 months, the Company's
senior management team has undergone major changes with the addition of a new
President and Chief Operating Officer and a number of other members of senior
management, some of whom have been with the Company for fewer than six months.
Moreover, the Company's Chief Executive Officer, who has led the Company from
its inception 17 years ago, is expected to retire shortly. The Company is
subject to certain risks associated with its new management structure,
including, among others, risks relating to employee and franchise relations,
managerial efficiency and effectiveness and overall familiarity with MBE's
business and operations.
RELIANCE ON UNITED PARCEL SERVICE AND ASSOCIATED RISKS; RECENT WORK STOPPAGE
AT UNITED PARCEL SERVICE
The Company estimates that nearly 40% of the gross sales of a typical MBE
center in the United States are attributable to services provided by United
Parcel Service ("UPS"). In addition, the Company estimates that over 90% of
general ground shipping from MBE centers in the United States is done through
UPS. As such, UPS is a key vendor for the MBE network. If UPS were to raise its
prices to the MBE network or otherwise materially adversely change the terms on
which it does business with the MBE network, the revenues of the MBE network
could be materially and adversely affected. The Company's contract with UPS,
providing for the rates and other terms on which UPS provides services to the
Company's franchisees and their customers, has been terminable upon seven days'
notice by either party. This contract expired on May 10, 1997. Since then, the
companies have been operating under extensions of this contract. Negotiations
for a new contract are in progress.
From August 4, 1997 through August 19, 1997 the International Brotherhood of
Teamsters was on strike against UPS. As a result, UPS effectively ceased
providing shipping services to the Company's franchisees for a period of 16
calendar days. The Company's franchisees used the services of alternative
carriers including Federal Express and the U.S. Postal Service, but such
alternative carriers did not, during this period, fully accommodate the
shipments that would have been handled by UPS in the absence of the strike. In
addition, the Company believes that during the strike many shipments were
deferred by customers. The strike had an adverse impact on the MBE franchisees
during this period and will, in turn, adversely affect MBE's revenue from
royalty and marketing fees with respect to the period of the strike. Utilizing
"worst case" assumptions, that is, that during the strike there was no revenue
from shipments ordinarily handled by UPS, no shipments were handled by
alternative carriers and no shipments were deferred for shipment following
termination of the strike, the Company estimates that its revenues for the
period of the strike would decrease by approximately $820,000 and the
corresponding reduction in net income for the month would be approximately
$300,000, or approximately $0.0245 per share. It is a condition to USOP's
obligation to effect the Merger that there not have occurred a material adverse
change in MBE's business, operations, financial condition or results of
operations between the date of the Merger Agreement and the proposed Closing
Date. Accordingly, if the UPS strike constituted such a material adverse change,
USOP would be entitled under the Merger Agreement not to effect the Merger.
As of the Record Date, UPS owned approximately 16% of the outstanding shares
of MBE Common Stock. If the Merger is completed, UPS will own approximately 2.4%
of USOP Common Stock based upon the shares outstanding as of the Record Date.
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LACK OF CONTROL OVER FRANCHISES
As is true of franchises generally, the Company is limited in the amount of
control it may exercise over its licensed franchisees. In the United States,
only one of the MBE centers is Company-owned; the remainder of the MBE centers
are owned and operated by franchisees licensed directly by MBE. Outside of the
United States, all of the MBE centers are owned and operated by MBE's master
licensees or franchisees licensed by MBE's master licensees. This lack of direct
control by MBE may limit MBE's ability to, among other things, launch "pilot" or
test programs, introduce new goods and services, establish system wide
purchasing programs and generally change the image or focus of the MBE system in
the future. The Company's inability to take any of such actions in the future
could have a material adverse effect on its business and results of operations.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are affected by a wide variety of factors
that could materially and adversely affect its revenues and profitability,
including factors pertaining to (i) customer demand; (ii) general economic
conditions in the retail industry and in countries in which the Company's
franchisees and master licensees do business; (iii) competition (see "--
Competition"); (iv) fluctuations in foreign currency exchange rates and the
possibility that one or more master licensees may experience high rates of
inflation or currency crises in their respective countries; (v) new product
development, such as increased research, development and marketing expenses
associated with new product introductions and risks associated with customer
acceptance (see also "-- Dependence upon Development of New Products and
Services" below); and (vi) sales and marketing risks, including the risk that
the Company will be unable to continue selling franchises at current or historic
levels.
COMPETITION
The businesses in which MBE operates are highly competitive. MBE experiences
competition from several sources. Direct competition comes from other national
chains and independents and from specialty service providers, such as copy
centers, quick print centers and office supply companies. There is also growing
competition from the United States Postal Service as it attempts to compete
against MBE centers with its postal service centers located in shopping centers
and other locations. MBE is attempting to respond to these competitive
challenges. However, there can be no assurance that the Company's efforts will
prove beneficial or that MBE ultimately will be able to compete effectively in
the markets in which it currently operates or in which it may operate in the
future. See "-- Dependence upon Development of New Products and Services."
GOVERNMENTAL REGULATION
The FTC has adopted a rule that requires franchisors to make certain
disclosures to prospective franchise owners prior to the offer or sale of
franchises. This rule requires, among other things, the disclosure of
information necessary for a prospective franchise owner to make an informed
decision as to whether to enter into a franchise relationship and requires
disclosure of the circumstances in which franchisors may make predictions on
future sales, income and profits. Failure to comply with this rule constitutes
an unfair or deceptive act or practice under the Federal Trade Commission Act
(the "FTC Act"). Violators of the rule are subject to civil penalty actions
brought by the FTC of up to $10,000 per violation. In addition, the FTC may
bring an action in federal or state court for damages on behalf of franchisees.
No assurance can be given that such a proceeding will not be commenced in the
future. Any such proceeding against the Company, were it to be commenced, could
result in significant expense to the Company and diversion of management's time
and effort, which could have a material adverse effect on the Company.
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Numerous states have adopted laws regulating franchise operations and the
franchisor-franchisee relationship, and similar legislation has been proposed in
the U.S. Congress and several other states. Existing state laws impose various
filing and disclosure requirements in connection with the offer and sale of
franchises and regulate the establishment and termination of, and provide
remedies respecting, franchise relationships. These laws generally apply to both
MBE's area and individual franchises. In addition, some states may bring either
civil or criminal proceedings against a franchisor for violations of state law.
The Florida Attorney General's Office investigated the Company's franchise
practices several years ago and has not formally closed the investigation. No
assurance can be given that other state proceedings will not be commenced in the
future. Any such proceeding against the Company, were it to be commenced, could
result in significant expense to the Company and diversion of management's time
and effort, which could have a material adverse effect on the Company.
Violation of state franchise laws can also result in various remedies for
franchisees, including a right to rescind the franchise agreement and obtain
restitution of amounts paid and a right to sue for damages. As of the date
hereof, the Company is subject to pending actions brought by various of its
current and former franchisees alleging, among other things, violations by the
Company of state franchise laws. No assurance can be given that such actions
will not have a material adverse effect on the Company. See "-- Legal
Proceedings."
LEGAL PROCEEDINGS
As of the date hereof, MBE is subject to various pending lawsuits from its
individual franchisees and former employees and may in the future become subject
to lawsuits and claims in the course of its business. While MBE intends to
defend vigorously these actions, the Company is unable to make a meaningful
estimate of the amount or range of loss that could result from an unfavorable
outcome of all pending litigation, such as the impact of litigation or
settlement costs on MBE's results of operations for any particular period. No
assurance can be given that the pending litigation, or any future litigation to
which the Company may become subject, will not have a material adverse effect on
MBE's financial condition or liquidity. See -- "Governmental Regulation."
DEPENDENCE UPON AND LIMITATIONS ON PROTECTION OF PROPRIETARY RIGHTS
MBE believes that proprietary rights have been and will continue to be
important in enabling it to compete. MBE is the owner of federal and, where
appropriate, state registered trademarks and service marks, which include "Mail
Boxes Etc.", "Mail Boxes Etc. USA", "MBE", "Minute Mail", "The Post Office
Alternative", "MBE and Square Globe Design", "Money Back Express","Big or Small,
We Ship It All", "Making Business Easier", "TicketNet", "It's Not What We Do,
It's How We Do It" and "We're the Biggest Because We Do It Right." MBE has also
developed various symbols or icons representing MBE services and has obtained
copyright registration for many of those symbols. MBE has filed for registration
for the service mark "No Limit Shipping". MBE has also applied for registration
of one or more of its marks in foreign countries where it has expanded and plans
to expand. MBE plans to file for trademark protection for other marks if and
when they may be developed. However, no assurance can be given that MBE will
develop any new marks or that any of MBE's pending or future applications for
foreign or domestic trademark protection will ultimately be approved by the
applicable government authorities.
MBE may be involved from time to time in litigation to determine the
enforceability, scope and validity of proprietary rights. Any such litigation
could result in substantial cost to MBE and diversion of effort by MBE's
management. No assurance can be given that any such litigation, if commenced,
would be resolved in a manner favorable to MBE or that MBE will otherwise be
successful in protecting or establishing the validity of proprietary rights.
MBE is aware of a few limited geographic areas in which the use of the "Mail
Boxes Etc." name or variations thereof by others apparently predates MBE's
rights. No assurance can be given that such areas
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will not be material to the future expansion of MBE's business. In Canada, where
there are approximately 185 MBE centers, the Canada Post Corporation ("CPC"), a
crown corporation of the Canadian government, has opposed MBE's trademark
filings since the original applications were filed in approximately 1987. CPC
has informed MBE that it believes that it has exclusive trademark rights to the
words "mail" and "post" under applicable Canadian law. In recent rulings, the
Canadian trademark office has denied several of MBE's trademark applications on
the basis of CPC's opposition thereto. MBE is currently in negotiations with CPC
regarding the use of MBE's trademarks in Canada. However, no assurance can be
given as to the ultimate outcome of these negotiations or as to MBE's ability
ultimately to obtain satisfactory trademark protection in Canada.
DEPENDENCE UPON DEVELOPMENT OF NEW PRODUCTS AND SERVICES
The Company believes that, in order to remain competitive in the business
services, communications and postal business sectors, it will be necessary to
successfully develop and introduce new products and services. In the past, the
Company has successfully developed and introduced a number of innovative
products and services, such as color copying, "No Limit Shipping" and its
national accounts program. However, there can be no assurance that the Company
will be able to develop or introduce successfully any new products or services
in the future. The Company's inability to develop and introduce new products and
services could cause the Company to lose market share and impair its
competitiveness, which would materially and adversely affect the Company's
operations and financial performance.
DEPENDENCE UPON INTERNATIONAL EXPANSION AND DEVELOPMENT AND ASSOCIATED RISKS
An integral part of the Company's future expansion plans includes continued
international expansion through the sale of new master licenses and by assisting
in the development of existing master licensees. As of September 3, 1997, there
were over 500 franchised MBE centers operating outside of the United States, and
master licenses had been sold to develop the MBE system in over 50 countries.
The international expansion of the MBE franchise system entails, in addition to
the risks described above, substantial risks relating to currency exchange
rates; new and different legal, regulatory and competitive requirements;
difficulties in attracting and supporting qualified entrepreneurs who can adapt
the MBE system to local markets and simultaneously build a franchise system;
risks that the master licensees in the various international markets could fail
in their performance and attract litigation from their franchisees or suppliers;
and other factors. There can be no assurance that the Company will be successful
in managing these risks or in achieving any desired international expansion of
the MBE franchise system.
SPECIAL CONSIDERATIONS WITH RESPECT TO THE MERGER
RISKS ASSOCIATED WITH EXCHANGE RATIO
As described herein (see "The Merger Agreement -- Conversion of Shares"),
the number of shares of USOP Common Stock to be received by MBE shareholders
will be based upon the Average Price of USOP Common Stock over the Averaging
Period. The actual dollar value of USOP Common Stock to be received by MBE
shareholders as of the Effective Time of the Merger will depend upon the market
price of USOP Common Stock as of such time. Such market price may be less than
or greater than the Average Price of USOP Common Stock. The market prices of
USOP Common Stock and MBE Common Stock as of a recent date are set forth above
under the heading "Market Price Data." MBE shareholders are advised to obtain
recent market quotations for USOP Common Stock and MBE Common Stock. The shares
of USOP Common Stock and MBE Common Stock historically have been subject to
substantial price volatility. No assurance can be given as to the market prices
of USOP Common Stock or MBE Common Stock at any time before the Effective Time
or as to the market price of USOP Common Stock at any time thereafter. See
"Market Price Data."
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In deciding whether to approve the Merger, MBE shareholders should also
consider that, under the terms of the Merger Agreement, the maximum value of the
shares of USOP Common Stock (based upon the Average Price of USOP Common Stock)
to be received by MBE shareholders in the Merger is $29.00 per share of MBE
Common Stock, since if the Average Price of USOP Common Stock exceeds $19.33,
the Exchange Ratio will automatically be adjusted downward to be equal to 1.5
times the quotient of $19.33 divided by the Average Price of USOP Common Stock.
See "The Merger Agreement -- Conversion of Shares." In contrast, there is no
floor on the minimum value (based upon the Average Price of USOP Common Stock)
of the USOP Common Stock to be received by MBE shareholders in the Merger. As
discussed below, if the Average Price of USOP Common Stock is below $15.33 per
share, the Company Board will have the discretion to (i) terminate the Merger
Agreement, in which event the Merger would be terminated unless USOP elects to
adjust the Exchange Ratio upward to provide for $23.00 in value (based upon the
Average Price of USOP Common Stock) per share of MBE Common Stock, or (ii)
proceed with the Merger without any adjustment to the Exchange Ratio, regardless
of what the Average Price of USOP Common Stock is. See "-- Merger Approval
Confers Discretion on Company Board to Terminate or Proceed with Merger if
Average Price of USOP Common Stock is Below $15.33."
Because the Averaging Period for determining the Average Price of USOP
Common Stock may extend until as late as two business days before the closing of
the Merger, the Exchange Ratio will not be known with certainty until as late as
such time. Therefore, at the time they vote, MBE shareholders will not know the
number of shares of USOP Common Stock that they will receive in the Merger.
MERGER APPROVAL CONFERS DISCRETION ON COMPANY BOARD TO TERMINATE OR PROCEED
WITH MERGER IF AVERAGE PRICE OF USOP COMMON STOCK IS BELOW $15.33
Pursuant to the Merger Agreement, if the Average Price of USOP Common Stock
is below $15.33, the Company Board may, without any further vote of MBE
shareholders, elect to (i) terminate the Merger Agreement (in which event the
Merger would be terminated unless USOP were to agree to adjust the Exchange
Ratio to be equal to 1.5 times the quotient of $15.33 divided by the Average
Price of USOP Common Stock and thereby require MBE to proceed with the Merger
(assuming all other conditions to the Merger are satisfied or waived) with such
adjusted Exchange Ratio), or (ii) proceed with the Merger with an Exchange Ratio
equal to 1.5, without any adjustment. Such discretion of the Company Board
presents potential risks to MBE shareholders. For example, if the Average Price
of USOP Common Stock is less than $15.33 per share and the Company Board
determines that it is in the best interests of the Company and its shareholders
to proceed with the Merger, MBE shareholders could receive USOP Common Stock in
the Merger with a fair market value significantly less than $23.00 per share of
MBE Common Stock. Conversely, if the Average Price of USOP Common Stock falls
below $15.33 per share and the Company Board elects to terminate the Merger (and
USOP elects not to adjust the Exchange Ratio), MBE shareholders would not
receive any shares of USOP Common Stock and would instead retain their MBE
shares, the value of which might decline immediately and substantially as a
result of the termination of the Merger. See "The Mail Boxes Etc. Special
Meeting -- Matters to be Considered."
FAILURE TO CAPITALIZE ON NEW OPPORTUNITIES
In considering and approving the Merger Agreement and the Merger, USOP's
Board of Directors took into account the opportunities that are expected to
result from the Merger. There can be no assurance that USOP will be able to
capitalize on these opportunities or that it will not encounter substantial
delays or additional costs in connection with this effort. Among the
opportunities that were considered by USOP's Board of Directors are (i) the
potential for USOP to distribute products and services to MBE's customers in the
small office and home office ("SOHO") market (businesses with 20 or fewer
employees); (ii) the ability of MBE franchisees to offer their customers a
broader and more competitively priced array of office products and business
services by taking advantage of the combined purchasing power of USOP and MBE;
and (iii) the potential for USOP and MBE to use their combined
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purchasing power to negotiate strategic alliances or other arrangements with
vendors that will enable USOP and MBE franchisees to offer their customers
additional, attractive products and services. There can be no assurance that
USOP will be able to capitalize on these opportunities. The failure to
capitalize on these opportunities could have a material adverse effect on the
business, results of operations and financial condition of USOP after completion
of the Merger.
DEPENDENCE UPON RETENTION AND INTEGRATION OF KEY EMPLOYEES
The success of MBE after the Merger is dependent upon the retention and
integration of the key management, sales, marketing and other employees of MBE.
Competition for qualified personnel is keen, and competitors often attempt to
recruit key employees during the period leading up to a merger and during the
integration phase following a merger. Stock options, which generally become
exercisable only over a period of several years of employment, serve as an
important incentive for retaining key employees. In accordance with their terms,
certain stock options held by several key MBE optionees will be fully
exercisable upon the completion of the Merger, thus potentially reducing the
retention incentive provided by such options. There can be no assurance that key
employees will remain with MBE or USOP following the Merger. The loss of
services of any of the key employees of MBE could materially and adversely
affect the business, financial condition and results of operation of MBE and
USOP.
EXPENSES RESULTING FROM THE MERGER
USOP and MBE estimate that they will incur direct transaction costs relating
primarily to regulatory filing costs, and the fees of financial advisors,
attorneys, accountants, financial printers, proxy solicitors and certain other
costs relating to the Merger of approximately $7.0 million associated with the
Merger, which will be charged to operations as nonrecurring acquisition costs.
Of the $7.0 million, $2.5 million was charged to MBE's operations as
nonrecurring Merger costs for its first quarter ended July 31, 1997.
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THE COMPANIES
MBE
The predecessor company to Mail Boxes Etc. (Mail Boxes Etc. USA, Inc. ("MBE
USA")) was established in 1980 in Carlsbad, California by Anthony W. DeSio,
MBE's Vice Chairman of the Board and Chief Executive Officer, and three other
individuals. Mail Boxes Etc., which DeSio and another outside investor founded,
acquired MBE USA in 1983. MBE became a publicly held company in 1986. Today, MBE
is the world's largest franchisor of postal, business and communications retail
service centers.
There are more than 2,800 MBE centers operating throughout the United States
and more than 500 MBE centers serving customers outside the U.S. With MBE master
licenses in place in more than 50 countries abroad, the Company's distribution
network is approximately ten times larger than that of its nearest competitor.
MBE is a service-based company. It has grown far beyond its original
business of providing customers with alternative retail services to the U.S.
Post Office. MBE today offers a broad spectrum of business and communications
solutions, including packing and shipping, photocopying, faxing and mail
receiving services, office supplies and other related services. MBE centers are
also used by large corporations that need a national distribution system to
dispense a variety of services to their customers and field-based employees.
The primary sources of revenues for the Company are (1) royalty and
marketing fees paid by franchisees, (2) fees paid by buyers of new franchises,
and (3) sales of supplies and equipment to MBE centers.
MBE sells franchises in the United States by using its own sales force and
its national network of over 90 area franchisees. In international markets, the
Company sells master licenses for the rights to operate in countries other than
the United States. The master licensees in turn have the right to sell area
franchises and individual franchises in their own countries.
USOP
USOP is one of the world's largest and fastest growing suppliers of a broad
range of office and educational products and business services to corporate,
commercial, industrial and educational customers. Since its founding in October
1994, USOP has emerged as a leading consolidator of several highly fragmented
industries that serve the needs of its customers. USOP currently provides
products and services from over 450 facilities in the United States, and from
over 400 facilities in New Zealand, Australia and Canada. USOP also operates in
the United Kingdom through Dudley. USOP currently has over 18,000 employees.
USOP's strategy has been to serve as the sole source for the full range of
products and business services used by middle market businesses and educational
institutions around the world. USOP believes that middle market businesses,
which it defines as businesses with between 20 and 500 employees, constitute one
of the fastest growing sectors of the economy and have served as a greater
source of new job growth in recent years than have larger organizations. USOP
sells a full range of products and services, including office supplies, office
furniture, print and forms management services, technology network services and
equipment, corporate travel services, school supplies and furniture and office
coffee and beverage services. USOP's goal is to be the provider of choice for
all of a customer's office needs by offering superior customer service,
convenience and a full range of products and services.
If the Merger is approved by MBE's shareholders, USOP expects to expand its
customer base to include MBE's customers, which are primarily the SOHO market.
USOP believes it will be able to offer its
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broad range of products and services to these new customers and thereby provide
those customers with the opportunity to meet all of their office needs through
USOP.
USOP has an aggressive acquisition program through which it has acquired and
seeks to acquire companies with established sales presences and brand names in
given geographic, product or service markets. Since its initial public offering
in February 1995 through September 3, 1997, USOP has completed more than 190
acquisitions. USOP believes that the fragmented nature of many of the markets it
serves has both allowed it to identify suitable acquisition candidates and
enabled it, through acquisitions, to establish a leadership position in these
markets. For example, USOP believes that, based upon current sales volume, it is
now one of the largest contract stationers in the United States, one of the
largest school supply distributors in the United States, one of the largest
providers of office coffee services in the United States and one of the largest
providers of contract furniture in the United States. USOP is currently
organized into eight divisions to serve its various product, service and
geographic markets, and to identify and pursue strategic acquisitions within
these markets.
SUB
Sub is a California corporation organized in May 1997. Sub has not carried
on any significant activities other than activities undertaken in connection
with the Merger Agreement and the transactions contemplated thereby. The mailing
address and telephone number of Sub are the same as those for USOP.
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THE MAIL BOXES ETC. SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished to holders of MBE Common
Stock in connection with the solicitation of proxies by the Company Board for
use at the Special Meeting to be held on , November , 1997, at 6060
Cornerstone Court West, San Diego, California 92121, commencing at 9:00 a.m.,
Pacific Standard Time, and at any adjournment or postponement thereof.
MATTERS TO BE CONSIDERED
At the Special Meeting, holders of MBE Common Stock will consider and vote
upon a proposal to approve the principal terms of the Merger and such other
matters as may properly be brought before the Special Meeting.
One of the principal terms of the Merger Agreement allows MBE to terminate
the Merger Agreement if the Average Price of USOP Common Stock is less than
$15.33 per share and if USOP does not elect to adjust the Exchange Ratio to
provide that MBE shareholders will receive $23.00 in value (based upon the
Average Price of USOP Common Stock) per share of MBE Common Stock in the Merger.
The Company Board does not currently plan to submit to a further shareholder
vote the question of whether to give notice to USOP to terminate the Merger or
to proceed with the Merger with an unadjusted Exchange Ratio if the Average
Price of USOP Common Stock is below $15.33. Under the CGCL, the Company Board
may, in its discretion, abandon a merger without further approval by the
outstanding shares at any time before the merger is effective. However, the
Company Board's discretion to terminate or proceed with the Merger is subject to
its fiduciary duties to MBE shareholders under applicable law. In general, these
fiduciary duties require the Company Board to act in good faith, in a manner the
directors believe to be in the best interests of the Company and its
shareholders and with such care as an ordinarily prudent person would use under
similar circumstances. The Company Board will consider the following factors in
deciding whether to terminate or proceed with the Merger if the Average Price of
USOP Common Stock is below $15.33 per share: (i) whether the reasons the Company
Board originally recommended approval of the Merger remain valid (see "The
Merger -- Recommendation of the Board of Directors of MBE and MBE's Reasons for
the Merger"); (ii) how far below $15.33 the Average Price of USOP Common Stock
is at the time of the decision; (iii) the causes of the decline in the Average
Price of USOP Common Stock; (iv) the business prospects and outlook for USOP and
MBE (individually and on a combined basis); and (v) prevailing market
conditions. In connection with its decision, the Company Board will consult with
its financial and legal advisors. See "Risk Factors -- Special Considerations
with Respect to the Merger -- Merger Approval Confers Discretion on Company
Board to Terminate or Proceed with Merger if Average Price of USOP Common Stock
is Below $15.33."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF MAIL BOXES ETC.
The Company Board believes that the terms of the Merger Agreement are fair
to, and in the best interests of, the Company and its shareholders. THE BOARD OF
DIRECTORS OF MAIL BOXES ETC. HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS A VOTE FOR APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER.
RECORD DATE; VOTING RIGHTS; PROXIES; INDEPENDENT PUBLIC ACCOUNTANTS
The Company Board has fixed the close of business on September 30, 1997 as
the Record Date for determining holders entitled to notice of and to vote at the
Special Meeting. As of the Record Date, there were 11,400,302 shares of MBE
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote, which shares were held by approximately 670 holders of record.
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The approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of MBE Common Stock as of the Record Date.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO SHAREHOLDERS. ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
ENVELOPE.
All shares of MBE Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted and will be
voted in accordance with the instructions indicated in such proxies. IF NO
INSTRUCTIONS ARE INDICATED, SUCH SHARES OF MBE COMMON STOCK WILL BE VOTED FOR
APPROVAL OF THE PRINCIPAL TERMS OF THE MERGER. MBE does not know of any matters
other than as described in the Notice of Special Meeting of Shareholders that
are to come before the Special Meeting. If any other matter or matters are
properly presented for action at the Special Meeting, the persons named in the
enclosed form of proxy and acting thereunder will have discretion to vote on
such matters. A shareholder who has given a proxy may revoke it at any time
before it is exercised by giving written notice of revocation to the Secretary
of MBE, by signing and returning a later dated proxy or by voting in person at
the Special Meeting; however, mere attendance at the Special Meeting will not in
and of itself have the effect of revoking the proxy. The presence, in person or
by properly executed proxy, of the holders of a majority of the outstanding
shares of MBE Common Stock entitled to vote at the Special Meeting is necessary
to constitute a quorum at the Special Meeting.
Abstentions and broker non-votes will be treated as present for quorum
purposes, but will not be counted as voted for purposes of determining the
approval of any matter submitted to shareholders for a vote. The term "broker
non-votes" refers to shares held by a broker in street name which are present by
proxy but are not voted on a matter pursuant to rules prohibiting brokers from
voting on non-routine matters, such as approval of the Merger, without
instructions from the beneficial owner of the shares. Because the approval of
the Merger by shareholders of MBE requires the affirmative vote of a majority of
the shares of MBE Common Stock outstanding as of the Record Date, failure to
submit a proxy, an abstention or a broker non-vote will each have the same
effect as a vote against approval of the Merger.
It is expected that one or more representatives of Ernst & Young LLP will be
present at the Special Meeting. The representative(s) will have the opportunity
to make a statement and to respond to appropriate questions.
PERSONAL SOLICITATIONS AND SHARED COSTS
All expenses of MBE's solicitation of proxies, including the cost of mailing
this Proxy Statement/ Prospectus, will be borne by MBE. In addition to
solicitation by use of the mails, proxies may be solicited from MBE shareholders
by directors, officers and employees of MBE in person or by telephone, telegram
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. MBE has retained MacKenzie
Partners, Inc., a proxy solicitation firm, for assistance in connection with the
solicitation of proxies for the Special Meeting at a cost of $5,000 plus
reimbursement for 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 MBE will
reimburse such brokerage houses, custodians, nominees and fiduciaries for their
reasonable expenses incurred in connection therewith.
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THE MERGER
GENERAL DESCRIPTION OF THE MERGER
On May 22, 1997, USOP, MBE and Sub signed the Merger Agreement. As of
October 9, 1997, USOP, MBE and Sub amended the Merger Agreement to take into
account the stock split announced by USOP on October 7, 1997. Prior to the
declaration of the stock split and the amendment of the Merger Agreement, each
share of Company Common Stock was to be exchanged for 1 share of USOP Common
Stock, subject to adjustment if the Average Price of USOP Common Stock was less
than $23.00 or more than $29.00. The amendment adjusted the Exchange Ratio to
1.5 shares of USOP Common Stock for each share of Company Common Stock, subject
to adjustment if the Average Price of USOP Common Stock is less than $15.33 or
more than $19.33, to reflect the impact of the stock split and preserve the
economic terms of the Merger as originally agreed to by USOP and MBE prior to
the declaration of the stock split. If the Average Price of USOP Common Stock is
more than $19.33, the Company's shareholders will receive for each share of MBE
Common Stock that number of shares of USOP Common Stock equal to 1.5 times the
quotient of $19.33 divided by the Average Price of USOP Common Stock. If the
Average Price of USOP Common Stock is less than $15.33 and if MBE elects to
terminate the Merger Agreement, USOP has the option, but not the obligation, to
adjust the Exchange Ratio to be equal to 1.5 times the quotient of $15.33
divided by the Average Price of USOP Common Stock. If USOP adjusts the Exchange
Ratio as described, MBE must accept the adjustment and, assuming all conditions
to the Merger are satisfied or waived, proceed with the Merger. If the Average
Price of USOP Common Stock is less than $15.33 and MBE does not elect to
terminate the Merger Agreement, the Exchange Ratio will not change. Each of the
shareholders of MBE Common Stock who would be entitled to receive a fractional
share of USOP Common Stock upon surrender of such shareholder's shares of MBE
Common Stock will receive, in lieu thereof, cash in an amount equal to the value
of such fractional share.
STOCK OPTIONS
Upon the closing of the Merger, each outstanding and unexercised option to
purchase shares of MBE Common Stock will be assumed by USOP and converted into
an option to purchase the Option Conversion Number (as defined below) of shares
of USOP Common Stock at an exercise price per share equal to the Adjusted
Exercise Price (as defined below). The term "Option Conversion Number" is
defined in the Merger Agreement as the number of shares of MBE Common Stock
purchasable pursuant to the original option multiplied by the Exchange Ratio.
The term "Adjusted Exercise Price" is defined in the Merger Agreement as the
exercise price of the original option divided by the Exchange Ratio. Such
assumed option will otherwise have substantially the same terms and conditions
as the option to which it is related, including the same vesting schedule (other
than to the extent accelerated pursuant to the terms of such option or in
accordance with the terms of any employment agreements existing as of the date
of the Merger Agreement).
EFFECTIVE TIME OF THE MERGER
On the closing date of the Merger, the parties will file with the California
Secretary of State (i) a copy of the Merger Agreement, (ii) an officer's
certificate for each of Sub and MBE, and (iii) a certificate of satisfaction of
the California Franchise Tax Board for Sub, all as required by Section 1103 of
the CGCL, and will make all other filings or recordings required under the CGCL.
The Merger will become effective at such time as the Merger Documents are duly
filed with the California Secretary of State, or at such other time as Sub and
MBE may agree to specify in the documents to be filed with the Secretary of
State. Assuming all conditions to the Merger contained in the Merger Agreement
are satisfied or waived prior thereto, it is currently anticipated that the
Effective Time will occur as soon as practicable following the Special Meeting.
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PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as reasonably practicable after the Effective Time, USOP will cause
to be mailed to holders of record of MBE Common Stock on the Record Date (a) a
letter of transmittal and (b) instructions for effecting the exchange of
certificates representing MBE Common Stock for certificates representing USOP
Common Stock. Upon surrender of certificates representing MBE Common Stock, the
executed letter of transmittal and other reasonably required documents, former
holders of MBE Common Stock will receive shares of USOP Common Stock and cash in
lieu of fractional shares. SHAREHOLDERS SHOULD NOT SEND THEIR CERTIFICATES WITH
THEIR PROXY CARD.
BACKGROUND OF THE MERGER
References in the discussion below to the price of USOP Common Stock do not
reflect the effect of the stock split.
On September 20, 1996, the Company Board met to discuss the possibility of
exploring MBE's strategic and financial alternatives, including possible
strategic relationships with other companies, for the purpose of maximizing
shareholder value. The Company Board authorized its Executive Committee to
pursue exploratory discussions with investment bankers regarding a possible role
as financial advisor to the Company.
In October 1996, the Company Board met to discuss the possible hiring of a
financial advisor to assist MBE in analyzing its strategic and financial
alternatives. The Company Board then authorized the Executive Committee to
retain AACC to act as MBE's exclusive financial advisor.
From November 1996 through January 1997, representatives of the Executive
Committee together with senior officers of MBE met with AACC to discuss the
scope of the assignment to be undertaken by AACC and the proposed process to be
followed. On December 4, 1996, MBE executed an engagement letter agreement with
AACC (the "Engagement Letter"). In addition, AACC and MBE developed a list of
possible strategic acquirors to be contacted during the process. AACC also
conducted a financial analysis of MBE and the potential strategic acquirors and
prepared a confidential memorandum describing MBE (the "Confidential
Memorandum").
In February 1997, AACC began to contact potentially interested strategic
acquirors and to distribute certain materials, including the Confidential
Memorandum, for them to review. A total of 23 potential strategic acquirors were
contacted. Of the 23 initial contacts, seven companies reviewed public materials
and then declined interest. Five companies, including USOP, signed
confidentiality agreements and received the Confidential Memorandum. The other
parties declined interest in pursuing the opportunity.
On March 20, 1997, AACC received preliminary indications of interest from
two parties (each, an "Interested Party" and together, the "Interested
Parties"). USOP submitted a preliminary proposal setting forth a fixed
one-for-one share exchange ratio in a tax-free exchange that would receive
pooling-of-interests accounting treatment. On March 20, 1997, the last reported
sale price of USOP Common Stock on the Nasdaq National Market was $25.13 per
share. The other Interested Party (the "Second Interested Party") submitted a
preliminary proposal of an exchange of a fraction of its shares having a value
of between $23.00 and $25.00 for each outstanding share of MBE Common Stock.
This floating exchange ratio would have been subject to a mutually agreed upon
"collar", would have been tax-free and would have been accounted for under the
pooling-of-interests method of accounting.
On March 24, 1997, the Company Board met with AACC to review the preliminary
proposals and discuss the process to date and the next steps to be taken. In
particular, the Company Board discussed whether AACC should continue discussions
with the Interested Parties and whether the Interested Parties should be invited
to meet with key management of MBE. The Company Board directed AACC to continue
to have discussions with the Interested Parties and to proceed with management
meetings between the Interested Parties and MBE.
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On both April 2 and 3, 1997, key management from MBE and AACC met with key
management from USOP in San Diego. During these meetings, MBE presented an
overview of the operations of MBE and recent developments, including a
description of new strategic initiatives. USOP presented an overview of its
operations to MBE.
On April 9, 1997, key management from MBE and AACC met with a senior officer
from the Second Interested Party in San Diego. During this meeting, MBE
presented an overview of its operations and recent developments. The Second
Interested Party presented an overview of its operations to MBE.
On April 17, 1997, senior management from MBE and AACC met with additional
members of the senior management team from USOP in Washington, D.C. MBE and USOP
continued to discuss possible advantages of a combination, and USOP explained in
more detail its corporate history, operations, strategy and growth plans.
On May 1 and 2, 1997, AACC received revised indications of interest through
several telephone conversations with the Interested Parties. After some
negotiation, USOP proposed a floating exchange ratio having a value equal to
$26.25 per MBE share. USOP's Common Stock price at this time was $24.75. The
Second Interested Party proposed an exchange of a fraction of its shares, which
at that time represented a value less than that represented by the USOP
proposal. On May 2, 1997, the Executive Committee met with AACC to discuss the
revised proposals from the Interested Parties. The Executive Committee directed
AACC to continue to negotiate with USOP.
During the following weeks, Frederic Floberg, Senior Managing Director of
AACC, had several discussions with Jonathan Ledecky, CEO and Chairman of the
USOP Board, regarding a possible strategic transaction. On May 15, 1997, Mr.
Ledecky indicated that members of the Executive Committee of USOP's Board of
Directors were concerned about the previously discussed fixed value offer of
$26.25 per share of MBE Common Stock because the then current price of USOP
Common Stock had declined to $23.88 per share and USOP was concerned about the
potential dilution to USOP stockholders that could result from a fixed value
offer.
On May 16, 1997, USOP returned to its original proposal, which consisted of
the terms in the Merger Agreement prior to its amendment to reflect the stock
split. These terms were as follows: the Exchange Ratio would be one as long as
the Average Price of USOP Common Stock was between $23.00 and $29.00 per share;
if the Average Price of USOP Common Stock was above $29.00, then the Exchange
Ratio would be a fraction of a share of USOP Common Stock equal to the quotient
of $29.00 divided by the Average Price of USOP Common Stock; if the Average
Price of USOP Common Stock was below $23.00, then there would be no automatic
adjustment in the Exchange Ratio, and the Company could terminate the Merger
Agreement unless USOP should elect to adjust the Exchange Ratio to be equal to
the quotient of $23.00 divided by the Average Price of USOP Common Stock. Mr.
Ledecky, Mark D. Director, Chief Administrative Officer, General Counsel and
Secretary of USOP, Michael Dooling, Chairman of the Board of Directors, and
Anthony W. DeSio, Chief Executive Officer of MBE, and their respective advisors
subsequently proceeded with the negotiation of a draft of the Merger Agreement.
The Company Board met on May 20, 1997 with Mr. Floberg and other AACC
representatives and counsel in attendance and reviewed a draft of the Merger
Agreement. The purpose of the meeting was to give final consideration as to
whether any other alternatives (e.g. continuing as an independent company for
the time being) might present a better value for the shareholders of MBE, to
consider the terms of the proposed draft contract, to receive and consider the
advice of AACC with respect to the fairness of the proposed transaction with
USOP and to determine whether or not to continue to negotiate the contract. At
the Company Board meeting, AACC summarized for the Company Board the results of
its analyses undertaken for purposes of rendering an opinion relating to the
proposed transaction with USOP. Such analyses included a review of the stock
price history of the MBE Common Stock and the USOP Common Stock, a comparison of
MBE and USOP with other publicly traded companies, an analysis of the
contribution of MBE to the financial results and condition of USOP resulting
from the contemplated
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transaction and an analysis of the transaction in comparison to selected other
acquisition transactions in the franchise industry. The AACC presentation also
included a discounted cash flow analysis for MBE, a present value analysis of
possible future stock prices of MBE Common Stock and a pro forma merger
analysis. These analyses are summarized elsewhere in this Proxy
Statement/Prospectus. See "-- Opinion of Financial Advisor." AACC also rendered
its opinion, confirmed in writing as of May 22, 1997, that as of such date and
subject to the assumptions and limitations identified in the opinion, the
Exchange Ratio to be received by the shareholders of MBE is fair to such
shareholders from a financial point of view. See "-- Opinion of Financial
Advisor."
The Company Board concluded that the process employed to solicit proposals
for transactions was conducted in such a manner as to result in the most
attractive alternative available to the shareholders of MBE and that the USOP
proposal offered a better opportunity for enhancing shareholder value than that
offered by the continuation of MBE as an independent company for the time being.
Accordingly, the Company Board directed its representatives to complete the
negotiation of the Merger Agreement. After the close of the market on May 21,
1997, the Company Board had several follow-up teleconference meetings and
determined that the proposed transaction was in the best interests of MBE's
shareholders, unanimously approved the final form of the agreement between MBE
and USOP and authorized MBE's officers to execute the Merger Agreement. After
the meetings of the Company Board and USOP's Board of Directors, the Merger
Agreement was executed by the parties and a press release announcing the
proposed transaction was issued before the commencement of trading on Thursday,
May 22, 1997.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF MBE AND MBE'S REASONS FOR THE MERGER
The Company Board unanimously approved the Merger and recommends that
shareholders vote FOR approval and adoption of the principal terms of the
Merger. The Company Board believes that the Merger is fair to and in the best
interests of the shareholders of MBE. The Company Board considered the terms and
structure of the Merger and the terms and conditions of the Merger Agreement and
decided to approve the Merger and recommended unanimously that the shareholders
approve the principal terms of the Merger, in light of the following factors:
(i) the fact that the Merger Agreement resulted from a comprehensive process
that the Company Board believes was conducted in such a manner as to result in
the most attractive alternative available to the shareholders of MBE (see
"--Background of the Merger");
(ii) the information presented by AACC at the May 20, 1997 meeting of the
Company Board and the written opinion of AACC dated May 22, 1997, to the effect
that the Exchange Ratio is fair to the MBE shareholders. SHAREHOLDERS ARE URGED
TO READ THE OPINION OF AACC IN ITS ENTIRETY. THIS OPINION IS INCLUDED AS EXHIBIT
II TO THIS PROXY STATEMENT/ PROSPECTUS.
(iii) the strategic and financial alternatives available to MBE, including
remaining an independent company and pursuing its existing growth strategy;
(iv) information with respect to the financial condition and business of
USOP, including, among other things, USOP's recent earnings performance, and the
demonstrated ability of USOP to successfully implement its growth strategy;
(v) current and historical market prices and trading information with
respect to each company's common stock;
(vi) the fact that the USOP Common Stock to be exchanged for MBE Common
Stock represents ownership interests in a significantly larger company with a
significantly broader, more active trading market;
(vii) the length of time that would be required if the Merger were not
completed to achieve the shareholder value to be received by the MBE
shareholders through the Merger;
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(viii) the fact that, under the Merger Agreement, the Merger is expected to
be treated as a tax-free reorganization under the Code;
(ix) the expected accounting treatment of the Merger as a
pooling-of-interests (thereby avoiding the reduction in future earnings which
would result under purchase accounting);
(x) the fact that the implied value resulting from the Exchange Ratio to be
received by MBE shareholders represents a premium of 24.8% over the
pre-announcement market price of MBE Common Stock;
(xi) the history of MBE's contacts with other prospective parties;
(xii) the financial strength of, and consolidation opportunities available
to, USOP and its management;
(xiii) the fact that, under the Merger Agreement, the Company Board is
permitted, under certain circumstances and subject to certain notice and other
requirements specified in the Merger Agreement, to provide information to or
enter into discussions or negotiations with any person or entity that makes an
unsolicited, Superior Proposal, as defined below and in the Merger Agreement
(see "The Merger Agreement--Certain Covenants--No Inconsistent Activities"); and
(xiv) the published reports of research analysts regarding USOP's long-term
growth prospects and the potential for share price appreciation, some of which
reports reflect target stock prices substantially above USOP's current stock
price, and the opportunity for MBE shareholders to participate in this potential
appreciation.
The foregoing discussion of the information and factors considered by the
Company Board is not intended to be exhaustive. The information and factors were
considered by the Company Board in connection with its review of the Merger
Agreement and the proposed Merger. In view of the variety of factors considered
in connection with its evaluation of the Merger, the Company 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 Company Board may have given different weights to
different factors. Based upon this analysis, the Company Board determined that
the Merger was in the best interests of the shareholders of MBE.
OPINION OF FINANCIAL ADVISOR
MBE retained AACC to act as its financial advisor in connection with a
possible transaction to enhance shareholder value. In connection with such
engagement, MBE requested that AACC render its opinion as to the fairness to
MBE's shareholders of the Exchange Ratio to be received in the Merger.
On May 22, 1997, in connection with the evaluation of the proposal from USOP
by the Company Board, AACC rendered an opinion that, as of such date, and
subject to certain assumptions, factors and limitations set forth in such
written opinion as described below, the Exchange Ratio to be received by MBE
shareholders is fair to such shareholders from a financial point of view.
THE FULL TEXT OF THE WRITTEN OPINION OF AACC, DATED MAY 22, 1997, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX II TO THIS
PROXY STATEMENT/PROSPECTUS AND SHOULD BE READ IN ITS ENTIRETY FOR INFORMATION
WITH RESPECT TO PROCEDURES FOLLOWED, ASSUMPTIONS MADE AND MATTERS CONSIDERED BY
AACC IN RENDERING ITS OPINION. AACC'S OPINION DOES NOT REFLECT THE STOCK SPLIT
ANNOUNCED BY USOP ON OCTOBER 7, 1997. AACC'S OPINION WAS PREPARED FOR THE
COMPANY BOARD AND ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO TO THE
HOLDERS OF MBE COMMON STOCK. THE AACC OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE PROPOSED MERGER AND DOES NOT CONSTITUTE AN OPINION AS TO WHAT THE
VALUE OF USOP COMMON STOCK ACTUALLY WILL BE WHEN ISSUED TO MBE SHAREHOLDERS
PURSUANT TO THE MERGER. THE SUMMARY OF THE OPINION OF AACC SET FORTH IN THIS
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION.
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In connection with its opinion, AACC reviewed the Merger Agreement and
certain related documents and held discussions with certain senior officers,
directors and other representatives and advisors of MBE and certain senior
officers and other representatives of USOP concerning the businesses, operations
and prospects of MBE and USOP. AACC examined certain publicly available business
and financial information relating to MBE and USOP, as well as certain financial
data and other data for MBE and certain financial information and other data
related to USOP which were provided to or otherwise discussed with AACC by the
respective management of MBE and USOP. AACC reviewed the financial terms of the
Merger as set forth in the Merger Agreement in relation to: (i) current and
historical market prices and trading volumes of MBE Common Stock and USOP Common
Stock; (ii) the respective companies' financial and other operating data; and
(iii) the capitalization and financial condition of MBE and USOP. AACC also
considered, to the extent publicly available, the financial terms of certain
other similar transactions recently effected which AACC considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations AACC considered relevant in evaluating those of MBE and USOP.
In connection with AACC's engagement, AACC identified, approached and held
discussions with certain third parties to solicit indications of interest in a
possible acquisition of MBE.
In rendering its opinion, AACC assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by it, and it did
not make, obtain or assume any responsibility for independent verification of
such information. In addition, AACC did not make an independent evaluation or
appraisal of the assets and liabilities of MBE or USOP or any of their
respective subsidiaries.
The following is a summary of the financial analyses AACC utilized in
connection with providing its written opinion to the Company Board on May 20,
1997. The prices of USOP Common Stock referenced in this summary do not reflect
the stock split.
(a) STOCK TRADING HISTORY. AACC examined the history of the closing prices
and trading volumes for the shares of MBE Common Stock. This examination showed
that during the four week period from April 21, 1997 to May 16, 1997, the
closing price of MBE Common Stock ranged from $21.00 per share to $18.00 per
share. This range may be compared to the range of values to be received pursuant
to the Exchange Ratio. In addition, this examination showed that over the period
from May 16, 1996 to May 16, 1997, the closing price of MBE Common Stock ranged
from $25.88 per share to $16.50 per share. AACC also examined the history of the
closing prices and trading volumes for the shares of USOP Common Stock. This
examination showed that during the four-week period from April 21, 1997 to May
16, 1997, the closing price of USOP Common Stock ranged from $26.25 per share to
$20.50 per share. In addition, this examination showed that over the period from
May 16, 1996 to May 16, 1997, the closing price of USOP Common Stock ranged from
$44.88 per share to $20.50 per share.
(b) COMPARISON OF SELECTED PEER COMPANIES. AACC compared selected
historical stock market and balance sheet data and historical or pro forma
financial ratios for MBE and USOP to the corresponding data and ratios of the
following group of selected franchisor companies (in the case of MBE) and groups
of office products distribution companies (in the case of USOP) and the
companies indicated within each such group: (a) Franchisor Group: Boston
Chicken, Inc., General Nutrition Companies, HFS, Incorporated, McDonald's
Corporation, Papa John's International; (b) Office Products Distribution-- (i)
Contract Stationers: Boise Cascade Office Products, BT Office Products,
Corporate Express, (ii) Office Superstores: Office Depot, OfficeMax, Staples,
and (iii) Mail Order: Viking Office Products. The multiples of MBE and USOP were
calculated using a price of $19.00 per share of MBE Common Stock and a price of
$23.75 per share of USOP Common Stock, the closing prices as of May 16, 1997.
Such data and ratios included, among other things, total market capitalization
(current stock price multiplied by shares outstanding plus total debt less cash
and cash equivalents), total market capitalization to latest 12 months ("LTM")
sales, LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") and LTM earnings before interest and taxes ("EBIT"), as well as
calendar year 1997 and 1998 estimated price-to-earnings ("P/E") ratios. The LTM
data for MBE was based upon MBE's reported results for the period ended January
31,
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1997, adjusted for the one-time litigation charge incurred in MBE's second
quarter of its 1997 fiscal year. The LTM data for USOP was based upon USOP's pro
forma reported results for the period ended January 25, 1997, excluding MBE, and
adjusted for nonrecurring items. For the franchisor companies, an analysis of
total market capitalization to LTM sales yielded a range of 9.8x to 2.1x (with a
median of 3.8x) compared to 2.9x for MBE. For the office products companies, an
analysis of total market capitalization to LTM sales yielded a range of 1.1x to
0.3x (with a median of 0.6x) compared to 0.7x for USOP. For the franchisor
companies, an analysis of total market capitalization to LTM EBITDA yielded a
range of 20.7x to 12.1x (with a median of 13.5x) compared to 10.9x for MBE. For
the office products companies, an analysis of total market capitalization to LTM
EBITDA yielded a range of 15.0x to 7.3x (with a median of 10.1x) compared to
11.9x for USOP. For the franchisor companies, an analysis of total market
capitalization to LTM EBIT yielded a range of 27.9x to 15.4x (with a median of
16.3x) compared to 11.6x for MBE. For the office products companies, an analysis
of total market capitalization to LTM EBIT yielded a range of 19.1x to 11.4x
(with a median of 14.0x) compared to 14.2x for USOP. For the franchisor
companies, an analysis of calendar 1997 estimated P/E ratios yielded a range of
32.1x to 15.7x (with a median of 20.9x) compared to 17.8x for MBE. For the
office products companies, an analysis of calendar 1997 estimated P/E ratios
yielded a range of 27.0x to 12.9x (with a median of 18.4x) compared to 16.3x for
USOP. For the franchisor companies, an analysis of calendar 1998 estimated P/E
ratios yielded a range of 24.6x to 12.1x (with a median of 16.4x) compared to
14.8x for MBE. For office products companies, an analysis of calendar 1998
estimated P/E ratios yielded a range of 21.1x to 11.1x (with a median of 15.0x)
compared to 12.4x for USOP.
(c) SELECTED TRANSACTIONS ANALYSIS. AACC analyzed certain information
relating to selected transactions in the franchising industry (the "Selected
Transactions"). Such analysis indicated that for the Selected Transactions, (i)
aggregate consideration as a multiple of LTM sales ranged from 6.2x to 0.6x with
a median of 2.2x compared to a multiple of 3.6x at $23.00 per share and 4.6x at
$29.00 per share for the Merger (per share amounts reflect the range of possible
offer prices for MBE Common Stock), (ii) aggregate consideration as a multiple
of LTM EBITDA ranged from 15.8x to 4.4x with a median of 8.9x compared to a
multiple of 13.5x at $23.00 per share and 17.4x at $29.00 per share for the
Merger, (iii) aggregate consideration as a multiple of LTM EBIT ranged from
28.0x to 9.5x with a median of 14.2x compared to a multiple of 14.4x at $23.00
per share and 18.5x at $29.00 per share for the Merger, and (iv) equity
consideration as a multiple of LTM net income ranged from 30.4x to 14.9x with a
median of 21.2x compared to a multiple of 25.2x at $23.00 per share to 31.7x at
$29.00 per share for the Merger.
(d) CONTRIBUTION ANALYSIS. AACC reviewed certain historical operating and
financial information (including, among other things, revenue, EBIT, net income
and market capitalization) for MBE, USOP and the pro forma financial information
reflecting the Merger and other transactions of USOP. This analysis indicated
that MBE would have contributed (i) 2.3% to pro forma combined revenue, 10.0% to
pro forma combined EBIT and 12.2% to pro forma combined net income, in each case
for the twelve month period ended January 31, 1997 and assuming that the Merger
had occurred on February 1, 1996, and (ii) 14.0% to pro forma combined total
market capitalization and 14.6% to pro forma combined ownership, in each case as
of May 16, 1997 and assuming that the Merger had occurred as of that date.
(e) DISCOUNTED CASH FLOW ANALYSIS. AACC performed a discounted cash flow
analysis of MBE. AACC calculated a net present value of estimated cash flows as
provided by MBE management for the fiscal years ended April 30, 1998 through
2001 using discount rates ranging from 13.0% to 17.0%. AACC calculated MBE's
terminal values in the fiscal year 2001 based on multiples ranging from 8x EBIT
to 11x EBIT. These terminal values were then discounted to present value using
discount rates from 13.0% to 17.0%. Using the foregoing terminal values and
discounted cash flows for MBE, the equity value per share ranged from $19.99 to
$28.51.
(f) PRESENT VALUE OF PROJECTED STOCK PRICE ANALYSIS. AACC calculated the
present value of a share of MBE Common Stock assuming various growth rates
applied to estimated fiscal year 1997 earnings per share. Earnings per share
multiples ranging from 15.0x to 22.5x were applied to the fiscal year 2001
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estimated earnings per share, and then discounted at rates ranging from 13.0% to
17.0%. The present value suggested a range of valuation for MBE between $14.55
per share and $28.06 per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to practical analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying AACC's opinion. In arriving at its fairness determination, AACC
considered the results of all of such analyses. No company or transaction used
in the above analyses as a comparison is identical to MBE or USOP or the Merger.
The analyses were prepared solely for purposes of AACC's opinion provided to the
Company Board as to the fairness of the Exchange Ratio to be received by the
shareholders of MBE pursuant to the Merger Agreement and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. 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 the parties or their respective advisors, none of MBE,
USOP, AACC or any other person assumes responsibility if future results are
materially different from those forecast.
AACC, as part of its investment banking business, is continually engaged in
the valuation of businesses in connection with mergers and acquisitions, as well
as initial and secondary offerings of securities and valuations for other
purposes. MBE selected AACC as its financial advisor because AACC is a
nationally recognized investment banking firm that has substantial experience in
transactions similar to the Merger.
In the ordinary course of AACC's business, AACC and its affiliates may
actively trade securities of MBE and USOP for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Pursuant to the Engagement Letter, MBE engaged AACC to act as its financial
advisor in connection with the possible sale of MBE. Pursuant to the terms of
the Engagement Letter, MBE has paid AACC a $50,000 initial retainer fee, and an
additional $250,000 is payable by MBE to AACC since AACC has rendered the
fairness opinion. Pursuant to the terms of the Engagement Letter, MBE will pay
AACC, on the closing date, cash compensation equal to one percent (1.0%) of the
transaction value, less amounts paid previously under the Engagement Letter.
Further, MBE has agreed to reimburse AACC for its reasonable out-of-pocket
expenses, including attorneys' fees, and to indemnify AACC against certain
liabilities, including certain liabilities under the federal securities laws.
APPROVAL OF THE BOARD OF DIRECTORS OF U.S. OFFICE PRODUCTS COMPANY AND U.S.
OFFICE PRODUCTS' REASONS FOR THE MERGER
The Board of Directors of USOP unanimously approved the Merger Agreement.
The Merger does not require the approval of USOP's stockholders. In reaching its
conclusion to approve the Merger Agreement, the Board of Directors of USOP
considered many factors, including the following material factors:
(i) the potential for MBE and USOP to provide an enhanced level of service
to the SOHO market by making available a broader range of business products and
services;
(ii) MBE's revenue and financial condition including MBE's increases in
revenues during the first three fiscal quarters of its 1997 fiscal year, and as
compared to MBE's year-to-date earnings as of January 31, 1996; MBE's excess
cash; and MBE's low level of indebtedness;
(iii) the ability of MBE franchisees to offer to their customers a larger
variety of office products and business services at the same favorable prices
that other large office supply competitors offer to the public;
(iv) the expected accounting treatment of the Merger as a
pooling-of-interests (thereby avoiding the reduction in future earnings which
would result under purchase accounting);
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(v) the breadth of MBE's franchise network and the strategic benefits to
USOP of expanding its business to include the SOHO market through MBE's broad
distribution methods;
(vi) the regulatory approvals required to consummate the Merger and the
favorable prospects for receiving all of such approvals;
(vii) MBE's success as a franchisor;
(viii) the greater purchasing power of USOP, which can benefit MBE
franchisees and their customers as well as MBE (and, thus, USOP and its
stockholders); and
(ix) the name recognition of MBE.
The foregoing discussion of the information and factors considered by the
USOP Board of Directors is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the Merger, the USOP
Board of Directors 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 USOP Board of
Directors may have given different weights to different factors. Based on this
analysis, the USOP Board of Directors determined that the Merger is consistent
with and in furtherance of USOP's long-term business strategy and USOP's goal of
becoming the premier supplier of all office products and business services to
small and medium-sized companies.
The factors considered by the USOP Board of Directors include
forward-looking statements relating to the opportunities that are expected to
result from the Merger. The actual results, performance or achievement of USOP
and MBE assuming consummation of the Merger could differ materially from the
anticipated results expressed above. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors" beginning on page 16.
Neither the Company nor USOP undertakes any obligation to revise these
forward-looking statements to reflect any future events or circumstances.
SHARES TO BE VOTED BY DIRECTORS AND EXECUTIVE OFFICERS
As of the Record Date, directors and executive officers of MBE had or shared
ownership of approximately 19% of the outstanding shares of MBE Common Stock. As
of the Record Date, directors and executive officers of USOP and their
affiliates were not beneficial owners of any of the outstanding shares of MBE
Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
Neither MBE, USOP nor Sub intends to secure a ruling from the Internal
Revenue Service (the "Service") with respect to the tax consequences of the
Merger. However, it is the opinion of O'Melveny & Myers LLP, counsel to MBE,
that, on the basis of facts, representations and assumptions set forth or
referred to in such opinion, (a) the Merger will constitute a reorganization
within the meaning of section 368(a) of the Code, and USOP, MBE and Sub will
each be a party to the reorganization within the meaning of section 368(b) of
the Code; (b) no gain or loss will be recognized by the holders of shares of MBE
Common Stock upon the receipt of shares of USOP Common Stock in exchange for
such shares of MBE Common Stock, except that a shareholder who receives cash in
lieu of a fractional share interest in USOP Common Stock will recognize gain or
loss equal to the difference between such cash and the basis allocated to the
fractional share interest; (c) the basis of the shares of USOP Common Stock
received by a holder of shares of MBE Common Stock (including any fractional
share interest treated as received) will be the same as the basis of the shares
of MBE Common Stock exchanged therefor; and (d) the holding period of the shares
of USOP Common Stock received by a holder of shares of MBE Common Stock
(including any fractional share interest treated as received) will include the
holding period of the shares of MBE Common Stock exchanged therefor, provided
such shares of MBE Common Stock were held as a capital asset at the effective
time of the Merger.
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TAX IMPLICATIONS TO MBE, USOP AND SUB
No gain or loss will be recognized for federal income tax purposes by MBE,
USOP or Sub as a result of the Merger.
TAX IMPLICATIONS TO DISSENTING SHAREHOLDERS
Holders of MBE Common Stock who exercise their dissenters' rights with
respect to their shares will generally be treated as if such shares were
exchanged for the amount of cash received. Accordingly, dissenting shareholders
may recognize gain or loss as a result of the Merger. The nature and amount of
such gain or loss will depend on a number of factors, and shareholders
considering dissenting are strongly urged to consult their tax advisors as to
the particular tax consequences of doing so.
OTHER TAX ASPECTS
Apart from federal income taxes, no attempt has been made to determine any
tax that may be imposed on a shareholder by the country, state or jurisdiction
in which the holder resides or is a citizen. In addition to federal income
taxes, shareholders may be subject to other taxes, such as state or local income
taxes that may be imposed by various jurisdictions. Shareholders may also be
subject to income, intangible property, estate and inheritance taxes in their
state of domicile. Shareholders should consult their own tax advisors with
regard to state income, inheritance and estate taxes.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INTENDED TO PROVIDE
ONLY A SUMMARY, AND DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR
ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT
ADDRESS ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE DISPOSITION OF STOCK
IN MBE BEFORE THE MERGER OR THE DISPOSITION OF USOP STOCK AFTER THE MERGER.
ACCORDINGLY, EACH SHAREHOLDER IS STRONGLY URGED TO CONSULT WITH SUCH
SHAREHOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH
SHAREHOLDER OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FOREIGN,
STATE, LOCAL AND OTHER TAX LAWS.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
purposes. Under this method of accounting, following completion of the Merger,
the financial conditions, results of operations and cash flows of USOP and MBE
will be reflected for accounting purposes as if MBE had always been a wholly
owned subsidiary of USOP. USOP has been advised by its independent accountants
that they believe the Merger will qualify as a pooling-of-interests under
generally accepted accounting principles. MBE has been advised by its
independent accountants that MBE meets the criteria for a pooling-of-interests.
USOP's obligation to complete the Merger is conditioned on, among other things,
(i) the receipt by USOP and MBE, at the Effective Time, of written confirmation
from their respective independent accountants of the advice described above, and
(ii) no events having occurred which would establish with reasonable certainty
that the Merger could not be treated as a pooling-of-interests.
CONFLICTS OF INTEREST
As of the Record Date, directors and executive officers of MBE beneficially
owned an aggregate of 2,196,994 shares of MBE Common Stock. Assuming the maximum
value of $29.00 (based on the Average Price of USOP Common Stock) per share of
MBE Common Stock is received by MBE shareholders in the Merger, the aggregate
dollar value of the shares of USOP Common Stock to be received in the Merger by
the executive officers and directors of MBE would be approximately $63,712,826.
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Certain of the major shareholders of MBE beneficially owning in the
aggregate approximately 34% of the shares of MBE Common Stock outstanding as of
the Record Date have entered into the Voting Agreements pursuant to which they
have agreed, among other things, to vote in favor of the Merger. See "--Voting
Agreements."
Pursuant to the employment agreement dated September 18, 1996 between MBE
and James H. Amos, Jr., MBE's President and Chief Operating Officer, if Mr.
Amos' employment with MBE is terminated solely due to a sale or merger of MBE
prior to September 20, 1998, Mr. Amos is entitled to receive his annual base
salary of $231,000 over a 12-month period following his date of termination and
to retain his medical insurance coverage (under the terms of MBE's then-existing
medical insurance plan) for a period of one year following such termination.
USOP expects to negotiate employment arrangements with certain executive
officers of MBE on mutually agreeable terms which the Company anticipates will
be similar to those arrangements that USOP typically negotiates with executive
officers of other companies that it acquires.
Pursuant to the Merger Agreement, USOP is required to indemnify and defend
(and to bear all associated costs and expenses) each officer and director of MBE
serving as such immediately prior to the Effective Time of the Merger from and
against any and all claims, damages and losses relating to or arising out of (i)
their performance of their respective Company duties prior to the Effective
Time, or (ii) the consummation of any of the transactions contemplated by the
Merger Agreement. In addition, USOP is required under the Merger Agreement to
cause the surviving corporation to provide, for a period of four years following
the Effective Time, officers' and directors' liability insurance in respect of
acts or omissions occurring prior to the Effective Time covering each person
covered by MBE's officers' and directors' liability insurance policy currently
in effect on terms with respect to coverage and amount that are no less
favorable than those provided in MBE's current policy. See "The Merger
Agreement--Certain Covenants."
As of the Record Date, directors and executive officers of MBE held
outstanding options to purchase an aggregate of 1,302,007 shares of MBE Common
Stock. Pursuant to the Merger Agreement, each MBE stock option outstanding at
the Effective Time, including the options held by MBE directors and executive
officers, will be converted into an option to acquire the Option Conversion
Number of shares of USOP Common Stock at an exercise price per share equal to
the Adjusted Exercise Price. See "The Merger Agreement--Stock Options."
In light of the foregoing, the directors and executive officers of MBE may
have personal interests in the Merger which are not identical to the interests
of other MBE shareholders.
VOTING AGREEMENTS
USOP has entered into the Voting Agreements with certain of the major
shareholders of MBE (and their affiliates) beneficially owning approximately 34%
of the outstanding shares of MBE Common Stock as of the Record Date. These
agreements, dated May 22, 1997, include (i) an agreement to vote or cause to be
voted the shares of MBE Common Stock owned or controlled by the shareholders
executing the agreements in favor of the Merger, (ii) an appointment of USOP as
proxy for and on behalf of such shareholders to vote their shares of MBE Common
Stock in favor of the Merger, and, (iii) except as provided in the affiliate
agreement to which each such shareholder is a party (see "--Certain Other
Agreements"), an agreement not to sell, transfer, pledge or otherwise dispose of
any of their shares of MBE Common Stock or any interest therein without the
written consent of USOP. The Voting Agreements were executed by Michael Dooling,
MBE's Chairman of the Board, Anthony W. DeSio, MBE's Vice Chairman of the Board
and Chief Executive Officer, and United Parcel Service of America, Inc. The
Voting Agreements terminate on the earlier of the Effective Time or the
termination of the Merger Agreement in accordance with its terms.
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CERTAIN OTHER AGREEMENTS
Each of the affiliates of MBE has agreed not to transfer or otherwise
dispose of or reduce such affiliate's risk relating to (i) any shares of the MBE
Common Stock within 30 days prior to the Effective Time, and (ii) any shares of
USOP Common Stock acquired in the Merger until USOP has released results of
operations that reflect the combined post-Merger operations of USOP and MBE for
a minimum of 30 days, except for certain DE MINIMIS transactions as permitted
under the affiliate agreements. In addition, each of the affiliates has agreed
to certain federal securities law restrictions on the resale of USOP Common
Stock. See "--Federal Securities Law Consequences." The restrictions on resale
are intended to preserve the characterization of the Merger for federal income
tax purposes as a tax-free reorganization, to comply with the requirements for
pooling-of-interests accounting treatment and to comply with restrictions on the
resale of securities imposed by the federal securities laws.
FEDERAL SECURITIES LAW CONSEQUENCES
This Proxy Statement/Prospectus, unless appropriately amended or
supplemented, does not cover any resales by MBE shareholders of any shares of
USOP Common Stock that they receive in the Merger, and no person is authorized
to make any use of this Proxy Statement/Prospectus in connection with any such
resale.
All shares of USOP Common Stock received by MBE shareholders in the Merger
will be freely transferable, except that persons who are deemed to be
"affiliates" (as such term is defined for purposes of the pooling-of-interests
requirements and the Securities Act) of MBE prior to the Merger may resell
shares they receive only in transactions permitted by the resale provisions of
Rule 145 promulgated under the Securities Act, or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates of MBE generally
include individuals or entities who or that control, are controlled by, or are
under common control with, MBE and may include certain officers, directors and
principal shareholders of MBE. In addition, except for certain permitted DE
MINIMIS transactions (subject to compliance with federal securities laws), such
affiliates will not be permitted to sell shares they receive in the Merger until
USOP has released results of operations that reflect the combined post-Merger
operations of USOP and MBE for a minimum of 30 days. See "--Certain Other
Agreements."
GOVERNMENTAL AND REGULATORY APPROVAL
Under the HSR Act, and the rules promulgated thereunder by the FTC, the
Merger may not be completed until notifications have been given and certain
information has been furnished to the FTC and the Antitrust Division and
specified waiting period requirements have been satisfied. USOP and MBE filed
notification and report forms under the HSR Act with the FTC and the Antitrust
Division on June 20, 1997. The FTC and the Antitrust Division granted early
termination of the HSR waiting period on July 3, 1997. Thus, the waiting period
requirements of the HSR Act have been satisfied. Nevertheless, at any time
before or after consummation of the Merger, the FTC, the Antitrust Division or
state attorneys' general could take such action under the antitrust laws as they
deem necessary or desirable in the public interest, including seeking to enjoin
the consummation of the Merger. Private parties may also seek to take legal
action under the antitrust laws under certain circumstances.
Based on the information available to them, USOP and MBE believe that the
Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such challenge were
made, USOP and MBE would prevail or would not be required to accept certain
conditions, including the divestitures of certain assets, in order to consummate
the Merger.
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DISSENTERS' RIGHTS OF APPRAISAL
The rights of shareholders of MBE to dissent from approval of the Merger and
demand payment for their shares are governed by Chapter 13 of the CGCL, the full
text of which is reprinted as Appendix III to this Proxy Statement/Prospectus.
The summary of these rights set forth below is not intended to be complete and
is qualified in its entirety by reference to Appendix III.
Under the CGCL, shareholders of MBE will not have any dissenters' rights
with respect to the Merger unless demands for payment are duly filed with
respect to five percent or more of the outstanding shares of MBE Common Stock.
If the holders of five percent or more of the outstanding shares of MBE Common
Stock duly file demands for payment and fully comply with Chapter 13 of the
CGCL, they will have dissenters' rights to be paid in cash the fair market value
of their shares.
Under the CGCL, "fair market value" is determined as of the day before the
first announcement of the terms of the Merger Agreement, excluding any
appreciation or depreciation as a consequence of the Merger. If the parties are
unable to agree on a fair market value, the dissenting shareholder may request
the Superior Court for the County of San Diego to determine the fair market
value of the shares. The court's decision would be subject to appellate review.
The terms of the Merger Agreement were publicly announced on May 22, 1997.
On May 21, 1997, the last trading day prior to the public announcement of the
terms of the Merger, the high and low sales prices for MBE Common Stock were
$19.63 and $19.13, respectively.
DISSENTERS' RIGHTS CANNOT BE VALIDLY EXERCISED BY PERSONS OTHER THAN
SHAREHOLDERS 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 a broker, a bank or a nominee, should instruct the record holder to
follow the procedures outlined below if such beneficial owners wish to dissent
from the approval of the Merger.
As described more fully below, in order to perfect their dissenters' rights,
shareholders of record must: (i) make written demand for the purchase of their
dissenting shares to MBE or its transfer agent on or before the date of the
Special Meeting; (ii) vote their dissenting shares against approval of the
Merger; and (iii) within 30 days after the mailing to shareholders by MBE of
notice of approval of the Merger, submit the certificates representing their
dissenting shares to MBE, or its transfer agent, for notation thereon that they
represent dissenting shares. Failure to follow any of these procedures may
result in the loss of statutory dissenters' rights.
DEMAND FOR PURCHASE
Dissenting shareholders of MBE must submit to MBE at its principal office,
6060 Cornerstone Court West, San Diego, California 92121, or to its transfer
agent, Chase Mellon Shareholder Services, 400 South Hope Street, 4th floor, Los
Angeles, California 90071, a written demand that MBE purchase for cash those
shares with respect to which they wish to act as dissenting shareholders.
The notice must state the number of shares held of record which the
shareholder 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 shareholder to sell such shares at that
price. SUCH DEMAND WILL NOT BE EFFECTIVE UNLESS IT IS RECEIVED BY NOT LATER THAN
THE DATE OF THE SPECIAL MEETING.
Dissenting shareholders may not withdraw their demand for payment without
the consent of the Company Board. The rights of dissenting shareholders to
demand payment terminate if the Merger is abandoned (although dissenting
shareholders are entitled upon demand to reimbursement of expenses incurred in a
good faith assertion of their dissenters' rights), or if the shares are
transferred prior to submission for endorsement as dissenting shares.
No shareholder who has a right to demand payment of cash for such
shareholder'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
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aside or rescinded, except in an action to test whether MBE has received the
number of shares required to approve the Merger. Any shareholder who does not
demand payment of cash for such shareholder's shares and who institutes an
action to attack the validity of the Merger or to have the Merger set aside or
rescinded would not thereafter have any right to demand payment of cash pursuant
to the exercise of dissenters' rights.
VOTE AGAINST APPROVAL OF THE MERGER
Dissenting shareholders must vote their dissenting shares against approval
of the Merger. Record shareholders may vote part of the shares that they are
entitled to vote in favor of the Merger or abstain from voting a part of such
shares without jeopardizing their dissenters' rights as to other shares;
however, if record shareholders vote part of the shares they are entitled to
vote in favor of the Merger 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 that they are entitled to vote. Voting
against the Merger will not of itself, absent compliance with the provisions of
Chapter 13 of the CGCL summarized herein, satisfy the requirements of the CGCL
for exercise and perfection of dissenters' rights. However, any shareholder
desiring to exercise dissenters' rights must vote against approval of the
Merger.
NOTICE OF APPROVAL
If shareholders have a right to require MBE to purchase their shares for
cash under the dissenters' rights provisions of the CGCL, MBE will mail to each
such shareholder a notice of approval of the Merger within ten days after the
date of shareholder approval, stating the price determined by it to represent
the "fair market value" of the dissenting shares. The statement of price will
constitute an offer to purchase any dissenting shares at that price.
SUBMISSION OF STOCK CERTIFICATES
Within 30 days after the mailing of the notice of approval of the business
combination, dissenting shareholders must submit to MBE or its transfer agent,
at the address set forth above, certificates representing the dissenting shares
to be purchased, to be stamped or endorsed with a statement that the shares are
dissenting shares or are to be exchanged for certificates of appropriate
denomination so stamped or endorsed. 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.
PURCHASE OF DISSENTING SHARES
If a dissenting shareholder and MBE agree that the shares are dissenting
shares and agree upon the price of the shares, MBE will, upon surrender of the
certificates, make payment of that amount (plus interest thereon at the legal
rate on judgments from the date of such agreement) within 30 days after that
agreement. Any agreement between dissenting shareholders and MBE fixing the
"fair market value" of any dissenting shares must be filed with the Secretary of
MBE.
If MBE denies that the shares are dissenting shares, or MBE and a dissenting
shareholder fail to agree upon the "fair market value" of the shares, the
dissenting shareholder may, within six months after the date on which notice of
approval of the Merger was mailed to the shareholder, but not thereafter, file a
complaint (or intervene in a pending action, if any) in the Superior Court for
San Diego County, 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, including reasonable compensation to the
appraisers to be fixed by the court, will be assessed or apportioned as the
Superior Court considers equitable, but if the "fair market value" is determined
to
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exceed the price offered to the shareholder by MBE, then MBE 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, if
such "fair market value" is determined to exceed 125% of the price offered by
MBE). A dissenting shareholder must bring this action within six months after
the date on which notice of approval of the Merger was mailed to the shareholder
whether or not the corporation responds within such time to the shareholder's
written demand that MBE purchase for cash shares voted against the approval of
the Merger.
The Merger Agreement entitles USOP to terminate the Merger Agreement if
holders of more than five percent of the outstanding shares of MBE Common Stock
vote against approval of the Merger. USOP expects that it will not terminate the
Merger Agreement for this reason unless the percentage of shares of MBE Common
Stock voted against the Merger makes it unlikely that the Merger could be
accounted for under the pooling-of-interests method of accounting. In general,
the Merger could not be accounted for as a pooling-of-interests if more than 10%
of the shares of MBE Common Stock were dissenting shares that had to be
purchased for cash pursuant to Chapter 13 of the CGCL.
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THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY DESCRIPTION OF CERTAIN TERMS OF THE MERGER
AGREEMENT, WHICH IS ATTACHED AS APPENDIX I TO THIS PROXY STATEMENT/PROSPECTUS
AND IS INCORPORATED HEREIN BY REFERENCE. THIS DESCRIPTION CONTAINS THE MATERIAL
TERMS OF THE MERGER AGREEMENT BUT IS NOT COMPLETE AND IS QUALIFIED BY REFERENCE
TO THE MERGER AGREEMENT. MBE SHAREHOLDERS ARE URGED TO READ THE MERGER AGREEMENT
CAREFULLY IN ITS ENTIRETY. CAPITALIZED TERMS USED BUT NOT DEFINED IN THIS
SUMMARY HAVE THE MEANINGS GIVEN TO THEM IN THE MERGER AGREEMENT.
GENERAL
The Merger Agreement provides that, upon the satisfaction or waiver of
specified conditions, MBE and USOP will consummate the Merger, in which Sub will
merge with and into MBE, with MBE as the Surviving Corporation. Upon the
effectiveness of the Merger, the separate existence of Sub will cease and USOP
will own directly 100% of the outstanding capital stock of MBE. The closing of
the Merger is expected to take place as soon as practicable after the
satisfaction or waiver of the conditions set forth in the Merger Agreement,
including approval of the Merger Agreement by MBE shareholders.
Upon and after the Merger, the MBE Charter will be the Articles of
Incorporation of the Surviving Corporation and the Bylaws of Sub will be the
Bylaws of the Surviving Corporation. The initial directors of the Surviving
Corporation will be the directors of Sub immediately prior to the Merger and the
initial officers of the Surviving Corporation will be the officers of MBE
immediately prior to the Merger, with the addition of Mark D. Director, Chief
Administrative Officer, and General Counsel and Secretary of USOP, as an
Assistant Secretary of MBE, and except that Mr. DeSio will not serve as the
Chief Executive Officer of the Surviving Corporation.
CONVERSION OF SHARES
The Merger Agreement provides that at the Effective Time each share of MBE
Common Stock issued and outstanding as of the Effective Time (other than shares
that are held by dissenting shareholders) will be converted into the right to
receive 1.5 shares of USOP Common Stock, subject to adjustment under certain
circumstances in the event that the Average Price of USOP Common Stock (as
defined above) is less than $15.33 or more than $19.33. If the Average Price of
USOP Common Stock is more than $19.33, the Exchange Ratio will automatically be
adjusted to be equal to 1.5 times the quotient of $19.33 divided by the Average
Price of USOP Common Stock. If the Average Price of USOP Common Stock is less
than $15.33 and if MBE elects to terminate the Merger Agreement, USOP has the
option, but not the obligation, to adjust the Exchange Ratio to be equal to 1.5
times the quotient of $15.33 divided by the Average Price of USOP Common Stock.
If USOP adjusts the Exchange Ratio as described, MBE must accept the adjustment
and, assuming all other conditions to the Merger are satisfied or waived,
proceed with the Merger. If the Average Price of USOP Common Stock is less than
$15.33 and MBE does not elect to terminate the Merger Agreement, the Exchange
Ratio will not change. See "Risk Factors -- Special Considerations with Respect
to the Merger -- Risks Associated with Exchange Ratio" and " -- Merger Approval
Confers Discretion on Company Board to Terminate or Proceed with Merger if
Average Price is Below $15.33." Each of the shareholders of MBE Common Stock who
would be entitled to receive a fractional share of USOP Common Stock upon
surrender of such shareholder's shares of MBE Common Stock will receive, in lieu
thereof, cash in an amount equal to the value of such fractional share.
The Merger Agreement also provides that at the Effective Time each share of
MBE Common Stock owned by USOP, Sub or any other subsidiary of USOP will
automatically be canceled or retired without conversion and without payment of
any consideration. As of the date of this Proxy Statement/Prospectus, none of
USOP, Sub or any other subsidiary of USOP owned any shares of MBE Common Stock.
As of the Effective Time, shares of MBE Common Stock will no longer be
outstanding and will automatically be canceled and retired and shall cease to
exist. Each certificate previously representing shares of MBE Common Stock will
represent only the right to receive shares of USOP Common Stock into
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which the MBE Common Stock was converted in the Merger. No fractional shares of
USOP Common Stock will be issued in the Merger. Instead of fractional shares,
holders of MBE Common Stock will receive a cash payment equal to the fraction of
USOP Common Stock that would otherwise be issued, multiplied by the Average
Price of USOP Common Stock.
STOCK OPTIONS
Pursuant to the Merger Agreement and the terms of the outstanding options
under MBE's Restated 1985 Stock Option Plan, 1995 Employee Stock Option Plan and
1995 Stock Option Plan for Non-Employee Directors, each option outstanding
immediately prior to the Effective Time, whether or not exercisable, will be
converted as of the Effective Time into the right to purchase from USOP the
Option Conversion Number of shares of USOP Common Stock at the Adjusted Exercise
Price (each, an "Adjusted Option"). Each Adjusted Option will have substantially
the same terms as the MBE stock option to which it is related. No fractional
shares of USOP Common Stock will be issued on exercise of an Adjusted Option. A
holder who exercises an Adjusted Option and would otherwise be entitled to
receive a fractional share will receive instead an amount of cash equal to the
fractional part of a share of USOP Common Stock multiplied by the closing price
of USOP Common Stock on the Nasdaq National Market System on the trading date
immediately preceding the exercise date. USOP has agreed to take such actions as
are necessary for the conversion of MBE stock options into Adjusted Options. See
"The Merger -- Stock Options."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties of MBE relating
to, among other things, (a) proper organization, power and qualification, (b)
capital structure, (c) the authorization, performance and enforceability of the
Merger Agreement, (d) the noncontravention by the Merger Agreement of any
agreement, law or charter or bylaw provision of MBE, (e) required consents and
approvals, (f) the accuracy of the information contained in the documents filed
by MBE with the Commission and supplied by MBE for use in this Proxy
Statement/Prospectus, (g) defaults, (h) absence of certain changes or events,
(i) litigation, (j) employee benefit plans and absence of changes in benefit
plans, (k) taxes, (l) compliance with applicable laws, (m) environmental
matters, (n) intellectual property, (o) certain matters relating to the
pooling-of-interests accounting treatment of the Merger, (p) certain franchising
matters and (q) contracts.
The Merger Agreement also contains representations and warranties of USOP
relating to, among other things, (a) proper organization, power and
qualification, (b) capital structure, (c) the authorization, performance and
enforceability of the Merger Agreement, (d) the noncontravention of any
agreement, law or charter or bylaw provision of USOP by the Merger Agreement,
(e) required consents and approvals, (f) the accuracy of the information
contained in the documents filed by USOP with the Commission and supplied by
USOP for use in this Proxy Statement/Prospectus and (g) certain matters relating
to the pooling-of-interests accounting treatment of the Merger.
CERTAIN COVENANTS
CONDUCT OF BUSINESS
Under the terms of the Merger Agreement, MBE has agreed that, during the
period from the date of the Merger Agreement until the Effective Time, it will
and it will cause its subsidiaries to, conduct their businesses in the ordinary
course. In particular, MBE has agreed that, other than as set forth in the
Merger Agreement or with USOP's consent, it will not and it will not permit any
of its subsidiaries to: (a) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, other than
distributions or dividends by any wholly owned subsidiary of MBE to its parent,
(b) split, combine or reclassify any of its capital stock or issue or authorize
the issuance of securities in respect of, or
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<PAGE>
in lieu of or in substitution for, shares of its capital stock, (c) purchase,
redeem or otherwise reacquire shares of capital stock or other securities of MBE
or any of its subsidiaries or any rights, warrants or options to acquire such
shares or securities, (d) other than the issuance upon the exercise of
outstanding options to purchase MBE Common Stock or pursuant to employment
agreements existing on the date of the Merger Agreement, issue, deliver, sell,
award, pledge, dispose of or otherwise encumber or authorize or propose the
issuance, delivery, grant, sale, award, pledge or other encumbrance or
authorization of, any shares of capital stock or any voting securities or
securities convertible into, or any rights, warrants or options to acquire, any
such securities, (e) amend the terms of any of such rights, warrants or options,
(f) amend its charter or bylaws, except as may be necessary in connection with a
change in the number of directors of MBE, (g) mortgage or otherwise encumber,
sell, lease, exchange or otherwise dispose of any of its properties or assets,
other than in the ordinary course of business consistent with past practice, (h)
acquire any material corporation, partnership or other business organization or
acquire, lease or otherwise dispose of a material subsidiary or material amount
of assets or securities, (i) increase the rate or terms of compensation payable
to directors, executive officers, or employees (other than usual and customary
salary increases to employees) or pay or agree to pay any pension, retirement
allowance or other employee benefit not provided for by any existing MBE benefit
plan or employment agreement described by the Company in a document filed with
the Commission prior to the date of this Merger Agreement, (j) except as set
forth in the Company's disclosure schedules to the Merger Agreement, commit
itself to any additional pension, profit sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, continuation pay, termination pay, retirement or other
employee benefit plan or increase the rate or terms of any employee plan or
benefit arrangement, (k) increase the rate of compensation under or otherwise
change the terms of any existing employment agreement (except in accordance with
past practice or under the terms of existing compensation plans or employment
agreements), (l) change its fiscal year, (m) waive any material right or claim
of MBE or settle any litigation or material dispute, (n) incur any indebtedness
for borrowed money or guarantee any such indebtedness of another person except
in the ordinary course of business, (o) amend any form of franchise agreement or
other contract in a material respect or amend any individual franchise agreement
other than in the ordinary course of business or (p) authorize or commit to any
of the foregoing.
NO INCONSISTENT ACTIVITIES
MBE has agreed that it will (a) terminate existing discussions with other
parties regarding the potential acquisition of MBE or any other transaction that
would be inconsistent with the Merger Agreement and (b) not, and will not permit
its subsidiaries to, nor authorize or permit any officer, director or employee
or investment banker, attorney or other representative or advisor to solicit or
initiate or encourage the submission of, any Takeover Proposal (as defined
below), or participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal. The foregoing
requirements do not prohibit the Company Board from furnishing information to or
entering into discussions or negotiations with any person or entity that makes
an unsolicited bona fide proposal to acquire MBE, but only to the extent that
(i) the Company Board determines in good faith, with written advice from outside
counsel, that such action is required by its fiduciary duties to MBE's
shareholders, (ii) the Company Board determines in good faith, with written
advice of its financial advisors, that the proposal is financially superior to
the transaction contemplated by the Merger Agreement and the party making the
proposal has demonstrated that the funds necessary for its proposal are
reasonably likely to be available (a "Superior Proposal"), and (iii) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, MBE provides written notice to USOP to the effect
that it is furnishing the information to or entering into discussions or
negotiations with the person or entity making such proposal and receives an
executed confidentiality agreement from such person or entity. MBE agrees to
provide notice to USOP within 24 hours of any
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<PAGE>
inquiries, offers or proposals it receives with respect to a Takeover Proposal
and to keep USOP informed of the status of any such inquiry, offer or proposal.
In addition, MBE agrees to give USOP five business days' advance notice of any
agreement to be entered into with, or any information to be supplied to, any
person making such inquiry, offer or proposal. The Merger Agreement defines
"Takeover Proposal" as any written proposal for a merger, consolidation,
purchase of assets, tender offer or other business combination involving MBE or
any of its subsidiaries, or any proposal or offer to acquire in any manner,
directly or indirectly, an equity interest in, any voting securities of, or a
substantial portion of the assets of, the Company or any of its subsidiaries,
other than the transactions contemplated by the Merger Agreement. The Merger
Agreement does not prohibit MBE or the Company Board from disclosing to its
shareholders a position as contemplated by Rule 14d-9 and Rule 14e-2(a) under
the Exchange Act with respect to a Takeover Proposal by means of a tender offer.
DIRECTOR AND OFFICER INDEMNIFICATION
The Merger Agreement provides that the articles of incorporation and bylaws
of the Surviving Corporation will contain provisions for indemnification and
exculpation of MBE directors and officers that are currently contained in MBE's
articles of incorporation and bylaws and that the provisions will not be amended
or repealed in a manner adverse to the individuals who are, prior to the
Effective Time, directors, officers, employees or agents of MBE, for six years
following the Effective Time. USOP guarantees for the benefit of MBE's directors
and officers the indemnification arrangements set forth in the articles of
incorporation and bylaws as well as in any indemnification agreements. The
amount of USOP's guarantee obligations cannot exceed the amount permitted by its
credit agreement which, as of the date of this Proxy Statement/Prospectus is $40
million. The successor and assigns of USOP and the Surviving Corporation are
bound by these provisions.
In addition to the foregoing, USOP agrees to indemnify and defend (and bear
all costs and expenses associated therewith) each officer and director of MBE
serving as such immediately prior to the Effective Time for and against any
claims, damages or losses relating to or arising out of (a) their performance of
their respective Company duties before the Effective Time or (b) the
consummation of any of the transactions contemplated by the Merger Agreement.
USOP also agrees to provide for four years officers' and directors' liability
insurance covering such officers and directors for acts and omissions occurring
prior to the Effective Time in amounts and on terms no less favorable than those
provided for by MBE's insurance policy in place prior to the Effective Time,
provided that USOP's aggregate cost for such coverage may not exceed an amount
equal to four times the premium cost for MBE's insurance policy for the year
ended April 30, 1997.
CONDITIONS
The Merger Agreement provides that the respective obligations of each party
to effect the Merger are subject to the satisfaction or waiver of certain
conditions. These conditions generally include (a) approval of the Merger
Agreement by the shareholders of MBE, (b) listing of the shares of USOP Common
Stock to be issued in the Merger on the Nasdaq National Market, (c) absence of
pending or threatened litigation by a governmental entity seeking to enjoin or
prohibit the consummation of the Merger and absence of temporary restraining
order, preliminary or permanent injunction or other court order preventing
completion of the Merger, (d) effectiveness of the Registration Statement, (e)
expiration or termination of the applicable waiting period under the HSR Act,
(f) other than the filing of the Merger Documents, receipt of all
authorizations, consents, waivers, orders or approvals required to be obtained
and completion of all filings, notices or declarations required to be made in
connection with the Merger, and (g) receipt by MBE of the tax opinion of
O'Melveny & Myers LLP.
The obligation of USOP to effect the Merger is subject to the following
additional conditions: (a) each of the representations and warranties of MBE
contained in the Merger Agreement to the extent qualified by materiality must be
true and correct in all respects and to the extent not so qualified, must be
true and
49
<PAGE>
correct in all material respects, in each case as of the Closing Date as though
made on and as of the Closing Date (or as of any earlier date specified in the
representation or warranty), (b) MBE must have performed or complied in all
material respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by it prior to the Closing Date, (c)
MBE must have obtained all consents or approvals required in connection with the
Merger under any contracts to which it is a party, other than consents or
approvals the failure to obtain would not, individually or in the aggregate,
have a material adverse effect on the Surviving Corporation or USOP after the
Effective Time, (d) USOP and MBE must have received letters from Price
Waterhouse LLP and Ernst & Young LLP, respectively, confirming their views
relating to the pooling-of-interests method of accounting and no events must
have occurred which would establish with reasonable certainty that the Merger
would not be treated as a pooling-of-interests, (e) USOP must have received
affiliate agreements from each of the affiliates of MBE, (f) the shares of MBE
Common Stock voted against the Merger must not exceed 5% of the total number of
issued and outstanding shares of MBE Common Stock entitled to vote thereon, (g)
USOP must have received opinions from O'Melveny & Myers LLP and the corporate
counsel of MBE as to certain specified matters, and (h) from the date of the
Merger Agreement, there must not have been any material adverse change with
respect to MBE. For a discussion of the effects on MBE of the recently concluded
strike at UPS, see "Special Considerations With Respect to Mail Boxes Etc. --
Reliance on United Parcel Service and Associated Risks; Recent Work Stoppage at
United Parcel Service."
The obligation of MBE to effect the Merger is subject to the following
additional conditions: (a) each of the representations and warranties of USOP
contained in the Merger Agreement to the extent qualified by materiality must be
true and correct in all respects and to the extent not so qualified, must be
true and correct in all material respects, in each case as of the Closing Date,
as though made on and as of the Closing Date (or as of any earlier date
specified in the representation or warranty), (b) USOP must have performed or
complied in all material respects with all agreements and covenants required by
the Merger Agreement to be performed or complied with by it prior to the Closing
Date, (c) the fairness opinion of AACC must have been confirmed in writing to
the Company Board as of the date that this Proxy Statement/Prospectus was first
mailed to the Company's shareholders and must not have been subsequently
withdrawn, and (d) MBE must have received an opinion from Morgan, Lewis &
Bockius LLP as to certain specified matters.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the shareholders of MBE (except as
otherwise indicated below) (a) by mutual written consent of USOP and MBE; (b) by
USOP or MBE (so long as the party seeking to terminate is not then in material
breach of any representation, warranty, covenant or other agreement contained in
the Merger Agreement), upon a breach of any representation, warranty, covenant
or agreement on the part of the other party to the Merger Agreement or if any
representation or warranty of the other party has become untrue, in either case
such that such breach or untruth would be incapable of being cured or corrected
by November 30, 1997; provided, that a willful breach is deemed to be incapable
of being cured or corrected by such date; (c) by USOP or MBE if any governmental
entity issues an order, decree, injunction or ruling or takes any other action
permanently enjoining, restraining or otherwise prohibiting the consummation of
the Merger and such order or other action has become final and nonappealable;
(d) by USOP or MBE, if the Merger has not occurred by November 30, 1997, unless
the failure to consummate is the result of a breach of a covenant in the Merger
Agreement or a willful and material breach of any representation or warranty by
the party seeking to terminate; (e) by USOP or MBE (provided that if MBE is the
terminating party, it is not in material breach of any of its obligations under
the Merger Agreement), if the approval of MBE shareholders required for the
consummation of the Merger has not been obtained because of a failure to receive
the required vote at a duly held meeting of the MBE shareholders; (f) by MBE,
prior to approval of the Merger by its shareholders and upon five business days'
prior notice to USOP, if, as a result of a Superior Proposal by a party other
than USOP or its affiliates, the Company Board determines that its
50
<PAGE>
fiduciary duties to the MBE shareholders require it to accept the Superior
Proposal, provided that (i) MBE has determined, after receiving written advice
of outside counsel, that its fiduciary duties require acceptance of the Superior
Proposal, after giving effect to concessions offered by USOP described in the
following clause (ii), and (ii) , prior to accepting the Superior Proposal and
terminating the Merger Agreement, MBE has offered USOP an opportunity (for a
period of at least five business days following receipt of the offer) to amend
the Merger Agreement to provide for terms substantially similar to those
included in the Superior Proposal; (g) by USOP, if the Company Board (or any
committee thereof) (i) withdraws or modifies adversely its approval and
recommendation of the Merger or the Merger Agreement, (ii) , within 10 days
after USOP's request, fails to reaffirm such approval or recommendation, (iii)
approves or recommends any Takeover Proposal, other than with USOP or its
affiliate, or a tender offer or exchange offer for 15% or more is commenced and
the Company Board fails to recommend against such tender offer or exchange
offer, (iv) resolves to take any action described in this clause (g), or (v)
fails to call and hold a meeting of MBE shareholders within 40 days after the
Commission declares the Registration Statement effective; or (h) by MBE, if the
Average Price of USOP Common Stock is less than $15.33, unless USOP, within
three days after receipt of MBE's written election to terminate, elects to
adjust the Exchange Ratio to be equal to 1.5 times the quotient of $15.33
divided by the Average Price of USOP Common Stock.
MBE will be required to pay a cash termination fee to USOP if (a) MBE
terminates the Merger Agreement to accept a Superior Proposal in accordance with
the terms of the Merger Agreement described in clause (f) of the preceding
paragraph or if USOP terminates the Merger Agreement for one of the reasons
described in clause (g) of the preceding paragraph or because of MBE's material
breach of its covenant not to pursue an alternative Takeover Proposal, (b) MBE
or USOP terminates the Merger Agreement because the Merger is not completed by
November 30, 1997 and within six months after such termination MBE enters into a
definitive agreement with another entity (other than USOP or an affiliate) in
respect of a Takeover Proposal or (c) MBE's shareholders do not approve the
Merger and at the time of termination of the Merger Agreement or prior to the
Special Meeting, there has been a Takeover Proposal (whether or not the Takeover
Proposal has been rejected or withdrawn prior to such termination or the
meeting) and MBE enters into a definitive agreement with another entity within
one year of termination. The cash termination fee will equal (i) $9,569,924 or
(ii), if greater and if MBE enters into a definitive agreement with respect to a
Takeover Proposal within six months following the termination of the Merger
Agreement for one of the reasons described in clause (d), (e), (f) or (g) in the
preceding paragraph, then 3% of the product of the number of outstanding shares
of MBE Common Stock on a fully diluted basis on the date such definitive
agreement is executed, multiplied by the value per share of MBE Common Stock of
the consideration to be paid pursuant to such Takeover Proposal. If the Merger
Agreement is terminated as described in this paragraph, MBE will be required to
pay USOP at the time of such termination, in addition to any other cash
termination fee paid or payable, an amount in cash equal to $3,082,175 to cover
the expenses of USOP and Sub incurred in connection with the Merger. In
addition, if the Merger Agreement is terminated because MBE shareholder approval
is not received and at the time of such termination or prior to the Special
Meeting there has been a Takeover Proposal, MBE will be required to pay to USOP
the $3,082,175 referenced in the preceding sentence plus cash in an amount equal
to $1,541,087 (which amount would be deducted from any cash termination fee that
the Company would be required to pay if it enters into a definitive agreement
respecting a Takeover Proposal within one year following the termination of the
Merger Agreement for failure of the Company's shareholders to approve the
Merger).
FEES AND EXPENSES
In addition to the expenses described above under the heading "--
Termination," whether or not the Merger is completed, each party will bear its
own expenses incurred in connection with the Merger, other than costs relating
to the preparation of the Proxy Statement/Prospectus, which will be shared
equally by USOP and MBE.
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<PAGE>
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time prior to
approval by MBE shareholders, but after such approval, there can be no amendment
that by law would require further approval by the shareholders without further
shareholder approval. Any amendment must be in writing and signed by both
parties.
At any time prior to the Effective Time, the parties may (a) extend the time
for performance of any of the obligations or acts of the other parties, (b)
waive any inaccuracies in the representations and warranties contained in the
Merger Agreement or in any document delivered pursuant to the Merger Agreement
or (c) subject to the requirements described in the preceding paragraph, waive
compliance with any of the agreements or conditions contained in the Merger
Agreement. Any agreement regarding extension or waiver must be in writing and
signed by the party granting such extension or waiver.
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<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma financial statements give effect to, where
applicable, acquisitions completed through July 26, 1997, the pending
acquisition of Mail Boxes Etc. at an assumed exchange ratio of 1 on a pre-split
basis and 1.5 on a post-split basis and, where applicable, the 3:2 stock split
declared on October 7, 1997. The unaudited pro forma combined balance sheet
gives effect to the pending acquisition of Mail Boxes Etc., as if the
transaction had occurred as of USOP's most recent balance sheet date, July 26,
1997.
The pro forma combined statement of income for the year ended April 26, 1997
gives effect to (i) the 77 acquisitions completed during fiscal 1997 which were
accounted for under the purchase method of accounting (the "Fiscal 1997
Purchased Companies") as if such acquisitions had been made on May 1, 1996; (ii)
the 15 acquisitions completed in the first quarter of fiscal 1998 which were
accounted for under the purchase method of accounting (the "Fiscal 1998
Purchased Companies") as if all such acquisitions had been made on May 1, 1996;
(iii) the 7 acquisitions completed in the first quarter of fiscal 1998 which
were accounted for under the pooling-of-interests method of accounting as if all
such acquisitions had been made on May 1, 1996 (the "Fiscal 1998 Pooled
Companies"); (iv) the Mail Boxes Etc. acquisition to be accounted for under the
pooling of interests method of accounting as if such acquisition had been made
on May 1, 1996; (v) the sales by USOP of 5 1/2% Convertible Subordinated Notes
due 2003 in May and June 1996 (the "May Notes") in the principal amount of $230
million as if such sales had been made on May 1, 1996; (vi) the sale by USOP in
September 1996 (the "September Stock Sale") of 1,250,000 shares of USOP Common
Stock as if such sale had been made on May 1, 1996; and (vii) the sales by USOP
in February and March 1997 of 8,682,331 shares of USOP Common Stock as if such
sales had been made on May 1, 1996.
The pro forma combined statement of income for the year ended April 26, 1997
includes (i) the audited financial statements of USOP for the year ended April
26, 1997; (ii) the audited financial statements of Mail Boxes Etc. for the year
ended April 30, 1997; (iii) the unaudited financial information for the Fiscal
1997 and the Fiscal 1998 Purchased Companies for the period from May 1, 1996 to
the consummation date; and (iv) the unaudited financial information for the
Fiscal 1998 Pooled Companies for the most recently completed fiscal year.
The pro forma combined statement of income for the three months ended July
26, 1997 includes the unaudited financial information of the Company and gives
effect to (i) the 15 Fiscal 1998 Purchased Companies as if all such acquisitions
had been made on May 1, 1997.
The pro forma combined statement of income for the three months ended July
27, 1996 includes the unaudited financial information of the Company and gives
effect to (i) the Fiscal 1997 and the Fiscal 1998 Purchased Companies as if all
such acquisitions had been made on May 1, 1996.
The pro forma combined statements of income for the years ended April 30,
1996 and 1995 include the historical financial information of USOP and give
effect to the acquisition of Mail Boxes Etc. and the Fiscal 1998 Pooled
Companies as if all such acquisitions had been made on May 1, 1994.
In addition, the pro forma combined income statements give effect to tax
adjustments for certain pooled companies that were S corporations, as if such
earnings had been subject to corporate taxes for all periods presented.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent the results that USOP would have obtained had the transactions, which
are the subject of pro forma adjustments, occurred at the beginning of the
period, as assumed, or the future results of USOP. The pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this report and in other
reports filed by USOP.
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<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED BALANCE SHEET
JULY 26, 1997
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. OFFICE
PRODUCTS MAIL BOXES PRO FORMA PRO FORMA PRO FORMA
COMPANY ETC. ADJUSTMENTS SUBTOTAL ADJUSTMENTS(C) COMBINED
------------- ----------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 52,749 $ 35,464 $ (88,213)(a) -- --
Accounts receivable, net........... 443,775 6,612 450,387 450,387
Inventory.......................... 297,390 454 297,844 297,844
Prepaid expenses and other current
assets........................... 96,261 15,235 111,496 111,496
------------- ----------- ----------- ------------ -------------- ------------
Total current assets............. 890,175 57,765 (88,213) 859,727 859,727
Property and equipment, net.......... 283,754 6,503 290,257 290,257
Intangible assets, net............... 720,971 5,154 726,125 726,125
Other assets......................... 119,800 20,863 140,663 140,663
------------- ----------- ----------- ------------ -------------- ------------
Total assets..................... $ 2,014,700 $ 90,285 $ (88,213) $ 2,016,772 $ 2,016,772
------------- ----------- ----------- ------------ -------------- ------------
------------- ----------- ----------- ------------ -------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt.................... $ 288,982 $ 442 $ (84,475)(a) $ 204,949 $ 204,949
Accounts payable................... 212,316 994 213,310 213,310
Accrued compensation............... 50,069 1,678 51,747 51,747
Other accrued liabilities.......... 106,341 10,455 116,796 116,796
------------- ----------- ----------- ------------ -------------- ------------
Total current liabilities........ 657,708 13,569 (84,475) 586,802 586,802
Long-term debt....................... 387,300 3,738 (3,738)(a) 387,300 387,300
Deferred income taxes................ 8,744 8,744 8,744
Other long-term liabilities and
minority interests................. 8,008 8,008 8,008
------------- ----------- ----------- ------------ -------------- ------------
Total liabilities................ 1,061,760 17,307 (88,213) 990,854 990,854
Stockholders' equity
Common stock....................... 73 17,479 (17,468)(b) 84 42(c) 126
Additional paid-in capital......... 853,025 17,468(b) 870,493 (42)(c) 870,451
Cumulative translation
adjustment....................... (44,959) (44,959) (44,959)
Retained earnings.................. 144,801 55,499 200,300 200,300
------------- ----------- ----------- ------------ -------------- ------------
Total stockholders' equity....... 952,940 72,978 -- 1,025,918 1,025,918
------------- ----------- ----------- ------------ -------------- ------------
Total liabilities and
stockholders' equity........... $ 2,014,700 $ 90,285 $ (88,213) $ 2,016,772 $ 2,016,772
------------- ----------- ----------- ------------ -------------- ------------
------------- ----------- ----------- ------------ -------------- ------------
</TABLE>
54
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 26, 1997
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. OFFICE FISCAL 1997 FISCAL 1998 FISCAL 1998
PRODUCTS PURCHASED PURCHASED POOLED PRO FORMA
COMPANY COMPANIES (C) COMPANIES (C) COMPANIES (C) MAIL BOXES ETC. ADJUSTMENTS
----------- ------------- ------------- --------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues....................... $2,835,875 $ 389,707 $ 148,332 $ 72,834 $ 67,837
Cost of revenues............... 2,031,713 279,988 95,551 49,738 35,696
----------- ------------- ------------- ------- ------- -----------
Gross profit................. 804,162 109,719 52,781 23,096 32,141 --
Selling, general and
administrative expenses...... 655,101 99,225 35,765 19,811 20,279 $ 3,545(d)
(12,388)(e)
Non-recurring acquisition
costs........................ 16,245 (16,245)(f)
Restructuring costs............ 4,395
----------- ------------- ------------- ------- ------- -----------
Operating income............. 128,421 10,494 17,016 3,285 11,862 25,088
Interest expense............... 45,901 3,346 1,650 330 (10,011)(g)
Interest income................ (7,632) (212) (249) (963) 9,056(h)
Other income................... (3,689) (2,173) (282) 441
----------- ------------- ------------- ------- ------- -----------
Income before provision for
income taxes and
extraordinary items.......... 93,841 9,533 15,897 2,514 12,825 26,043
Provision for income taxes..... 35,103 3,164 4,582 1,290 4,834 17,949(i)
----------- ------------- ------------- ------- ------- -----------
Income before extraordinary
items........................ $ 58,738 $ 6,369 $ 11,315 $ 1,224 $ 7,991 $ 8,094
----------- ------------- ------------- ------- ------- -----------
----------- ------------- ------------- ------- ------- -----------
Weighted average common shares
outstanding.................. 61,174
Income per share before
extraordinary items.......... $ 0.96
-----------
-----------
Pro Forma income before
extraordinary items.......... $ 51,143(k)
-----------
-----------
Pro Forma income per share
before extraordinary items... $ 0.84
-----------
-----------
Share and per share amounts
adjusted to reflect 3:2 stock
split:.......................
Weighted average common
shares outstanding.........
Income per share before
extraordinary items........
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenues....................... $3,514,585
Cost of revenues............... 2,492,686
-----------
Gross profit................. 1,021,899
Selling, general and
administrative expenses...... 821,338
Non-recurring acquisition
costs........................ --
Restructuring costs............ 4,395
-----------
Operating income............. 196,166
Interest expense............... 41,216
Interest income................
Other income................... (5,703)
-----------
Income before provision for
income taxes and
extraordinary items.......... 160,653
Provision for income taxes..... 66,922
-----------
Income before extraordinary
items........................ $ 93,731
-----------
-----------
Weighted average common shares
outstanding.................. 85,807(j)
Income per share before
extraordinary items.......... $ 1.09
-----------
-----------
Pro Forma income before
extraordinary items..........
Pro Forma income per share
before extraordinary items...
Share and per share amounts
adjusted to reflect 3:2 stock
split:.......................
Weighted average common
shares outstanding......... 128,711
Income per share before
extraordinary items........ $ 0.73
-----------
-----------
</TABLE>
55
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED JULY 26, 1997
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL
U.S. OFFICE 1998
PRODUCTS PURCHASED MAIL BOXES PRO FORMA PRO FORMA
COMPANY COMPANIES ETC. ADJUSTMENTS COMBINED
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 863,595 $ 18,790 $ 15,680 -- $ 898,065
Cost of revenues...................................... 620,336 12,619 7,403 -- 640,358
----------- ----------- ----------- ------ -----------
Gross profit........................................ 243,259 6,171 8,277 -- 257,707
Selling, general and administrative expenses.......... 193,571 4,153 6,388 69(d) 204,181
Non-recurring acquisition costs....................... 4,405 -- -- (4,405)(f) --
Restructuring costs................................... -- -- -- -- --
----------- ----------- ----------- ------ -----------
Operating income.................................... 45,283 2,018 1,889 4,336 53,526
Interest expense...................................... 10,504 183 -- 383(g) 10,304
Interest income....................................... (629) (12) (322) 963(h)
Other income.......................................... (1,482) 53 -- -- (1,429)
----------- ----------- ----------- ------ -----------
Income before provision for income taxes and
extraordinary items................................. 36,890 1,794 2,211 3,756 44,651
Provision for income taxes............................ 15,948 406 1,122 1,471(i) 18,947
----------- ----------- ----------- ------ -----------
Income before extraordinary items..................... $ 20,942 $ 1,388 $ 1,089 $ 2,285 $ 25,704
----------- ----------- ----------- ------ -----------
----------- ----------- ----------- ------ -----------
Weighted average common shares outstanding............ 73,440 85,872(j)
Income per share before extraordinary items........... $ 0.29 $ 0.30
----------- -----------
----------- -----------
Pro Forma income before extraordinary items........... 20,613(k)
-----------
-----------
Pro Forma income per share before extraordinary
items............................................... $ 0.28
-----------
-----------
Share and per share amounts adjusted to reflect 3:2
stock split: .......................................
Weighted average common shares outstanding.......... 128,808
Income per share before extraordinary items......... $ 0.20
-----------
-----------
</TABLE>
56
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE QUARTER ENDED JULY 27, 1996
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. OFFICE FISCAL 1997 FISCAL 1998
PRODUCTS PURCHASED PURCHASED MAIL BOXES PRO FORMA PRO FORMA
COMPANY COMPANIES (C) COMPANIES (C) ETC. ADJUSTMENTS COMBINED
----------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ $ 568,502 $ 240,166 $ 39,749 $ 14,779 $ 863,196
Cost of revenues........................ 409,642 167,065 25,508 7,649 609,864
----------- ------------- ------------- ----------- ----------- -----------
Gross profit.......................... 158,860 73,101 14,241 7,130 -- 253,332
Selling, general and administrative
expenses.............................. 128,626 64,681 8,964 3,985 (4,482)(d) 204,379
2,605(e)
Non-recurring acquisition costs......... 1,656 (1,656)(f) --
Restructuring costs..................... --
----------- ------------- ------------- ----------- ----------- -----------
Operating income...................... 28,578 8,420 5,277 3,145 3,533 48,953
Interest expense........................ 8,832 2,518 376 (1,422)(g) 10,304
Interest income......................... (4,439) (124) (72) (256) 4,891(h)
Other income............................ (169) (554) (53) (776)
----------- ------------- ------------- ----------- ----------- -----------
Income before provision for income taxes
and extraordinary items............... 24,354 6,580 5,026 3,401 64 39,425
Provision for income taxes.............. 7,789 2,776 1,508 1,331 3,057(i) 16,461
----------- ------------- ------------- ----------- ----------- -----------
Income before extraordinary items....... $ 16,565 $ 3,804 $ 3,518 $ 2,070 $ (2,993) $ 22,964
----------- ------------- ------------- ----------- ----------- -----------
----------- ------------- ------------- ----------- ----------- -----------
Weighted average common shares
outstanding........................... 57,484 85,951(j)
Income per share before extraordinary
items................................. $ 0.29 $ .27
----------- -----------
----------- -----------
Pro Forma income before extraordinary
items................................. 12,780(k)
-----------
-----------
Pro Forma income per share before
extraordinary items................... $ 0.22
-----------
-----------
Share and per share amounts adjusted to
reflect 3:2 stock split:
Weighted average common shares
outstanding......................... 128,927
Income per share before extraordinary
items............................... $ 0.18
-----------
-----------
</TABLE>
57
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1996
(000'S)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. OFFICE
PRODUCTS FISCAL 1998 PRO FORMA PRO FORMA
COMPANY MAIL BOXES ETC. POOLINGS SUBTOTAL ADJUSTMENT COMBINED
----------- --------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues....................................... $1,686,430 $ 59,107 $ 53,254 $1,798,791 $1,798,791
Cost of revenues............................... 1,246,647 31,071 33,852 1,311,570 1,311,570
----------- ------- ----------- --------- ----------- ---------
Gross profit................................. 439,783 28,036 19,402 487,221 487,221
Selling, general and administrative expenses... 372,180 14,361 16,480 403,021 403,021
Non-recurring acquisition costs................ 8,057 8,057 8,057
Restructuring costs............................ 3,214 3,214 3,214
----------- ------- ----------- --------- ----------- ---------
Operating income............................. 56,332 13,675 2,922 72,929 72,929
Interest expense............................... 20,123 400 20,523 20,523
Interest income................................ (4,425) (674) (136) (5,235) (5,235)
Other income................................... (1,730) 1,111 (619) (619)
----------- ------- ----------- --------- ----------- ---------
Income before provision for income taxes and
extraordinary items.......................... 42,364 14,349 1,547 58,260 58,260
Provision for income taxes..................... 7,487 5,620 734 13,841 $ 10,306(k) 24,147
----------- ------- ----------- --------- ----------- ---------
Income before extraordinary items.............. $ 34,877 $ 8,729 $ 813 $ 44,419 $ (10,306) $ 34,113
----------- ------- ----------- --------- ----------- ---------
----------- ------- ----------- --------- ----------- ---------
Weighted average common shares outstanding..... 45,583 59,781(j) 59,781(j)
Income per share before extraordinary items.... $ 0.77 $ 0.74 $ 0.57
----------- --------- ---------
----------- --------- ---------
Pro forma income before extraordinary items.... $ 21,945(k)
-----------
-----------
Pro forma income per share before extraordinary
items........................................ $ 0.48
-----------
-----------
Share and per share amounts adjusted to reflect
3:2 stock split:
Weighted average common shares outstanding... 89,672
Income per share before extraordinary
items...................................... $ 0.38
---------
---------
</TABLE>
58
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO-FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1995
(000'S)
<TABLE>
<CAPTION>
U.S. OFFICE
PRODUCTS MAIL BOXES FISCAL 1998 PRO FORMA PRO FORMA
COMPANY ETC. POOLINGS SUBTOTAL ADJUSTMENT COMBINED
------------ -------------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 1,041,304 $ 50,351 $ 52,329 $ 1,143,984 $ 1,143,984
Cost of revenues................ 762,724 27,109 31,418 821,251 821,251
------------ ------- ----------- ------------ ----------- ------------
Gross profit.................. 278,580 23,242 20,911 322,733 322,733
Selling, general and
administrative expenses....... 237,864 12,508 19,140 269,512 269,512
Nonrecurring acquisition
costs......................... --
Restructuring costs............. --
------------ ------- ----------- ------------ ----------- ------------
Operating income.............. 40,716 10,734 1,771 53,221 53,221
Interest expense................ 8,319 (447) 523 8,395 8,395
Interest income................. (1,135) (104) (1,239) (1,239)
Other income.................... (1,389) 483 (906) (906)
------------ ------- ----------- ------------ ----------- ------------
Income before provision for
income taxes and extraordinary
items......................... 34,921 11,181 869 46,971 46,971
Provision for income taxes...... 3,754 4,411 361 8,526 $ 10,913(k) 19,439
------------ ------- ----------- ------------ ----------- ------------
Income before extraordinary
items......................... $ 31,167 $ 6,770 $ 508 $ 38,445 $ (10,913) $ 27,532
------------ ------- ----------- ------------ ----------- ------------
------------ ------- ----------- ------------ ----------- ------------
Pro forma income before
extraordinary items........... $ 20,359(k)
------------
------------
</TABLE>
59
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS AND SHARE NUMBERS IN THOUSANDS)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Adjustment to reflect the reduction in short-term and long-term debt of
Mail Boxes Etc. and existing short-term debt of USOP.
(b) Adjustment to reflect issuance of common stock to effect the acquisition
of Mail Boxes Etc. at an assumed Exchange Ratio of 1.
(c) Adjustment to reflect issuance of stock to effect the acquisition of
Mail Boxes Etc. at an assumed Exchange Ratio of 1.5 and the 3:2 stock split
declared on October 7, 1997.
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(c) Includes the following with respect to Fiscal 1997 and 1998 Purchased
companies and Fiscal 1998 Pooled Companies for the periods presented, which
represent the results of the acquired companies from May 1, 1996 to consummation
date:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 26, 1997
FISCAL 1998
FISCAL 1997 PURCHASED COMPANIES FISCAL 1998 PURCHASED COMPANIES POOLED COMPANIES
----------------------------------------- ----------------------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
SIGNIFICANT SIGNIFICANT SIGNIFICANT
ACQUISITIONS- INDIVIDUALLY ACQUISITIONS- INDIVIDUALLY ACQUISITIONS-
WHITCOULLS GROUP INSIGNIFICANT WHITCOULLS GROUP INSIGNIFICANT WHITCOULLS GROUP
LIMITED ACQUISITIONS TOTAL LIMITED ACQUISITIONS TOTAL LIMITED
----------------- ----------- --------- ----------------- ----------- --------- -----------------
Revenue......... $ 98,905 $ 290,802 $ 389,707 N/A $ 148,332 $ 148,332 N/A
Gross Profit.... 37,888 71,831 109,719 N/A 52,781 52,781 N/A
Operating
Income........ 6,922 3,572 10,494 N/A 17,016 17,016 N/A
<CAPTION>
<S> <C> <C>
INDIVIDUALLY
INSIGNIFICANT
ACQUISITIONS TOTAL
------------- ---------
Revenue......... $ 72,834 $ 72,834
Gross Profit.... 23,096 23,096
Operating
Income........ 3,285 3,285
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 27, 1996
<S> <C> <C> <C> <C> <C>
FISCAL 1997 PURCHASED COMPANIES FISCAL 1998 PURCHASED COMPANY
----------------------------------------- --------------------------------
<CAPTION>
SIGNIFICANT SIGNIFICANT
ACQUISITIONS- INDIVIDUALLY ACQUISITIONS- INDIVIDUALLY
WHITCOULLS GROUP INSIGNIFICANT WHITCOULLS GROUP INSIGNIFICANT
LIMITED ACQUISITIONS TOTAL LIMITED ACQUISITIONS
----------------- ----------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue.............................................. $ 98,905 $ 141,261 $ 240,166 N/A $ 39,749
Gross Profit......................................... 37,888 35,213 73,101 N/A 14,241
Operating Income..................................... 6,922 1,498 8,420 N/A 5,277
<CAPTION>
<S> <C>
TOTAL
---------
<S> <C>
Revenue.............................................. $ 39,749
Gross Profit......................................... 14,241
Operating Income..................................... 5,277
</TABLE>
(d) Adjustments to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1997 and Fiscal
1998 Purchased Companies. The goodwill is being amortized over an estimated life
of 40 years.
(e) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.
(f) Adjustment to reflect the elimination of non-recurring acquisition costs
relating to pooling-of-interests business combinations.
(g) Adjustment to reflect the decrease in interest expense resulting from
the utilization of the proceeds from the September Stock Sale and the sales by
USOP in February and March 1997 of 8,682 shares of USOP Common Stock to repay
outstanding indebtedness as if such stock sales had been made on May 1, 1994.
(h) Adjustment to reflect the decrease in interest income resulting from the
utilization of excess cash to repay outstanding indebtedness.
60
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(DOLLARS AND SHARE NUMBERS IN THOUSANDS)
(i) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 42%. The
difference between the effective tax rate of 42% and the federal statutory tax
rate of 35% relates primarily to state income taxes and non-deductible goodwill.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share is comprised of the following:
<TABLE>
<CAPTION>
APRIL 26, 1997 JULY 31, 1996 JULY 26, 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Historical weighted average common shares outstanding................. 61,174 56,183 72,218
Shares assumed outstanding for the entire period related to issues for
(i) the Fiscal 1997 and 1998 Purchased Companies and (ii) September
Stock Sale and February and March 1997 Stock Sales.................. 11,696 16,687 652
Shares to be issued for the acquisition of Mail Boxes Etc............. 11,300 11,300 11,300
USOP and Mail Boxes Etc. Common Stock Equivalents..................... 1,637 1,781 1,702
------ ------ ------
Total............................................................... 85,807 85,951 85,872
------ ------ ------
------ ------ ------
</TABLE>
The weighted average shares outstanding used to calculate pro forma earnings
per share, as adjusted to reflect the 3:2 stock split, is comprised of the
following:
<TABLE>
<CAPTION>
APRIL 26,
1997 JULY 31, 1996 JULY 26, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Historical weighted average common shares outstanding................. 91,761 84,275 108,327
Shares assumed outstanding for the entire period related to issues for
(i) the Fiscal 1997 and 1998 Purchased Companies and (ii) September
Stock Sale and February and March 1997 Stock Sales.................. 17,544 25,030 978
Shares to be issued for the acquisition of Mail Boxes Etc. ........... 16,950 16,950 16,950
USOP and Mail Boxes Etc. Common Stock Equivalents..................... 2,456 2,672 2,553
------------- ------------- -------------
Total................................................................. 128,711 128,927 128,808
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Net income per share for fiscal 1995 has not been presented as it is not
considered meaningful due to the acquisitions of the Combined Companies and
USOP's initial public offering in conjunction with the formation of USOP during
fiscal 1994.
(k) Adjustment to reflect the federal income taxes for certain acquisitions
accounted for under the pooling-of-interest market which were taxed as
subchapter S corporations as if these companies had been subject to taxation as
C corporations. As a result of being subchapter S corporations, any tax
liabilities prior to acquisitions were the responsibility of the individual
company stockholders.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FOR THE FISCAL YEAR ENDED
------------------------------------- ------------------------
APRIL 30, APRIL 30, APRIL 26, JULY 27, JULY 26,
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income before extraordinary items.............................. $ 31,167 $ 34,877 $ 58,738 $ 16,565 $ 20,942
Pro forma income tax provision adjustment...................... 10,805 12,932 7,595 3,785 329
----------- ----------- ----------- ----------- -----------
Pro forma income tax before extraordinary items................ $ 20,359 $ 21,945 $ 51,143 $ 12,780 $ 20,613
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
61
<PAGE>
DESCRIPTION OF U.S. OFFICE PRODUCTS STOCK
GENERAL
USOP's authorized capital stock consists of 500,000,000 shares of Common
Stock, par value $.001 per share, and 500,000 shares of preferred stock, par
value $.001 per share (the "USOP Preferred Stock"). As of September 3, 1997,
USOP had outstanding approximately 73,275,512 shares of Common Stock and no
shares of Preferred Stock. As of September 3, 1997, there were approximately 756
record holders of USOP Common Stock. On October 7, 1997, USOP announced a
three-for-two stock split payable in the form of a stock dividend on November 6,
1997 to record holders as of October 23, 1997. If the stock split had been
effective as of September 3, 1997, USOP would have had 109,913,268 shares of
Common Stock outstanding.
COMMON STOCK
The holders of USOP Common Stock are entitled to one vote for each share on
all matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of USOP Preferred
Stock, the holders of USOP Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors of USOP out of funds
legally available therefor. The holders of USOP Common Stock are entitled to
share ratably in the net assets of USOP upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
USOP Preferred Stock then outstanding. The holders of USOP Common Stock have no
preemptive rights to purchase shares of stock of USOP. Shares of USOP Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of USOP. All outstanding shares of USOP Common Stock are,
upon payment therefor, fully paid and non-assessable.
PREFERRED STOCK
The USOP Preferred Stock may be issued from time to time by the Board of
Directors of USOP as shares of one or more classes or series. Subject to the
provisions of the USOP Charter and limitations prescribed by law, the Board of
Directors of USOP is expressly authorized to adopt resolutions to issue the
shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations or restrictions thereof, including dividend
rights (including whether dividends are cumulative), dividend rates, terms of
redemption (including sinking fund provisions), redemption prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of USOP Preferred Stock, in each case without any further action or vote
by the stockholders. USOP has no current plans to issue any shares of USOP
Preferred Stock of any class or series.
One of the effects of undesignated USOP Preferred Stock may be to enable the
Board of Directors of USOP to render more difficult or to discourage an attempt
to obtain control of USOP by means of a tender offer, proxy context, merger or
otherwise, and thereby to protect the continuity of USOP's management. The
issuance of shares of USOP Preferred Stock pursuant to the USOP Board of
Directors' authority described above may adversely affect the rights of the
holders of USOP Common Stock. For example, USOP Preferred Stock issued by USOP
may rank prior to USOP Common Stock as to dividend rights, liquidation
preference or both, may have full or limited voting rights and may be
convertible into shares of USOP Common Stock. Accordingly, the issuance of
shares of USOP Preferred Stock may discourage bids for the USOP Common Stock or
may otherwise adversely affect the market price of USOP Common Stock.
62
<PAGE>
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the USOP Common Stock is American Stock
Transfer & Trust Company.
COMPARATIVE RIGHTS OF STOCKHOLDERS OF
U.S. OFFICE PRODUCTS AND MAIL BOXES ETC.
The rights of USOP stockholders are currently governed by the DGCL, the USOP
Charter and the USOP Bylaws. The rights of MBE shareholders are currently
governed by the CGCL, the MBE Charter and the MBE Bylaws. Upon consummation of
the Merger, the rights of MBE shareholders who become stockholders of USOP in
the Merger will be governed by the DGCL, the USOP Charter and the USOP Bylaws.
There follows a summary of the differences between the rights of
shareholders of MBE and USOP. This summary does not purport to be complete and
is qualified in its entirety by reference to the DGCL, the CGCL, the USOP
Charter, the USOP Bylaws, the MBE Charter and the MBE Bylaws.
AUTHORIZED CAPITAL
The authorized capital stock of MBE is 40,000,000 shares of MBE Common Stock
and 10,000,000 shares of preferred stock, each having no par value per share.
The authorized capital stock of USOP is 500,000,000 shares of USOP Common Stock
and 500,000 shares of preferred stock, each having a par value $.001 per share.
SIZE OF BOARD OF DIRECTORS
Under the CGCL, although changes in the number of directors must normally be
approved by the shareholders, a corporation's articles of incorporation or
bylaws may include a provision that sets forth a permissible range in the number
of directors within which the board of directors may fix the exact number of
directors without shareholder approval. The range must be such that the highest
number is equal to one less than twice the lowest number. The MBE Bylaws provide
that the Company Board shall consist of not less than five nor more than nine
directors, with the exact number to be set from time to time.
Under the DGCL, a corporation's certificate of incorporation may authorize
the board of directors to change the authorized number of directors by amendment
to the bylaws or in the manner provided in the bylaws, and there is no
requirement that the board's discretion be limited within a permissible range.
The USOP Bylaws provide that the size of the board of directors is to be
established by resolution of a majority of the board of directors.
CUMULATIVE VOTING
The CGCL allows shareholders to cumulate votes in the election of directors,
subject to the corporation's articles of incorporation and bylaws, as long as
the candidates have been nominated and any one shareholder has given notice of
his or her intention to cumulate votes. The MBE Bylaws do not alter the right
provided by the CGCL. The DGCL allows cumulative voting when the corporation's
certificate of incorporation provides for it; however, the USOP Charter does not
so provide.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year. Under the CGCL, directors
generally are elected annually; however, corporations that (i) have stock
designated as qualified for trading as a national market system security on
Nasdaq and have 800 or more shareholders of record, or (ii) have their stock
listed on the American Stock Exchange or the New York Stock Exchange are
permitted to designate a classified board (of two or three classes) by
63
<PAGE>
adopting amendments to their articles or bylaws, which amendments must be
approved by a majority of the outstanding shares. The DGCL permits, but does not
require, a classified board of directors, with staggered terms under which
one-half or one-third of the directors are elected for terms of two or three
years, respectively. This method of electing directors makes a change in the
composition of the board of directors, and a potential change in control of a
corporation, a lengthier and more difficult process. Neither the USOP Bylaws nor
the MBE Bylaws currently provides for a classified board of directors.
REMOVAL OF DIRECTORS
Under the CGCL, 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. However, where individual directors are candidates for removal
or the board is classified, no director may be removed if the number of votes
cast against removal would be sufficient to elect the director under cumulative
voting (regardless of whether shares may otherwise be voted cumulatively) and
certain other requirements are met. Under the DGCL, directors on an unclassified
board may be removed with or without cause by a majority of the outstanding
shares entitled to vote.
WRITTEN CONSENT OF STOCKHOLDERS
Both the CGCL and DGCL provide that the stockholders of a corporation may
take action by written consent without a meeting, unless the corporation's
certificate or articles of incorporation provide otherwise. The MBE Bylaws do
not contain any provisions prohibiting actions by written consent, although they
do require unanimous consent for certain elections of directors. The USOP Bylaws
allow the stockholders to take any action by written consent of the percentage
of the vote required for the action to be taken at a meeting of stockholders.
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS
Under the CGCL, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president, the holders of shares
entitled to cast not less than 10 percent of the votes at such meeting and such
additional persons as are authorized by the articles of incorporation or the
bylaws. Under the DGCL, a special meeting of stockholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. The MBE Bylaws do not grant any person other
than those listed in the CGCL the right to call a special meeting of
shareholders. The USOP Bylaws authorize the board of directors, the chairman of
the board, the president, and stockholders holding together at least 25% of the
shares entitled to vote to call a special meeting of the stockholders.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
A number of states (but not California) have adopted special laws designed
to make certain kinds of "unfriendly" corporate takeovers, or other transactions
involving a corporation and one or more of its significant stockholders, more
difficult. Under Section 203 of the DGCL, certain "business combinations" with
"interested stockholders" of Delaware corporations are subject to a three-year
moratorium unless specified conditions are met. An "interested stockholder" is
defined as a person who, together with any affiliates and/or associates of such
person, beneficially owns, directly or indirectly, 15% or more of the
outstanding voting shares of a Delaware corporation. Section 203 prohibits
certain business combinations (defined broadly to include mergers,
consolidations, sales or other dispositions of assets having an aggregate value
in excess of 10% of the consolidated assets of the corporation, and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation) between an interested stockholder and a
corporation for a period of three years after the date the interested
stockholder acquired its stock, unless (i) the business combination or the
transaction which resulted in the stockholder becoming an interested stockholder
is approved by the corporation's board of
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directors prior to the date the interested stockholder acquired shares, (ii) the
interested stockholder acquired at least 85% of the voting stock of the
corporation in the transaction in which it become an interested stockholder, or
(iii) the business combination is approved by a majority of the board of
directors and by the affirmative vote of two-thirds of the votes entitled to be
cast by disinterested stockholders at an annual or special meeting. The
provisions of Section 203 apply to USOP because USOP has not "opted out" of
Section 203.
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under the CGCL, unless otherwise provided in a corporation's articles of
incorporation or bylaws, any vacancy on the board of directors other than one
created by removal of a director may be filled by the board of directors. If the
number of directors then in office is less than a quorum, a vacancy may be
filled by the unanimous written consent of the directors then in office, by the
affirmative vote of a majority of the directors at a meeting held pursuant to
notice or waivers of notice or by a sole remaining director. A vacancy created
by removal of a director may be filled by the board only if so authorized by a
corporation's articles of incorporation or by a bylaw approved by the
corporation's shareholders. MBE's Bylaws permit vacancies created by removal of
a director to be filled only by a majority vote of the outstanding shares or
unanimous written consent in the absence of a meeting. Under the DGCL,
vacancies, including those created by removal, and newly created directorships
may be filled by a majority of the directors then in office or a sole remaining
director (even though less than a quorum), unless otherwise provided in the
certificate of incorporation or bylaws (and unless the certificate of
incorporation directs that a particular class is to elect such director, in
which case a majority of any other directors elected by such class, or a sole
remaining director, shall fill such vacancy). The USOP Charter provides for the
filling of vacancies by majority vote of the remaining directors, except that
stockholders may fill a vacancy created by the removal of a director in that
same meeting.
LOANS TO OFFICERS AND EMPLOYEES
Under the CGCL, any loan or guaranty to or for a director or officer of the
corporation or its parent requires approval of a majority of a corporation's
shareholders entitled to act thereon, unless such loan or guaranty is authorized
under an employee benefit plan approved by a majority of the shareholders
entitled to act thereon (after disclosure to such shareholders that such plan
authorizes such loans or guaranties to or for officers and directors). In
addition, the CGCL provides that, notwithstanding the foregoing, if the
corporation has outstanding shares held of record by 100 or more shareholders on
the date such loan or guaranty is approved by the board of directors, and the
corporation has a bylaw approved by shareholders authorizing the board alone to
approve such loan or guaranty, such a loan or guaranty may be approved by the
board alone (excluding the vote of any interested director) if the board
determines that any such loan or guaranty may reasonably be expected to benefit
the corporation. The MBE Bylaws do not address, and hence do not authorize the
board to grant, such loans or guaranties. Under the DGCL, a corporation may make
loans to, guarantee the obligations of or otherwise assist its officers or other
employees and those of its subsidiaries (including directors who are also
officers or employees) when such action, in the judgment of the directors, may
reasonably be expected to benefit the corporation.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with certain exceptions, corporations to adopt a
provision in their articles or certificate of incorporation eliminating the
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty of care. There are
nonetheless certain differences between the laws of the two states respecting
indemnification and limitation of liability.
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MBE's articles of incorporation eliminate the liability of directors to the
corporation to the fullest extent permissible under the CGCL. The CGCL does not
permit the elimination of monetary liability where such liability is based upon:
(a) intentional misconduct or knowing and culpable violation of law; (b) acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders, or that involve the absence of good faith on
the part of the director; (c) receipt of an improper personal benefit; (d) acts
or omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders; (e) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders; (f) interested transactions
between the corporation and a director in which a director has a material
financial interest; and (g) liability for improper distributions, loans or
guarantees.
The USOP Charter also eliminates the liability of directors to the fullest
extent permissible under the DGCL. Under the DGCL, such provision may not
eliminate or limit director monetary liability for (a) breaches of the
director's duty of loyalty to the corporation or its stockholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit a director's liability for violation of, or otherwise relieve USOP or
its directors from the necessity of complying with, federal or state securities
laws, or affect the availability of non-monetary remedies such as injunctive
relief or rescission.
The CGCL permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines that such person is
fairly and reasonably entitled to indemnity for expenses, and then such
indemnification may be made only to the extent that such court shall determine,
and (b) no indemnification may be made in respect of amounts paid or expenses
incurred in settling or otherwise disposing of a threatened or pending action
without court approval or expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval.
Indemnification is permitted by the CGCL only for actions taken in good
faith, reasonably believed to be lawful and believed to be in the best interests
of the corporation and its shareholders and not in violation of the requirements
described above, as determined by a majority vote of a quorum of the
disinterested directors, independent legal counsel (if a quorum of disinterested
directors is not obtainable), a majority vote of a quorum of the shareholders
(excluding shares owned by the indemnified party) or the court handling the
action. Indemnification is required when the individual has successfully
defended the action on the merits.
The DGCL generally permits indemnification for expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination that the person seeking indemnification acted in good faith and in
a manner reasonably believed to be both lawful and in, or (in contrast to the
CGCL) not opposed to, the best interests of the corporation. Such determination
may be made by the disinterested directors, by independent legal counsel or by a
majority vote of a quorum of the stockholders. Without court approval, however,
no indemnification may be made in respect of any derivative action in which such
person is adjudged liable to the corporation. The DGCL also requires
indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute except
to the extent expressly prohibited by statute. MBE's articles of incorporation
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include such a provision. The USOP Charter authorizes indemnification to the
fullest extent permitted by law.
Both the CGCL and DGCL provide that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
INSPECTION OF STOCKHOLDERS LIST
Both the CGCL and the DGCL allow any stockholder to inspect the
stockholders' list for a purpose reasonably related to such person's interest as
a stockholder. The CGCL provides, in addition, for an absolute right to inspect
and copy the corporation's shareholder list by persons holding an aggregate of
five percent or more of a corporation's voting shares, or shareholders holding
an aggregate of one percent or more of such shares who have filed a Schedule 14A
with the Commission relating to the election of directors. The DGCL does not
provide for any such absolute right of inspection, and no such right is granted
under the USOP Charter or USOP Bylaws. Lack of access to stockholder records
could result in impairment of a stockholder's ability to coordinate opposition
to management proposals.
DIVIDENDS AND REPURCHASES OF SHARES
The CGCL dispenses with the concepts of par value of shares as well as
statutory definitions of capital, surplus and the like. The concepts of par
value, capital and surplus are retained under the DGCL.
Under the CGCL, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases of its shares)
unless either the corporation's retained earnings immediately prior to the
proposed distribution equal or exceed the amount of the proposed distribution
or, immediately after giving effect to such distribution, the corporation's
assets (exclusive of goodwill, capitalized research and development expenses and
deferred charges) would be at least equal to 1.25 times its liabilities (not
including deferred taxes, deferred income and other deferred credits), and the
corporation's current assets would be at least equal to its current liabilities
(or 1.25 times its current liabilities if the average pre-tax and pre-interest
expense earnings for the preceding two fiscal years were less than the average
interest expense for such years). Such tests are applied to California
corporations on a consolidated basis.
The DGCL permits a corporation to declare and pay dividends out of surplus
or, if there is no surplus, out of net profits for the fiscal year in which the
dividend is declared or for the preceding fiscal year as long as the amount of
capital of the corporation following the declaration and payment of the dividend
is not less than the aggregate amount of the capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets. In addition, the DGCL generally provides that a corporation may
redeem or repurchase its shares only if such redemption or repurchase would not
impair the capital of the corporation or if it repurchases shares having a
preference upon the liquidation of assets and it retires such shares upon
acquisition.
STOCKHOLDER VOTING
Both the CGCL and the DGCL generally require that a majority of the
stockholders of both acquiring and target corporations approve mergers. The DGCL
does not require a stockholder vote of the surviving corporation in a merger
(unless the corporation provides otherwise in its certificate of incorporation)
if (a) the merger agreement does not amend the existing certificate of
incorporation, (b) each share of the surviving corporation before the merger is
an identical share after the merger, and (c) the number of shares to be issued
by the surviving corporation in the merger does not exceed 20% of the shares
outstanding immediately prior to the merger. The CGCL contains a similar
exception to its voting requirements for reorganizations where shareholders or
the corporation itself, or both, immediately prior
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to the reorganization will own immediately after the reorganization equity
securities constituting more than five-sixths of the voting power of the
surviving or acquiring corporation or its parent entity.
Both the CGCL and the DGCL also require that a sale of all or substantially
all of the assets of a corporation be approved by a majority of the voting
shares of the corporation transferring such assets. With certain exceptions, the
CGCL also requires that mergers, reorganizations, certain sales of assets and
similar transactions be approved by a majority vote of each class of shares
outstanding. In contrast, the DGCL generally does not require class voting,
except in certain transactions involving an amendment to the certificate of
incorporation which adversely affects a specific class of shares.
The CGCL also requires that holders of nonredeemable shares of common stock
receive nonredeemable common stock in a merger of the corporation with the
holder of more than 50% but less than 90% of such common stock or its affiliate
unless all of the holders of such common stock consent to the transaction. This
provision of the CGCL may have the effect of making a "cash-out" merger by a
majority shareholder more difficult to accomplish. Although the DGCL does not
parallel the CGCL in this respect, under some circumstances, Section 203 of the
DGCL can provide similar protection against coercive two-tiered bids for a
corporation in which the stockholders are not treated equally. See
"--Stockholder Approval of Certain Business Combinations."
The CGCL also provides that, except in certain circumstances, when a tender
offer or a proposal for a reorganization or for a sale of assets is made by an
interested party (generally a controlling or managing party of the target
corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date of acceptance of the interested party's proposal, the shareholders must be
informed of the later proposal and be afforded a reasonable opportunity to
withdraw any vote, consent or proxy, or to withdraw any tendered shares. The
DGCL has no comparable provision, and the stockholders of USOP might, therefore,
be deprived of an opportunity to consider such other proposal.
INTERESTED DIRECTOR TRANSACTIONS
Under both the CGCL and the DGCL, certain contracts or transactions in which
one or more of a corporation's directors has an interest are not void or
voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. Under the CGCL, however, if shareholder approval
of the interested transaction is sought, the interested director is not entitled
to vote his shares at a shareholder meeting with respect to the transaction and
if board approval is sought, the contract or transaction must be approved by a
majority vote of a quorum of the directors, without counting the vote of any
interested directors (except that interested directors may be counted for
purposes of establishing a quorum). Under the DGCL, if board approval is sought,
the contract or transaction must be approved by a majority of the disinterested
directors (even though less than a majority of a quorum). Therefore, certain
transactions that the Company Board might not be able to approve because of the
number of interested directors could be approved by a majority of the
disinterested directors of USOP, although less than a majority of a quorum.
STOCKHOLDER DERIVATIVE SUITS
The CGCL provides that a shareholder bringing a derivative action on behalf
of a corporation need not have been a shareholder at the time of the transaction
in question, provided that certain tests are met. Under the DGCL, a stockholder
may only bring a derivative action on behalf of the corporation if the
stockholder was a stockholder of the corporation at the time of the transaction
in question or his or her stock thereafter devolved upon him or her by operation
of law. The CGCL also provides that the
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corporation or the defendant in a derivative suit may make a motion to the court
for an order requiring the plaintiff shareholder to furnish a security bond.
Delaware does not have a similar bonding requirement.
DISSENTERS' OR APPRAISAL RIGHTS
Under both the CGCL and the DGCL, a stockholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to dissenters' or appraisal rights pursuant to which
such stockholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction. Under the DGCL, such appraisal rights are not available (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a corporation (unless specifically provided for in the certificate of
incorporation), (b) with respect to a merger or consolidation by a corporation
the shares of which are either listed on a national securities exchange 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 held of record by more than
2,000 holders, plus cash in lieu of fractional shares, 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.
The limitations on the availability of appraisal rights under the CGCL are
different from those under the DGCL. Shareholders of a California corporation
(such as MBE) whose shares are listed on a national securities exchange or on a
list of over-the-counter margin stocks issued by the Board of Governors of the
Federal Reserve System generally do not have such appraisal rights unless the
holders of at least 5% of the class of outstanding shares claim the right or the
corporation or any law restricts the transfer of such shares. Appraisal rights
are unavailable, however, if the shareholders of a corporation or the
corporation itself, or both, immediately prior to the reorganization will own
immediately after the reorganization equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity. In general, the CGCL affords appraisal rights in sale of asset
reorganizations.
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SHAREHOLDER PROPOSALS
Any MBE shareholder who intended to submit a shareholder proposal to be
considered at the next annual meeting of MBE shareholders must have submitted
such proposal by March 14, 1997. If the Merger is completed, no Annual Meeting
of MBE Shareholders will be held.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities offered
hereby will be passed upon for USOP by Morgan, Lewis & Bockius LLP.
EXPERTS
The consolidated financial statements of USOP as of April 26, 1997 and April
30, 1996 and 1995, and for each year in the three year period ended April 26,
1997, except as they relate to School Specialty, Inc., The Re-Print Corporation,
Fortran Corporation, Bay State Computer Group, Inc., SFI Corp., Hano Document
Printers, Inc., Data Business Forms, MTA, Inc., Huxley Envelope Corp., and
United Envelope Co., Inc., and its affiliate, Rex Envelope Co., Inc., wholly
owned subsidiaries of the Company, have been audited by Price Waterhouse LLP,
independent accountants, and insofar as they relate to School Specialty, Inc. as
of and for each of the years ended December 31, 1995 and 1994, The Re-Print
Corporation, as of December 31, 1995 and 1994 and for each year in the three
year period ended December 31, 1995, Fortran Corporation, as of March 31, 1996
and 1995 and for each year in the three year period ended March 31, 1996, Bay
State Computer Group, Inc., as of March 31, 1996 and 1995 and for each year in
the three year period ended March 31, 1996, SFI Corp., as of and for the year
ended December 31, 1995, Hano Document Printers, Inc., as of and for the year
ended December 31, 1995, the combined financial statements of SFI Corp. and Hano
Document Printers, Inc. as of December 31, 1994 and for each year in the two
year period ended December 31, 1994, Data Business Forms, as of and for the year
ended December 31, 1995, MTA, Inc., as of December 31, 1995 and for the period
from January 25, 1995 (date of incorporation) to December 31, 1995, Huxley
Envelope Corp., as of and for the year ended December 31, 1995, and United
Envelope Co., Inc., and its affiliate, Rex Envelope Co., as of and for each of
the years ended December 31, 1994 and 1995, by Ernst & Young LLP, BDO Seidman,
LLP, Parent, McLaughlin & Nangle, Rubin, Koehmstedt & Nadler, PLC, KPMG Peat
Marwick LLP, Ernst & Young, Deloitte & Touche and Hertz, Herson & Company whose
reports thereon are incorporated herein by reference. Such financial statements
have been incorporated herein by reference in reliance upon the reports of such
independent accountants given on the authority of such firms as experts in
auditing and accounting.
The financial statements of Data Business Forms Limited as of December 31,
1996 and for the year then ended, have been incorporated herein by reference in
reliance upon the report of Ernst & Young, independent accountants, given on the
authority of such firm as experts in auditing and accounting.
The financial statements of Huxley Envelope Corp. as of December 31, 1995
and for the year then ended, have been incorporated herein by reference in
reliance upon the report of Hertz, Herson & Company, LLP, independent
accountants, given on the authority of such firm as experts in auditing and
accounting.
The financial statements of United Envelope Co., Inc., and its affiliate,
Rex Envelope Co., Inc., as of December 31, 1996 and for the year then ended,
have been incorporated herein by reference in reliance upon the report of Hertz,
Herson & Company, LLP, independent accountants, given on the authority of such
firm as experts in auditing and accounting.
The consolidated financial statements of Mail Boxes Etc. included in MBE's
Annual Report on Form 10-K for the fiscal year ended April 30, 1997 and audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon, have been incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
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The financial statements of Whitcoulls Group Limited as of June 30, 1996,
1995, 1994 and for the years then ended incorporated herein by reference from
USOP's Current Report on Form 8-K dated January 29, 1997 have been audited by
Deloitte Touche Tohmatsu (Auckland, New Zealand), 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.
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APPENDICES
<TABLE>
<S> <C>
Appendix I Agreement and Plan of Merger Dated as of May 22, 1997 Among U.S. Office
Products Company, Santa Fe Acquisition Corp. and Mail Boxes Etc. and Amendment
No. 1 to Agreement and Plan of Merger Dated as of October 9, 1997.
Appendix II Opinion of ABN AMRO Chicago Corporation.
Appendix III Text of Chapter 13 of the California General Corporation Law.
</TABLE>
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APPENDIX I
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 22, 1997
AMONG
U. S. OFFICE PRODUCTS COMPANY,
SANTA FE ACQUISITION CORP.
AND
MAIL BOXES ETC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C> <C>
ARTICLE I
THE MERGER................................................................................................... 2
SECTION 1.1 The Merger...................................................................... 2
SECTION 1.2 Closing......................................................................... 2
SECTION 1.3 Effective Time.................................................................. 2
SECTION 1.4 Effects of the Merger........................................................... 2
SECTION 1.5 Articles of Incorporation and By-laws........................................... 2
SECTION 1.6 Directors and Officers.......................................................... 2
SECTION 1.7 Additional Actions.............................................................. 3
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES..........
3
SECTION 2.1 Effect on Capital Stock......................................................... 3
SECTION 2.2 Exchange of Certificates........................................................ 4
SECTION 2.3 Dissenters' Rights.............................................................. 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES............................................................................... 6
SECTION 3.1 Representations and Warranties of the Company................................... 6
SECTION 3.2 Representations and Warranties of Parent........................................ 24
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS.................................................................... 27
SECTION 4.1 Conduct of Business............................................................. 27
SECTION 4.2 No Inconsistent Activities...................................................... 29
ARTICLE V
ADDITIONAL AGREEMENTS........................................................................................ 30
SECTION 5.1 Preparation of Form S-4 and the Proxy Statement; Stockholders' Meeting.......... 30
SECTION 5.2 Access to Information; Confidentiality.......................................... 31
SECTION 5.3 Reasonable Efforts; Notification................................................ 31
SECTION 5.4 Stock Option Plans.............................................................. 32
SECTION 5.5 Conveyance Taxes................................................................ 33
SECTION 5.6 Indemnification, Exculpation and Insurance...................................... 33
SECTION 5.7 Fees and Expenses............................................................... 33
SECTION 5.8 Public Announcements............................................................ 34
SECTION 5.9 Affiliates; Accounting and Tax Treatment........................................ 34
ARTICLE VI
CONDITIONS PRECEDENT......................................................................................... 34
SECTION 6.1 Conditions to Each Party's Obligations to Effect the Merger..................... 34
SECTION 6.2 Additional Conditions to Obligations of Parent and Sub.......................... 35
</TABLE>
2
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<TABLE>
<CAPTION>
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<S> <C> <C> <C>
SECTION 6.3 Additional Conditions to Obligations of the Company............................. 36
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER............................................................................ 37
SECTION 7.1 Termination..................................................................... 37
SECTION 7.2 Effect of Termination........................................................... 39
SECTION 7.3 Amendment....................................................................... 39
SECTION 7.4 Extension; Waiver............................................................... 39
SECTION 7.5 Termination Fee................................................................. 39
ARTICLE VIII
GENERAL PROVISIONS........................................................................................... 40
SECTION 8.1 Nonsurvival of Representations and Warranties................................... 40
SECTION 8.2 Notices......................................................................... 40
SECTION 8.3 Definitions..................................................................... 41
SECTION 8.4 Interpretation.................................................................. 42
SECTION 8.5 Counterparts.................................................................... 42
SECTION 8.6 Entire Agreement; No Third-Party Beneficiaries.................................. 42
SECTION 8.7 Governing Law................................................................... 42
SECTION 8.8 Assignment...................................................................... 42
SECTION 8.9 Enforcement..................................................................... 42
EXHIBITS
EXHIBIT A - Agreement of Merger
EXHIBIT B - Form of Voting Agreement
EXHIBIT 5.9 - Form of the Company Affiliate Letter
EXHIBIT 6.2 - Form of Opinion of O'Melveny & Myers LLP
EXHIBIT 6.3 - Form of Opinion of Morgan, Lewis & Bockius LLP
</TABLE>
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of May 22, 1997, among U. S. OFFICE
PRODUCTS COMPANY, a Delaware corporation ("PARENT"), SANTA FE ACQUISITION CORP.,
a California corporation and a direct, wholly-owned subsidiary of Parent
("SUB"), and Mail Boxes Etc., a California corporation (the "COMPANY").
BACKGROUND
A. The respective Boards of Directors of Parent, Sub and the Company have
approved the merger of Sub with and into the Company (the "MERGER"), upon the
terms and subject to the conditions set forth in this Agreement and in
accordance with the General Corporation Law of the State of California (the
"CGCL"), whereby each issued and outstanding share of common stock of the
Company, no par value per share (the "COMPANY COMMON STOCK"), other than shares
to be cancelled in accordance with Section 2.1(b), will be converted into the
right to receive a certain number of shares of common stock, $.001 par value per
share, of Parent ("PARENT COMMON STOCK"), such number to be determined as
provided herein.
B. The Merger requires the approval of the holders of a majority of the
outstanding shares of the Company Common Stock (the "COMPANY STOCKHOLDER
APPROVAL").
C. Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
D. For federal income tax purposes, it is intended that the Merger will
qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "CODE").
E. For accounting purposes, it is intended that the Merger will be accounted
for as a "POOLING-OF-INTERESTS."
F. Concurrently with the execution of this Agreement and as an inducement to
Parent to enter into this Agreement, Michael Dooling, Anthony DeSio, and United
Parcel Service, stockholders of the Company (the "SIGNIFICANT STOCKHOLDERS"),
have entered into a voting agreement with Parent (the "SIGNIFICANT STOCKHOLDER
AGREEMENT") in the form of Exhibit B hereto pursuant to which the Significant
Stockholders have, among other things, agreed to vote their shares of the
Company Common Stock in favor of the Merger. In addition, concurrent with the
execution of this Agreement, the Company has obtained from each other affiliate
of the Company a written agreement in substantially the form of Exhibit 5.9
hereto and a copy of such agreement has been delivered to Parent.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the CGCL, Sub shall be merged
with and into the Company at the Effective Time (as defined in Section 1.3).
Following the Merger, the separate corporate existence of Sub shall cease and
the Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and shall succeed to and assume all the rights and obligations of
the Company and of Sub in accordance with the CGCL.
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SECTION 1.2 CLOSING. The closing of the Merger will take place at 10:00
a.m. on a date to be specified by the parties, which shall be no later than the
second business day after satisfaction or waiver of the conditions set forth in
Article VI (the "CLOSING DATE"), at the offices of O'Melveny & Myers LLP, Suite
1700, 610 Newport Center Drive, Newport Beach, California 92660, unless another
time, date or place is agreed to in writing by the parties hereto.
SECTION 1.3 EFFECTIVE TIME. Subject to the provisions of this Agreement,
on the Closing Date the parties shall file with the California Secretary of
State (i) a copy of the Agreement of Merger attached hereto as Exhibit A, (ii)
an officers' certificate for each of Sub and the Company, and (iii) a
certificate of satisfaction of the California Franchise Tax Board for each of
Sub and the Company, all as required by Section 1103 of the CGCL (such
documents, the "MERGER DOCUMENTS"), and shall make all other filings or
recordings required under the CGCL. The Merger shall become effective at such
time as the Merger Documents are duly filed with the California Secretary of
State, or at such other time as Sub and the Company shall agree should be
specified in the documents to be filed with the Secretary of State (the date and
time of such filing, or such later date or time as may be set forth therein,
being the "EFFECTIVE TIME").
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 1107 of the CGCL and all other effects specified in the
applicable provisions of the CGCL.
SECTION 1.5 ARTICLES OF INCORPORATION AND BY-LAWS.
(a) From and after the Effective Time, the articles of incorporation of the
Company shall be the articles of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
(b) From and after the Effective Time, the bylaws of Sub shall be the Bylaws
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
SECTION 1.6 DIRECTORS AND OFFICERS. The initial directors of the Surviving
Corporation shall be the directors of Sub immediately prior to the Effective
Time, each to serve until their successors have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's articles of incorporation and bylaws. The
initial officers of the Surviving Corporation shall be the officers of the
Company immediately prior to the Effective Time, with the addition of Mark D.
Director as Assistant Secretary of the Surviving Corporation, each to serve
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's articles of incorporation and bylaws.
SECTION 1.7 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Sub or the Company or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Sub or the
Company, all such deeds, bills of sale, assignments and assurances and to take
and do, in the name and on behalf of Sub or the Company, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out this Agreement.
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ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Sub, the Company, or
the holders of any shares of the Company Common Stock or any shares of capital
stock of Sub:
(a) CAPITAL STOCK OF SUB. Each share of the capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) CANCELLATION OF PARENT OWNED STOCK. Each share of the Company Common
Stock that is owned by Parent, Sub or any other subsidiary of Parent immediately
prior to the Effective Time shall automatically be cancelled and retired without
any conversion thereof and no consideration shall be delivered with respect
thereto.
(c) CONVERSION OF COMMON STOCK. Each share of Company Common Stock issued
and outstanding as of the Effective Time, other than shares to be cancelled in
accordance with Section 2.1(b) or that are held by stockholders ("DISSENTING
STOCKHOLDERS") duly exercising dissenters' rights pursuant to Chapter 13 of the
CGCL and Section 2.3 hereof, shall be converted, subject to Section 2.2(d), into
the right to receive one share of Parent Common Stock (the "EXCHANGE RATIO"),
subject to adjustment as provided for in this Section 2.1(c). The Exchange Ratio
shall not be adjusted if the Share Value (as defined below) is equal to or
greater than $23.00, but no greater than $29.00. If the Share Value is greater
than $29.00, then the Exchange Ratio shall automatically be adjusted to equal
the quotient of (i) $29.00 divided by (ii) the Share Value. If the Share Value
is less than $23.00, then, if the Company has notified Parent of its election to
terminate this Agreement pursuant to Section 7.1(i) hereof, Parent shall have
the option in its sole and absolute discretion, but not the obligation, to
adjust the Exchange Ratio to be equal to the quotient of (iii) $23.00, divided
by (iv) the Share Value, and the Company shall be obligated to accept such
adjustment. If the Share Value is less than $23.00, and if the Company does not
elect to terminate this Agreement pursuant to Section 7.1(i), the Exchange Ratio
shall be unchanged.
For purposes hereof, the "SHARE VALUE" shall be an amount equal to the
average closing price for the Parent Common Stock as reported on the Nasdaq
National Market System for the twenty (20) consecutive trading days prior to the
date two (2) business days prior to the Company Stockholders' Meeting (as
defined in Section 5.1(d), so long as the Closing Date occurs within five
business days of the Company Stockholders' Meeting or, if the Closing Date is
more than five business days after the Company Stockholders' Meeting, the
Closing Date.
As of the Effective Time, all such shares of the Company Common Stock shall
no longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each certificate previously representing any such
shares shall thereafter represent only the right to receive a certificate
representing the shares of Parent Common Stock into which such the Company
Common Stock was converted in the Merger. The holders of such certificates
previously evidencing such shares of the Company Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of the Company Common Stock as of the Effective Time
except as otherwise provided herein or by law. Such certificates previously
representing shares of the Company Common Stock shall be exchanged for
certificates representing whole shares of Parent Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with the provisions of Section 2.2, without interest. No fractional shares of
Parent Common Stock shall be issued, and, in lieu thereof, a cash payment shall
be made pursuant to Section 2.2(d).
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SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE PROCEDURE. As soon as reasonably practicable after the
Effective Time, Parent shall cause to be mailed to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of the Company Common Stock (the "CERTIFICATES"),
(i) a letter of transmittal (which shall be in customary form and shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to Parent's transfer
agent (the "TRANSFER AGENT")), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock. Upon surrender of a Certificate for cancellation to the
Transfer Agent, together with such letter of transmittal, duly executed, and
such other documents as may reasonably be required by the Transfer Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate evidencing that number of whole shares of Parent Common Stock which
such holder has the right to receive in respect of the shares of the Company
Common Stock formerly evidenced by such Certificate (after taking into account
all shares of the Company Common Stock then held of record by such holder), cash
in lieu of fractional shares of Parent Common Stock to which such holder is
entitled pursuant to Section 2.2(d) and any dividends or other distributions to
which such holder is entitled pursuant to Section 2.2(b), and the Certificate so
surrendered shall forthwith be cancelled. In the event of a transfer of
ownership of the Company Common Stock which is not registered in the transfer
records of the Company, a certificate representing the proper number of shares
of Parent Common Stock may be issued to a person other than the person in whose
name the Certificate so surrendered is registered, if such Certificate,
accompanied by all documents required to evidence and effect such transfer,
shall be properly endorsed with signature guarantee or otherwise be in proper
form for transfer and the person requesting such payment shall pay any transfer
or other taxes required by reason of the issuance of shares of Parent Common
Stock to a person other than the registered holder of such Certificate or
establish to the satisfaction of Parent that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate evidencing whole
shares of Parent Common Stock, cash in lieu of any fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.2(d) and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(b). No interest will be paid or will accrue on any cash payable
pursuant to Section 2.2(b) or 2.2(d).
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent 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 of Parent
Common Stock represented thereby, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 2.2(d), in each case
until the surrender of such Certificate in accordance with this Article II.
Subject to the effect of applicable escheat laws, following surrender of such
Certificate, there shall be paid to the holder of the certificate representing
whole shares of Parent Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any such cash payable
in lieu of a fractional share of Parent Common Stock to which such holder is
entitled pursuant to Section 2.2(d) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent 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 such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of Parent
Common Stock.
(c) NO FURTHER OWNERSHIP RIGHTS IN THE COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to Section 2.2(b) or 2.2(d)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the shares of the Company Common
Stock theretofore represented by such Certificates, 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
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been declared or made by the Company on such shares of the Company Common Stock
in accordance with the terms of this Agreement or prior to the date of this
Agreement and which remain unpaid at the Effective Time and have not been paid
prior to surrender. At the Effective Time, the stock transfer books of the
Company shall be closed, and there shall be no further registrations of
transfers of shares of the Company Common Stock thereafter on the records of the
Company. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, Parent or the Transfer Agent for any reason, they shall
be cancelled and exchanged as provided in this Article II.
(d) NO FRACTIONAL SHARES.
(i) No Certificates or scrip representing fractional shares of Parent
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 rights of a stockholder of Parent.
(ii) Each holder of shares of Company Common Stock issued and
outstanding at the Effective Time who would otherwise be entitled to receive
a fractional share of Parent Common Stock upon surrender of stock
certificates for exchange pursuant to this Article II (after taking into
account all shares of Company Common Stock then held by such holder) shall
receive, in lieu thereof, cash in an amount equal to the value of such
fractional shares, which shall be equal to the fraction of a share of Parent
Common Stock that would otherwise be issued multiplied by the Share Value.
(iii) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates with respect to any
fractional share interests, Parent shall promptly pay such amounts to such
holders of Certificates subject to and in accordance with the terms of
Section 2.2(b).
(e) NO LIABILITY. None of Parent, Sub, the Company or the Transfer Agent
shall be liable to any holder of shares of the Company Common Stock for any
shares of Parent Common Stock (or dividends or distributions with respect
thereto) or cash otherwise deliverable or payable to any holder of shares of the
Company Common Stock to a public official pursuant to any applicable abandoned
property, escheat or similar law.
SECTION 2.3 DISSENTERS' RIGHTS. If any Dissenting Stockholder shall be
entitled to require the Company to purchase such stockholder's shares for their
fair market value, as provided in Chapter 13 of the CGCL, the Company shall give
Parent notice thereof and Parent shall have the right to participate in all
negotiations and proceedings with respect to any such demands. Neither the
Company nor the Surviving Corporation shall, except with the prior written
consent of Parent, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for payment. If any Dissenting Stockholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the shares held by such stockholder shall thereupon be entitled to be
surrendered in exchange for shares of Parent Common Stock as provided by
Sections 2.1 and 2.2 hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth on the disclosure schedule (provided that an item on such disclosure
schedule shall be deemed to qualify only the particular subsection or
subsections of this Section 3.1 specified for such item) delivered by the
Company to Parent prior to the execution of this Agreement (the "COMPANY
DISCLOSURE SCHEDULE"), the Company represents and warrants to Parent and Sub as
follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized and has the
requisite corporate power and authority to carry on its business as now being
conducted. The Company and each of its subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed would not, individually or in
the aggregate, have a "material adverse effect" (as defined in Section 8.3) on
the Company.
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(b) SUBSIDIARIES. The Company Disclosure Schedule lists each subsidiary of
the Company and its jurisdiction of incorporation or organization. All of the
outstanding shares of capital stock of each such subsidiary have been validly
issued and are fully paid and nonassessable and are owned by the Company, by
another subsidiary of the Company or by the Company and another such subsidiary,
free and clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever (collectively, "LIENS"). Except for
the capital stock of its subsidiaries, and as disclosed in the Company
Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership, joint
venture or other entity.
(c) CAPITAL STRUCTURE. The authorized capital stock of the Company consists
of 40,000,000 shares of the Company Common Stock, no par value per share, and
10,000,000 shares of preferred stock, no par value per share (the "COMPANY
PREFERRED STOCK"). At the close of business on April 30, 1997, (i) 11,300,273
shares of the Company Common Stock and no shares of the Company Preferred Stock
were issued and outstanding, (ii) 1,281,882 shares of the Company Common Stock
were reserved for issuance upon exercise of outstanding Stock Options (as
defined in Section 5.4), and (iii) an aggregate of 2,779,127 shares of the
Company Common Stock were reserved for issuance under the Company's Stock
Option/Purchase Plans (as defined in Section 5.4). Except as set forth above, at
the close of business on April 30, 1997 and since April 30, 1997, no shares of
capital stock or other voting securities of the Company were issued, reserved
for issuance or outstanding and since April 30, 1997 no shares of capital stock
or other voting securities of the Company have been issued by the Company except
upon exercise of Stock Options outstanding on April 30, 1997. There are no
outstanding stock appreciation rights of the Company and no outstanding limited
stock appreciation rights or other rights to redeem for cash options or warrants
of the Company. All outstanding shares of capital stock of the Company are, and
all shares which may be issued upon the exercise of Stock Options will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. All of the issued and outstanding shares of the
capital stock of the Company were offered, issued, sold and delivered by the
Company in compliance with all applicable state and federal laws concerning the
issuance of securities. There are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote. Except as set forth above, as of the date
of this Agreement, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its subsidiaries is a party or by which any of
them is bound obligating the Company or any of its subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company or of any of its
subsidiaries or obligating the Company or any of its subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
contractual obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock (or options to acquire
any such shares) of the Company or any of its subsidiaries. There are no
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which the Company or any of its subsidiaries is required
to file a registration statement under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), or which otherwise relate to the registration of any
securities of the Company.
(d) AUTHORITY; NONCONTRAVENTION.
(i) The Company has the requisite corporate power and authority to enter
into this Agreement and, subject to the Company Stockholder Approval, to
consummate the transactions contemplated by this Agreement. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the Company,
subject to the Company Stockholder Approval of this Agreement. This
Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable
against the Company in
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accordance with its terms, except to the extent such enforcement may be
limited by applicable bankruptcy, reorganization, moratorium or other such
law. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or to loss of any benefit under, or result
in the creation of any Lien upon any of the properties or assets of the
Company or any of its subsidiaries under, (i) the articles of incorporation
or bylaws of the Company or the comparable charter or organizational
documents of any of its subsidiaries, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to or, in the case of
franchises or licenses, granted by, the Company or any of its subsidiaries
or otherwise applicable to their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, injunction, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets, other than, in the
case of clause (ii), any such conflicts, violations, defaults, rights or
Liens that would not, individually or in the aggregate, have a material
adverse effect on the Company.
(ii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any federal, state or local government or any
court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign (a "GOVERNMENTAL
ENTITY"), is required by the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Company
or the consummation by the Company of the transactions contemplated by this
Agreement, except for (A) the filing with the Federal Trade Commission and
the Antitrust Division of the Department of Justice (the "SPECIFIED
AGENCIES") of a premerger notification and report form by the Company under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR ACT"),
(B) the filing with the Securities and Exchange Commission (the "SEC") of
(1) the Proxy Statement (as defined in Section 5.1) and (2) such reports
under Section 13(a) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), as may be required in connection with this Agreement and
the transactions contemplated by this Agreement and (C) the filing of the
Merger Documents with the California Secretary of State and appropriate
documents with the relevant authorities of other states in which the Company
is qualified to do business.
(iii) The Company hereby represents that its Board of Directors, at a
meeting duly called and held, has unanimously (A) determined that this
Agreement and the transactions contemplated hereby, including the Merger,
are fair to and in the best interest of the Company's stockholders, (B)
approved this Agreement and the transactions contemplated hereby, including
the Merger, which approval satisfies in full the requirements of the CGCL
with respect to the transactions contemplated hereby, and (C) resolved to
recommend approval and adoption of this Agreement and the Merger by its
stockholders.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS.
(i) The Company has filed with the SEC all reports and forms and other
documents required to be filed by it pursuant to relevant United States
securities statutes, regulations, policies and rules (the "SEC DOCUMENTS"),
all of which have complied in all material respects with all applicable
requirements of such statutes, regulations, policies and rules. As of their
respective dates, none of the SEC Documents, except as revised or superseded
by a later filed SEC Document, without regard to any amendments or filings
after the date hereof, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. In addition, nothing has come to the
attention of the Company since the date any SEC Document was filed that
would have made, as of the filing date, any statement in any SEC Document
untrue in a
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material respect, or that, if omitted to be stated as of the filing date,
would have made the statements in such SEC Document, in light of the
circumstances under which they were made, misleading. Except to the extent
that information contained in any SEC Document has been revised or
superseded by a later-filed SEC Document filed and publicly available prior
to the date of this Agreement, none of the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents have been
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited statements, to the omission of footnote information and normal
year-end audit adjustments consisting of normal, recurring accruals that are
not material).
(ii) The books, records and accounts of the Company and its subsidiaries
(A) have been maintained in accordance with good business practices on a
basis consistent with prior years, (B) are stated in reasonable detail and
accurately and fairly reflect in all material respects the transactions and
dispositions of the assets of the Company and its subsidiaries and (C)
accurately and fairly reflect in all material respects the basis for the
Company's financial statements. The Company has devised and maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (D) transactions are executed in accordance with
management's general or specific authorization; and (E) transactions are
recorded as necessary (1) to permit preparation of financial statements in
conformity with generally accepted accounting principles or any other
criteria applicable to such statements and (2) to maintain accountability
for assets.
(iii) Except as set forth in the SEC Documents filed prior to the date of
this Agreement, and except for liabilities and obligations incurred in the
ordinary course of business consistent with past practice since April 30,
1996, neither the Company nor any of its subsidiaries has any material
liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise).
(f) INFORMATION SUPPLIED. None of the information supplied or to be supplied
by the Company specifically for inclusion or incorporation by reference in (i)
the Form S-4 (as defined in Section 5.1) will, at the time the Form S-4 is filed
with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or (ii) the Proxy Statement will, at the
date it is first mailed to the Company's stockholders or at the time of the
Company Stockholders' Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder, except that no representation or warranty is made by the
Company with respect to statements made or incorporated by reference therein
based on information supplied by Parent or Sub specifically for inclusion or
incorporation by reference in the Proxy Statement.
(g) NO DEFAULTS. Neither the Company nor any of its subsidiaries is, or has
received notice that it would be with the passage of time, in default or
violation of any term, condition or provision of (i) the articles of
incorporation or bylaws of the Company or the comparable charter or
organizational documents of any of its subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to or, in the
case of franchises or licenses, granted by, the Company or any of its
subsidiaries or otherwise applicable to their respective
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properties or assets or (iii) any judgment, order, decree, injunction, statute,
law, ordinance, rule or regulation applicable to the Company or any of its
subsidiaries or their respective properties or assets, other than, in the case
of clause (ii) and, with respect to statutes, laws, ordinances, rules or
regulations, clause (iii), any such defaults or violations that would not,
individually or in the aggregate, have a material adverse effect on the Company.
(h) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the SEC
Documents filed prior to the date of this Agreement, since April 30, 1996 the
Company and its subsidiaries have conducted their businesses only in the
ordinary course consistent with prior practice, and there has not been (i) any
material adverse change in the Company's business, operations, affairs,
prospects, properties, assets, profits or condition (financial or otherwise),
(ii) any declaration, setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with respect to any of the
Company's capital stock, (iii) any split, combination or reclassification of any
of its capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, (iv) any amendment of any material term of any outstanding
security of the Company or any subsidiary, (v) any sale, encumbrance, assignment
or transfer of any assets or properties, except in the ordinary of course of
business and on terms consistent with past practices, (vi) any material
acquisition of any corporation, partnership or other business organization or
division or any acquisition, lease or other purchase of material assets, (vii)
any incurrence, assumption or guarantee by the Company or any subsidiary of any
indebtedness for borrowed money, other than in the ordinary course of business
and in amounts and on terms consistent with past practices, or any change in the
material terms of any such indebtedness or guarantee of the Company or any
subsidiary (including indebtedness of a third party subject to any such
guarantee), (viii) any granting by the Company or any of its subsidiaries to any
officer or employee of the Company or any of its subsidiaries of any increase in
compensation, except in the ordinary course of business consistent with prior
practice or as was required under employment agreements in effect as of the date
of the most recent audited financial statements included in the SEC Documents
filed prior to the date of this Agreement (a list of all such employment
agreements being set forth in Schedule 3.1(h) to Section 3.1(h) of the Company
Disclosure Schedule), (ix) any granting by the Company or any of its
subsidiaries to any such officer or employee of any increase in severance or
termination pay, except as was required under employment, severance or
termination agreements in effect as of the date of the most recent audited
financial statements included in the SEC Documents filed prior to the date of
this Agreement, (x) any entry into, or renewal or modification of, by the
Company or any of its subsidiaries of any employment, consulting, severance or
termination agreement with any such officer or employee, (xi) any damage,
destruction or loss, whether or not covered by insurance, that, individually or
in the aggregate, has or could have a material adverse effect or (xii) any
change in accounting methods, principles or practices by the Company materially
affecting its assets, liabilities or business, except insofar as may have been
required by a change in generally accepted accounting principles.
(i) LITIGATION. Except as disclosed in the SEC Documents filed prior to the
date of this Agreement, there is no claim, suit, action, investigation, audit or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries that, individually or in the aggregate, could
reasonably be expected to have a material adverse effect on the Company; nor is
there any judgment, order, decree or injunction applicable to the Company or any
of its subsidiaries that, individually or in the aggregate, could reasonably be
expected to have any such effect.
(j) ABSENCE OF CHANGES IN BENEFIT PLANS.
(i) Except as disclosed in the SEC Documents filed prior to the date of
this Agreement or as required by applicable law, since April 30, 1996, there
has not been any adoption or amendment in any material respect by the
Company or any of its subsidiaries of any collective bargaining agreement or
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding (whether or not legally
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binding) providing benefits to any current or former employee, officer or
director of the Company or any of its subsidiaries. Except as disclosed in
the SEC Documents filed prior to the date of this Agreement, there exist no
employment, consulting, severance, termination or indemnification
agreements, arrangements or understandings between the Company or any of its
subsidiaries and any current or former officer or director of the Company or
any of its subsidiaries. Except as disclosed in the SEC Documents filed
prior to the date of this Agreement, since April 30, 1996, neither the
Company nor any of its subsidiaries has taken any action to accelerate any
rights or benefits under any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director or officer or for the benefit of employees generally.
(ii) Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) result in any
payment (including severance, unemployment compensation, parachute payment,
bonus or otherwise) becoming due to any director, employee or independent
contractor of the Company or any of its subsidiaries under any Company
Benefit Arrangement or Company Benefit Plan (each as defined in Section
3.1(k)) or otherwise, (B) materially increase any benefits otherwise payable
under any Company Benefit Arrangement or Company Benefit Plan or otherwise
or (C) result in the acceleration of the time of payment or vesting of any
such benefits.
(k) EMPLOYEE BENEFIT PLANS.
(i) Definitions.
(A) "BENEFIT ARRANGEMENT" means any benefit arrangement, obligation,
custom, or practice, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, agents, or independent
contractors, other than any obligation, arrangement, custom or practice
that is an Employee Benefit Plan, including without limitation employment
agreements, severance agreements, executive compensation arrangements,
incentive programs or arrangements, sick leave, vacation pay, severance
pay policies, plant closing benefits, salary continuation for disability,
consulting, or other compensation arrangements, workers' compensation,
retirement, deferred compensation, bonus, stock option or purchase,
hospitalization, medical insurance, life insurance, tuition reimbursement
or scholarship programs, any plans subject to Section 125 of the Code,
and any plans providing benefits or payments in the event of a change of
control, change in ownership, or sale of a substantial portion (including
all or substantially all) of the assets of any business or portion
thereof, in each case with respect to any present or former employees,
directors, or agents.
(B) "COMPANY BENEFIT ARRANGEMENT" means any Benefit Arrangement
sponsored or maintained by the Company or any of its subsidiaries or with
respect to which the Company or any of its subsidiaries has or may have
any liability (whether actual or contingent), in each case with respect
to any present or former directors, employees, or agents of the Company
and its subsidiaries.
(C) "COMPANY PLAN" means any Employee Benefit Plan for which the
Company or any of its subsidiaries is the "plan sponsor" (as defined in
Section 3(16)(B) of ERISA) or any Employee Benefit Plan maintained by the
Company or any of its subsidiaries or to which the Company or any of its
subsidiaries is obligated to make payments, in each case with respect to
any present or former employees of the Company or any of its subsidiaries
.
(D) "EMPLOYEE BENEFIT PLAN" has the meaning given in Section 3(3) of
ERISA.
(E) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all regulations and rules issued thereunder, or any
successor law.
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(F) "ERISA AFFILIATE" means any person that, together with the
Company, would be or was at any time treated as a single employer under
Section 414 of the Code or Section 4001 of ERISA and any general
partnership of which the Company or any of its subsidiaries is or has
been a general partner.
(G) "MULTIEMPLOYER PLAN" means any Employee Benefit Plan described in
Section 3(37) of ERISA.
(H) "QUALIFIED PLAN" means any Employee Benefit Plan that meets,
purports to meet, or is intended to meet the requirements of Section
401(a) of the Code.
(I) "WELFARE PLAN" means any Employee Benefit Plan described in
Section 3(1) of ERISA.
(ii) The Company Disclosure Schedule contains a complete and accurate
list of all Company Plans and Company Benefit Arrangements, and specifically
identifies all Company Plans (if any) that are Qualified Plans.
(iii) With respect, as applicable, to Employee Benefit Plans and Benefit
Arrangements and except to the extent that failure of any representation or
warranty in this Section 3.1(k) would not result in a liability to the
Company in excess of $250,000:
(A) true, correct, and complete copies of all the following documents
with respect to each Company Plan and Company Benefit Arrangement, to the
extent applicable, have been made available to Parent: (1) all documents
constituting the Company Plans and Company Benefit Arrangements,
including but not limited to, trust agreements, insurance policies,
service agreements, and formal and informal amendments thereto; (2) the
most recent Forms 5500 or 5500C/ R and any financial statements attached
thereto and those for the prior three (3) years; (3) the last Internal
Revenue Service ("IRS") determination letter, the last IRS determination
letter that covered the qualification of the entire plan (if different),
and the materials submitted by the Company and its subsidiaries to obtain
those letters; (4) the most recent summary plan description; (5) the most
recent written descriptions of all non-written agreements relating to any
such plan or arrangement; (6) all reports submitted within the four (4)
years preceding the date of this Agreement (and still in the possession
of or available to the Company) by third-party administrators, actuaries,
investment managers, consultants or other independent contractors; (7)
all notices that were given within the three (3) years preceding the date
of this Agreement by the IRS, Department of Labor, or any other
governmental agency or entity with respect to any plan or arrangement;
and (8) the most recent employee manuals or handbooks containing
personnel or employee relations policies;
(B) the Mail Boxes Etc. Stock Purchase and Salaried Savings Plan and
Trust (the "COMPANY 401(K) PLAN") is the only Qualified Plan. Neither the
Company nor any of its subsidiaries has ever maintained or contributed to
another Qualified Plan. The Company 401(k) Plan qualifies under Section
401(a) of the Code, and any trusts maintained pursuant thereto are exempt
from federal income taxation under Section 501 of the Code, and nothing
has occurred with respect to the design or operation of any Qualified
Plans that could cause the loss of such qualification or exemption or the
imposition of any liability, lien, penalty, or tax under ERISA or the
Code;
(C) neither the Company nor any of its subsidiaries has ever
sponsored or maintained, had any obligation to sponsor or maintain, or
had any liability (whether actual or contingent) with respect to any
Employee Benefit Plan subject to Section 302 of ERISA or Section 412 of
the Code or Title IV of ERISA (including any Multiemployer Plan);
(D) each Company Plan and each Company Benefit Arrangement has been
maintained in accordance with its constituent documents and with all
applicable provisions of the Code, ERISA and other laws, including
federal and state securities laws;
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(E) there are no pending claims or lawsuits by, against, or relating
to any Employee Benefit Plans or Benefit Arrangements that are not
Company Plans or Company Benefit Arrangements that would, if successful,
result in liability of the Company or any of its subsidiaries, and no
claims or lawsuits have been, to the knowledge of the Company, asserted,
instituted or threatened by, against, or relating to any Company Plan or
Company Benefit Arrangement, against the assets of any trust or other
funding arrangement under any such Company Plan, by or against the
Company with respect to any Company Plan or Company Benefit Arrangement,
or by or against the plan administrator or any fiduciary of any Company
Plan or Company Benefit Arrangement; and the Company does not have
knowledge of any fact that would reasonably be expected to form the basis
for any such claim or lawsuit that, if successful, would reasonably be
expected to result in liability of the Company or any of its
subsidiaries. The Company Plans and Company Benefit Arrangements are not
presently under audit or examination (nor has notice been received of a
potential audit or examination) by the IRS, the Department of Labor, or
any other governmental agency or entity, and no matters are pending with
respect to the Company 401(k) Plan under the IRS's Voluntary Compliance
Resolution program, its Closing Agreement Program, or other similar
programs;
(F) no Company Plan or Company Benefit Arrangement contains any
provision or is subject to any law that would prohibit the transactions
contemplated by this Agreement or that would give rise to any vesting of
benefits, severance, termination, or other payments or liabilities as a
result of the transactions contemplated by this Agreement;
(G) with respect to each Company Plan, there has occurred no
non-exempt "prohibited transaction" (within the meaning of Section 4975
of the Code) or transaction prohibited by Section 406 of ERISA or breach
of any fiduciary duty described in Section 404 of ERISA that would, if
successful, result in any liability for the Company, any of its
subsidiaries, or any of its or their officers, directors, or employees;
(H) all reporting, disclosure, and notice requirements of ERISA and
the Code have been fully and completely satisfied with respect to each
Company Plan and each Company Benefit Arrangement;
(I) all amendments and actions required to bring the Company Benefit
Plans into conformity with the applicable provisions of ERISA, the Code,
and other applicable laws have been made or taken except to the extent
such amendments or actions (1) are not required by law to be made or
taken until after the Effective Time and (2) are disclosed on the Company
Disclosure Schedule;
(J) payment has been made of all amounts that the Company and its
subsidiaries are required to pay as contributions to the Company Benefit
Plans as of the last day of the most recent fiscal year of each of the
plans ended before the date of this Agreement; all benefits accrued under
any unfunded Company Plan or Company Benefit Arrangement will have been
paid, accrued, or otherwise adequately reserved in accordance with
generally accepted accounting principles as of April 30, 1996; and all
monies withheld from employee paychecks with respect to Company Plans
have been transferred to the appropriate plan within 30 days of such
withholding;
(K) neither the Company nor any of its subsidiaries has prepaid or
prefunded any Welfare Plan through a trust, reserve, premium
stabilization, or similar account, nor does the Company or any of its
subsidiaries provide benefits through a voluntary employee beneficiary
association as defined in Section 501(c)(9);
(L) no statement, either written or oral, has been made by the
Company or any of its subsidiaries to any person with regard to any
Company Plan or Company Benefit Arrangement
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that was not in accordance with the Company Plan or Company Benefit
Arrangement and that could have a material adverse effect on the Company;
(M) neither the Company nor any of its subsidiaries has any liability
(whether actual or contingent) with respect to any Employee Benefit Plan
or Benefit Arrangement that is not a Company Benefit Arrangement or with
respect to any Employee Benefit Plan sponsored or maintained (or which
has been or should have been sponsored or maintained) by any ERISA
Affiliate;
(N) all group health plans of the Company and its affiliates have
been operated in material compliance with the requirements of Sections
4980B (and its predecessor) and 5000 of the Code, and the Company and its
subsidiaries have provided to individuals entitled thereto all required
notices and coverage pursuant to Section 4980B with respect to any
"qualifying event" (as defined therein);
(O) no employee or former employee of the Company or any of its
subsidiaries or beneficiary of any such employee or former employee is,
by reason of such employee's or former employee's employment, entitled to
receive any benefits, including, without limitation, death or medical
benefits (whether or not insured) beyond retirement or other termination
of employment as described in Statement of Financial Accounting Standards
No. 106, other than (1) death or retirement benefits under a Qualified
Plan or (2) continuation coverage mandated under Section 4980B of the
Code or other applicable law.
(l) TAXES.
(i) Each of the Company and its subsidiaries has timely filed all Tax
Returns due on or before the Effective Time, and all such Tax Returns are
true, correct, and complete in all material respects.
(ii) Each of the Company and its subsidiaries has paid in full on a
timely basis all Taxes owed by it, whether or not shown on any Tax Return,
except for any portions of Taxes owed as would be immaterial in amount and
significance.
(iii) The amount of the Company's consolidated liability for unpaid
Taxes as shown on the Company's balance sheet dated January 31, 1997 did not
exceed the amount of the then current liability accruals for Taxes
(excluding reserves for deferred Taxes) shown on the Company's balance sheet
as of such date included in the SEC Documents.
(iv) The amount of the Company's consolidated liability for unpaid Taxes
for all periods or portions thereof ending on or before the Effective Time
as such liability may ultimately be determined does and will not exceed the
amount of the current liability accruals for Taxes (excluding reserves for
deferred Taxes) as such accruals are reflected on the books and records of
the Company on the Effective Time.
(v) There are no ongoing examinations or claims against the Company or
any of its subsidiaries for Taxes, and no notice of any audit, examination,
or claim for Taxes, whether pending or threatened, has been received.
(vi) The Company has a taxable year ended on April 30 in each year
(vii) The Company currently utilizes the accrual method of accounting
for income Tax purposes and such method of accounting has not changed since
its incorporation. The Company has not agreed to, and is not and will not be
required to, make any adjustments under Code Section 481(a) as a result of a
change in accounting methods.
(viii) Each of the Company and its subsidiaries has withheld and paid
over to the proper governmental authorities all Taxes required to have been
withheld and paid over (except for any amounts that are immaterial in amount
and significance), and complied with all information reporting
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<PAGE>
and backup withholding requirements, including maintenance of required
records with respect thereto, in connection with amounts paid to any
employee, independent contractor, creditor, or other third party.
(ix) Copies of (A) any Tax examinations, (B) extensions of statutory
limitations for the collection or assessment of Taxes and (C) the Tax
Returns of each of the Company and its subsidiaries for the last fiscal year
have been made available to Parent.
(x) There are (and as of immediately following the Effective there will
be) no Liens on the assets of the Company or any of its subsidiaries
relating to or attributable to Taxes.
(xi) To the Company's knowledge, there is no basis for the assertion of
any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company or any of its
subsidiaries or otherwise have a material adverse effect on the Company.
(xii) None of the assets of the Company and its subsidiaries are treated
as "tax exempt use property" within the meaning of Section 168(h) of the
Code.
(xiii) There are no contracts, agreements, plans or arrangements,
including without limitation the provisions of this Agreement, covering any
employee or former employee of the Company or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any amount
(or portion thereof) that would not be deductible pursuant to Sections 280G,
404 or 162 of the Code.
(xiv) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to
any disposition of a subsection (f) asset (as defined in Section 341(f)(4)
of the Code) owned by the Company.
(xv) None of the Company or any of its subsidiaries is, or has been at
any time, a party to a tax sharing, tax indemnity or tax allocation
agreement, and neither the Company nor any of its subsidiaries has assumed
the tax liability of any other person under contract.
(xvi) The Company is not, and has not been at any time, a "United States
real property holding corporation" within the meaning of Section 897(c)(2)
of the Code.
(xvii) The Company's tax basis in its consolidated assets for purposes
of determining its future amortization, depreciation and other federal
income tax deductions is accurately reflected on the Company's tax books and
records, except for any variations that are immaterial in amount and
significance.
(xviii) The Company has not been a member of an affiliated group filing
a consolidated federal income Tax Return and does not have any liability for
the Taxes of another person under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise.
(xix) The Company does not have a net recognized built-in gain within
the meaning of Section 1374 of the Code.
For purposes of this Agreement, (A) the term "TAX" shall include any tax or
similar governmental charge, impost or levy (including without limitation income
taxes, franchise taxes, transfer taxes or fees, sales taxes, use taxes, gross
receipts taxes, value added taxes, employment taxes, excise taxes, ad valorem
taxes, property taxes, withholding taxes, payroll taxes, minimum taxes or
windfall profit taxes) together with any related penalties, fines, additions to
tax or interest imposed by the United States or any state, county, local or
foreign government or subdivision or agency thereof; and (B) the term "TAX
RETURN" shall mean any return (including any information return), report,
statement, schedule, notice, form, estimate, or declaration of estimated tax
relating to or required to be filed with any governmental authority in
connection with the determination, assessment, collection or payment of any Tax.
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<PAGE>
(m) COMPLIANCE WITH APPLICABLE LAWS. The Company and its subsidiaries have
conducted their businesses in accordance with all applicable federal, state,
local and foreign laws, regulations and rules, except where the failure to do so
would not, individually or in the aggregate, have a material adverse effect on
the Company.
(n) ENVIRONMENTAL MATTERS.
(i) No underground storage tanks and no amount of any substance that has
been designated by any Governmental Entity or by applicable federal, state,
local or other applicable law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined as
a hazardous waste pursuant to the United States Resource Conservation and
Recovery Act of 1976, as amended, and the regulations promulgated pursuant
to said laws, but excluding office and janitorial supplies properly and
safely maintained (a "HAZARDOUS MATERIAL"), are present in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company or its subsidiaries has at any time owned,
operated, occupied or leased. The Company Disclosure Schedule identifies all
underground and aboveground storage tanks, and the capacity, age, and
contents of such tanks, located on real property owned or leased by the
Company and its subsidiaries.
(ii) Neither the Company nor any of its subsidiaries has transported,
stored, used, manufactured, disposed of or released, or exposed its
employees or others to, Hazardous Materials in violation of any law in
effect on or before the Effective Time, nor has the Company or any of its
subsidiaries disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (collectively, the "COMPANY HAZARDOUS
MATERIALS ACTIVITIES") in violation of any formal rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as
of the date hereof to prohibit, regulate or control Hazardous Materials or
any Company Hazardous Material Activity, except to the extent such Hazardous
Materials Activities do not, individually or in the aggregate, have a
material adverse effect on the Company.
(iii) Each of the Company and its subsidiaries currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"ENVIRONMENTAL PERMITS") necessary for the conduct of the Company Hazardous
Material Activities of the Company and its subsidiaries as such activities
and business are currently being conducted. All Environmental Permits are in
full force and effect. The Company and each of its subsidiaries (A) is in
compliance in all material respects with all terms and conditions of the
Environmental Permits and (B) is in compliance in all material respects with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the laws of
all Governmental Entities relating to pollution or protection of the
environment or contained in any regulation or decree or judgment issued,
entered, promulgated or approved thereunder. To the Company's knowledge,
there are no circumstances that may prevent or interfere with such
compliance in the future. The Company Disclosure Schedule includes a listing
and description of all Environmental Permits currently held by the Company
and its subsidiaries.
(iv) No action, proceeding, revocation proceeding, amendment procedure,
writ, injunction or claim is pending, or to the knowledge of the Company,
threatened concerning any Environmental Permit, Hazardous Material or any
Company Hazardous Materials Activity. To the Company's knowledge, there are
no past or present actions, activities, circumstances, conditions, events,
or incidents that are reasonably expected to involve the Company or any of
its subsidiaries (or any person or entity whose liability the Company or any
of its subsidiaries has retained or assumed, either by contract or operation
of law) in any environmental litigation, or impose upon the Company or any
of its subsidiaries (or any person or entity whose liability the Company or
any of its subsidiaries has
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<PAGE>
retained or assumed, either by contract or operation of law) any
environmental liability including without limitation common law tort
liability, except for actions, activities, circumstances, conditions or
incidents which, individually or in the aggregate, would not have a material
adverse effect on the Company.
(o) INTELLECTUAL PROPERTY.
(i) The Company and its subsidiaries own or possess adequate and
enforceable licenses or other rights to use (including foreign rights), all
copyrights, patents, trade names, trade secrets, registered and unregistered
trademarks, trade dress franchises, domain names and similar rights now used
or employed in the business of the Company and its subsidiaries (the
"INTELLECTUAL PROPERTY") and such rights will not cease to be valid rights
of the Company and its subsidiaries by reason of the execution, delivery and
performance of this Agreement or the consummation of the transactions
contemplated hereby.
(ii) The Company has delivered to Parent a list of all of the
Intellectual Property of the Company and its subsidiaries. The Company
Disclosure Schedule also sets forth: (i) for each patent, the number, normal
expiration date and subject matter for each country in which such patent has
been issued, or, if applicable, the application number, date of filing and
subject matter for each country; (ii) for each trademark, the application
serial number or registration number, the class of goods covered and the
expiration date for each country in which a trademark has been registered;
and (iii) for each copyright, the number and date of filing for each country
in which a copyright has been filed. The Company Disclosure Schedule
includes all unregistered and common law rights to Intellectual Property
that are material to the Company. The Intellectual Property listed in the
Company Disclosure Schedule is all such property used by the Company or any
of its subsidiaries in connection with their businesses. True, correct and
complete copies of all patents (including all pending applications) owned,
controlled, created or used by or on behalf of the Company and its
subsidiaries have been provided to Parent. All pending patent applications
have been duly filed.
(iii) Neither the Company nor any of its subsidiaries has any obligation
to compensate any person for the use of any Intellectual Property, and
neither the Company nor any of its subsidiaries has granted to any person
any license, option or other rights to use in any manner any of its
Intellectual Property, whether requiring the payment of royalties or not,
other than licenses to the Company of franchisees or licenses in the
ordinary course of business.
(iv) Neither the Company nor any of its subsidiaries has received any
notice of invalidity or infringement of any rights of others with respect to
the Intellectual Property. No person has notified the Company or any of its
subsidiaries that it is claiming any ownership of or right to use such
Intellectual Property. No person, to the best knowledge of the Company, is
infringing upon any such Intellectual Property in any way, except where such
use would not have a material adverse effect on the Company. The use of the
Intellectual Property by the Company and its subsidiaries does not and will
not conflict with, infringe upon or otherwise violate the valid rights of
any third party in or to such Intellectual Property, and no action has been
instituted against or notices received by the Company or any subsidiary that
are presently outstanding alleging that the use of the Intellectual Property
infringes upon or otherwise violates any rights of a third party in or to
such Intellectual Property.
(p) FINANCIAL ADVISORS. No financial advisor, investment banker, broker or
other person, other than ABN AMRO Chicago Corporation, the fees and expenses of
which will be paid by the Company, is entitled to any financial advisor's,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company. A true, correct and complete copy of the Company's definitive
engagement letter with ABN AMRO Chicago Corporation is included in the Company
Disclosure Schedule.
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(q) ACCOUNTING MATTERS. Neither the Company nor any of its affiliates has
taken or agreed to take any action or is aware of any condition that would
prevent Parent from accounting for the business combination to be effected by
the Merger as a pooling-of-interests.
(r) VOTING REQUIREMENTS. The Company Stockholder Approval is the only vote
of the holders of any class or series of the Company's securities necessary to
approve this Agreement and the transactions contemplated by this Agreement.
(s) DISCLOSURE. No representation or warranty made by the Company in this
Agreement or in the Company Disclosure Schedule, nor any document, written
information, statement, financial statement, certificate or Exhibit prepared and
furnished or to be prepared and furnished by the Company or its representatives
pursuant hereto or in connection with the transactions contemplated hereby, when
taken together, contains or contained (as of the date made) any untrue statement
of a material fact when made, or omits or omitted (as the case may be) to state
a material fact necessary to make the statements or facts contained herein or
therein not misleading in light of the circumstances under which they were made.
(t) FAIRNESS AND POOLING OPINIONS. The Company's Board of Directors has
received written opinions (a) from ABN AMRO Chicago Corporation that the
Exchange Ratio is fair to the Company from a financial point of view (the
"COMPANY FAIRNESS OPINION") and (b) from Ernst & Young LLP that, in accordance
with generally accepted accounting principles and applicable rules and
regulations of the SEC, the Company is a poolable entity and the Merger should
be treated as a "pooling of interests" for accounting purposes (the "COMPANY
POOLING OPINION").
(u) RESTRICTIONS ON BUSINESS ACTIVITIES. There is no material agreement,
judgment, injunction, order or decree binding upon the Company or any of its
subsidiaries that has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company or any
of its subsidiaries, any acquisition of property by the Company or any of its
subsidiaries or the conduct of any existing business by the Company or any of
its subsidiaries or that would be applicable to any parent or affiliate of the
Company or its subsidiaries.
(v) FRANCHISING MATTERS.
(i) DISCLOSURE DOCUMENTS. The Company's past and present franchise
disclosure documents and/ or franchise offering circulars (collectively
"FOCs") for any area franchises, individual franchises, any other type of
franchise the Company offers, and/or, if applicable, any licenses: (A)
materially comply with all applicable Federal Trade Commission ("FTC")
franchise disclosure regulations, any other applicable foreign or federal
laws and regulations, state franchise and business opportunity sales laws
and regulations, and local laws and regulations; (B) include and accurately
state all material information (including but not limited to the discussion
of litigation matters) set forth in them; (C) do not omit any required
material information; (D) accurately state the Company's position that it
does not provide to prospective area or individual franchisees "earnings
claims" information (as that term is defined in the FTC's franchise
disclosure regulations and the North American Securities Administrators
Association's current Uniform Franchise Offering Circular Guidelines); (E)
have been timely revised to reflect any material changes or developments in
the Company's franchise system, agreements, operations, financial condition,
litigation matters, or other matters requiring disclosure under any
applicable foreign, federal, state, and/or local law; and (F) include all
material documents (including but not limited to audited financial
statements for the Company) required by any applicable foreign, federal,
state, and/or local law to be provided to prospective area franchisees,
individual franchisees and/or, if applicable, any licensees.
(ii) FRANCHISE AND LICENSE AGREEMENTS. The Company's past and present
agreements with its area franchisees, individual franchisees, and licenses:
(A) materially comply with applicable foreign, federal, state, and/or local
laws and regulations; (B) do not include provisions that would prevent or
otherwise impair the Company's ability to undergo a change in ownership or
control or require the
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Company to notify any area franchisees, individual franchisees, and/or
licensees of such a change in ownership or control; (C) do not obligate the
Company to buy back or otherwise acquire the stock, assets, or contractual
rights of area franchisees, individual franchisees, and/or licensees; (D) do
not impose on the Company an obligation to guarantee the lease obligations,
third party financing obligations, or other material obligations to third
parties of the area franchisees, individual franchisees, and/or licensees;
(E) impose on area franchisees, individual franchisees, and licensees an
obligation to comply with all applicable federal, state, and local laws and
regulations; and (F) impose on area franchisees, individual franchisees, and
licensees an obligation to maintain commercially reasonable insurance that
names the Company as an additional insured, requires the insurer to notify
the Company before it terminates any such insurance policy for nonpayment,
and permits the Company to make such payments to maintain such insurance
coverage on behalf of any non-paying area franchisee, individual franchisee,
or licensee.
(iii) REGISTRATION AND DISCLOSURE COMPLIANCE. All of the area
franchises, individual franchises, and licenses of the Company have been
sold in material compliance with applicable foreign, federal, state, and/or
local franchise disclosure and registration requirements. As a result,
(A) each prospective area franchisee, individual franchisee, and, if
applicable, licensee was provided with any required FOC at the earlier of
(1) the first personal face-to-face meeting between the Company and the
then prospect for the purposes of discussing the acquisition of an area
franchise, individual franchise, or, if applicable, license, (2) at least
ten business days before the execution of any agreement with the Company
or the payment of any funds to the Company by the prospective area
franchisee, individual franchisee, or, if applicable, licensee, or (3)
within any other minimum time period imposed by law;
(B) at least five business days before execution of any agreements
with the Company, each prospective area franchisee, individual
franchisee, and, if applicable, licensee was provided with a completed
execution copy of the Company's area franchise agreement, individual
franchise agreement, or, if applicable, license agreement, respectively,
together with any related documents (E.G., spousal consent form, phone
transfer agreement, software license, security agreement, equipment
lease, national account agreement) with all pertinent specific
information for such prospective area franchisee, individual franchisee,
or, if applicable, licensee set forth in those agreements and documents;
(C) each FOC provided to a prospective area franchisee, individual
franchisee, or, if applicable, licensee complied in all material respects
at the time of the delivery of such FOC with applicable foreign, federal,
state, and/or local laws regarding such franchise offering circulars;
(D) each of the Company's required FOCs were either properly
registered with appropriate franchise regulatory authorities, covered by
a proper notice filing with appropriate franchise regulatory authorities,
or qualified for an exemption from such registration or notice filing
requirements;
(E) each of the Company's offerings were, where applicable, either
properly registered with appropriate business opportunity sales
authorities or qualified for an exemption from such registration
requirements;
(F) the Company obtained signed acknowledgments of receipt for the
delivery of each FOC to prospective area franchisees, individual
franchisees, and, if applicable, licensees;
(G) to the extent that the Company may have experienced lapses in one
or more jurisdictions for its registrations for area franchise offerings,
individual franchise offerings, and/or, if applicable, license offerings,
the Company did not offer or sell during the period of any such lapses
any such area franchises, individual franchises, or, if applicable,
licenses for franchises (1) in those jurisdictions, (2) to be operated
outside those jurisdictions by residents of those
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jurisdictions, or (3) the sale of which might otherwise have triggered
the application of the franchise registration laws of those jurisdictions
during the periods of any such lapse;
(H) to the extent required by foreign, federal, state, and/or local
law, the Company has complied with all applicable franchise advertising
filing requirements;
(I) to the best of its knowledge, the Company is not aware of any
instances in which any of its employees, sales agents, or sales brokers
for area franchises, individual franchises, or, if applicable, licenses
provided information to prospective area franchisees, individual
franchisees, or, if applicable, individual licensees, that materially
differed from the information contained in the FOCs provided to such
prospects (including but not limited to "earnings claim" information);
(J) where required, the Company properly filed with appropriate
franchise regulatory authorities amendments to its FOCs to reflect any
material changes or developments in the Company's franchise system,
agreements, operations, financial condition, litigation or other matters
requiring disclosure;
(K) where required, the Company complied with foreign, federal,
state, and/or local laws (including in particular those of California and
North Dakota) requiring registration, disclosure, and/or other compliance
activities associated with any "material modifications" made to the
Company's then current area franchises, individual franchises, or, if
applicable, licenses; and
(L) the Company properly and timely converted the format of its FOCs
from the prior format prescribed by the Uniform Franchise Offering
Circular guidelines to the so-called "plain English" guidelines currently
in effect for FOCs prepared in accordance with Uniform Franchise Offering
Circular guidelines.
(iv) FRANCHISE AND RELATED LITIGATION. The Company's April 1997 FOCs for
its universal area franchise agreement and universal individual franchise
agreement set forth accurate summary information about
(A) any governmental regulatory, criminal, and/or material civil
actions pending against the Company alleging a violation of a foreign
and/or United States franchise, antitrust or securities law, fraud,
unfair or deceptive practices, or comparable allegations as well as
actions other than ordinary routine litigation incidental to the
Company's business which are significant in the context of the number of
the Company's franchisees and the size, nature or financial condition of
the franchise system or its business operations;
(B) any convictions of a felony, nolo contendre pleas to a felony
charge, and adverse final judgments in a civil action in foreign
countries and/or the United States since April 1987 as well as all
material actions since April 1987 involving violation of a franchise,
antitrust or securities law, fraud, unfair or deceptive practices, or
comparable allegations; and
(C) all currently effective injunctive or restrictive orders or
decrees relating to the franchise area under a foreign, federal, state,
or local franchise, securities, antitrust, trade regulation, or trade
practices law resulting from a concluded or pending action or proceeding
brought by a public agency.
In addition, the Company has not received notice of any threatened
administrative, criminal and/or material civil action against it and/or any
persons disclosed in Item II of the Company's April 1997 FOCs for its Universal
Area Franchise Agreement and Universal Individual Franchise Agreement where such
threatened administrative, criminal and/or material civil action alleges a
violation of a foreign and/or United States franchise, antitrust law, or
securities law, fraud, unfair or deceptive practices, or comparable allegations
as well as actions other than ordinary routine litigation incidental to the
Company's business which are significant in the context of the number of the
Company's franchisees and the size, nature, or financial condition of the
franchise system or its business operations.
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(v) FRANCHISEE RELATIONS AND OPERATIONS. All expenditures from the
National Media Fund, which is administered by the Advertising Advisory
Council (comprised of ten elected domestic franchisee or area franchisee
representatives and a representative of the Company), are approved by that
Council and all expenditures from the National Media Fund are authorized
verbally and in writing by such Council. The Company is not aware of any
material allegations that any of the expenditures from the National Media
Fund have been unauthorized by the Advertising Advisory Council, paid to the
Company for anything other than expressly permitted by the contractual
provisions associated with the National Media Fund, or was otherwise
improper. In the Company's communications with its area franchisees,
individual franchisees, licensees, and representative groups of those area
franchisees, individual franchisees, and/or licensees, the Company is not
aware of any material misstatements regarding its operations, franchise
system, agreements, financial condition, litigation matters, or plans that
could be used as a basis for a successful fraud, misrepresentation, or
franchise law violation claim against the Company. The Company has taken and
continues to take commercially reasonable efforts to protect the
confidentiality of its current Operations Manual.
(vi) FRANCHISE TERMINATIONS. The Company's termination of or effort to
terminate or refusal to renew any area franchisee, individual franchisee,
or, if applicable, licensee, has complied with applicable federal, state,
and/or local franchise termination laws and regulations including, in
particular, but not limited to, having provided any such area franchisee,
individual franchisee, or, if applicable, licensee involved in such a
nonrenewal or termination any statutorily required notice and opportunity to
cure. The Company has complied with all other applicable foreign, federal,
state, and/ or local laws and/or regulations relating to ongoing franchise
relationships, the termination of such relationships, and/or the non-renewal
of such relationships.
(w) CONTRACTS.
(i) The Company Disclosure Schedule lists each written or oral contract,
agreement, arrangement, lease, instrument, mortgage or commitment to which
the Company or its Subsidiaries is a party or may be bound ("CONTRACT") (A)
which involves payments by or to the Company or its Subsidiaries of more
than $200,000 per annum, excluding those Contracts that (x) involve payments
by franchisees or licensees to the Company, or (y) are between the Company
(on its own behalf or on behalf of its franchisees) and vendors entered into
in the ordinary course of business, provided, however, that this exclusion
shall not apply to any Contract governing material outside vendor
relationships entered into after April 30, 1996 and not previously filed as
an exhibit to the SEC Documents; (B) material amendments to any compensation
agreement or arrangement (including severance agreement or arrangement) with
any officer, director or 5% stockholder or any former officer or director,
if such amendment has not previously been filed with the Company's SEC
Documents; (C) material amendments to franchise agreements, master
agreements, area agreements or franchise offering circulars; (D)
international franchise agreements; (E) which is an arrangement limiting or
restraining the Company or any subsidiary or any successor thereto from
engaging or competing in any manner or in any business; (F) under which the
Company or any subsidiary guarantees the payment or performance by others or
in any way is or will be liable with respect to obligations of any other
person; or (G) which is a material arrangement not made in the ordinary
course of business.
(ii) There have been filed as exhibits to, or incorporated by reference
in, the Form 10-K of the Company for the year ended April 30, 1996 all
Contracts which, as of the date hereof, are material as described in Item
601(b)(10) of Regulation S-K.
(iii) All Contracts are valid and binding and in full force and effect
on the date of this Agreement except to the extent they have previously
expired in accordance with their terms. None of the Company, the
subsidiaries nor, to the Company's knowledge, any other parties, have
violated any provision of, or committed or failed to perform any act which
with notice, lapse of time or both would constitute a default under the
provisions of, any Contract, the termination or violation of which, or the
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default under which, could reasonably be expected to have a material adverse
effect on the Company. True and complete copies of all Contracts listed on
the Company Disclosure Schedule or listed in the Form 10-K of the Company
for the year ended April 30, 1996, together with all amendments thereto,
have been delivered to Parent.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF PARENT. Except as set forth on
the disclosure schedule (provided that an item on such disclosure schedule shall
be deemed to qualify only the particular subsection or subsections of this
Section 3.2 specified for such item) delivered by Parent to the Company prior to
the execution of this Agreement (the "PARENT DISCLOSURE SCHEDULE"), Parent
represents and warrants to the Company as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. Parent is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed would not, individually or in the aggregate, have a
material adverse effect on Parent.
(b) CAPITAL STRUCTURE. The authorized capital stock of Parent consists of
500,000,000 shares of Parent Common Stock, and 500,000 shares of preferred
stock, $.001 par value per share ("PARENT PREFERRED STOCK"). No shares of Parent
Preferred Stock are outstanding on the date of this Agreement. At the close of
business on April 26, 1997, (i) 69,652,669 shares of Parent Common Stock were
issued and outstanding, (ii) no shares of Parent Common Stock were held by
Parent in its treasury, (iii) 7,588,774 shares of Parent Common Stock were
reserved for issuance upon exercise of outstanding options to purchase shares of
Parent Common Stock granted to employees of or consultants to Parent or its
subsidiaries or affiliates under the terms of Parent's 1994 Amended and Restated
Long-Term Incentive Compensation Plan (the "PARENT STOCK OPTION PLAN"), (iv)
9,896,181 shares of Parent Common Stock were reserved for issuance upon exercise
of Parent's outstanding convertible subordinated notes, as described in Parent
SEC Documents (as defined below), (v) 500,000 shares of Parent Common Stock were
reserved or available for issuance under the terms of the Parent's Employee
Stock Purchase Plan, as described in the Parent SEC Documents, (vi) 750,000
shares of Parent Common Stock were reserved or available for issuance under the
terms of the Parent's 1996 Non-Employee Directors' Stock Plan, as described in
the Parent SEC Documents, and (vii) the number of shares of Parent Common Stock
available for issuance upon exercise of options issued under the terms of the
Parent Stock Option Plan automatically increases to 20% of the total number of
issued and outstanding shares of Parent Common Stock, as described in the Parent
SEC Documents. Except as set forth above, at the close of business on April 26,
1997, no shares of capital stock or other voting securities of the Parent were
issued, reserved for issuance or outstanding, and since April 26, 1997 until the
date hereof no shares of capital stock or other voting securities have been
issued by Parent except (y) upon the exercise of options or other rights
outstanding at April 26, 1997 under the plans listed in the third sentence of
this subsection (b), and (z) the issuance of not more than 56,769 shares of
Parent Common Stock in connection with acquisitions. All outstanding shares of
capital stock of Parent are, and all shares which may be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights. Except for the Convertible
Subordinated Notes due 2001 and the Convertible Subordinated Notes due 2003 as
described in the Parent SEC Documents, there are no bonds, debentures, notes or
other indebtedness of Parent having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of Parent may vote. Except as set forth above, as of the date of
this Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which Parent is a party or by which it is bound obligating Parent to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of Parent or obligating Parent to
issue, grant, extend or enter into any such security, option, warrant, call,
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right, commitment, agreement, arrangement or undertaking, except for options and
other equity compensation granted by Parent with respect to no more than
4,000,000 shares of Parent Common Stock since April 26, 1997. There are no
outstanding contractual obligations of Parent to repurchase, redeem or otherwise
acquire any shares of capital stock of Parent. As of the date of this Agreement,
the authorized capital stock of Sub consists of 1,000 shares of common stock, no
par value per share, of which 100 shares have been validly issued, all of which
are fully paid and nonassessable and are owned by Parent free and clear of any
Liens.
(c) AUTHORITY; NONCONTRAVENTION.
(i) Parent and Sub have the requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been
duly authorized by all necessary corporate action on the part of Parent and
Sub. This Agreement has been duly executed and delivered by Parent and Sub
and constitutes a valid and binding obligation of each such party,
enforceable against each such party in accordance with its terms, except to
the extent such enforcement may be limited by applicable bankruptcy,
reorganization, moratorium, or other law. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement and compliance with the provisions of this Agreement will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of
any benefit under, or result in the creation of any Lien upon any of the
properties or assets of Parent or any of its subsidiaries under, (i) the
articles incorporation or bylaws of Parent or Sub or the comparable charter
or organizational documents of any other subsidiary of Parent, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license applicable
to Parent or any of its subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
injunction, statute, law, ordinance, rule or regulation applicable to Parent
or any of its subsidiaries or their respective properties or assets, other
than, in the case of clause (ii), any such conflicts, violations or defaults
that would not, individually or in the aggregate, have a material adverse
effect on Parent.
(ii) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by Parent or
any of its subsidiaries in connection with the execution and delivery of
this Agreement or the consummation by Parent or Sub, as the case may be, of
any of the transactions contemplated by this Agreement, except for (A) the
filing with the Specified Agencies of a premerger notification and report
form under the HSR Act, (ii) the filing with the SEC of (1) the Form S-4 and
(2) such reports under Sections 13(a), 13(d) and 16(a) of the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (C) the filing of the Merger Documents with
the California Secretary of State and appropriate documents with the
relevant authorities of other states, as required under applicable law, and
(D) such other consents, approvals, orders, authorizations, registrations,
declarations and filings, including under (1) the laws of any foreign
country in which the Company or any of its subsidiaries conducts any
business or owns any property or assets or as otherwise required under
applicable foreign law or (2) the "takeover" or "blue sky" laws of various
states, the failure of which to be obtained or made would not, individually
or in the aggregate, have a material adverse effect on Parent or prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement.
(d) SEC DOCUMENTS; FINANCIAL STATEMENTS. Parent has filed with the SEC all
required reports and forms and other documents required to be filed by it
pursuant to relevant United States securities statutes, regulations, policies
and rules (the "PARENT SEC DOCUMENTS"), all of which have complied in all
material respects with all applicable requirements of such statutes,
regulations, policies and rules. As of their
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respective dates, none of the Parent SEC Documents, except as revised or
superseded by a later filed Parent SEC Document, without regard to any
amendments or filings after the date hereof, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. In addition, nothing
has come to the attention of Parent since the date any Parent SEC Document was
filed that would have made, as of the filing date, any statement in any Parent
SEC Document untrue in a material respect, or that, if omitted to be stated as
of the filing date, would have made the statements in such Parent SEC Document,
in light of the circumstances under which they were made, misleading. Except to
the extent that information contained in any Parent SEC Document has been
revised or superseded by a later-filed Parent SEC Document filed and publicly
available prior to the date of this Agreement, none of the Parent SEC Documents
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Parent included in the Parent SEC
Documents have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to the omission of footnote information and normal year-end adjustments).
(e) INFORMATION SUPPLIED. None of the information supplied or to be supplied
by Parent or Sub for inclusion or incorporation by reference in (i) the Form S-4
will, at the time the Form S-4 is filed with the SEC, at any time it is amended
or supplemented or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading or (ii)
the Proxy Statement will, at the date the Proxy Statement is first mailed to the
Company's Stockholders or at the time of the Company Stockholders' Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Form S-4 will comply as to form in all material respects with
the requirements of the Securities Act and the rules and regulations promulgated
thereunder, except that no representation or warranty is made by Parent or Sub
with respect to statements made or incorporated by reference in either the Form
S-4 or the Proxy Statement based on information supplied by the Company
specifically for inclusion or incorporation by reference therein.
(f) FINANCIAL ADVISORS. No financial advisor, investment banker, broker or
other person is entitled to any financial advisor's, finder's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent.
(g) ACCOUNTING MATTERS. Neither Parent nor any of its affiliates has taken
or agreed to take any action or is aware of any condition that would prevent
Parent from accounting for the business combination to be effected by the Merger
as a pooling-of-interests.
(h) POOLING OPINION. Parent's Board of Directors has received a written
opinion from Price Waterhouse LLP that, in accordance with generally accepted
accounting principles and applicable rules and regulations of the SEC, Parent is
a poolable entity and the Merger should be treated as a "pooling of interests"
for accounting purposes (the "PARENT POOLING OPINION").
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ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 CONDUCT OF BUSINESS.
(a) CONDUCT OF BUSINESS BY THE COMPANY. During the period from the date of
this Agreement to the Effective Time, the Company shall, and shall cause its
subsidiaries to, carry on their respective businesses in the ordinary course.
Without limiting the generality of the foregoing, between the date of this
Agreement and the Effective Time, except (1) as contemplated by this Agreement,
(2) as set forth in Section 4.1(a) of the Company Disclosure Schedule, or (3)
with the prior written consent of Parent, the Company shall not, and shall not
permit any of its subsidiaries to:
(i) (A) declare, set aside or pay (whether in cash, stock, property or
otherwise) any dividends on, or make any other distributions in respect of,
any of its capital stock, other than dividends and distributions by any
direct or indirect wholly owned subsidiary of the Company to its parent, (B)
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 (C) purchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) other than the issuance of the Company Common Stock upon the
exercise of Stock Options outstanding on the date of this Agreement in
accordance with their present terms or in accordance with the present terms
of any employment agreements existing on the date of this Agreement and
described in Section 4.1(a) of the Company Disclosure Schedule, (A) issue,
deliver, sell, award, pledge, dispose of or otherwise encumber or authorize
or propose the issuance, delivery, grant, sale, award, pledge or other
encumbrance (including limitations in voting rights) or authorization of,
any shares of its capital stock (including, without limitation, pursuant to
the Company's Employee Stock Bonus Plan), any voting securities or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities or convertible securities or (B) amend or
otherwise modify the terms of any such rights, warrants or options (except
as expressly contemplated by this Agreement);
(iii) amend its articles of incorporation, bylaws or other comparable
charter or organizational documents, except as may be necessary in
connection with a change in the number of directors on the Company's Board
of Directors;
(iv) mortgage or otherwise encumber or subject to any Lien, or sell,
lease, exchange or otherwise dispose of any of, its properties or assets,
except in the ordinary course of business consistent with past practice;
(v) acquire (by merger, consolidation or acquisition of stock or assets)
any material corporation, partnership or other business organization or
division thereof or acquire, lease or otherwise purchase assets other than
in the ordinary course of business, or sell, lease or otherwise dispose of a
material subsidiary or a material amount of assets or securities;
(vi) (A) increase the rate or terms of compensation payable or to become
payable generally to any of the Company's or any of its subsidiaries'
directors, executive officers, or employees other than usual and customary
salary increases to employees; (B) pay or agree to pay any pension,
retirement allowance or other employee benefit not provided for by any
existing Pension Plan, Benefit Plan or employment agreement described in the
Company SEC Documents filed prior to the date of this Agreement; (C) except
as set forth in Section 4.1(a)(v) of the Company Disclosure Schedule, commit
itself to any additional pension, profit sharing, bonus, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, continuation pay, termination pay, retirement or
other employee benefit plan, agreement or arrangement, or increase
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the rate or terms of any employee plan or benefit arrangement or (D)
increase the rate of compensation under or otherwise change the terms of any
existing employment agreement; provided, HOWEVER, that nothing in this
clause (D) shall preclude payments under the terms of the existing incentive
compensation plans of the Company in accordance with past practice or under
the terms of any employment agreements in existence as of the date hereof;
(vii) change its fiscal year;
(viii) waive any material right or claim of the Company or settle any
litigation or material dispute;
(ix) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person except in the ordinary course of business;
(x) amend any form of franchise agreement (including master and area
agreements) or other Contract in a material respect or amend any individual
franchise agreement other than in the ordinary course of business or in a
manner that would conflict with the provisions of this Agreement or create
any liability as a result of the consummation of the transactions
contemplated by this Agreement; or
(xi) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) OTHER ACTIONS. The Company and Parent shall not, and shall not permit
any of their respect subsidiaries to, take any action that would result in (i)
any of the representations and warranties of such party set forth in this
Agreement that are qualified as to materiality becoming untrue or (ii) any of
such representations and warranties that are not so qualified becoming untrue in
any material respect.
SECTION 4.2 NO INCONSISTENT ACTIVITIES. In light of the consideration
given by the Board of Directors of the Company prior to the execution of this
Agreement to, among other things, the transactions contemplated hereby, and in
light of advice received from the Company's financial advisors, the Company
agrees that it shall (a) terminate any existing discussions and/or negotiations
with other parties concerning the potential acquisition of the Company or any
other transaction that would be inconsistent with the transactions contemplated
hereby, and (b) not, nor shall it permit any of its subsidiaries to, nor shall
it authorize or permit any officer, director or employee of, or any investment
banker, attorney or other advisor or representative of, the Company or any of
its subsidiaries to, directly or indirectly, solicit or initiate, or encourage
the submission of, any Takeover Proposal (as defined below), or participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or take any other action to facilitate any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal; provided, however, that the
foregoing clauses (a) and (b) shall not prohibit the Company's Board of
Directors from furnishing information to or entering into discussions or
negotiations with any person or entity that makes an unsolicited bona fide
proposal to acquire the Company pursuant to a merger, consolidation, share
exchange, purchase of a substantial portion of the assets, business combination
or other similar transaction, if, and only to the extent that, (i) the Company's
Board of Directors determines in good faith, after considering applicable law
and receiving the written advice of outside counsel, that such action is
required by its fiduciary duties to the Company's Stockholders under applicable
law, (ii) the Company's Board of Directors determines in good faith, after
receiving the written advice of its financial advisors, that such unsolicited
proposal is financially superior to the transaction contemplated hereby and the
party making the proposal has demonstrated that the funds necessary for its
proposal are reasonably likely to be available (a "SUPERIOR PROPOSAL"), and
(iii) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, the Company provides written notice to
Parent to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity and receives from such
person or entity an executed confidentiality agreement in reasonably customary
form. The Company shall notify Parent orally and in writing of any inquiries,
offers or proposals with respect to a Takeover Proposal (including without
limitation the terms and conditions of any such proposal, the identity of the
person making it and all other information reasonably requested by Parent),
within 24 hours of the receipt thereof, shall keep Parent
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informed of the status and details of any such inquiry, offer or proposal and
answer Parent's questions with respect thereto, and shall give Parent five
business days' advance notice of any agreement to be entered into with, or any
information to be supplied to, any person making such inquiry, offer or
proposal. For purposes of this Agreement, "TAKEOVER PROPOSAL" means any written
proposal for a merger, consolidation, purchase of assets, tender offer or other
business combination involving the Company or any of its subsidiaries or any
proposal or offer to acquire in any manner, directly or indirectly, an equity
interest in, any voting securities of, or a substantial portion of the assets
of, the Company or any of its subsidiaries, other than the transactions
contemplated by this Agreement. Neither the Company nor any of its subsidiaries
shall, directly or indirectly, release any third party from any confidentiality
agreement. Nothing contained herein shall prohibit the Company or its Board of
Directors from disclosing to its stockholders a position as contemplated by Rule
14d-9 and Rule 14e-2(a) under the Exchange Act with respect to a Takeover
Proposal by means of a tender offer.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 PREPARATION OF FORM S-4 AND THE PROXY STATEMENT; STOCKHOLDERS'
MEETING.
(a) As promptly as reasonably practicable after the execution of this
Agreement, (i) the Company shall prepare and file with the SEC a proxy statement
relating to the meeting of the Company's stockholders to be held to obtain the
Company Stockholder Approval (together with any amendments thereof or
supplements thereto, the "PROXY STATEMENT") and (ii) Parent shall prepare and
file with the SEC a registration statement on Form S-4 (together with all
amendments thereto, the "FORM S-4") in which the Proxy Statement shall be
included as a prospectus, in connection with the registration under the
Securities Act of the shares of Parent Common Stock to be issued to the
stockholders of the Company pursuant to the Merger. Each of Parent and the
Company shall use all reasonable efforts to cause the Form S-4 to become
effective as promptly as practicable, and shall take all or any action required
under any applicable federal or state securities laws in connection with the
issuance of shares of Parent Common Stock pursuant to the Merger. Each of Parent
and the Company shall furnish all information concerning itself to the other as
the other may reasonably request in connection with such actions and the
preparation of the Form S-4 and Proxy Statement. The Company authorizes Parent
to utilize in the Form S-4 and in all such state filed materials, the
information concerning the Company and its subsidiaries provided to Parent in
connection with, or contained in, the Proxy Statement. Parent promptly will
advise the Company when the Form S-4 has become effective and of any supplements
or amendments thereto, and the Company shall not distribute any written material
that would constitute, as advised by counsel to the Company, a "prospectus"
relating to the Merger or the Parent Common Stock within the meaning of the
Securities Act or any applicable state securities law without the prior written
consent of Parent. As promptly as practicable after the Form S-4 shall have
become effective, the Company and Parent shall mail the Proxy Statement to the
Company's stockholders.
(b) Parent agrees promptly to advise the Company if at any time prior to the
meeting of stockholders of the Company to approve the Merger any information
provided by it in the Proxy Statement is or becomes incorrect or incomplete in
any material respect and to provide the Company with the information needed to
correct such inaccuracy or omission. Parent will furnish the Company with such
supplemental information as may be necessary in order to cause the Proxy
Statement, insofar as it relates to Parent and its subsidiaries, to comply with
applicable law after the mailing thereof to the stockholders of the Company.
(c) The Company agrees promptly to advise Parent if at any time prior to the
meeting of its stockholders any information provided by it in the Proxy
Statement is or becomes incorrect or incomplete in any material respect and to
provide Parent with the information needed to correct such inaccuracy or
omission. The Company will furnish Parent with such supplemental information as
may be necessary in
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order to cause the Proxy Statement, insofar as it relates to the Company and its
subsidiaries, to comply with applicable law after the mailing thereof to
stockholders of the Company.
(d) As soon as reasonably practicable following the date of this Agreement,
the Company shall call and hold a meeting of its stockholders (the "COMPANY
STOCKHOLDERS' MEETING") for the purpose of obtaining the Company Stockholder
Approval. The Company shall use its best efforts to solicit from its
stockholders proxies, and shall take all other action necessary or advisable to
secure the vote or consent of stockholders required by applicable law or
otherwise to obtain the Company Stockholder Approval and through its Board of
Directors shall (subject to their fiduciary duties) recommend to its
stockholders the giving of the Company Stockholder Approval.
SECTION 5.2 ACCESS TO INFORMATION; CONFIDENTIALITY. Each of the Company
and Parent shall, and shall cause each of its respective subsidiaries to, afford
to the other party, and to the officers, employees, accountants, counsel,
financial advisors and other representatives of such other party, reasonable
access during normal business hours during the period prior to the Effective
Time to all their respective properties, books, contracts, commitments,
personnel and records and, during such period, each of the Company and Parent
shall, and shall cause each of its respective subsidiaries to, furnish promptly
to the other party, (a) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of federal or state securities laws and (b) all other information concerning its
business, properties and personnel as such other party may reasonably request.
Except to the extent otherwise required by law, each of the Company and Parent
will hold, and will cause its respective officers, employees, accountants,
counsel, financial advisers and other representatives and affiliates to hold,
any confidential information in accordance with the Confidentiality Agreement
dated February 28, 1997, between Parent and the Company (the "CONFIDENTIALITY
AGREEMENT").
SECTION 5.3 REASONABLE EFFORTS; NOTIFICATION.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the making of all necessary registrations and filings
(including filings with Governmental Entities, if any), (ii) the obtaining of
all necessary consents, approvals or waivers from third parties and (iii) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement.
(b) the Company shall give prompt written notice to Parent, and Parent shall
give prompt written notice to the Company, of (i) any representation or warranty
made by it contained in this Agreement that is qualified as to materiality
becoming untrue or any such representation or warranty that is not so qualified
becoming untrue in any material respect or (ii) the failure by it to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it under this Agreement; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
SECTION 5.4 STOCK OPTION PLANS.
(a) As soon as practicable following the date of this Agreement, the Board
of Directors of the Company (or, if appropriate, any committee administering the
Stock Option/Purchase Plans (as defined below)) shall adopt such resolutions or
take such other actions as are required, if any, to adjust the terms of all
outstanding stock options to purchase shares of the Company Common Stock ("STOCK
OPTIONS") heretofore granted under any stock option, stock purchase, restricted
stock unit or stock appreciation rights plan, program or arrangement of the
Company, including, without limitation, the Restated 1985 Stock Option Plan, the
Santa Fe 1995 Employee Stock Option Plan, and the Santa Fe 1995 Stock Option
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Plan for Non-Employee Directors (collectively, the "STOCK OPTION/PURCHASE
PLANS") as is necessary to provide that each Stock Option outstanding
immediately prior to the Effective Time, whether or not then exercisable, shall
be immediately converted as of the Effective Time into the right to purchase
from Parent the Option Conversion Number (as defined below) of shares of Parent
Common Stock (each, an "ADJUSTED OPTION"). Each Adjusted Option will have
substantially the same terms as the Stock Option to which it is related,
including the same vesting schedule (other than to the extent accelerated
pursuant to the terms of such Stock Option, Stock Option/Purchase Plans or in
accordance with the present terms of any employment agreements existing on the
date hereof, which Stock Option shall remain exercisable following the Effective
Time in accordance with the provisions of the Stock Option Plan under which
granted), except for its exercise price and the number and kind of shares
subject thereto. The exercise price of any Adjusted Option (the "ADJUSTED
EXERCISE PRICE") shall be an amount equal to the exercise price of the Stock
Option related to such Adjusted Option as of the date of this Agreement divided
by the Exchange Ratio. The "OPTION CONVERSION NUMBER" for any Adjusted Option
shall be equal to the number of shares purchasable pursuant to the Stock Option
related to such Adjusted Option as of the date of this Agreement multiplied by
the Exchange Ratio. No certificates or scrip representing fractional shares of
Parent Common Stock shall be issued upon the exercise of any Adjusted Option,
and no fractional share interest will entitle the owner thereof to vote or to
any rights of a stockholder of Parent. Each holder of any Adjusted Option who
exercises such Adjusted Option in accordance with its terms and this Agreement
who would otherwise have been entitled to receive a fraction of a share of
Parent Common Stock (after taking into account all Adjusted Options delivered by
such holder on the date such Adjusted Options are exercised) shall receive, in
lieu thereof, cash (without interest) in an amount equal to such fractional part
of a share of Parent Common Stock multiplied by the closing price of Parent
Common Stock on the Nasdaq National Market System (as reported by THE WALL
STREET JOURNAL or, if not reported thereby, any other authoritative source) on
the trading date immediately preceding the date such Adjusted Options are
exercised.
(b) Parent agrees to take such actions as are necessary for the conversion
of such Stock Options of the Company pursuant to Section 5.4(a) into Adjusted
Options, including the reservation, issuance and listing of Parent Common Stock.
(c) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to Parent, together with the consideration therefor and the
federal withholding tax information, if any, required in accordance with the
related Stock Option Plan.
SECTION 5.5 CONVEYANCE TAXES. Parent and the Company shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any real property transfer or gains,
sales, use, transfer, value added, stock transfer and stamp taxes, any transfer,
recording, registration and other fees, and any similar taxes which become
payable by Parent or the Company in connection with the transactions
contemplated hereby that are required or permitted to be filed on or before the
Effective Time. All of such taxes and expenses shall be borne by Parent.
SECTION 5.6 INDEMNIFICATION, EXCULPATION AND INSURANCE.
(a) The articles of incorporation and the bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification and
exculpation from liability set forth in the Company's articles of incorporation
and bylaws on the date of this Agreement, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective Time
in any manner that would adversely affect the rights thereunder of individuals
who on or prior to the Effective Time were directors, officers, employees or
agents of the Company, unless such modification is required by law. Parent
hereby unconditionally and irrevocably guarantees for the benefit of the
Company's directors and officers the obligations of the Company and the
Surviving Corporation under the foregoing indemnification arrangements,
including any such existing indemnification agreements to which the Company is a
party; provided,
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however, that in no event shall the amount of such guarantee exceed an amount
permitted for such a guarantee under the terms of Parent's credit agreement.
(b) If Parent, the Surviving Corporation or any of their successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in each such case, proper provisions shall be made so
that the successors and assigns of Parent or the Surviving Corporation, as the
case may be, shall assume the obligations set forth in this Section 5.6.
(c) Parent shall, to the fullest extent permitted by applicable law,
indemnify and defend (and bear all costs and expenses, including without
limitation reasonable attorneys' fees and costs, associated therewith) each
officer and director of the Company serving as such immediately before the
Effective Time for and against any and all claims, damages and losses relating
to or arising out of (i) their performance of their respective Company duties
prior to the Effective Time, or (ii) the consummation of any of the transactions
contemplated in this Agreement Parent shall cause the Surviving Corporation to
provide officers' and directors' liability insurance in respect of acts or
omissions occurring prior to the Effective Time covering each such person
currently covered by the Company's officers' and directors' liability insurance
policy on terms with respect to coverage and amount no less favorable than those
of such policy in effect on the date hereof (or, if such insurance policy cannot
be obtained, such insurance policy on terms with respect to coverage and amount
as favorable as can be obtained, subject to the proviso at the conclusion of
this sentence), provided, however, that the aggregate cost of such insurance
over such four-year period shall not exceed the product of four multiplied by
the premium cost for such policy during the year ended April 30, 1997.
SECTION 5.7 FEES AND EXPENSES. Except as provided in Section 7.5, whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expenses, except that those expenses incurred in
connection with printing and mailing the Proxy Statement and Form S-4, will be
shared equally by Parent and the Company.
SECTION 5.8 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review and comment upon, any press release
or other public statements with respect to the transactions contemplated by this
Agreement, including the Merger, and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange.
SECTION 5.9 AFFILIATES; ACCOUNTING AND TAX TREATMENT.
(a) The Company shall (i) promptly deliver to Parent a letter identifying
all persons who may be deemed affiliates of the Company under Rule 145 of the
Securities Act or otherwise under applicable SEC accounting releases with
respect to pooling-of-interests accounting treatment and (ii) at least 30 days
prior to the Effective Time obtain (if not previously obtained) from each such
affiliate a written agreement substantially in the form of Exhibit 5.9 hereto.
The Company shall obtain such a written agreement as soon as practicable from
any person who may be deemed to have become an affiliate of the Company after
the Company's delivery of the letters referred to in clause (i) above and prior
to the Effective Time.
(b) Promptly after the date hereof, Parent shall provide the Company with
information regarding Parent's compliance procedures for ensuring that those
persons deemed to be affiliates of Parent under Rule 145 of the Securities Act
or otherwise under applicable SEC accounting releases with respect to
pooling-of-interests accounting treatment are required to abide by those
restrictions on transactions involving their shares of Parent Common Stock (or
securities convertible into, or exercisable for, shares of Parent Common Stock)
that are necessary to preserve the Merger's qualification for
pooling-of-interests accounting treatment. If the Company, after consultation
with its outside legal and financial advisors
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reasonably concludes that supplemental assurances are necessary to permit the
satisfaction of any of the other covenants or any of the conditions precedent
set forth in the Agreement, then Parent shall cooperate with the Company to
implement mutually acceptable supplemental arrangements, including without
limitation, obtaining written affiliate agreements from Parent's affiliates
substantially in the form of Exhibit 5.9 attached hereto.
(c) Each party hereto shall use its best efforts to (i) cause the Merger to
qualify, and shall not take any actions which could prevent the Merger from
qualifying, for pooling-of-interests accounting treatment and as a
reorganization under the provisions of Section 368(a) of the Code, and (ii)
obtain the opinions of counsel referred to in Section 6.3(c).
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVALS. The Company Stockholder Approval shall have
been obtained.
(b) NASDAQ LISTING. The shares of Parent Common Stock issuable to the
Company's stockholders pursuant to this Agreement and under the Stock Option
Plans shall have been authorized for quotation on the Nasdaq National Market
System, subject to official notice of issuance.
(c) NO INJUNCTIONS OR RESTRAINTS. No litigation brought by a Governmental
Entity shall be pending, and no litigation shall be threatened by any
Governmental Entity, which seeks to enjoin or prohibit the consummation of the
Merger, and no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect. For the purposes of this Agreement, litigation shall be deemed to be
"threatened" by the Federal Trade Commission or Department of Justice only if
the Federal Trade Commission or the Department of Justice, as the case may be,
shall have publicly announced or shall have advised Parent, Sub or the Company
that it has authorized its staff to commence proceedings in federal court
seeking injunctive relief against, or to commence administrative proceedings
challenging, the transactions contemplated by this Agreement.
(d) FORM S-4. The Form S-4 shall have been declared effective by the SEC
under the Securities Act. No stop order suspending the effectiveness of the Form
S-4 shall have been issued by the SEC, and no proceedings for that purpose shall
have been initiated or, to the knowledge of Parent or the Company, threatened by
the SEC.
(e) HSR ACT. The applicable waiting period (and any extension thereof)
under the HSR Act shall have expired or been terminated.
(f) APPROVALS. Other than the filing of the Merger Documents in accordance
with the CGCL, all authorizations, consents, waivers, orders or approvals
required to be obtained, and all filings, notices or declarations required to be
made, by Parent, Sub and the Company prior to the consummation of the Merger and
the transactions contemplated hereunder shall have been obtained from, and made
with, all required Governmental Entities, except for such authorizations,
consents, waivers, orders, approvals, filings, notices or declarations the
failure to obtain or make which would not, individually or in the aggregate,
have a material adverse effect, at or after the Effective Time, on the Company,
the Surviving Corporation or Parent.
(g) TAX OPINION. The Company shall have received the opinion of O'Melveny
& Myers LLP, counsel to the Company, dated the date of the Proxy Statement, to
the effect that the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code,
which opinion shall not have been withdrawn or modified in any material respect.
The issuance of such opinion shall be conditioned on the receipt of customary
representation letters.
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SECTION 6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND SUB. The
obligations of Parent and Sub to effect the Merger are also subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company contained in this Agreement to the extent qualified as
to materiality shall be true and correct in all respects, and to the extent not
so qualified shall be true and correct in all material respects, in each case as
of the Closing Date as though made on and as of the Closing Date, provided that
those representations and warranties which address matters only as of a
particular date shall remain true and correct in all respects (or in all
material respects, as the case may be) as of such date. Parent shall have
received a certificate of the President or any Vice President of the Company and
the Chief Financial Officer of the Company to such effect.
(b) AGREEMENTS AND COVENANTS. The Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. Parent shall have received a certificate of the President or any Vice
President of the Company and the Chief Financial Officer of the Company to such
effect.
(c) CONSENTS UNDER AGREEMENTS. The Company shall have obtained the consent
or approval of each person whose consent or approval shall be required in
connection with the Merger under all loan or credit agreements, franchise
agreements, notes, mortgages, indentures, leases, or other agreements or
instruments to which it or any of its subsidiaries is a party, except those for
which failure to obtain such consents and approvals would not, individually and
in the aggregate, have a material adverse effect on the Surviving Corporation or
Parent after the Effective Time.
(d) POOLING OPINIONS. The Parent Pooling Opinion shall have been confirmed
by Price Waterhouse LLP in writing to Parent's Board of Directors on the
Effective Time. The Company Pooling Opinion shall have been confirmed by Ernst &
Young LLP in writing to the Company's Board of Directors on the Effective Time.
In addition, no event shall have occurred which would establish with reasonable
certainty that the Merger would not be treated as a "pooling of interests" for
accounting purposes.
(e) AFFILIATE AGREEMENTS. Parent shall have received from each person who
may be deemed to be an affiliate of the Company (under Rule 145 of the
Securities Act or otherwise under applicable SEC accounting releases with
respect to pooling-of-interests accounting treatment) on or prior to the Closing
Date a signed agreement substantially in the form of Exhibit 5.9 hereto.
(f) DISSENTING STOCKHOLDERS. The shares of Company Common Stock voted
against the Merger shall not exceed 5% of the total number of issued and
outstanding shares of Company Common Stock entitled to vote thereon.
(g) OPINION OF THE COMPANY COUNSEL. Parent shall have received the
opinions of O'Melveny & Myers LLP, counsel to the Company, and the Company's
General Counsel, in form and substance reasonably satisfactory to Parent,
covering the matters set forth in Exhibit 6.2 attached hereto.
(h) NO MATERIAL ADVERSE CHANGE. From and including the date hereof, there
shall not have occurred any material adverse change with respect to the Company.
SECTION 6.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger are also subject to the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of Parent contained in this Agreement to the extent qualified as to
materiality shall be true and correct in all respects, and to the extent not so
qualified shall be true and correct in all material respects, in each case as of
the Closing Date as though made on and as of the Closing Date, provided that
those representations and warranties which address matters only as of a
particular date shall remain true and correct in all respects (or in all
material respects, as the case may be) as of such date. The Company shall have
received a certificate of the President or any Vice President of Parent and the
Chief Financial Officer of Parent to such effect.
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(b) AGREEMENTS AND COVENANTS. Parent shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date. The Company shall have received a certificate of the President or any Vice
President of the Company and the Chief Financial Officer of the Company to such
effect.
(c) FAIRNESS OPINION. The Company Fairness Opinion shall have been
confirmed by ABN AMRO Chicago Corporation in writing to the Company's Board of
Directors as of the date the Proxy Statement was first mailed to the Company's
stockholders and shall not have subsequently been withdrawn.
(d) OPINION OF PARENT COUNSEL. The Company shall have received an opinion
of Morgan, Lewis & Bockius LLP, counsel to Parent, in form and substance
reasonably satisfactory to the Company, covering the matters set forth in
Exhibit 6.3 attached hereto.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company or of Parent:
(a) by mutual written consent of Parent and the Company;
(b) by Parent (provided that Parent is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), upon a
breach of any representation, warranty, covenant or agreement on the part of the
Company set forth in this Agreement, or if any representation or warranty of the
Company shall have become untrue, in either case such that the conditions set
forth in Section 6.2(a) or Section 6.2(b), as the case may be, would be
incapable of being satisfied by October 31, 1997; provided that, in any case, a
willful breach shall be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 7.1(b);
(c) by the Company (provided that the Company is not then in material breach
of any representation, warranty, covenant or other agreement contained herein),
upon a breach of any representation, warranty, covenant or agreement on the part
of Parent set forth in this Agreement, or if any representation or warranty of
Parent shall have become untrue, in either case such that the conditions set
forth in Section 6.3(a) or Section 6.3(b), as the case may be, would be
incapable of being satisfied by October 31, 1997; provided that, in any case a
willful breach shall be deemed to cause such conditions to be incapable of being
satisfied for purposes of this Section 7.1(c);
(d) by either Parent or the Company, if any Governmental Entity shall have
issued an order, decree, injunction or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the consummation of
the Merger and such order, decree, injunction or ruling or other action shall
have become final and nonappealable;
(e) by either Parent or the Company, if the Merger shall not have occurred
by October 31, 1997, unless the failure to consummate the Merger is the result
of a breach of a covenant set forth in this Agreement or a willful and material
breach of any representation or warranty set forth in this Agreement by the
party seeking to terminate this Agreement;
(f) by either Parent or the Company (provided that if the terminating party
is the Company, the Company shall not be in material breach of any of its
obligations hereunder), if the approval of the stockholders of the Company
required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of the
Company's stockholders or at any adjournment or postponement thereof;
(g) by the Company, prior to the approval of the Merger by its stockholders,
upon five business days' prior notice to Parent, if, as a result of a Superior
Proposal by a party other than Parent or any of its
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affiliates, the Company's Board of Directors determines in good faith that their
fiduciary obligations under applicable law require that such Superior Proposal
be accepted; provided, however, that (i) the Company's Board of Directors shall
have concluded in good faith, after considering provisions of applicable law and
after giving effect to all concessions which may be offered by Parent pursuant
to clause (ii) below, after receiving the written advice of outside counsel,
that such action is required by its fiduciary duties to the Company's
Stockholders under applicable law and (ii) prior to any such termination and
prior to accepting, or entering into any agreement regarding, the Superior
Proposal the Company shall provide Parent (for at least the five business days
following the receipt of the notice) an opportunity to amend this Agreement to
provide for terms substantially similar to those included in the Superior
Proposal, and in addition the Company shall, and shall cause its respective
financial and legal advisors to, negotiate in good faith with Parent to make
such adjustments in the terms and conditions of this Agreement as would enable
the Company to proceed with the transactions contemplated hereby. In the event
that Parent, in its sole discretion, determines to amend this Agreement as
provided above, then the Company shall enter into such amendment and shall not
enter into any agreement regarding the specific Superior Proposal under
consideration;
(h) by Parent, if the Board of Directors of the Company (or any committee
thereof) (i) withdraws or modifies adversely its approval and recommendation of
the Merger or this Agreement, (ii) within ten days after Parent's request, shall
fail to reaffirm such approval or recommendation, (iii) shall approve or
recommend any Takeover Proposal, other than with Parent or an affiliate thereof,
or a Tender Offer or Exchange Offer for 15% or more is commenced and the
Company's Board of Directors fails to recommend against acceptance of such
Tender Offer or Exchange Offer, (iv) shall resolve to take any of the actions
specified in this Section 7.1(h); or (v) fails to call and hold the Company
Stockholder's Meeting within forty (40) days after the SEC declares the Form S-4
effective; provided, however, that the disclosure by the Company of only the
existence and terms of a Takeover Proposal, which disclosure includes a
reaffirmation of the approval and recommendation of the Company's Board of
Directors with respect to the Merger and this Agreement as described in Section
3.1(d)(iii) hereof, shall not constitute a withdrawal or adverse modification
within the meaning of clause (i) of this subsection (h); or
(i) by the Company, if the Share Value would be less than $23.00 per share
unless Parent, within three days after receipt of written notice by the Company
of its intention to so terminate, shall have elected to adjust the Exchange
Ratio pursuant to the fourth sentence of Section 2.1(c) hereof.
SECTION 7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company or their respective
officers or directors, except as set forth in Section 3.1(p), Section 5.7 and
Section 7.5, which Sections shall survive termination, and except to the extent
that such termination results from the willful and material breach by a party of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
SECTION 7.3 AMENDMENT. This Agreement may be amended by the parties at any
time before or after approval hereof by the stockholders of the Company;
provided, however, that after such stockholder approval there shall not be made
any amendment that by law requires further approval by the stockholders of the
Company without the further approval of such stockholders as required by law.
This Agreement may not be amended except by an instrument in writing signed on
behalf of all of the parties.
SECTION 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 7.3, waive compliance with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing,
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signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of those rights.
SECTION 7.5 TERMINATION FEE. (a) In the event that (i) the Company
terminates this Agreement pursuant to Section 7.1(g), Parent terminates this
Agreement pursuant to Section 7.1(h) or Parent terminates this Agreement as a
result of the Company's material breach of Section 4.2, or (ii) Parent or the
Company terminates this Agreement pursuant to Section 7.1(e) and within six
months after such termination the Company shall have entered into a definitive
agreement with any person (other than Parent or any of its affiliates) regarding
a Takeover Proposal, or (iii) Company Stockholder Approval is not received and
at the time of such termination or prior to the Company Stockholders' Meeting
there shall have been a Takeover Proposal (whether or not such Takeover Proposal
shall have been rejected or shall have been withdrawn prior to the time of such
termination or of the Company Stockholders' Meeting), and the Company shall have
entered into a definitive agreement with any person (other than Parent or any of
its affiliates) with any person within one year of termination then the Company
shall pay to Parent (by wire transfer of immediately available funds, and as a
condition to termination in the case of a termination pursuant to Section
7.1(g)) a cash termination fee in an aggregate amount equal to (A) 3% of the
product of the number of outstanding shares of Company Common Stock on a fully
diluted basis (as though all options or other securities convertible into or
exercisable or exchangeable for shares of Company Common Stock had been so
converted, exercised or exchanged) on the date hereof, multiplied by $24.50, or,
(B) if greater and if the Company enters into a definitive agreement with
respect to a Takeover Proposal within six months following termination of this
Agreement under Section 7.1(e), Section 7.1(f), Section 7.1(g), or Section
7.1(h), then 3% of the product of the number of outstanding shares of Company
Common Stock on a fully diluted basis (as though all options or other securities
convertible into or exercisable or exchangeable for shares of Company Common
Stock had been so converted, exercised or exchanged) on the date such definitive
agreement is executed, multiplied by the value per share of Company Common Stock
of the consideration to be paid in such Takeover Proposal. If the Company is
obligated to pay such termination fee pursuant to clause (i) of the preceding
sentence, then the Company shall pay on account of such fee on the date of
termination of this Agreement the fee calculated under clause (A) of the
immediately preceding sentence, and, if the Company subsequently enters into a
definitive agreement with respect to a Takeover Proposal within six months
following termination of this Agreement, the Company shall immediately pay to
Parent the amount, if any, by which the termination fee calculated under clause
(B) of the immediately preceding sentence exceeds the termination fee calculated
under clause (A) of the immediately preceding sentence.
(b) Upon the termination of this Agreement for one of the reasons set forth
in Section 7.5(a), the Company shall pay to Parent (by wire transfer of
immediately available funds), and as a condition to termination in the case of a
termination pursuant to Section 7.1(g) hereof, a cash amount equal to 1% of the
product of the number of outstanding shares of Company Common Stock on a fully
diluted basis (as though all options or other securities convertible into or
exercisable or exchangeable for shares of Company Common Stock had been so
converted, exercised or exchanged) on the date hereof multiplied by $24.50 at
the time of termination, to cover Parent's and Sub's legal, accounting,
printing, investment banking and other costs, expenses and fees incurred in
connection with the transactions contemplated by this Agreement.
(c) Upon the termination of this Agreement because Company Stockholder
Approval is not received and at the time of such termination or prior to the
Company Stockholders' Meeting there shall have been a Takeover Proposal, the
Company shall pay to Parent (by wire transfer of immediately available funds)
the amount set forth in Section 7.5(b) hereof, plus an amount equal to one-half
of 1% of the product of the number of outstanding shares of Company Common Stock
on a fully diluted basis (as though all options or other securities convertible
into or exercisable or exchangeable for shares of Company Common Stock had been
so converted, exercised or exchanged) on the date hereof multiplied by $24.50 at
the time of termination. If the fee required to be paid by this subsection (c)
has been paid and thereafter the Company
37
<PAGE>
is required to pay amounts under subsection (a) and (b) by reason of clause
(iii) of subsection (a), then the fee paid under this subsection (c) shall
offset such amounts required to be paid by reason of such clause (iii) of
subsection (a).
(d) The Company agrees that the agreements contained in Section 7.5(a) and
7.5(b) are an integral part of the transactions contemplated by this Agreement.
If the Company fails to promptly pay Parent any fee due under Section 7.5(a) or
7.5(b), the Company shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Bankers Trust
Company from the date such fee was first due.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time of the Merger.
SECTION 8.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by telefax (with confirmation of
transmission) or by overnight courier (with proof of delivery) 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 Parent or Sub or, after the Effective Time the Company, to
U.S. Office Products Companye
1025 Thomas Jefferson Street, NWe
Washington, DC 20007e
Facsimile: (202) 339-6733e
Attention: Mark D. Director, Esquire
with a required copy to:
Morgan, Lewis & Bockius LLPe
1800 M Street, NWe
Washington, DC 20036e
Facsimile: (202) 467-7176e
Attention: Linda L. Griggs, Esq.
(b) if, prior to the Effective Time, to the Company, to
Mail Boxes Etc.
6060 Cornerstone Court Weste
San Diego, CA 92121e
Facsimile: (619) 625-3196e
Attention: Bruce M. Rosenberg, Esq.
with a required copy to:
O'Melveny & Myers LLPe
Suite 1700e
610 Newport Center Drivee
Newport Beach, CA 92660e
Facsimile: (714) 669-6994e
Attention: J. Jay Herron, Esq.
38
<PAGE>
SECTION 8.3 DEFINITIONS. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "material adverse change" or "material adverse effect" means, when used
in connection with the Company, the Surviving Corporation or Parent, a material
adverse effect on the business, operations, financial condition or results of
operations of such party and its subsidiaries taken as a whole;
(c) "person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its directors or other
governing body (or, if there are no such voting interests, more than 50% of the
equity interest of which) is owned directly or indirectly by such first person.
SECTION 8.4 INTERPRETATION. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, 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" and "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
and the Confidentiality Agreement constitute the entire agreement, and supersede
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this Agreement and except for the
provisions of Article II and Sections 5.4 and 5.6, are not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder.
SECTION 8.7 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of California,
regardless of the laws that might otherwise govern under applicable principles
of conflict of laws thereof.
SECTION 8.8 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties 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.
SECTION 8.9 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of California or in California State court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of California or
any California State court in the event any dispute arises out of this Agreement
or any of the transactions contemplated by this Agreement, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement in any court other than a federal or State
court sitting in the State of California.
39
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
<S> <C> <C> <C>
Attest: "PARENT"
U. S. OFFICE PRODUCTS COMPANY,
a Delaware corporation
By: ---------------------------------------- By: ----------------------------------------
Mark D. Director Jonathan J. Ledecky
Executive Vice President and Chairman and Chief Executive Officer
General Counsel
Attest: "SUB"
SANTA FE ACQUISITION CORP.,
a California corporation
By: ---------------------------------------- By: ----------------------------------------
Kathleen D. Delaney Mark D. Director
Assistant Secretary President
Attest: "COMPANY"
MAIL BOXES ETC.
By: ---------------------------------------- By: ----------------------------------------
Name: ---------------------------------- Name: ----------------------------------
Title: Title:
------------------------------------ ------------------------------------
</TABLE>
40
<PAGE>
AMENDMENT NO. 1
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is
entered into as of October 9, 1997, by and among U. S. OFFICE PRODUCTS COMPANY,
a Delaware corporation ("PARENT"), SANTA FE ACQUISITION CORP., a California
corporation and a direct, wholly-owned subsidiary of Parent ("SUB"), and MAIL
BOXES ETC., a California corporation (the "COMPANY"). This Amendment amends the
Agreement and Plan of Merger dated as of May 22, 1997 (the "Merger Agreement")
among Parent, Sub and the Company. Terms used herein that are not defined shall
have the meanings ascribed thereto in the Merger Agreement.
RECITAL
WHEREAS, on October 7, 1997 Parent announced a three-for-two stock split for
shares of Parent Common Stock, with a record date of October 23, 1997 (the
"SPLIT RECORD DATE") for the dividend effecting such stock split, which record
date will be prior to the Closing Date; and
WHEREAS, Parent, Sub and the Company have determined that it is in their
respective best interests for the Merger Agreement to be amended in certain
respects.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements herein contained, the parties hereto, intending to be legally bound,
agree as follows:
1. Section 2.1(c) of the Merger Agreement is amended in its entirety to read
as follows:
"(c) CONVERSION OF COMMON STOCK. Each share of Company Common Stock
issued and outstanding as of the Effective Time, other than shares to be
cancelled in accordance with Section 2.1(b) or that are held by stockholders
("DISSENTING STOCKHOLDERS") duly exercising dissenters' rights pursuant to
Chapter 13 of the CGCL and Section 2.3 hereof, shall be converted, subject
to Section 2.2(d), into the right to receive one and one-half shares of
Parent Common Stock (the "EXCHANGE RATIO"), subject to adjustment as
provided for in this Section 2.1(c). The Exchange Ratio shall not be
adjusted if the Share Value (as defined below) is equal to or greater than
$15.33, but no greater than $19.33. If the Share Value is greater than
$19.33, then the Exchange Ratio shall automatically be adjusted to equal 1.5
times the quotient of (i) $19.33 divided by (ii) the Share Value. If the
Share Value is less than $15.33, then, if the Company has notified Parent of
its election to terminate this Agreement pursuant to Section 7.1(i) hereof,
Parent shall have the option in its sole and absolute discretion, but not
the obligation, to adjust the Exchange Ratio to be equal to 1.5 times the
quotient of (iii) $15.33, divided by (iv) the Share Value, and the Company
shall be obligated to accept such adjustment. If the Share Value is less
than $15.33, and if the Company does not elect to terminate this Agreement
pursuant to Section 7.1(i), the Exchange Ratio shall be unchanged."
2. The paragraph immediately following Section 2.1(c) of the Merger
Agreement is amended in its entirety to read as follows:
"For purposes hereof, the "SHARE VALUE" shall be an amount equal to the
average closing price for the Parent Common Stock as reported on the
Nasdaq National Market System for the twenty (20) consecutive trading
days prior to the date two (2) business days prior to the Company
Stockholders' Meeting (as defined in Section 5.1(d)), so long as the
Closing Date occurs within five business days of the Company
Stockholders' Meeting or, if the Closing Date is more than five business
days after the Company Stockholders' Meeting, the Closing Date.
Notwithstanding the foregoing, in the event any of such 20 consecutive
trading days is before the first day on which Parent Common Stock trades
ex-dividend (each a "PRE-SPLIT TRADING DAY"), for purposes of the
calculation to be made pursuant to this paragraph the closing price for
the Parent Common Stock for each Pre-Split Trading Day shall be
multiplied by two-thirds."
1
<PAGE>
3. The following paragraph shall be added at the end of section 2.1 of the
Merger Agreement:
"If after October 7, 1997 and prior to the Effective Time Parent shall
declare a stock split (including a reverse split) of Parent Common Stock or
a dividend payable in Parent Common Stock (in addition to or in lieu of the
stock split described herein), or any other distribution of securities to
holders of Parent Common Stock with respect to their Parent Common Stock, or
if Parent does not effect the stock split announced on October 7, 1997, then
the number of shares of Parent Common Stock to be issued upon conversion of
a share of Company Common Stock pursuant to Section 2.1(c) shall be
appropriately adjusted (pursuant to the appropriate adjustment of all
relevant share amounts and all relevant dollar amounts) to reflect such
stock split, dividend or other distribution of securities or to reflect the
failure to effect the stock split announced on October 7, 1997, in each case
to preserve the economic terms of the Merger."
4. All references to "October 31, 1997" in Sections 7.1 (b), (c) and (e) of
the Merger Agreement are amended to read "November 30, 1997."
5. Section 7.1(i) of the Merger Agreement is amended in its entirety to read
as follows:
"(i) by the Company, if the Share Value would be less than $15.33 per
share unless Parent, within three days after receipt of written notice by
the Company of its intention to so terminate, may have elected to adjust the
Exchange Ratio pursuant to the fourth sentence of Section 2.1(c) hereof."
6. This Amendment shall be governed by, and construed and enforced in
accordance with, the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflict of laws
thereof.
7. As amended hereby, the Merger Agreement is ratified and confirmed in all
respects.
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
<TABLE>
<S> <C>
"PARENT"
Attest: U. S. OFFICE PRODUCTS COMPANY,
a Delaware corporation
By: By:
Mark D. Director Jonathan J. Ledecky
Chief Administrative Officer and General Chairman and Chief Executive Officer
Counsel
"SUB"
Attest: SANTA FE ACQUISITION CORP.,
a California corporation
By: By:
Kathleen M. Delaney Mark D. Director
Assistant Secretary President
"COMPANY"
Attest: MAIL BOXES ETC.,
a California corporation
By: By:
Bruce M. Rosenberg Anthony W. DeSio
Vice President, General Counsel and Chief Executive Officer
Secretary
</TABLE>
2
<PAGE>
APPENDIX II
May 22, 1997
Board of Directors
Mail Boxes Etc.
6060 Cornerstone Court West
San Diego, CA 92121-3795
Members of the Board:
We understand that Mail Boxes Etc. (the "Company"), U.S. Office Products Company
(the "Acquiror") and Santa Fe Acquisition Corp., a wholly owned subsidiary of
the Acquiror (the "Acquisition Sub"), propose to enter into an Agreement and
Plan of Merger dated May 22, 1997 (the "Merger Agreement") pursuant to which
Acquisition Sub will be merged with and into the Company in a transaction (the
"Merger") in which each issue and outstanding share of common stock of the
Company, no par value per share (the "Company Common Stock"), will be converted
into the right to receive 1.0 (the "Exchange Ratio") share of common stock of
the Acquiror, $0.001 par value per share (the "Acquiror Common Stock"), provided
that (i) if the average closing price (as reported on the Nasdaq National
Market) for the Acquiror Common Stock for the twenty (20) consecutive trading
days prior to the date two (2) business days prior to the Company Stockholders'
Meeting (as defined in the Merger Agreement) ("Share Value") is greater than
$29.00, each outstanding share of Company Common Stock will be converted into
the right to receive a fraction of a share of Acquiror Common Stock determined
by dividing $29.00 by the Share Value, and (ii) if the Share Value is less than
$23.00, the parties may mutually agree that the Exchange Ratio will remain 1.0,
or the Exchange Ratio may be adjusted, if requested by the Company and agreed to
by the Acquiror, so that each share of Company Common Stock will be converted
into the right to receive that number of shares of Acquiror Common Stock
determined by dividing $23.00 by the Share Value. In the absence of any such
agreement contemplated by clause (ii) above, the Company shall have the right to
terminate the Merger Agreement.
You have asked us whether, in our opinion, the Exchange Ratio to be received by
the holders of Company Common Stock in the Merger is fair to such stockholders
from a financial point of view.
In connection with this opinion, we have reviewed the Merger Agreement and
certain related documents and held discussions with certain senior officers,
directors and other representatives and advisors of the Company and certain
senior officers and other representatives of the Acquiror concerning the
businesses, operations and prospects of the Company and the Acquiror. We
examined certain publicly available business and financial information relating
to the Company and the Acquiror as well as certain financial data and other data
for the Company and certain financial information and other data related to the
Acquiror which were provided to or otherwise discussed with us by the respective
management of the Company and the Acquiror. We reviewed the financial terms of
the Merger as set forth in the Merger Agreement in relation to: (i) current and
historical market prices and trading volumes of Company Common Stock and
Acquiror Common Stock: (ii) the respective companies' financial and other
operating data; and (iii) the capitalization and financial condition of the
Company and the Acquiror. We also considered, to the extent publicly available,
the financial terms of certain other similar transactions recently effected
which we considered relevant in evaluating the Merger and analyzed certain
financial, stock market and other publicly available information relating to the
businesses of other companies whose operations we considered relevant in
evaluating those of the Company and the Acquiror. In connection with our
engagement, we identified, approached and held discussions with certain third
parties to solicit indications of interest in a possible acquisition of the
Company.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information reviewed by us and we have
not made or obtained or assumed any responsibility for independent verification
of such information. In addition, we have not made an independent evaluation or
appraisal of the assets and liabilities of the Company or the Acquiror or any of
their respective subsidiaries. With respect to the financial data of the
Company, we have assumed that it has been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
<PAGE>
management of the Company as to the future financial performance of the Company.
We have assumed that the Merger will be consummated in accordance with the terms
of the Merger Agreement including among other things, that the Merger will be
accounted for as a pooling of interests under generally accepted accounting
principles and as a tax-free reorganization for federal income tax purposes. We
are not expressing any opinion in the event that the Share Value is less than
$23.00. We are also not expressing any opinion as to what the value of the
Acquiror Common Stock actually will be when issued to the Company stockholders
pursuant to the Merger or the price at which the Acquiror Common Stock will
trade subsequent to the Merger.
ABN AMRO Chicago Corporation ("AACC"), as part of its investment banking
business, is continually engaged in the valuation of businesses in connection
with mergers and acquisitions, as well as initial and secondary offerings of
securities and valuations for other purposes. We have acted as financial advisor
to the Board of Directors of the Company in connection with this transaction and
will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, AACC and its affiliates may actively
trade securities of both the Company and Acquiror for their own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is solely for the benefit and use of the Board
of Directors of the Company in its consideration of the Merger and may not be
relied upon by any other person, used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose without our prior written consent, except that this letter may be used
as part of any proxy statement/ prospectus relating to the Merger. This letter
does not address the Company's underlying business decision to enter into the
Merger or constitute a recommendation to any shareholder as to how such
shareholder should vote with respect to the proposed Merger. Finally, our
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to us, as of the date
hereof, and we assume no responsibility to update or revise our opinion based
upon circumstances or events occurring after the date hereof.
Based upon 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,
ABN AMRO CHICAGO CORPORATION
2
<PAGE>
APPENDIX III
CHAPTER 13. DISSENTERS' RIGHTS
<TABLE>
<S> <C>
Section 1300 Reorganization or short-form merger; dissenting shares; corporate purchase at
fair market value; definitions.
Section 1301 Notice to holders of dissenting shares in reorganizations; demand for
purchase; time; contents.
Section 1302 Submission of share certificates for endorsement; uncertificated securities.
Section 1303 Payment of agreed price with interest; agreement fixing fair market value;
filing; time of payment.
Section 1304 Action to determine whether shares are dissenting shares or fair market value;
limitation; joinder; consolidation; determination of issues; appointment of
appraisers.
Section 1305 Report of appraisers; confirmation; determination by court; judgment; payment;
appeal; costs.
Section 1306 Prevention of immediate payment; status as creditors; interest.
Section 1307 Dividends on dissenting shares.
Section 1308 Rights of dissenting shareholders pending valuation; withdrawal of demand for
payment.
Section 1309 Termination of dissenting share and shareholder status.
Section 1310 Suspension of right to compensation or valuation proceedings; litigation of
shareholders' approval.
Section 1311 Exempt shares.
Section 1312 Right of dissenting shareholder to attack, set aside or rescind merger or
reorganization; restraining order or injunction; conditions.
</TABLE>
CROSS REFERENCES
Foreign corporations subject to this chapter, see Corporations Code Section
2115.
Mergers into state depository corporation, inapplicability of this division,
see Financial Code Section 4883. Sales of business units to state depository
corporation, inapplicability of this chapter, see Financial Code Section 4853.
SECTION1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS.
(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 of 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
1
<PAGE>
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 payment are filed with respect to 5 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 (ADDED BY STATS.1975,
C. 682, SECTION 7, EFF. JAN. 1, 1977. AMENDED BY STATS. 1976, C 641, SECTION
21.3, EFF. JAN. 1, 1977; STATS.1982, C. 36, P.69, SECTION 3, EFF. FEB. 17, 1982;
STATS. 1990, C. 1018 (A.B. 2259), SECTION 2; STATS. 1993, C. 543 (A.B. 2063),
SECTION 13.).
CROSS REFERENCES
Application of this chapter to transactions consummated after effective date
of new law, see Corporations Code Section 2313. Foreign corporations subject to
this chapter, see Corporations Code Section 2115.
SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS.
(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 10 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
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 (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
2
<PAGE>
(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. (ADDED
BY STATS. 1975, C. 682, SECTION7, EFF. JAN. 1, 1977. AMENDED BY STATS. 1976, C.
641, SECTION 21.6, EFF. JAN. 1, 1977; STATS. 1980, C. 501, P. 1052, SECTION 5;
STATS. 1980, C. 1155, P. 3831, SECTION 1.)
CROSS REFERENCES
Savings association mergers, information furnished to stockholders, see
Financial Code Section 5760.
SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFICATED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or 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. (ADDED BY STATS. 1975, C. 682,
SECTION 7, EFF. JAN. 1. 1977. AMENDED BY STATS. 1986, C. 766, SECTION 23.)
SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF 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 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. (ADDED BY STATS. 1975, C. 682, SECTION
7, EFF. JAN. 1, 1977. AMENDED BY STATS. 1980, C. 501, P. 1053, SECTION 6; STATS.
1986, C. 766, SECTION 24.)
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholders 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
praying the court to determine whether the shares are dissenting shares or the
3
<PAGE>
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. (ADDED BY STATS.
1975, C. 682, SECTION 7, EFF. JAN. 1, 1977).
CROSS REFERENCES
Consolidation of actions, see Code of Civil Procedures Section 1048.
Defendants, joinder, see Code of Civil Procedure SectionSection 379, 382.
Designation of parties, see Code of Civil Procedure Section 308. Dissolution,
determination of fair value of shares, see Corporations Code Section 2000. Form
of civil action, see Code of Civil Procedure Section 307. Intervention, see Code
of Civil Procedure SectionSection 387, 388. Limitation of six months, see Code
of Civil Procedure Section 341. Plaintiffs, joinder, see Code of Civil Procedure
SectionSection 378, 382. Trial of issues, see Code of Civil Procedure Section
591 et seq.
SECTION 1305. REPORT OF APPRAISERS; CONFIRMATION; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; 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 judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
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.
(c) 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 interests
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). (ADDED BY STATS. 1975, C. 682, SECTION 7, EFF. JAN. 1. 1977. AMENDED BY
STATS. 1976, C. 641, SECTION 22, EFF. JAN. 1, 1977; STATS. 1977, C. 235, P.
1068, SECTION 16; STATS. 1986, C. 766, SECTION 25).
4
<PAGE>
CROSS REFERENCES
Costs, generally, see Code of Civil Procedure Section 1021 et seq. Manner of
giving and entering judgment, see Code of Civil Procedure Section 664 et seq.
Relief granted to plaintiff, scope, see Code of Civil Procedure Section580.
SECTION 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their 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. (ADDED BY STATS. 1975, C. 682,
SECTION 7, EFF. JAN 1. 1977).
CROSS REFERENCES
Dividends and reacquisitions of shares, see Corporations Code Section500 et
seq.
SECTION 1307. DIVIDENDS ON DISSENTING SHARES.
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. (Added by Stats. 1975, c. 682, Section 7, eff. Jan. 1. 1977).
CROSS REFERENCES
Dividends, see Corporations Code Section 500 et seq.
SECTION 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL OF
DEMAND FOR PAYMENT.
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. (ADDED BY STATS. 1975, C. 682, SECTION 7, EFF. JAN. 1, 1977).
SECTION 1309. TERMINATION OF DISSENTING SHARES AND 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.
5
<PAGE>
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares. (ADDED
BY STATS. 1975, C. 682, SECTION 7, EFF. JAN. 1, 1977).
SECTION 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL.
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. (Added by Stats. 1975, c. 682, Section 7, eff. Jan. 1, 1977).
CROSS REFERENCES
Short-form mergers, see Corporations Code Section 1110.
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 of
such shares in the event of a reorganization or merger. (Added by Stats. 1975,
c. 682, Section 7, eff. Jan. 1, 1977. Amended by Stats. 1988, c. 919, Section
8.)
SECTION 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION; CONDITIONS
(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 or 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 10 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.
(c) If one of 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 person 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. (ADDED BY STATS. 1975, C. 682,
SECTION 7, EFF. JAN. 1, 1977. AMENDED BY STATS. 1976, C. 641, SECTION 22.5, EFF.
JAN. 1, 1977; STATS. 1988, C. 919, SECTION 9).
6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
USOP's Amended and Restated By-laws provide that USOP shall, to the fullest
extent permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Article Eight of USOP's Amended and Restated Certificate of Incorporation
provides that USOP directors will not be personally liable to USOP or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to USOP or
its stockholders, (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) under Section 174 of
the General Corporation Law of the State of Delaware, which makes directors
liable for unlawful dividends or unlawful stock repurchases or redemptions or
(d) for transactions from which directors derive improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 22, 1997, among USOP, Sante Fe Acquisition Corp. and
Mail Boxes Etc. and Amendment No. 1 thereto (filed as Appendix I to the Prospectus included in this
Registration Statement)
3.1 Amended and Restated Certificate of Incorporation of U.S. Office Products Company (Exhibit 3.1 of
USOP's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996 is hereby incorporated by
reference)
3.2 Amended and Restated Bylaws of U.S. Office Products Company. (Exhibit 3.2 of USOP's Annual Report on
Form 10-K for the fiscal year ended April 30, 1996 is hereby incorporated by reference)
5.1 Opinion of Morgan, Lewis & Bockius LLP re: legality
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
*8.1 Opinion of O'Melveny & Myers LLP re: tax matters
*23.1 Consent of Price Waterhouse LLP
*23.2 Consent of Ernst & Young LLP
*23.3 Consent of KPMG Peat Marwick LLP
*23.4 Consent of BDO Seidman LLP
*23.5 Consent of Ernst & Young
*23.6 Consent of Deloitte Touche LLP
*23.7 Consent of Deloitte Touche Tohmatsu
*23.8 Consent of Rubin, Koehmstedt & Nadler, PLC
*23.9 Consent of Hertz, Herson & Company LLP
*23.10 Consent of Parent, McLaughlin & Nangle
23.11 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
*23.12 Consent of Ernst & Young LLP
*24.1 Power of Attorney (included on signature page)
99.1 Form of Proxy of Mail Boxes Etc.
</TABLE>
- ------------------------
* Previously filed
ITEM 22. UNDERTAKINGS
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 provisions described in Item 14, 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.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which any offers or sales are being made,
a post-effective amendment to the 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 aggregate, represent a fundamental
change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high 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 20
II-2
<PAGE>
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 other
material change to such information in the registration statement.
(2) That for the purpose of determining any liability under the Act each
such post-effective amendment may be deemed to be a new registration statement
relating to the securities being offered therein and the offering of such
securities at the time may 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 which are being registered which remain unsold at the
termination of the offering.
(4) That, for purposes 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 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) To deliver or cause to be delivered with the Prospectus, to each person
to whom the Prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the Prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and where interim financial information
required to be presented by Article 3 of Regulation S-X are not set forth in the
Prospectus, to deliver, or caused to be delivered to each person to whom the
Prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the Prospectus to provide such interim financial
information.
(6) As follows: 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 reoffering by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(7) That every prospectus (i) that is filed pursuant to paragraph (1)
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 part of an amendment to the registration
statement and will not be used until such 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.
(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 (1) business day of receipt of such request, and to sent 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, Rule 424(c) supplement
or information incorporated by reference, all information concerning a material
transaction, and the company being acquired involved there, that was not the
subject of and included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement on to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, District of
Columbia, on October 6, 1997.
U.S. OFFICE PRODUCTS COMPANY
BY: /S/ JONATHAN J. LEDECKY
-----------------------------------------
Name: Jonathan J. Ledecky
Title: CHIEF EXECUTIVE OFFICER
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.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board and
/s/ JONATHAN J. LEDECKY Chief Executive Officer
- ------------------------------ (Principal Executive October 6, 1997
Jonathan J. Ledecky Officer)
Chief Financial Officer
* (Principal Financial
- ------------------------------ Officer and Principal October 6, 1997
Donald H. Platt Accounting Officer)
*
- ------------------------------ Director October 6, 1997
Timothy J. Flynn
*
- ------------------------------ Director October 6, 1997
Jack L. Becker, Jr.
*
- ------------------------------ Director October 6, 1997
Clifton B. Phillips
*
- ------------------------------ Director October 6, 1997
Milton H. Kuyers
*
- ------------------------------ Director October 6, 1997
Allon H. Lefever
II-4
<PAGE>
<TABLE>
<C> <S> <C>
- ------------------------------ Director
Edward J. Mathias
*
- ------------------------------ Director October 6, 1997
John A. Quelch
*
- ------------------------------ Director October 6, 1997
David C. Gezon
*
- ------------------------------ Director October 6, 1997
David C. Copenhaver
*
- ------------------------------ Director October 6, 1997
Thomas I. Morgan
</TABLE>
* Mark D. Director, by signing his name hereto, signs this document on
behalf of each of the persons indicated above pursuant to the powers of attorney
duly executed by such persons and set forth on the signature page of the
Registration Statement filed with the Securities and Exchange Commission.
BY: /S/ MARK D. DIRECTOR
-----------------------------------------
Mark D. Director
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of May 22, 1997, among USOP, Sante Fe Acquisition Corp. and
Mail Boxes Etc. and Amendment No. 1 thereto (filed as Appendix I to the Prospectus included in this
Registration Statement)
3.1 Amended and Restated Certificate of Incorporation of U.S. Office Products Company (Exhibit 3.1 of
USOP's Quarterly Report on Form 10-Q for the quarter ended July 27, 1996 is hereby incorporated by
reference)
3.2 Amended and Restated Bylaws of U.S. Office Products Company. (Exhibit 3.2 of USOP's Annual Report on
Form 10-K for the fiscal year ended April 30, 1996 is hereby incorporated by reference)
5.1 Opinion of Morgan, Lewis & Bockius LLP re: legality
*8.1 Opinion of O'Melveny & Myers LLP re: tax matters
*23.1 Consent of Price Waterhouse LLP
*23.2 Consent of Ernst & Young LLP
*23.3 Consent of KPMG Peat Marwick LLP
*23.4 Consent of BDO Seidman LLP
*23.5 Consent of Ernst & Young
*23.6 Consent of Deloitte Touche LLP
*23.7 Consent of Deloitte Touche Tohmatsu
*23.8 Consent of Rubin, Koehmstedt & Nadler, PLC
*23.9 Consent of Hertz, Herson & Company LLP
*23.10 Consent of Parent, McLaughlin & Nangle
23.11 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
*23.12 Consent of Ernst & Young LLP
*24.1 Power of Attorney (included on signature page)
99.1 Form of Proxy of Mail Boxes Etc.
</TABLE>
- ------------------------
* Previously filed
<PAGE>
Exhibit 5.1
October 9, 1997
U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
Re: Issuance of Shares Pursuant to Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to U.S. Office Products Company, a Delaware
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Act"), of a Registration Statement on Form S-4 (the
"Registration Statement") relating to the offering of up to 19,530,457 shares
of common stock, $.001 par value per share (the "Shares"), which Shares may
be issued in connection with the merger of a wholly owned subsidiary of the
Company with and into Mail Boxes Etc., a California corporation ("MBE"),
pursuant to the terms and conditions of the Agreement and Plan of Merger (the
"Merger Agreement") dated as of May 22, 1997 and as amended on October 9,
1997 among the Company, Santa Fe Acquisition Corp. and MBE. Of the
19,530,457 Shares, 2,430,004 shares relate to outstanding options of MBE
that, upon consummation of the merger, will be converted into the right to
purchase Shares of USOP.
We understand that the issuance of the Shares pursuant to the Merger
Agreement is contingent upon, among other things, the requisite approval of
the Merger by the shareholders of MBE, and the filing of Articles of Merger
with the Secretary of State of the State of Delaware and the Secretary of
State of the State of California. In rendering the opinion set forth below,
we have examined originals, or copies certified or otherwise identified to our
satisfaction, of such documents, records, certificates and other instruments
of the Company as in our judgment are necessary or appropriate for purposes
of this opinion. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals,
and the conformity with the originals of all documents submitted to us as
copies thereof.
Our opinion set forth below is limited to the Delaware General Corporation
Law.
Based upon the foregoing, we are of the opinion that, when and to the extent
that (i) the Registration Statement has become effective under the Act, (ii)
the three-for-two stock split in the form of a dividend announced by the
Company on October 7, 1997 is paid prior to the issuance of the Shares, (iii)
the shareholders of MBE have approved the Merger, (iv) the appropriate
filings have been made concerning the Merger with the Secretary of State of
the State of Delaware and the Secretary of State of the State of
California, and (v) the Shares are issued as described in the Registration
Statement and in accordance with the terms and conditions of the Merger
Agreement, including provisions relating to outstanding options of MBE, the
Shares will be validly issued, fully paid and nonassessable.
<PAGE>
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement. In giving such consent, we do not hereby admit that
we are acting within the category of persons whose consent is required under
Section 7 of the Act and the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ Morgan, Lewis and Bockius LLP
<PAGE>
Exhibit 99.1
MAIL BOXES ETC.
6060 Cornerstone Court West
San Diego, California 92121
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MAIL BOXES ETC.
The undersigned, revoking all prior proxies, hereby appoints Anthony W.
DeSia, Michael Dooling, James F. Kelly and Bruce M. Rosenberg as Proxies,
each with full power of substitution, and hereby authorizes them to represent
and to vote, as designated below, all shares of Common Stock of Mail Boxes
Etc. (the "Company") held of record by the undersigned on September 30, 1997
at the Special Meeting of Shareholders of the Company (the "Special Meeting")
to be held at the offices of the Company at 6060 Cornerstone Court West, San
Diego, California 92121 on [ ], [November __, 1997], at 9:00 a.m.,
Pacific Standard Time, and at any adjournments or postponements thereof.
THIS PROXY WILL BE VOTED AS DIRECTED ON THE OTHER SIDE OF THIS PROXY CARD.
WHEN NO CHOICE IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSAL NO. 1. In
their discretion, the proxy holders are authorized to vote upon such other
business as may properly come before the Special Meeting or any adjournments
or postponements thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MAIL BOXES ETC.
[REVERSE SIDE OF CARD]
/x/ Please mark your votes as in this example.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL NO. 1.
1. Approval of the principal terms of the Agreement and Plan of
Merger dated May 22, 1997 amended on October 9, 1997 among U.S.
Office Products Company, Santa Fe Acquisition Corp. and Mail Boxes Etc.
FOR / / AGAINST / / ABSTAIN / /
2. To transact such other business as may properly be presented at the
Special Meeting or any adjournments or postponements thereof.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
Please sign exactly as your name(s) appears on your stock certificate.
If shares of stock are held of record in the names of two or more persons or
in the name of a husband and wife, whether as joint tenants or otherwise,
both or all of such persons should sign the proxy. If shares of stock are
held of record by a corporation, the proxy should be executed by the
president or vice president and the secretary or assistant secretary. If
shares of stock are held of record by a partnership, the proxy should be
executed by a duly authorized officer of the partnership. Executors,
administrators or other fiduciaries who execute the above proxy for a
deceased shareholder should give their full title. Please date this proxy.
Signature(s)______________________________________________ Date:____________
Signature(s)______________________________________________ Date:____________
