<PAGE>
- - --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 25, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________to____________
Commission File Number 0-25372
U.S. OFFICE PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 52-1906050
(State of other jurisdiction (I.R.S. Employer
incorporation or organization.) Identification No.)
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
(Address of principal executive offices) (Zip Code)
(202) 339-6700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- --
As of December 9, 1997, there were 131,851,974 shares of common stock
outstanding.
- - --------------------------------------------------------------------------------
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX
Page No.
--------
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet.................................... 3
October 25, 1997 (unaudited) and April 26, 1997 (unaudited)
Consolidated Statement of Income.............................. 4
For the three months ended October 25, 1997 (unaudited)
and October 26, 1996 (unaudited) and for the six
months ended October 25, 1997 (unaudited) and October
26, 1996 (unaudited)
Consolidated Statement of Cash Flows.......................... 5
For the six months ended October 25, 1997 (unaudited)
and October 26, 1996 (unaudited)
Notes to Consolidated Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
Signatures............................................................ 19
Exhibit Index......................................................... 20
Page 2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 25, APRIL 26,
ASSETS 1997 1997
- - ------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................................... $ 43,300 $ 50,369
Accounts receivable, less allowance for doubtful accounts of $12,312 and $10,651,
respectively.................................................................... 502,254 405,180
Inventory 308,490 292,559
Prepaid expenses and other current assets......................................... 111,466 108,005
------------ ------------
Total current assets.......................................................... 965,510 856,113
Property and equipment, net........................................................... 287,192 258,598
Intangible assets, net................................................................ 717,691 651,540
Other assets.......................................................................... 117,838 122,495
------------ ------------
Total assets.................................................................. $ 2,088,231 $ 1,888,746
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................................... $ 294,948 $ 157,710
Accounts payable.................................................................. 235,880 219,706
Accrued compensation.............................................................. 52,917 45,947
Other accrued liabilities......................................................... 105,938 94,983
------------ ------------
Total current liabilities..................................................... 689,683 518,346
Long-term debt........................................................................ 395,594 400,897
Deferred income taxes................................................................. 8,593 8,693
Other long-term liabilities and minority interests.................................... 8,977 10,144
------------ ------------
Total liabilities............................................................. 1,102,847 938,080
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares authorized, none outstanding
Common stock, $.001 par value, 500,000,000 shares authorized, 116,384,235 and
113,050,382 shares issued and outstanding, respectively......................... 116 113
Additional paid-in capital........................................................ 877,091 815,554
Cumulative translation adjustment................................................. (77,991) (5,524)
Retained earnings................................................................. 186,168 140,523
------------ ------------
Total stockholders' equity.................................................... 985,384 950,666
------------ ------------
Total liabilities and stockholders' equity.................................... $ 2,088,231 $ 1,888,746
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ----------------------------
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1997 1996 1997 1996
------------ -------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues............................... $ 952,433 $ 791,556 $1,855,964 $ 1,392,545
Cost of revenues....................... 681,117 564,691 1,328,268 995,939
------------ ---------- ------------ ------------
Gross profit....................... 271,316 226,865 527,696 396,606
Selling, general and administrative
expenses............................. 212,728 180,580 414,993 318,007
Non-recurring acquisition costs........ 5,847 3,940 10,252 5,727
------------ ---------- ------------ ------------
Operating income................... 52,741 42,345 102,451 72,872
Other (income) expense:
Interest expense................... 11,541 13,349 22,287 22,397
Interest income.................... (570) (1,392) (1,315) (5,890)
Other.............................. (5,337) (3,057) (6,885) (3,274)
------------ ---------- ------------ ------------
Income before provision for income
taxes and extraordinary item......... 47,107 33,445 88,364 59,639
Provision for income taxes............. 19,103 12,512 35,308 20,552
------------ ---------- ------------ ------------
Income before extraordinary item....... 28,004 20,933 53,056 39,087
Extraordinary item--loss on early
termination of credit facility, net
of income tax benefit................ 612 612
------------ ---------- ------------ ------------
Net income............................. $ 28,004 $ 20,321 $ 53,056 $ 38,475
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
Earnings per share:
Income before extraordinary item...... $ .24 $ .22 $ .45 $ .41
Extraordinary item.................... .01
------------ ---------- ------------ ------------
Net income..................... $ .24 $ .21 $ .45 $ .41
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
Pro forma income before extraordinary
item (see Note 3).................... $ 26,359 $ 16,934 $ 49,580 $ 31,276
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
Pro forma income per share before
extraordinary item.................. $ .22 $ .17 $ .42 $ .33
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
OCTOBER 25, OCTOBER 26,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................................................... $ 53,056 $ 38,475
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization..................................................... 35,834 20,640
Non-recurring acquisition costs................................................... 10,252 5,727
Equity in income of affiliate..................................................... (728)
Extraordinary loss................................................................ 612
Other............................................................................. (2,387) 331
Changes in assets and liabilities (net of assets acquired and liabilities assumed
in business combinations):
Accounts receivable............................................................... (78,374) (60,804)
Inventory......................................................................... (4,751) (4,866)
Prepaid expenses and other current assets......................................... (4,544) 349
Accounts payable.................................................................. 13,723 (7,586)
Accrued liabilities............................................................... 1,715 (52)
---------- ----------
Net cash provided by (used in) operating activities............................. 23,796 (7,174)
---------- ----------
Cash flows from investing activities:
Cash paid in acquisitions, net of cash received..................................... (120,364) (273,704)
Additions to property and equipment, net of disposals............................... (35,302) (20,466)
Cash received on sale of assets..................................................... 15,990 1,617
Payments of non-recurring acquisition costs......................................... (7,878) (5,727)
Other............................................................................... 5,548 (8,023)
---------- ----------
Net cash used in investing activities........................................... (142,006) (306,303)
---------- ----------
Cash flows from financing activities:
Increases in short-term debt........................................................ 124,609 83,149
Payments of long-term debt.......................................................... (10,663) (156,555)
Proceeds from issuance of long-term debt............................................ 1,211 232,480
Payments to terminate credit facility............................................... (261)
Proceeds from exercise of stock options and warrants................................ 4,790 2,937
Proceeds from issuance of common stock in employee stock purchase plan.............. 1,710 1,728
Proceeds from issuance of common stock.............................................. 39,706
Contributions of capital by stockholders of Pooled Companies........................ 2,715
Adjustment to conform fiscal year-ends of certain Pooled Companies.................. (834) 286
Payment of dividends................................................................ (7,896) (13,509)
---------- ----------
Net cash provided by financing activities....................................... 112,927 192,676
---------- ----------
Effect of exchange rates on cash and cash equivalents................................... (1,786) 646
---------- ----------
Net decrease in cash and cash equivalents............................................... (7,069) (120,155)
Cash and cash equivalents at beginning of period........................................ 50,369 190,414
---------- ----------
Cash and cash equivalents at end of period.............................................. $ 43,300 $ 70,259
---------- ----------
(Continued)
</TABLE>
Page 5
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
OCTOBER 25, OCTOBER 26,
1997 1996
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information:
Interest paid......................................................................... $ 10,819 $ 13,189
Income taxes paid..................................................................... $ 32,465 $ 12,257
</TABLE>
The Company issued common stock and cash in connection with certain business
combinations accounted for under the purchase method for the six months ended
October 25, 1997 and October 26, 1996. The fair values of the assets and
liabilities at the dates of the acquisitions are presented as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------
OCTOBER 25, OCTOBER 26,
1997 1996
----------- -----------
<S> <C> <C>
Accounts receivable..................................................................... $ 25,454 $ 66,509
Inventory............................................................................... 23,595 107,086
Prepaid expenses and other current assets............................................... 2,871 12,981
Property and equipment.................................................................. 41,896 102,244
Intangible assets....................................................................... 118,342 398,932
Other assets............................................................................ 2,232 3,732
Short-term debt......................................................................... (6,293) (8,783)
Accounts payable........................................................................ (14,795) (73,042)
Accrued liabilities..................................................................... (6,291) (99,158)
Long-term debt.......................................................................... (15,031) (114,649)
Other long-term liabilities............................................................. (2,067) (1,942)
---------- -----------
Net assets acquired................................................................. $ 169,913 $ 393,910
----------- -----------
----------- -----------
</TABLE>
The acquisitions accounted for under the purchase method were funded as follows:
<TABLE>
<S> <C> <C>
Common stock.......................................................................... $ 49,549 $ 120,206
Cash.................................................................................. 120,364 273,704
--------- ---------
$ 169,913 $ 393,910
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
Page 6
<PAGE>
U. S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 25, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of U.S. Office Products
Company (the "Company" or "U.S. Office Products"), and the companies acquired in
business combinations accounted for under the purchase method (the "Purchased
Companies") from their respective acquisition dates and give retroactive effect
to the results of the companies acquired in business combinations accounted for
under the pooling-of-interests method (the "Pooled Companies") for all periods
presented.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair presentation of such operations. All such adjustments are of a normal
recurring nature. Operating results for interim periods are not necessarily
indicative of results which may be expected for the year as a whole. It is
suggested that these consolidated financial statements be read in conjunction
with the Company's audited consolidated financial statements for the fiscal year
ended April 26, 1997, included in the Company's Current Report on Form 8-K,
dated November 20, 1997.
NOTE 2--STOCKHOLDERS' EQUITY
Changes in stockholders' equity during the six months ended October 25, 1997
were as follows:
Stockholders' equity balance at April 26, 1997....................... $950,666
Issuances of common stock in conjunction with:
Business combinations............................................ 49,549
Exercises of stock options, including tax benefits............... 6,730
Employee stock purchase plan, net of expenses.................... 1,710
Repayment of debt................................................ 570
Transactions of Pooled Companies prior to closing:
Capital contributions............................................ 2,980
Dividends........................................................ (6,576)
Adjustments to conform the year-ends of Pooled Companies........... (834)
Cumulative translation adjustments................................. (72,467)
Net income......................................................... 53,056
---------
Stockholders' equity balance at October 25, 1997..................... $985,384
---------
---------
On November 6, 1997, the Company effected a 3-for-2 split of its common stock
whereby each two shares of common stock were exchanged for three shares of
common stock. All share and per share data appearing in these consolidated
financial statements and notes hereto have been retroactively adjusted for this
split.
Page 7
<PAGE>
NOTE 3--UNAUDITED PRO FORMA INCOME TAX INFORMATION
The following unaudited pro forma income tax information is presented in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," as if certain Pooled Companies, which were subchapter S
corporations prior to their business combinations with the Company, had been
subject to federal income taxes throughout the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1997 1996 1997 1996
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
MB
Income before extraordinary item per the consolidated
statement of income......................................... $ 28,004 $ 20,933 $ 53,056 $ 39,087
Provision for income taxes.................................... 1,645 3,999 3,476 7,811
----------- ----------- ----------- -----------
Pro forma income before extraordinary item.................... $ 26,359 $ 16,934 $ 49,580 $ 31,276
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE 4--BUSINESS COMBINATIONS
In fiscal 1997, the Company completed a total of 117 business combinations,
40 accounted for under the pooling-of-interests method and 77 accounted for
under the purchase method. During the first six months of fiscal 1998, the
Company completed a total of 42 business combinations, 19 accounted for under
the pooling-of-interests method and 23 accounted for under the purchase
method. In the second quarter of fiscal 1998, the Company completed a total
of 20 business combinations, 12 accounted for under the pooling-of-interests
method and 8 accounted for under the purchase method.
The Company's consolidated financial statements give retroactive effect to
the acquisitions of the Pooled Companies for all periods presented. The
following data presents the separate results, in each of the periods
presented, of U.S. Office Products (excluding the results of the Pooled
Companies prior to the dates on which they were acquired) and the Pooled
Companies up to the dates on which they were acquired. The results of the
Pooled Companies include all non-recurring acquisition costs.
<TABLE>
<CAPTION> U.S. OFFICE
PRODUCTS POOLED
COMPANY COMPANIES COMBINED
-------------- ----------- ------------
<S> <C> <C> <C>
Three months ended October 25, 1997:
Revenues....................................... $ 915,885 $ 36,548 $ 952,433
Net income..................................... $ 28,502 $ 302 $ 28,804
Three months ended October 26, 1996:
Revenues....................................... $ 541,742 $249,814 $ 791,556
Net income..................................... $ 9,468 $ 10,853 $ 20,321
Six months ended October 25, 1997:
Revenues....................................... $1,762,846 $ 93,118 $1,855,964
Net income..................................... $ 52,241 $ 1,615 $ 53,856
Six months ended October 26, 1996:
Revenues....................................... $ 858,093 $ 534,452 $1,392,545
Net income..................................... $ 15,500 $ 22,975 $ 38,475
</TABLE>
Page 8
<PAGE>
The following presents the unaudited pro forma results of operations of the
Company for the three and six month periods ended October 25, 1997 and October
26, 1996, as if all 100 of the companies acquired in business combinations
accounted for under the purchase method, completed since the beginning of fiscal
1997, had been consummated at the beginning of fiscal 1997. The pro forma
results of operations include certain pro forma adjustments including the
amortization of intangible assets and reductions in executive compensation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ------------------------
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1997 1996 1997 1996
----------- ---------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues............................... $ 958,952 $ 945,755 $1,894,159 $1,840,214
Net income............................. 31,027 23,271 58,567 54,237
Net income per share................... .26 .20 .49 .46
</TABLE>
The pro forma results of operations are prepared for comparative purposes only
and do not necessarily reflect the results that would have occurred had the
acquisitions occurred at the beginning of fiscal 1997 or the results which may
occur in the future.
NOTE 5--SUBSEQUENT EVENTS
Subsequent to October 25, 1997 and through December 8, 1997, the Company has
completed eight business combinations for an aggregate purchase price of $334.2
million, consisting of approximately $1.2 million of cash and 15.5 million
shares of the Company's common stock with an aggregate market value on the dates
of acquisition of approximately $333.0 million. This includes the acquisition of
Mail Boxes Etc., the world's largest franchisor of business, communication and
postal service centers with more than 3,500 centers operating worldwide, which
was completed on November 20, 1997. The Company issued approximately 15.4
million shares of its common stock in exchange for all of the outstanding shares
of Mail Boxes Etc. representing an exchange ratio of 1.349 shares of U.S .Office
Products common stock for each share of Mail Boxes Etc. common stock. The
acquisition of Mail Boxes Etc. will be accounted for under the
pooling-of-interests method of accounting; however, because the acquisition was
completed after October 25, 1997, these consolidated financial statements and
the notes hereto have not been adjusted to give retroactive effect to this
acquisition.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," "intend," "may," "will," "expect" and similar expressions
as they relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements 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 under the heading "--Factors Affecting
the Company's Business." The Company does not undertake any obligation to revise
these forward-looking statements to reflect any future events or circumstances.
INTRODUCTION
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto appearing elsewhere
in this Quarterly Report.
The Company's financial condition and results of operations have changed
dramatically from its inception in October 1994 to October 25, 1997 as a result
of its acquisition program. The Company completed 165 business combinations from
its inception through the end of fiscal 1997. During the six months ended
October 25, 1997, the Company completed an additional 42 business combinations,
23 of which were accounted for under the purchase method and 19 of which were
accounted for under the pooling-of-interests method. The Company's consolidated
financial statements give retroactive effect to the business combinations
accounted for under the pooling-of-interests method and include the results of
companies acquired in business combinations accounted for under the purchase
method from their respective acquisition dates.
Due to the Company's dramatic growth through acquisitions, year-to-year
comparisons of the historical results of the Company's operations have been
affected primarily by the addition of acquired companies. In most instances,
these dollar increases in the various revenues and expense components of the
Company's results are due primarily to growth from acquisitions. Neither the
magnitude nor the source of such year-to-year changes is necessarily
indicative of changes that will occur in the future. Even assuming that the
Company continues an aggressive acquisition program, the Company's existing
operations are now substantially larger, so new acquisitions (individually
and in the aggregate) will have a declining impact on the future results of
the Company's operations (i.e. additional similar-size acquisitions will
contribute an increasingly smaller percentage of the Company's overall
revenues and expenses). Recent changes in the Company's senior management,
overall organization, and business plans reflect the Company's understanding
that the development of existing operations has become increasingly important
to its future growth and profitability.
CONSOLIDATED RESULTS OF OPERATIONS
Three Months Ended October 25, 1997 Compared to Three Months Ended
October 26, 1996
Consolidated revenues increased 20.3%, from $791.6 million for the three
months ended October 26, 1996, to $952.4 million for the three months ended
October 25, 1997. This increase was primarily due to acquisitions.
Revenues for the three months ended October 25, 1997 include revenues from 82
companies acquired in business combinations accounted for under the purchase
method after the beginning of the second quarter of fiscal 1997 (the
"Purchased Companies"). Revenues for the three months ended October 26, 1996
include revenues from 27 of the Purchased Companies for a portion of such
period.
International revenues increased 14.0%, from $219.6 million, or 27.7% of
consolidated revenues, for the three months ended October 26, 1996, to $250.2
million, or 26.3% of consolidated revenues, for the three months ended October
25, 1997. The increase in international revenues was primarily due to the
inclusion, in the revenues for the three months ended October 25, 1997, of
revenues from 15 companies that were acquired in business combinations accounted
for under the purchase method on or after October 26, 1996. International
revenues consisted primarily of revenues from New Zealand and Australia, with
the balance from Canada and the United Kingdom.
Gross profit increased 19.6%, from $226.9 million for the three months ended
October 26, 1996, to $271.3 million for the three months ended October 25, 1997.
As a percentage of revenues, gross profit decreased from 28.7% for the three
months ended October 26, 1996 to 28.5% for the three months ended October 25,
1997. The decrease in gross profit as a percentage of revenues was due primarily
to a shift in revenue mix, primarily as a result of acquisitions, to revenues
from traditionally lower margin products and services, partially offset by
improved purchasing and rebate programs negotiated with vendors.
Page 10
<PAGE>
Selling, general and administrative expenses increased 17.8%, from $180.6
million for the three months ended October 26, 1996, to $212.7 million for
the three months ended October 25, 1997 primarily due to the inclusion of the
results of the Purchased Companies. Selling, general and administrative
expenses as a percentage of revenues decreased from 22.8% for the three
months ended October 26, 1996 to 22.3% for the three months ended October 25,
1997. The decrease in selling, general and administrative expenses as a
percentage of revenues was due to several factors, including (i) a shift in
revenue mix, primarily as a result of acquisitions, to revenues from products
and services traditionally having lower selling, general and administrative
expenses; (ii) reductions in selling, general and administrative expenses by
the Company through the consolidation of certain redundant facilities and job
functions; and (iii) reductions in the costs of many general and
administrative expenses incurred by the Company through the negotiation of
national or other large-scale contracts with the providers of certain
services affecting these general and administrative expenses.
The Company incurred non-recurring acquisition costs of $5.8 million and $3.9
million during the three months ended October 25, 1997 and October 26, 1996,
respectively, in conjunction with business combinations accounted for under
the pooling-of-interests method. These non-recurring acquisition costs
included accounting, legal and investment banking fees, real estate and
environmental assessments and appraisals, various regulatory fees and
recognition of transaction related obligations. Generally accepted accounting
principles require the Company to expense all acquisition costs (both those
paid by the Company and those paid by the sellers of the acquired companies)
related to business combinations accounted for under the pooling-of-interests
method. The Company expects to incur similar costs in the future, as the
Company anticipates completing additional acquisitions accounted for under
the pooling-of-interests method. The Company expects that non-recurring
acquisition costs in the Company's fiscal 1998 third quarter will be higher
than in prior periods, because of non-recurring acquisition costs associated
with the acquisition of Mail Boxes Etc., which was completed on November 20,
1997. Mail Boxes Etc. was a publicly traded company, and the costs of
acquiring a public company generally are substantially greater than those of
acquiring privately held companies. The Company has not previously acquired a
publicly traded U.S. business.
Interest expense, net of interest income, decreased 8.2%, from $12.0 million for
the three months ended October 26, 1996, to $11.0 million for the three months
ended October 25, 1997. This decrease in interest expense is the net effect
of a number of factors including the refinancing of higher interest rate debt
outstanding in New Zealand during the three months ended October 26, 1996 with
funds from the Company's $500 million credit facility with a syndicate of banks
led by Bankers Trust Company (the "Credit Facility"), declining interest rates
and the repayment of outstanding debt with the proceeds from a public stock
offering in January 1997, partially offset by steadily increasing borrowings.
See "Liquidity and Capital Resources".
Other income increased 74.6%, from $3.1 million for the three months ended
October 26, 1996, to $5.3 million for the three months ended October 25,
1997. Other income for the three months ended October 25, 1997 consisted
primarily of a $4.7 million marketing fee earned in conjunction with
providing a license to use a list of the Company's customers located in the
United States, as well as the Company's 49% share of the net income of Dudley
Stationery Limited ("Dudley"), the largest independent office products dealer
in the United Kingdom, in which the Company has a 49% equity investment. The
Company acquired its 49% interest in Dudley in November 1996. Other income
for the three months ended October 26, 1996 of $3.1 million consisted
primarily of a foreign currency gain of $3.4 million, partially offset by
miscellaneous other expenses. Although management is pursuing additional
opportunities to generate other income from arrangements with third parties
that desire access to the Company's distribution network and customer base,
management cannot predict whether or when such opportunities will be
realized, or what amount of other income might be available to the Company.
Page 11
<PAGE>
Provision for income taxes increased from $12.5 million for the three months
ended October 26, 1996 to $19.1 million for the three months ended October
25, 1997, reflecting effective income tax rates of 37.4% and 40.6%,
respectively. The increase in the provision for income taxes is primarily the
result of the increase in pre-tax income from $33.4 million for the three
months ended October 26, 1996 to $47.1 million for the three months ended
October 25, 1997. During both periods, the effective income tax rates reflect
the recording of tax provisions at the federal statutory rate of 35.0%, plus
appropriate state and local taxes. In addition, the effective tax rates were
increased to reflect the incurrence of non-deductible expenses, including
amortization of goodwill and non-recurring acquisition costs, and were
decreased to reflect that several of the companies included in the results
for such periods, which were acquired in business combinations accounted for
under the pooling-of-interests method, were not subject to federal income
taxes on a corporate level as they had elected to be treated as subchapter S
corporations prior to being acquired by the Company. The Company expects to
continue to incur such non-deductible expenses in the future, as the Company
anticipates completing additional acquisitions, which could have the effect
of increasing the Company's effective income tax rate. The Company also
expects to continue to acquire subchapter S corporations in acquisitions
accounted for under the pooling-of-interests method, which could have the
effect of decreasing the Company's effective income tax rate. As results from
the Company's existing operations reflect (over time) a larger percentage of
the Company's consolidated results (as compared to the contribution from new
acquisitions), management expects that the Company's effective income tax
rate will fluctuate less from one quarter to the next, because non-recurring
acquisition costs and income from subchapter S corporations acquired in
acquisitions accounted for under the pooling-of-interests method will
represent a declining percentage of the Company's total income before income
taxes.
During the three months ended October 26, 1996 the Company incurred an
extraordinary item of $612,000 which represented the aggregate expenses, net
of the tax benefit, associated with the early termination of the Company's
$50 million credit facility with First Bank National Association due to the
Company entering into the Credit Facility. The expenses consisted of the
write-off of certain capitalized debt issue costs, which were being amortized
over the life of the credit facility, and the direct costs of terminating the
facility.
Six Months Ended October 25, 1997 Compared to Six Months Ended
October 26, 1996
Consolidated revenues increased 33.3%, from $1,392.5 million for the six
months ended October 26, 1996, to $1,856.0 million for the six months ended
October 25, 1997. This increase was primarily due to acquisitions. Revenues
for the six months ended October 25, 1997 include revenues from 100 companies
acquired in business combinations accounted for under the purchase method
after the beginning of fiscal 1997 (the "Fiscal 1997 and 1998 Purchased
Companies"). Revenues for the six months ended October 26, 1996 include
revenues from 45 of the Fiscal 1997 and 1998 Purchased Companies for a
portion of such period.
International revenues increased 62.7%, from $313.1 million, or 22.5% of
consolidated revenues, for the six months ended October 26, 1996, to $509.3
million, or 27.4% of consolidated revenues, for the six months ended October
25, 1997. International revenues consisted primarily of revenues from New
Zealand and Australia, with the balance from Canada and the United Kingdom.
The increase in international revenues was primarily due to the inclusion, in
the revenues for the six months ended October 25, 1997, of revenues from 26
companies that were acquired in business combinations accounted for under the
purchase method on or after April 26, 1996, the most significant of which was
Whitcoulls Group Limited, which the Company's wholly-owned subsidiary Blue
Star Group Limited acquired on July 27, 1996.
Gross profit increased 33.1%, from $396.6 million for the six months ended
October 26, 1996, to $527.7 million for the six months ended October 25,
1997. Gross profit as a percentage of revenues decreased from 28.5% for the
six months ended October 26, 1996 to 28.4% for the six months ended October
25, 1997. The slight decrease in gross profit as a percentage of revenues was
due primarily to a shift in revenue mix, primarily as a result of
acquisitions, to revenues from traditionally lower margin products and
services, partially offset by improved purchasing and rebate programs
negotiated with vendors.
Page 12
<PAGE>
Selling, general and administrative expenses increased 30.5%, from $318.0
million for the six months ended October 26, 1996, to $415.0 million for the
six months ended October 25, 1997 primarily due to the inclusion of the
results of the Fiscal 1997 and 1998 Purchased Companies. Selling, general and
administrative expenses as a percentage of revenues decreased from 22.8% for
the six months ended October 26, 1996 to 22.4% for the six months ended
October 25, 1997. The decrease in selling, general and administrative
expenses as a percentage of revenues was due to several factors, including
(i) a shift in revenue mix, primarily as a result of acquisitions, to
revenues from products and services traditionally having lower selling,
general and administrative expenses; (ii) reductions in selling, general and
administrative expenses by the Company through the consolidation of certain
redundant facilities and job functions; and (iii) reductions in the costs of
many general and administrative expenses incurred by the Company through the
negotiation of national or other large-scale contracts with the providers of
certain services affecting these general and administrative expenses.
The Company incurred non-recurring acquisition costs of approximately $10.3
million and $5.7 million during the six months ended October 25, 1997 and
October 26, 1996, respectively, in conjunction with business combinations
that were accounted for under the pooling-of-interests method.
Interest expense, net of interest income, increased 27.0% from $16.5 million
for the six months ended October 26, 1996 to $21.0 million for the six months
ended October 25, 1997. This was due primarily to a decrease in interest
income during the six months ended October 25, 1997. The Company earned
interest income on the proceeds from the issuance of an aggregate of $230.0
million of convertible subordinated notes during the first quarter of fiscal
1997. These proceeds were subsequently used to fund a portion of the cash
consideration used in business combinations. Interest expense has remained
relatively consistent as steadily increasing borrowings and a declining cash
position have been offset by the repayment of debt from the proceeds of a
stock offering in January 1997 and declining interest rates.
Other income increased 110.3%, from $3.3 million for the six months ended
October 26, 1996, to $6.9 million for the six months ended October 25, 1997.
Other income for the six months ended October 25, 1997 consisted primarily of
a $4.7 million marketing fee, a gain on the sale of an investment and the
Company's 49% share of the net income of Dudley. The Company acquired its 49%
equity interest in Dudley in November 1996. Other income for the six months
ended October 26, 1996 of $3.3 million consisted primarily of a foreign
currency gain of $3.4 million, partially offset by miscellaneous other expenses.
Provision for income taxes increased from $20.6 million for the six months
ended October 26, 1996 to $35.3 million for the six months ended October 25,
1997, reflecting effective income tax rates of 34.5% and 40.0%, respectively.
The increase in the provision for income taxes is primarily the result of the
increase in pre-tax income from $59.6 million for the six months ended
October 26, 1996 to $88.4 million for the six months ended October 25, 1997.
During both periods, the effective income tax rates reflect the recording of
tax provisions at the federal statutory rate of 35.0%, plus appropriate state
and local taxes. In addition, the effective tax rates were increased to
reflect the incurrence of non-deductible expenses, including amortization of
goodwill and non-recurring acquisition costs, and were decreased to reflect
that several of the companies included in the results for such periods, which
were acquired in business combinations accounted for under the
pooling-of-interests method, were not subject to federal income taxes on a
corporate level as they had elected to be treated as subchapter S
corporations prior to being acquired by the Company.
LIQUIDITY AND CAPITAL RESOURCES
At October 25, 1997, the Company had cash of $43.3 million and working capital
of $275.2 million. The Company's capitalization, defined as the sum of long-term
debt and stockholders' equity, at October 25, 1997, was approximately $1.4
billion.
Page 13
<PAGE>
During the six months ended October 25, 1997, net cash provided by operating
activities was $23.8 million. The net cash provided by operating activities was
negatively impacted by the increase in accounts receivable in the Company's
Educational Supplies and Products Division as a result of seasonally high
revenues during the period. Net cash used in investing activities was $142.0
million, including $120.4 million used for acquisitions and $35.3 million used
for additions to property and equipment. Net borrowings increased $115.2 million
during the six months ended October 25, 1997, primarily to fund the purchase
prices of acquisitions and to repay higher-cost debt assumed in acquisitions.
During the six months ended October 26, 1996, net cash used in operating
activities was $7.2 million. The net cash used in operating activities was
negatively impacted by the increase in accounts receivable in the Company's
Educational Supplies and Products Division as a result of seasonally high
revenues during the period. Net cash used in investing activities was $306.3
million, including $273.7 million used for acquisitions and $20.5 million used
for additions to property and equipment. Net borrowings increased $158.8 million
during the six months ended October 26, 1996, primarily to fund the purchase
prices of acquisitions and to repay higher-cost debt assumed in acquisitions.
The Company also received $39.7 million in cash as a result of the sale of
common stock during the period.
At October 25, 1997, the Company had approximately $279.3 million outstanding
under the Credit Facility, at an annual interest rate of approximately 6.5%, and
$122.4 million and $98.3 million available under the Credit Facility for
acquisition and working capital purposes, respectively.
During the six months ended October 25, 1997, the New Zealand dollar weakened
against the U.S. dollar ("USD"), with the exchange rate declining from $0.69 USD
at April 27, 1997 to $0.62 USD at October 25, 1997. This resulted in a reduction
in stockholders' equity, through a cumulative translation adjustment, of $72.4
million, reflecting the impact of the declining exchange rate on the Company's
investment in its New Zealand subsidiaries.
Subsequent to October 25, 1997 and through December 8, 1997, the Company has
completed eight business combinations for an aggregate purchase price of $334.2
million, consisting of approximately $1.2 million of cash and 15.5 million
shares of the Company's common stock with an aggregate market value on the dates
of acquisition of approximately $333.0 million. This includes the acquisition of
Mail Boxes Etc., the world's largest franchisor of business, communication and
postal service centers with more than 3,500 centers operating worldwide, which
was completed on November 20, 1997. The Company issued approximately 15.4
million shares of its common stock in exchange for all of the outstanding shares
of Mail Boxes Etc. representing an exchange ratio of 1.349 shares of U.S. Office
Products common stock for each share of Mail Boxes Etc. common stock. The
acquisition of Mail Boxes Etc. will be accounted for under the
pooling-of-interests method of accounting.
The Company anticipates that its current cash on hand, cash flow from operations
and additional financing available under the Credit Facility will be sufficient
to meet the Company's liquidity requirements for its operations through the
remainder of the fiscal year. However, the Company is currently, and intends to
continue, pursuing additional acquisitions, which are expected to be funded
through a combination of cash and the issuance by the Company of shares of its
common stock. To the extent that the Company elects to pursue acquisitions
involving the payment of significant amounts of cash (to fund the purchase price
of such acquisitions and the repayment of assumed indebtedness), the Company is
likely to require additional sources of financing to fund such non-operating
cash needs. Based on discussions with the agent for the syndicate of banks
providing the Credit Facility (the "Agent"), the Company believes that it would
be able to negotiate an amendment to the Credit Facility providing additional
financing through an increase in the borrowing limit under the Credit Facility
(or through a new bank borrowing facility provided by the Agent together with
some or all of the banks that are members of the syndicate for the Credit
Facility). There can be no assurance, however, that such additional financing
would be made available to the Company, or would be provided on terms that the
Company considers acceptable or desirable.
Page 14
<PAGE>
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's business is subject to seasonal influences. The Company'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 the Company's other operations, which have
expanded through acquisitions. For example, the revenues and profitability of
the Company's Educational Supplies and Product Division have been higher
during the Company's first and second quarters and significantly lower in its
third and fourth quarters, and the revenues and profitability of the
Company's operations in New Zealand and Australia have generally been higher
in the Company's third quarter. As the Company's mix of businesses evolves
through future acquisitions, these seasonal fluctuations may continue to
change. In addition, quarterly results also may be materially affected by the
timing of acquisitions, the timing and magnitude of costs related to such
acquisitions, variations in the prices paid by the Company for the products
it sells, the mix of products sold, general economic conditions, and the
retroactive restatement of the Company's consolidated financial statements
for acquisitions accounted for under the pooling-of-interests method.
Therefore, results for any quarter are not necessarily indicative of the
results that the Company may achieve for any subsequent fiscal quarter or for
a full fiscal year.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations during fiscal 1997 or the first two quarters of fiscal
1998.
FACTORS AFFECTING THE COMPANY'S BUSINESS
The future operating results of the Company may be affected by a number of
factors, including the matters discussed below:
The Company depends upon acquisitions and organic growth to increase its
earnings. There can be no assurance that the Company 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
the Company's quarterly results. Likewise, delays in implementing planned
integration strategies and activities also could adversely affect the Company's
quarterly earnings.
In addition, there can be no assurance that acquisitions will occur at the
same pace as in prior periods or be available to the Company on favorable
terms, if at all. If the Company is unable to use the Company's common stock
as consideration in acquisitions, for example, because it believes that the
market price of the common stock is too low or because the owners of
potential acquisition targets conclude that the market price of the Company's
common stock is too volatile, the Company 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). To the extent that the
Company cannot account for an acquisition under the pooling-of-interests
method, the Company will incur goodwill which is required to be amortized
against earnings over an amortization period, and which is not deductible for
income tax purposes, all of which has the effect of reducing net income. This
might adversely affect the pace of the Company's acquisition program and the
impact of acquisitions on the Company's quarterly results.
Page 15
<PAGE>
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 investment therein. Acquisitions may involve a number of special risks that
could have a material adverse effect on the Company's operations and financial
performance, including adverse short-term effects on the Company's 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 acquired
intangible assets.
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 products that USOP has offered since it began
operations. USOP's ability to manage an aggressive consolidation program is
continually being tested especially in markets other than the domestic
contract stationer market. In addition, 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.
The Company's acquisition strategy has resulted in a significant increase in
sales, employees, facilities and distribution systems. While the Company's
decentralized management strategy, together with operating efficiencies
resulting from the elimination of duplicative functions and economies of scale,
may present opportunities to reduce costs, such strategies may initially
necessitate costs and expenditures to expand operational and financial systems
and corporate management administration. The various costs and possible
cost-savings strategies may make historical operating results not indicative of
future performance. There can be no assurance that the Company's executive
management group can continue to oversee the Company and effectively implement
its operating or growth strategies in each of the markets that it serves. In
addition, there can be no assurance that the pace of the Company's acquisitions,
or the diversification of its business outside of its core contract stationer
operations, will not adversely affect the Company's efforts to implement its
cost-savings and integration strategies and to manage its operations and
acquisitions profitability. See "--Introduction" for other factors that may
affect the Company's future operating results.
The Company intends 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 the Company's total sales. In addition to the
factors described above that may impact the Company's domestic operations, the
Company's operations in foreign markets are subject to a number of inherent
risks, including currency exchange rates, new and different legal, regulatory
and competitive requirements, difficulties in staffing and managing foreign
operations, risks specific to different business lines that the Company may
enter, and other factors. During the six months ended October 25, 1997, the
New Zealand dollar weakened against the U.S. dollar, with the exchange rate
declining from $0.69 USD at April 27, 1997 to $0.62 USD at October 26, 1997.
See "--Liquidity and Capital Resources." The Company, at this time, is not
able to accurately predict the future strength or weakness of the New Zealand
dollar against the U.S. dollar.
The Company operates in a highly competitive environment. In the markets in
which it operates, the Company 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, the Company 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 the Company's geographic and product markets in the future. No assurances
can be give that competition will not have an adverse effect on the Company's
business.
Page 16
<PAGE>
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, the Company 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 the
Company; and other similar transactions. In considering any of these strategies,
the Company 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 the Company to
restate its financial statements to account for prior transactions under the
purchase rather than the pooling-of-interests method or would eliminate the
Company's ability to use the pooling-of-interests 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 the Company. 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.
The Company recently completed the acquisition of Mail Boxes Etc. ("MBE"). See
Note 5 of the Notes to the Company's Consolidated Financial Statements.
Certain factors that may affect MBE's business are additional to the factors
discussed above affecting the Company's other businesses. The factors that
may affect MBE's business include the recent changes to the senior management
of MBE, the reliance of MBE franchisees on United Parcel Service for ground
shipping services, the lack of control that MBE has over its franchisees, the
impact of government regulation of MBE as a franchisor, the historically
litigious nature of franchise relationships and the growing competition from
the United States Postal Service.
Page 17
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of the Company's stockholders was held on October 7, 1997.
All nominees for Director were elected pursuant to the following votes:
AUTHORITY BROKER
NOMINEE FOR WITHHELD NON-VOTE
------- ---- ------------ --------
Jonathan J. Ledecky.... 56,105,597 485,862 0
Jack L. Becker, Jr..... 56,182,097 409,362 0
Timothy J. Flynn....... 56,105,392 486,067 0
David C. Gezon......... 56,182,097 409,362 0
Milton H. Kuyers....... 56,104,947 486,512 0
Allon H. Lefever....... 56,182,097 409,362 0
Edward J. Mathias...... 56,181,797 409,662 0
Thomas I. Morgan....... 56,105,597 485,862 0
Clifton B. Phillips.... 56,105,597 485,862 0
John A. Quelch......... 56,181,657 409,802 0
The stockholders approved the U.S. Office Products Company Section 162(m) Bonus
Plan.
BROKER
FOR AGAINST ABSTAIN NON-VOTE
---- ----------- ----------- -----------
47,066,212 532,317 352,220 8,746,719
The stockholders ratified the Board of Directors' selection of Price Waterhouse
LLP as the Company's independent accountants to audit the Company's consolidated
financial statements for the fiscal year ending April 25, 1998.
BROKER
FOR AGAINST ABSTAIN NON-VOTE
---- ----------- ----------- -----------
56,186,275 382,556 22,628 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Amendment No. 1, dated as of December 5, 1997, to Employment
Agreement, dated as of February 3, 1997, by and between the Company
and Thomas I. Morgan
10.2 Amended and Restated Employment Agreement, dated as of August 1, 1997,
by and between the Company and Michael J. Barnell
10.3 Amended and Restated Employment Agreement, dated as of November 4,
1997, by and between the Company and Jonathan J. Ledecky
11.1 Statement regarding computation of net income per share
27 Financial Data Schedule
(b) Reports on Form 8-K
NONE
Page 18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
U.S. OFFICE PRODUCTS COMPANY
December 9, 1997 By: /s/ Thomas I. Morgan
- - --------------------- ---------------------
Date Thomas I. Morgan
Chief Executive Officer
December 9, 1997 By: /s/ Donald H. Platt
- - ---------------------- ---------------------
Date Donald H. Platt
Chief Financial Officer
Page 19
<PAGE>
EXHIBIT INDEX
NO. EXHIBIT PAGE
10.1 Amendment No. 1, dated as of December 5, 1997, to Employment
Agreement, dated as of February 3, 1997, by and between the
Company and Thomas I. Morgan
10.2 Amended and Restated Employment Agreement, dated as of
August 1, 1997, by and between the Company and Michael J. Barnell
10.3 Amended and Restated Employment Agreement, dated as of
November 4, 1997, by and between the Company and
Jonathan J. Ledecky
11.1 Statement regarding computation of net income per share
27 Financial Data Schedule
Page 20
<PAGE>
EXHIBIT 10.1
AMEDNMENT NO. 1 TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 (the "Amendment"), dated as of this 5th day of
December, 1997, to that certain Employment Agreement, dated as of February 3,
1997 (the "Agreement"), by and between U.S. Office Products Company, a
Delaware corporation (the "Company"), and Thomas I. Morgan ("Employee").
RECITALS
The Company and Employee desire to amend certain of the terms of the
Agreement.
NOW, THEREFORE, in consideration of the mutual promises, terms,
covenants, and conditions set forth herein, and the performance of each, the
parties hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. The first two sentences of Section 1 of the Agreement are hereby
amended and restated to read in their entirety as follows:
"The Company hereby employs Employee to perform the duties described
herein, and Employee hereby accepts employment with the Company for a term
beginning on the date first written above (the "Commencement Date") and
continuing through October 31, 2000. The term of this Agreement shall be
extended automatically beyond the initial 45-month period for additional,
successive one-year terms, unless the Company notifies Employee no less
than six months prior to the end of the initial period or any renewal
period, as applicable, that it does not intend to extend the term for an
additional period at the end of the then-effective term."
2. The first three sentences of Section 2 of the Agreement are hereby
amended and restated to read in their entirety as follows:
"The Company hereby employs Employee as its President and Chief Executive
Officer. Employee shall have such responsibilities, duties, and authority
as are accorded to the offices of president and chief executive officer and
as are otherwise assigned to him by the Company's Board of Directors (the
"Board"). Employee shall report directly to the Board."
3. Effective as of November 1, 1997, Employee's base salary shall be
increased to $600,000 per year, and Section 3(a) of the Agreement shall be
deemed to be amended accordingly to reflect this change. In addition, the
following shall be added to the end of Section 3(a) of the Agreement:
"This annual base salary shall remain in effect through the end of the
Company's 1999 fiscal year. Employee's base salary shall be subject to
adjustment thereafter,
<PAGE>
for subsequent periods during the Term, based upon the review, and in
the discretion, of the Compensation Committee of the Board."
4. The last sentence of Section 3(b) of the Agreement is hereby deleted,
and the following is added to such Section 3(b):
"Notwithstanding the foregoing, Employee shall receive incentive bonus
compensation of no less than the following amounts, payable in accordance
with the following terms: (i) the amount of $112,500, payable on or about
February 1, 1998, unless the Company and Employee shall agree to a
different payment date; (ii) for the period November 1, 1997 through April
25, 1998, the amount of $75,000, payable at the time that the Company
distributes fiscal year end bonuses to its officers for the 1998 fiscal
year (approximately June 1998); (iii) for the period April 26, 1998 through
April 24, 1999, the amount of $150,000, payable at the time that the
Company distributes fiscal year end bonuses to its officers for the 1999
fiscal year (approximately June 1999); and (iv) for the period April 25,
1999 through April 29, 2000, the amount of $75,000, payable either at the
time that the Company distributes fiscal year end bonuses to its officers
for the 2000 fiscal year (approximately June 2000), or, at Employee's
option, at any earlier time after November 1, 1999."
5. Except as expressly modified or amended by the terms of this
Amendment, the original terms and conditions of the Agreement shall continue in
full force and effect, and the parties hereby confirm the continuing validity
and applicability of the Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
U.S. OFFICE PRODUCTS COMPANY
By: /s/ Mark D. Director
------------------------------
Mark D. Director
Chief Administrative Officer and General Counsel
EMPLOYEE:
/s/ Thomas I. Morgan
- - ---------------------------
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") by and
between U.S. Office Products Company, a Delaware corporation (the "Company"),
and Michael J. Barnell ("Employee") is hereby entered into and effective as of
the 1st day of August, 1997. This Agreement hereby supersedes any other
employment agreements or understandings, written or oral, between the Company
(including any affiliates thereof) and Employee.
RECITALS
Employee previously entered into an Employment Agreement with the Company
and American Loose Leaf/Business Products, Inc. ("ALL"), a wholly owned
subsidiary of the Company, dated as of August 9, 1996 (the "Original
Agreement").
Employee, the Company and ALL desire to amend the Original Agreement in
certain respects.
Employee has agreed to transfer his employment to the Company pursuant to
an assignment of the Agreement to the Company. The Company desires to employ
Employee and to have the benefit of his skills and services, and Employee
desires to have his employment transferred to the Company, on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, terms, covenants
and conditions set forth herein, and the performance of each, the parties
hereto, intending legally to be bound, hereby agree as follows:
AGREEMENTS
1. Employment; Term. As of August 1, 1997, the Company hereby employs
Employee to perform the duties described herein, and Employee hereby accepts
employment with the Company. The term of Employee's employment with the
Company shall be equal to the time remaining on the term of Employee's
original employment with ALL pursuant to the Original Agreement (i.e.,
through August 9, 2001) (the "Term"). The Agreement may be terminated prior
to the end of the Term in the manner provided for in Section 6 hereof.
2. Position and Duties. The Company hereby employs Employee as
President of its North American Office Products Group. Employee shall have
such responsibilities, duties and authority as are delegated to him from time
to time by the Chief Operating Officer of the Company and/or the Board of
Directors of the Company (the "Board"). Employee will report directly to the
Chief Operating Officer of the Company.
3. Compensation. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) Base Salary. Effective on the date hereof, the base salary
payable to Employee shall be $300,000 per year, payable on a regular basis in
accordance with the Company's standard payroll procedures, but not less than
monthly. On at least an annual basis, the Company's Chief Operating
1
<PAGE>
Officer and/or the Board will review Employee's performance and may make
increases to such base salary if, in its sole discretion, any such increase
is warranted.
(b) Incentive Bonus. Employee will be eligible to receive a
performance-based incentive bonus in each fiscal year during the Term, based
upon the achievement of the criteria specified in the Company's Incentive Bonus
Program, as may be modified or amended from time to time. These criteria will
be subject to annual revision, to take account of the Company's growth, the
results of the budgeting process for each fiscal year, and other relevant
factors. The incentive bonus, if earned, will be payable in the form of cash,
stock options, or other non-cash awards (or any combination of the foregoing),
in such proportions, and in such forms, as are determined by the Board of
Directors of the Company or a compensation committee thereof. The Board of
Directors of the Company, or a compensation committee thereof, will retain
complete and final discretion over the terms of the Incentive Bonus Program, as
well as the terms of any and all bonus awards under the Program. If the
Incentive Bonus Program is terminated for any reason, the Company will implement
a reasonable alternative incentive bonus arrangement for Employee.
Notwithstanding the foregoing, with respect to the first fiscal year of the
Term, Employee shall be entitled to receive incentive compensation of no less
than $50,000.
(c) Perquisites, Benefits, and Other Compensation. During the Term,
Employee shall be entitled to receive such perquisites and benefits as are
offered by the Company to senior executive officers of the Company, subject to
such changes, additions, or deletions as the Company may make generally from
time to time, as well as such other perquisites or benefits as may be specified
from time to time by the Board.
4. Expense Reimbursement. The Company shall reimburse Employee for (or,
at the Company's option, pay) all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of his services
hereunder during the Term. All reimbursable expenses shall be appropriately
documented in reasonable detail by Employee upon submission of any request for
reimbursement, and in a format and manner consistent with the Company's expense
reporting policy, as well as applicable federal and state tax record keeping
requirements.
5. Place of Performance. Employee shall carry out his duties and
responsibilities hereunder principally in and from Washington, DC. Employee
understands that he may be requested by the Board to relocate from his present
residence to another geographic location in order to more efficiently carry out
his duties and responsibilities under this Agreement or as part of a promotion
or a change in duties and responsibilities. In such event, if Employee agrees
to relocate, the Board will provide Employee with a relocation allowance, in an
amount determined by the Board, to cover the reasonable costs of moving himself,
his immediate family, and their personal property and effects. Relocation costs
may include, by way of example, but are not limited to, pre-move visits to
search for new residence, to investigate schools or for other purposes;
temporary lodging and living costs prior to moving into a new permanent
residence; duplicate home carrying costs; all closing costs on the sale of
Employee's present residence and on the purchase of a comparable residence in
the new location; and added income taxes that Employee may incur if any
relocation costs are not deductible for tax purposes. The general intent of the
foregoing is that Employee shall not personally bear any reasonable out-of
pocket cost as a result of the relocation, with an understanding that Employee
will use his best efforts to incur only those costs which are reasonable and
necessary to effect a smooth, efficient and orderly relocation with minimal
disruption to the business affairs of the Company and the personal life of
Employee and his family. Notwithstanding the foregoing, if Employee is
requested by the Board to relocate and Employee refuses, such refusal shall not
constitute "cause" for termination of this Agreement under the terms of Section
6(c) and, in the event Employee is terminated for such refusal, Employee shall
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be entitled to receive all payments under this Agreement as if he were
terminated by the Company without cause. The total amount and type of costs to
be covered shall be determined by the Board, in light of prevailing Company
policy at the time.
6. Termination; Rights on Termination. Employee's employment may be
terminated in any one of the followings ways, prior to the expiration of the
Term:
(a) Death. The death of Employee shall immediately terminate the
Term, and no severance compensation shall be owed to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or
mental illness or injury, Employee shall have been unable to perform the
material duties of his position on a full-time basis for a period of four (4)
consecutive months, or for a total of four (4) months in any six-month period,
then 30 days after written notice to the Employee (which notice may be given
before or after the end of the aforementioned periods, but which shall not be
effective earlier than the last day of the applicable period), the Company may
terminate Employee's employment hereunder if Employee is unable to resume his
full-time duties at the conclusion of such notice period. Also, Employee may
terminate his employment hereunder if his health should become impaired to the
extent that makes the continued performance of his duties hereunder hazardous to
his physical or mental health or his life, provided that Employee shall have
furnished the Company with a written statement from a qualified doctor to such
effect and provided further, that, at the Company's request made within 30 days
from the date of such written statement, Employee shall submit to an examination
by a doctor selected by the Company who is reasonably acceptable to Employee or
Employee's doctor and such doctor shall have concurred in the conclusion of
Employee's doctor. Subject to Section 6(h) below, if Employee's employment is
terminated as a result of Employee's disability, the Company shall continue to
pay Employee his base salary at the then-current rate for the lesser of (i) six
(6) months from the effective date of termination, or (ii) whatever time period
is remaining under the Term. Such payments shall be made in accordance with the
Company's regular payroll cycle.
(c) Termination by the Company "For Cause." The Company may
terminate the Term ten (10) days after written notice to Employee "for cause,"
which shall be: (i) Employee's material breach of this Agreement, which breach
is not cured within ten (10) days of receipt by Employee of written notice from
the Company specifying the breach; (ii) Employee's gross negligence in the
performance of his duties hereunder, intentional nonperformance or
mis-performance of such duties, or refusal to abide by or comply with the
directives of the Board, his superior officers, or the Company's policies and
procedures, which actions continue for a period of at least ten (10) days after
receipt by Employee of written notice of the need to cure or cease; (iii)
Employee's willful dishonesty, fraud, or misconduct with respect to the business
or affairs of the Company or USOP, and that in the reasonable judgment of the
Company or USOP materially and adversely affects the operations or reputation of
the Company or USOP; (iv) Employee's conviction of a felony or other crime
involving moral turpitude; or (v) Employee's abuse of alcohol or drugs (legal or
illegal) that, in the Company's reasonable judgment, materially impairs
Employee's ability to perform his duties hereunder. In the event of a
termination "for cause," as enumerated above, Employee shall have no right to
any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
the Company may, without cause, terminate the Term and Employee's employment,
effective thirty (30) days after written notice is provided to the Employee.
Should Employee be terminated by the Company without cause, subject to Section
6(h) below, Employee shall receive from the Company the base salary at the rate
then in effect for the longer of (i) six (6) months from the date of
termination, or (ii) whatever
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time period is remaining under the Term. Such payments shall be made in
accordance with the Company's regular payroll cycle.
(e) Change in Control of the Company. Refer to Section 20 below.
(f) Termination by Employee for Good Reason. Employee may terminate
his employment hereunder for "Good Reason". As used herein, "Good Reason" shall
mean the continuance, after ten (10) days' prior written notice by Employee to
the Company, specifying the basis for such Employee's having Good Reason to
terminate this Agreement, any material breach of this Agreement by the Company,
including the failure to pay Employee on a timely basis the amounts to which he
is entitled under this Agreement. If Employee resigns or otherwise terminates
his employment for any reason other than Good Reason as defined in Section 6(f),
Employee shall receive no severance compensation. If Employee resigns for Good
Reason, Employee shall be entitled to severance as if he had been terminated
without cause.
(g) Payment Through Termination. Upon termination of Employee's
employment for any reason provided above, Employee shall be entitled to receive
all compensation earned and all benefits and reimbursements (including payments
for accrued vacation and sick leave, in each case in accordance with applicable
policies of the Company) due through the effective date of termination.
Additional compensation subsequent to termination, if any, will be due and
payable to Employee only to the extent and in the manner expressly provided
above in this Section 6. With respect to incentive bonus compensation, Employee
shall be entitled to receive any bonus declared but not paid prior to
termination. In addition, in the event of a termination by the Company under
Section 6(b), 6(d), or 6(f), Employee shall be entitled to receive incentive
bonus compensation through the end of the Company's fiscal year in which
termination occurs, calculated as if Employee had remained employed by the
Company through the end of such fiscal year, and paid in such amounts, at such
times, and in such forms as are determined pursuant to Section 3(b) above and
Exhibit A attached hereto. Except as specified in the preceding two sentences,
Employee shall not be entitled to receive any incentive bonus compensation after
the effective date of termination of his employment. All other rights and
obligations of the Company and Employee under this Agreement shall cease as of
the effective date of termination, except that the Company's obligations under
Section 11 below and Employee's obligations under Sections 7, 8, 9 and 10 below
shall survive such termination in accordance with their terms.
(h) Right to Offset. In the event of any termination of Employee's
employment under this Agreement, the Employee shall have no obligation to seek
other employment; provided, that in the event that (1) Employee secures new
employment or any consulting or other similar arrangement during the period that
any payment is continuing pursuant to the provisions of this Section 6 and which
Employee did not have at the time of such termination, or (2) Employee secures
increased compensation under any other employment, consulting or other similar
arrangement during the period that any payment is continuing pursuant to the
provisions of this Section 6, the Company shall have the right to reduce the
amounts to be paid hereunder by the amount of Employee's earnings or increased
earnings, as the case may be, from such other employment, consulting or other
arrangement.
7. Restriction on Competition.
(a) During the Term, and thereafter, if Employee continues to be
employed by the Company and/or any other entity owned by or affiliated with the
Company on an "at will" basis, for the duration of such period, and thereafter
for the Restricted Period (defined below), Employee shall not,
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directly or indirectly, for himself or on behalf of or in conjunction with
any other person, company, partnership, corporation, business, group, or
other entity (each, a "Person"):
(i) engage, as an officer, director, shareholder, owner,
partner, member, joint venturer, or in a managerial capacity, whether as an
employee, independent contractor, consultant, advisor, or sales representative,
in any business selling any products or services in direct competition with the
Company, within 100 miles of any location where the Company conducts business
(the "Territory");
(ii) call upon any Person who is, at that time, within the
Territory, an employee of the Company for the purpose or with the intent of
enticing such employee away from or out of the employ of the Company;
(iii) call upon any Person who or that is, at that time, or
has been, within one year prior to that time, a customer of the Company within
the Territory for the purpose of soliciting or selling products or services in
direct competition with the Company within the Territory; or
(iv) on Employee's own behalf or on behalf of any competitor,
call upon any Person as a prospective acquisition candidate who or that, during
Employee's employment by the Company was, to Employee's knowledge, either called
upon by the Company as a prospective acquisition candidate or was the subject of
an acquisition analysis conducted by the Company. Employee, to the extent
lacking the knowledge described in the preceding sentence, shall immediately
cease all contact with any prospective acquisition candidate upon being informed
that the Company had called upon such candidate or made an acquisition analysis
thereof.
(b) The foregoing covenants shall not be deemed to prohibit Employee
from acquiring as an investment not more than one percent (1%) of the capital
stock of a competing business, whose stock is traded on a national securities
exchange or through the automated quotation system of a registered securities
association.
(c) It is further agreed that, in the event that Employee shall cease
to be employed by the Company and enters into a business or pursues other
activities that, at such time, are not in competition with the Company, Employee
shall not be chargeable with a violation of this Section 7 if the Company
subsequently enters the same (or a similar) competitive business or activity or
commences competitive operations within 100 miles of the Employee's new business
or activities. In addition, if Employee has no actual knowledge that his
actions violate the terms of this Section 7, Employee shall not be deemed to
have breached the restrictive covenants contained herein if, promptly after
being notified by the Company of such breach, Employee ceases the prohibited
actions.
(d) For the purposes of this Section 7, references to "the Company"
shall mean U.S. Office Products Company, together with its subsidiaries and
affiliates.
(e) The covenants in this Section 7 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions of
any other covenant. If any provision of this Section 7 relating to the time
period or geographic area of the restrictive covenants shall be declared by a
court of competent jurisdiction to exceed the maximum time period or geographic
area, as applicable, that such court deems reasonable and enforceable, said time
period or geographic area shall be deemed to be, and thereafter shall become,
the maximum time period or largest geographic area that such court deems
reasonable and enforceable and this Agreement shall automatically be considered
to have been amended and revised to reflect such determination.
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(f) All of the covenants in this Section 7 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants; provided, that upon
the termination of Employee's employment by Employee for Good Reason pursuant to
Section 6(f) hereof, the Employee may, upon 30 days' prior written notice to the
Company, waive his right to receive any additional compensation pursuant to this
Agreement and engage in any activity prohibited by the covenants of this Section
7. It is specifically agreed that the Restricted Period defined in this Section
7, during which the agreements and covenants of Employee made in this Section 7
shall be effective, shall be computed by excluding from such computation any
time during which Employee is in violation of any provision of this Section 7.
(g) If the time period specified by this Section 7 shall be reduced
by law or court decision, then, notwithstanding the provisions of Section 6
above, Employee shall be entitled to receive from the Company his base salary at
the rate then in effect solely for the longer of (i) the time period during
which the provisions of this Section 7 shall be enforceable under the provisions
of such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the applicable
period provided in Section 6 above.
(h) Employee has carefully read and considered the provisions of this
Section 7 and, having done so, agrees that the restrictive covenants in this
Section 7 impose a fair and reasonable restraint on Employee and are reasonably
required to protect the interests of the Company and its officers, directors,
employees, and stockholders. It is further agreed that the Company and Employee
intend that such covenants be construed and enforced in accordance with the
changing activities, business, and locations of the Company throughout the term
of these covenants.
(i) As used herein, the "Restricted Period" shall mean:
(A) in the case of the expiration of the Term pursuant to
Section 1, for the period during which Employee is receiving any severance pay
from the Company, plus one year;
(B) in the case of the termination of Employee's employment by
the Company "for cause" pursuant to Section 6(c), or the resignation or other
termination of Employee's employment by Employee (other than for Good Reason),
for a period equal to the longer of two (2) years after such termination or
resignation or the period during which Employee is receiving any severance pay
from the Company;
(C) in the case of a termination of Employee's employment by the
Company for Employee's disability pursuant to Section 6(b), the period during
which Employee is receiving any severance pay from the Company, plus one year;
and
(D) in the case of a termination of Employee's employment (1) by
the Company without cause pursuant to Section 6(d) or by the Employee for Good
Reason pursuant to Section 6(f), or (2) due to a "change of control" pursuant to
Section 20(a), for a period equal to the longer of eighteen (18) months after
such expiration or the period during which Employee is receiving any severance
pay from the Company, subject to the provisions of Section 7(f) in the event of
a termination by Employee for Good Reason.
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8. Confidential Information. Employee hereby agrees to hold in strict
confidence and not to disclose to any third party any of the valuable,
confidential, and proprietary business, financial, technical, economic, sales,
and/or other types of proprietary business information relating to the Company
(including all trade secrets), in whatever form, whether oral, written, or
electronic (collectively, the "Confidential Information"), to which Employee
has, or is given (or has had or been given), access as a result of his
employment by the Company. It is agreed that the Confidential Information is
confidential and proprietary to the Company because such Confidential
Information encompasses technical know-how, trade secrets, or technical,
financial, organizational, sales, or other valuable aspects of the Company's
business and trade, including, without limitation, technologies, products,
processes, plans, clients, personnel, operations, and business activities. This
restriction shall not apply to any Confidential Information that (a) becomes
known generally to the public through no fault of the Employee; (b) is required
by applicable law, legal process, or any order or mandate of a court or other
governmental authority to be disclosed; or (c) is reasonably believed by
Employee, based upon the advice of legal counsel, to be required to be disclosed
in defense of a lawsuit or other legal or administrative action brought against
Employee; provided, that in the case of clauses (b) or (c), Employee shall give
the Company reasonable advance written notice of the Confidential Information
intended to be disclosed and the reasons and circumstances surrounding such
disclosure, in order to permit the Company to seek a protective order or other
appropriate request for confidential treatment of the applicable Confidential
Information.
9. Inventions. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements, and valuable
discoveries, whether patentable or not, that are conceived or made by Employee,
solely or jointly with another, during the period of employment or within one
year thereafter, and that are directly related to the business or activities of
the Company and that Employee conceives as a result of his employment by the
Company, regardless of whether or not such ideas, inventions, or improvements
qualify as "works for hire." Employee hereby assigns and agrees to assign all
his interests therein to the Company or its nominee. Whenever requested to do
so by the Company, Employee shall execute any and all applications, assignments,
or other instruments that the Company shall deem necessary to apply for and
obtain Letters Patent of the United States or any foreign country or to
otherwise protect the Company's interest therein.
10. Return of Company Property. Promptly upon termination of Employee's
employment by the Company for any reason or no reason, Employee or Employee's
personal representative shall return to the Company (a) all Confidential
Information; (b) all other records, designs, patents, business plans, financial
statements, manuals, memoranda, lists, correspondence, reports, records, charts,
advertising materials, and other data or property delivered to or compiled by
Employee by or on behalf of the Company or its representatives, vendors, or
customers that pertain to the business of the Company, whether in paper,
electronic, or other form; and (c) all keys, credit cards, vehicles, and other
property of the Company. Employee shall not retain or cause to be retained any
copies of the foregoing. Employee hereby agrees that all of the foregoing shall
be and remain the property of the Company, and be subject at all times to their
discretion and control.
11. Indemnification. In the event Employee is made a party to any
threatened or pending action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by the Company against
Employee, and excluding any action by Employee against the Company), by reason
of the fact that he is or was performing services under this Agreement or as an
agent, representative, employee, officer or director of the Company, then, to
the fullest extent permitted by applicable law, the Company shall indemnify
Employee against all expenses (including reasonable attorneys' fees), judgments,
fines, and amounts paid in settlement, as actually and reasonably incurred
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by Employee in connection therewith. Such indemnification shall continue as
to Employee even if he has ceased to be an employee, officer, or director of
the Company and shall inure to the benefit of his heirs and estate. The
Company shall advance to Employee all reasonable costs and expenses directly
related to the defense of such action, suit, or proceeding within 20 days
after written request therefor by Employee to the Company, provided, that
such request shall include a written undertaking by Employee, in a form
acceptable to the Company, to repay such advances if it shall ultimately be
determined that Employee is or was not entitled to be indemnified by the
Company against such costs and expenses. In the event that both Employee and
the Company are made a party to the same third-party action, complaint, suit,
or proceeding, the Company will engage competent legal representation, and
Employee agrees to use the same representation; provided, that if counsel
selected by the Company shall have a conflict of interest that prevents such
counsel from representing Employee, Employee may engage separate counsel and
the Company shall pay all reasonable attorneys' fees of such separate
counsel. The provisions of this Section 11 are in addition to, and not in
derogation of, the indemnification provisions of the Company's By-laws. The
foregoing indemnification also shall be applicable to Employee in his
capacity as an agent, representative, employee, officer or director, of any
subsidiary of the Company, or any other entity, but in each case only to the
extent that Employee is serving at the request of the Board or the Board of
Directors of the Company.
12. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee, his employment by the
Company, and the performance of his duties hereunder will not violate or be a
breach of any agreement with a former employer, client, or any other Person.
Further, Employee agrees to indemnify and hold harmless the Company and its
officers, directors, and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
non-competition agreement, invention, secrecy, or other agreement between
Employee and such third party that was in existence as of the date of this
Agreement. To the extent that Employee had any oral or written employment
agreement or understanding with the Company, this Agreement shall automatically
supersede such agreement or understanding, and upon execution of this Agreement
by Employee and the Company, such prior agreement or understanding automatically
shall be deemed to have been terminated and shall be null and void.
13. Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience, and skills. Employee agrees, therefore, that he
cannot assign all or any portion of his performance under this Agreement. This
Agreement may not be assigned or transferred by the Company without the prior
written consent of Employee. Subject to the preceding two sentences, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective heirs, legal representatives,
successors, and assigns. Notwithstanding the foregoing, if Employee accepts
employment with a subsidiary or affiliate of the Company, unless Employee and
his new employer agree otherwise in writing, this Agreement shall automatically
be deemed to have been assigned to such new employer (which shall thereafter be
an additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Employee, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer.
14. Complete Agreement; Waiver; Amendment. This Agreement is not a
promise of future employment. Employee has no oral representations,
understandings, or agreements with the Company or any of its officers,
directors, or representatives covering the same subject matter as this
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Agreement. This Agreement is the final, complete, and exclusive statement and
expression of the agreement between the Company and Employee with respect to the
subject matter hereof, and cannot be varied, contradicted, or supplemented by
evidence of any prior or contemporaneous oral or written agreements. This
written Agreement may not be later modified except by a further writing signed
by a duly authorized officer of the Company and Employee, and no term of this
Agreement may be waived except by a writing signed by the party waiving the
benefit of such term.
15. Notice. Whenever any notice is required hereunder, it shall be given
in writing addressed as follows:
To the Company: U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600E
Washington, D.C. 20007
Attn: Mark D. Director, Esq.
(Telefax: (202) 339-6733)
To Employee: Michael J. Barnell
Notice shall be deemed given and effective three days after the deposit in the
U.S. mail of a writing addressed as above and sent first class mail, certified,
return receipt requested, or, if sent by express delivery, hand delivery, or
facsimile, when actually received. Either party may change the address for
notice by notifying the other party of such change in accordance with this
Section 15.
16. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid or inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 7(e) above. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe, interpret,
define or limit the extent or intent of the Agreement or of any part hereof.
17. Equitable Remedy. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 7, 8, 9 and 10, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company at law or in equity, the Company
shall be entitled to specific performance and any injunctive or other equitable
relief as a remedy for any breach or threatened breach of the aforementioned
restrictive covenants.
18. Arbitration. Any unresolved dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall be
borne by the Company. Each party shall bear its own counsel fees. The
arbitration proceeding shall be held in the city where the Company is located.
Notwithstanding the foregoing, the Company and/or
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USOP shall be entitled to seek injunctive or other equitable relief, as
contemplated by Section 17 above, from any court of competent jurisdiction,
without the need to resort to arbitration.
19. Governing Law. This Agreement shall in all respects be construed
according to the laws of Delaware, without regard to its conflict of laws
principles.
20. Change in Control.
(a) (i) Unless he elects to terminate this Agreement pursuant to
paragraph (c) below, Employee understands and acknowledges that the Company may
be merged or consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
(ii) In the event of a Change in Control, Employee may, at his
sole discretion, elect to terminate this Agreement by proving written notice to
the Company not more than five (5) business days after the closing of the
transaction giving rise to the Change in Control. In such case the applicable
provisions of Section 6(d) will apply as though the Company had terminated this
Agreement without cause; however, under such circumstances, Employee shall be
entitled to continue to receive his base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement or for six
months, whichever amount is greater, payable over the term of such payment and
the non-competition provisions of Section 7 shall apply for the Restricted
Period as defined with respect to this Section 20(a).
(b) In the event of a Change in Control, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of his
vested options, if any, to purchase Company Common Stock, including any options
with accelerated vesting under the provisions of the Company's Stock Option
Plan, such that he may convert the options to shares of Company Common Stock at
or prior to the closing of the transaction giving rise to the Change in Control,
if he so desires.
(c) A "Change in Control" shall be deemed to have occurred if:
(i) any Person, other than an affiliate or employee benefit plan
of the Company, acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of
any voting security of the Company and immediately after such acquisition such
Person is, directly or indirectly, the beneficial owner of voting securities
representing 50% or more of the total power of all of the then-outstanding
voting securities of the Company;
(ii) the individuals (A) who, as of the closing date of the
Company's initial public offering, constitute the Board of Directors of the
Company (the "Original Directors") or (B) who thereafter are elected to the
Board of Directors of the Company and whose election, or nomination for
election, to the Board of Directors of Directors of the Company was approved by
a vote of at least a majority of the Original Directors then still in office
(such directors becoming "Additional Original Directors") immediately following
their election) or (C) who are elected to the Board of Directors of the Company
and whose election, or nomination for election, to the Board of Directors of the
Company was approved by a vote of at least a majority of the Original Directors
and Additional Original Directors then still in office (such directors also
becoming "Additional Original Directors" immediately following their election)
(such individuals being in "Continuing Directors"), cease for any reason to
constitute a majority of the members of the Board of Directors of the Company.
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(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a reverse
stock split of outstanding voting securities, or consummation of any such
transaction if stockholder approval is not ought or obtained, other than any
such transaction which would result in at least 75% of the total voting power
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being beneficially owned by at least 75% of
the holders of outstanding voting securities of the Company immediately prior to
the transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the transaction;
or
(iv) the stockholders of the Company shall approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more of the total assets of the Company).
(c) Employee must be notified in writing by the Company at any time
that the Company or any member of the Board of Directors anticipates that a
Change of Control may take place.
(d) Employee shall be reimbursed by the Company or its successor or
any excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986, as amended, as a result of any Change in Control. Such amount
will be due and payable by the Company or its successors withing 10 days after
Employee delivers a written request for reimbursement accompanied by a copy of
his tax return(s) showing the excise tax actually incurred by Employee.
IN WITNESS WHEREOF, the parties hereto have cause this Amended and Restated
Employment Agreement to be duly executed as of the date first written above.
U.S. OFFICE PRODUCTS COMPANY
By: /s/ Thomas I. Morgan
-----------------------------------
Name: Thomas I. Morgan
Title: Chief Operating Officer
EMPLOYEE:
/s/ Michael J. Barnell
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement (the "Agreement") by and between
U.S. Office Products Company, a Delaware corporation (the "Company" or "USOP")
and Jonathan J. Ledecky ("Employee") is hereby entered into and effective as of
4th day of November, 1997. This Agreement hereby supersedes any other
employment agreements or understandings, written or oral, between the Company
and Employee.
R E C I T A L S
The following statements are true and correct:
Employee and the Company previously entered into an Employment Agreement dated
as of February 23, 1995 (the "Original Agreement").
Employee and the Company desire to amend the Original Agreement in certain
respects.
As of the date of this Agreement, the Company is engaged primarily in the
business of providing office products and other related goods and services.
Employee is employed hereunder by the Company in a confidential relationship
wherein Employee, in the course of his employment with the Company, has and will
continue to become familiar with and aware of information as to the Company's
and its subsidiaries customers, specific manner of doing business, including the
processes, techniques and trade secrets utilized by the Company and its
subsidiaries, and future plans with respect thereto, all of which has been and
will be established and maintained at great expense to the Company and its
subsidiaries; this information is a trade secret and constitutes the valuable
good will of the Company and its subsidiaries.
Therefore, in consideration of the mutual promises, terms, covenants and
conditions set forth herein and the performance of each, the Original Agreement
is hereby amended and restated to read in its entirety as follows:
A G R E E M E N T S
1. Employment and Duties
(a) The Company hereby employs Employee as an executive of the Company and
to serve as Chairman of the Board of Directors of the Company (the "Board"),
assuming Employee's continued membership on the Board. As such, Employee shall
have responsibilities,
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duties and authority as determined by the Board, including but not limited
to, the following activities: (i) conducting meetings of the Board (after
consultation with senior management of the Company); (ii) identifying and
pursuing new business and investment opportunities and acquisitions for the
Company; (iii) developing and providing strategic plans and growth analyses;
(iv) providing structuring, capitalization, restructuring, recapitalization,
and reorganization advice and assisting in the implementation thereof; and
(v) as may be directed by the Board, interfacing with the investment and
financial community on an as-needed basis in a senior executive capacity,
including participating in analysts' conference calls, road-shows, and annual
and special meetings of the Company's shareholders. The parties acknowledge
that Employee will be assuming responsibilities with other companies that
will prevent Employee from devoting his full professional time to the
Company. Accordingly, Employee will not be responsible for the day-to-day
oversight of the Company. Notwithstanding the foregoing, Employee shall
continue to abide by his duties of loyalty and care and other fiduciary
responsibilities to the Company, including without limitation that Employee
shall not exploit corporate opportunities of the Company in any way except
for the direct benefit of the Company. Employee hereby accepts this
employment upon the terms and conditions herein contained and agrees to
devote his time, attention and efforts to promote and further the business of
the Company.
(b) Employee shall faithfully adhere to, execute and fulfill all
policies established by the Company.
(c) Nothing in this Agreement shall be construed as prohibiting Employee
from entering into an employment agreement with another entity or serving on
the board of directors of one or more other entities or from making personal
investments in such other entities, provided that no such activities or
investments violate Employee's fiduciary obligations to the Company or the
terms of this Agreement.
2. Compensation. For all services rendered by Employee, the Company
shall compensate Employee as follows:
(a) Base Salary. Effective as of the date hereof, the base salary
payable to Employee shall be $250,000 per year, payable on a regular basis in
accordance with the Company's standard payroll procedures but not less than
monthly. On at least an annual basis, the Board will review Employee's
performance and may make increases to such base salary if, in its discretion,
any such increase is warranted.
(b) Incentive Bonus Plan. Employee shall be eligible to receive a bonus
based on the Company's financial performance and the Employee's contribution
thereto, as determined by the Board or a compensation committee thereof. The
bonus, if any, payable pursuant to this Section 2(b) shall be payable in the
form of cash, stock options, or other non-cash awards (or any combination of
the foregoing), in such proportions, and in such forms, as are determined by
the Board or a compensation committee thereof.
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(c) Executive Perquisites, Benefits and Other Compensation. Employee
shall be entitled to receive additional benefits and compensation from the
Company in such form and to such extent as specified below:
(1) During the Term, Employee shall be entitled to receive such
perquisites and benefits as may be specified from time to time by
the Board, taking into account the time and attention that
Employee devotes to the Company and to other entities.
(2) Reimbursement for all business travel and other out-of-pocket
expenses reasonably incurred by Employee in the performance of
his services pursuant to this Agreement. All reimbursable
expenses shall be appropriately documented in reasonable detail
by Employee upon submission of any request for reimbursement, and
in a format and manner consistent with the Company's expense
reporting policy.
3. Non-Competition Agreement.
(a) Employee will not, during the period of his Employment by or with
the Company, and for a period equal to the longer of (i) two (2) years or
(ii) the period during which Employee is entitled to receive and is receiving
any payment pursuant to paragraph 5(d) hereof, immediately following the
termination of his employment under this Agreement, for any reason
whatsoever, directly or indirectly, for himself or on behalf of or in
conjunction with any other person, persons, company, partnership, corporation
or business of whatever nature:
(i) engage, as an officer, director, shareholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in any business selling any products or services in direct
competition with the Company within 100 miles of where the Company or where
any of the Company's subsidiaries or affiliates conducts business,
including any territory serviced by the Company or any of such subsidiaries
(the "Territory");
(ii) call upon any person who is, at that time, within the Territory,
an employee of the Company (including the respective subsidiaries and/or
affiliates thereof) in a managerial capacity for the purpose or with the
intent of enticing such employee away from or out of the employ of the
Company (including the respective subsidiaries and/or affiliates thereof),
provided that Employee shall be permitted to call upon and hire any member
of his or her immediate family;
(iii) call upon any person or entity which is, at that time, or
which has been, within one (1) year prior to that time, a customer of the
Company (including the respective subsidiaries and/or affiliates thereof)
within the Territory for the purpose of
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soliciting or selling products or services in direct competition with the
Company (including the respective subsidiaries and/or affiliates thereof)
within the Territory;
(iv) call upon any prospective acquisition candidate, on
Employee's own behalf or on behalf of any competitor, which candidate was
either called upon by the Company (including the respective subsidiaries
and/or affiliates thereof) or for which the Company (including the
respective subsidiaries and/or affiliates thereof) made an acquisition
analysis, for the purpose of acquiring such entity.
In addition to (and not in lieu of) the restriction contained in clause
(ii) above, Employee agrees that, during the period that the restrictions
contained in this Section 3 remain in effect, ad so long as he is employed by,
or otherwise affiliated with, Consolidation Capital Corporation ("CCC"), he
shall not, directly or indirectly, offer employment with CCC to, or otherwise
allow CCC to employ, any person who: (1) is employed by the Company or a
subsidiary of the Company at the time; (2) was so employed by the Company or a
subsidiary of the Company within one (1) year prior to such time; or (3)
provides (or within the prior year provided) substantial service to the Company
or a subsidiary of the Company as part of an entity that is or was a vendor or
other outside service provider to the Company or any subsidiary, excluding only
F. Traynor Beck and Timothy Clayton.
Notwithstanding the above, the foregoing covenant shall not be deemed to
prohibit Employee from acquiring capital stock in CCC or serving as an officer,
director or employee or consultant to CCC, or acquiring as an investment not
more than one percent (1%) of the capital stock of a competing business, whose
stock is traded on a national securities exchange or over-the-counter; provided
that such actions do not otherwise breach Employee's obligations hereunder.
(b) Because of the difficulty of measuring economic losses to the Company
as a result of a breach of the foregoing covenant, and because of the immediate
and irreparable damage that could be caused to the Company for which they would
have no other adequate remedy, Employee agrees that the foregoing covenant may
be enforced by the Company in the event of breach by him, by injunctions and
restraining orders.
(c) It is agreed by the parties that the foregoing covenants in this
paragraph 3 impose a reasonable restraint on Employee in light of the activities
and business of the Company (including the Company's subsidiaries and/or
affiliates) on the date of the execution of this Agreement and the current plans
of the Company (including the Company's subsidiaries); but it is also the intent
of the Company and Employee that such covenants be construed and enforced in
accordance with the changing activities, business and locations of the Company
(including the Company's other subsidiaries and/or affiliates) throughout the
term of this covenant.
It is further agreed by the parties hereto that, in the event that
Employee shall cease to be employed hereunder, and shall enter into a business
or pursue other activities not in competition with the Company (including the
Company's other subsidiaries and including
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businesses that Employee knows are then being considered by the Company), or
similar activities or business in locations the operation of which, under
such circumstances, does not violate clause (i) of this paragraph 3, and in
any event such new business, activities or location are not in violation of
this paragraph 3 or of Employee's obligations under this paragraph 3, if any,
Employee shall not be chargeable with a violation of this paragraph 3 if the
Company (including the Company's subsidiaries) shall thereafter enter the
same, similar or a competitive (i) business, (ii) course of activities or
(iii) location, as applicable.
(d) The covenants in this paragraph 3 are severable and separate, and
the unenforceability of any specific covenant shall not affect the provisions
of any other covenant. Moreover, in the event any court of competent
jurisdiction shall determine that the scope, time or territorial restrictions
set forth are unreasonable, then it is the intention of the parties that such
restrictions be enforced to the fullest extent which the court deems
reasonable, and the Agreement shall thereby be reformed.
(e) All of the covenants in this paragraph 3 shall be construed as an
agreement independent of any other provision in this Agreement, and the
existence of any claim or cause of action of Employee against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenants. It is
specifically agreed that the period of two (2) years stated at the beginning
of this paragraph 3, during which the agreements and covenants of Employee
made in this paragraph 3 shall be effective, shall be computed by excluding
from such computation any time during which Employee is in violation of any
provision of this paragraph 3.
(f) Notwithstanding any of the foregoing, if any applicable law shall
reduce the time period during which Employee shall be prohibited from
engaging in any competitive activity described in paragraph 3(a) hereof, the
period of time for which Employee shall be prohibited pursuant to paragraph
3(a) hereof shall be the maximum time permitted by law. However, in the
event that the time period specified by paragraph 3(a) shall be so reduced,
then, notwithstanding the provisions of paragraph 5(d) hereof, Employee shall
be entitled to receive from the Company his base salary at the rate then in
effect solely for the longer of (i) the time period during which the
provisions of paragraph 3(a) shall be enforceable under the provisions of
such applicable law, or (ii) the time period during which Employee is not
engaging in any competitive activity, but in no event longer than the term
provided in paragraph 5(d).
4. Place of Performance.
(a) Employee understands that he may he requested by the Board to
relocate from his present residence to another geographic location in order
to more efficiently carry out his duties and responsibilities under this
Agreement or as part of a promotion or other increase in duties and
responsibilities. In such event, if Employee agrees to relocate, the Company
will pay all relocation costs to move Employee, his immediate family and
their personal property and effects. Such costs may include, by way of
example, but are not limited to, pre-move visits to search for
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a new residence, investigate schools or for other purposes; temporary lodging
and living costs prior to moving to a new permanent residence; duplicate home
carrying costs; all closing costs on the sale of Employee's present residence
and on the purchase of a comparable residence in the new location; and added
income taxes that Employee may incur if any relocation costs are not
deductible for tax purposes. The general intent of the foregoing is that
Employee shall not personally bear any out-of-pocket cost as a result of the
relocation, with an understanding that Employee will use his best efforts to
incur only those costs which are reasonable and necessary to effect a smooth,
efficient and orderly relocation with minimal disruption to the business
affairs of the Company and the personal life of Employee and his family.
(b) Notwithstanding the above, if Employee is requested by the Board to
relocate and Employee refuses, such refusal shall not constitute "cause" for
termination of this Agreement under the terms of paragraph 5(c).
5. Term; Termination; Rights on Termination. The term of this
Agreement shall begin on the date hereof and continue for two (2) years (the
"Initial Term"), and, unless terminated as herein provided, shall be extended
at the end of each year beginning at the end of the first year of the Initial
Term hereof for a period of one year on the same terms and conditions
contained herein, such that the term (the "Term") of this Agreement shall
extend for a period of two years from the date of each such extension. This
Agreement and Employee's employment may be terminated in any one of the
following ways:
(a) Death. The death of Employee shall immediately terminate the
Agreement with no severance compensation due to Employee's estate.
(b) Disability. If, as a result of incapacity due to physical or mental
illness or injury, Employee shall have been absent from his full-time duties
hereunder for four (4) consecutive months, then thirty (30) days after
written notice to the Employee. (which notice may occur before or after the
end of such four (4) month period, but which shall not be effective earlier
than the last day of such four (4) month period), the Company may terminate
Employee's employment hereunder provided Employee is unable to resume his
full-time duties at the conclusion of such notice period. Also, Employee may
terminate his employment hereunder if his health should become impaired to an
extent that makes the continued performance of his duties hereunder hazardous
to his physical or mental health or his life, provided that Employee shall
have furnished the Company with a written statement from a qualified doctor
to such effect and provided, further, that, at the Company's request made
within thirty (30) days of the date of such written statement, Employee shall
submit to an examination by a doctor selected by the Company who is
reasonably acceptable to Employee or Employee's doctor and such doctor shall
have concurred in the conclusion of Employee's doctor. Subject to paragraph
3(f) hereof and the last paragraph of this paragraph 5, in the event this
Agreement is terminated as a result of Employee's disability, Employee shall
receive from the Company the base salary at the rate then in effect for
whatever time period is remaining under the Term of this Agreement, payable
over such term.
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(c) Good Cause. The Company may terminate the Agreement ten (10) days
after written notice to Employee for good cause, which shall be: (1)
Employee's willful, material and irreparable breach of this Agreement; (2)
Employee's gross negligence in the performance or intentional nonperformance
(continuing for ten (10) days after receipt of written notice of need to
cure) of any of Employee's material duties and responsibilities hereunder;
(3) Employee's unwillingness or failure to perform his duties satisfactorily
(as determined by the Board) in accordance with the provisions specified
herein and such unwillingness or failure is not cured by Employee within ten
(10) days of written notice thereof; (4) Employee's willful dishonesty, fraud
or misconduct with respect to, or disparagement of, the business or affairs
of the Company which materially and adversely affects the operations or
reputation of the Company; (5) Employee's conviction of a felony or other
crime involving moral turpitude; or (6) alcohol or illegal drug abuse by
Employee. In the event of a termination for good cause, as enumerated above,
Employee shall have no right to any severance compensation.
(d) Without Cause. At any time after the commencement of employment,
Employee may, without cause, terminate this Agreement and Employee's
employment, effective thirty (30) days after written notice is provided to
the Company. Should Employee be terminated by the Company without cause,
subject to paragraph 3(f) hereof and the last paragraph of this paragraph 5,
Employee shall receive from the Company the base salary at the rate then in
effect for whatever time period is remaining under the Term of this Agreement
payable over the term of such payment. If Employee resigns or otherwise
terminates his employment without cause pursuant to this paragraph 5(d),
Employee shall receive no severance compensation.
(e) Change in Control of the Company. Refer to paragraph 17 below.
Upon termination of this Agreement for any reason provided above, Employee
shall be entitled to receive all compensation earned and all benefits and
reimbursements due through the effective date of termination. Additional
compensation subsequent to termination, if any, will be due and payable to
Employee only to the extent and in the manner expressly provided above. All
other rights and obligations of the Company and Employee under this Agreement
shall cease as of the effective date of termination, except that the
Company's obligations under paragraph 9 herein and Employee's obligations
under paragraphs 3, 6, 7, 8 and 10 herein shall survive such termination in
accordance with their terms.
If termination of Employee's employment arises out of the Company's failure
to pay Employee on a timely basis the amounts to which he is entitled under
this Agreement or as a result of any other breach of this Agreement by the
Company, and such non-payment or other breach is not cured by the Company
within thirty (30) days (or ten (10) days in the case of non-payment) after
written notice thereof to the Company, as determined by a court of competent
jurisdiction or pursuant to the provisions of paragraph 15 below, the Company
shall pay all amounts and damages to which Employee may be entitled as a
result of such breach, including interest thereon and all reasonable legal
fees and expenses and other costs incurred by Employee to enforce his
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rights hereunder. Further, none of the provisions of paragraph 3 shall apply
in the event this Agreement is terminated as a result of a breach by the
Company.
In the event that Employee secures employment during the period that any payment
is continuing pursuant to the provisions of this paragraph 5, the amounts to be
paid hereunder shall be reduced by the amount of Employee's earnings from such
other employment.
(f) Options. The rights relating to Employee's options for capital stock
of the Company shall be governed by the terms and conditions of the Company's
amended and restated 1994 long-term incentive plan, it being understood and
agreed that upon or after Employee's termination of employment with the Company
for any reason, including termination without cause, his options shall only be
exercisable if and to the extent that they had become exercisable before such
termination and shall remain exercisable only to the extent provided by that
plan.
6. Return of Company Property. All records, designs, patents, business
plans, financial statements, manuals, memoranda, lists and other property
delivered to or compiled by Employee by or on behalf of the Company
(including the respective subsidiaries thereof) or their representatives,
vendors or customers which pertain to the business of the Company (including
the respective subsidiaries thereof) shall be and remain the property of the
Company, and be subject at all times to its discretion and control.
Likewise, all correspondence, reports, records, charts, advertising materials
and other similar data pertaining to the business, activities or future plans
of the Company which in collected by Employee shall be delivered promptly to
the Company without request by it upon termination of Employee's employment.
7. Inventions. Employee shall disclose promptly to the Company any and
all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made
by Employee, solely or jointly with another, during the period of employment
or within one (1) year thereafter, and which are directly related to the
business or activities of the Company and which Employee conceives as a
result of his employment by the Company. Employee hereby assigns and agrees
to assign all his interests therein to the Company or its nominee. Whenever
requested to do so by the Company, Employee shall execute any and all
applications, assignments or other instruments that the Company shall deem
necessary to apply for and obtain Letters Patent of the United States or any
foreign country or to otherwise protect the Company's interest therein.
8. Trade Secrets. Employee agrees that he will not, during or after
the term of this Agreement with the Company, disclose the specific terms of
the Company's (including the respective subsidiaries thereof) relationships
or agreements with their respective significant vendors or customers or any
other significant and material trade secret of the Company (including the
respective subsidiaries thereof) whether in existence or proposed, to any
person, firm, partnership, corporation or business for any reason or purpose
whatsoever.
9. Indemnification. In the event Employee is made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or
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investigative (other than an action by the Company against Employee), by
reason of the fact that he is or was performing services under this Agreement
then the Company shall indemnify Employee against all expenses (including
attorneys', fees), judgments, fines and amounts paid in settlement, as
actually and reasonably incurred by Employee in connection therewith to the
fullest extent provided by Delaware law and in accordance with the Company's
By-laws.
10. No Prior Agreements. Employee hereby represents and warrants to the
Company that the execution of this Agreement by Employee and his employment
by the Company and the performance of his duties hereunder will not violate
or be a breach of any agreement with a former employer, client or any other
person or entity. Further, Employee agrees to indemnify the Company for any
claim, including, but not limited to, attorneys' fees and expenses of
investigation, by any such third party that such third party may now have or
may hereafter come to have against the Company based upon or arising out of
any non-competition agreement, invention or secrecy agreement between
Employee and such third party which was in existence as of the date of this
Agreement.
11. Assignment; Binding Effect. Employee understands that he has been
selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Employee agrees, therefore, he cannot
assign all or any portion of his performance under this Agreement. Subject
to the preceding two (2) sentences, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.
12. Complete Agreement. This Agreement is not a promise of future
employment. Employee has no oral representations, understandings or
agreements with the Company or any of its officers, directors or
representatives covering the same subject matter as this Agreement. This
written Agreement is the final, complete and exclusive statement and
expression of the agreement between the Company and Employee and of all the
terms of this Agreement, and it cannot be varied, contradicted or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This written Agreement may not be later modified except by a
further writing signed by a duly authorized officer of the Company and
Employee, and no term of this Agreement may be waived except by writing
signed by the party waiving the benefit of such term.
13. Notice. Whenever any notice is required hereunder, it shall be
given in writing addressed as follows:
To the Company: U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600
Washington, D.C. 20007
Attention: General Counsel
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To Employee: Jonathan J. Ledecky
1400 34th St., N.W.
Washington, D.C. 20007
Notice shall be deemed given and effective three (3) days after the deposit
in the U.S. mail of a writing addressed as above and sent first class mail,
certified, return receipt requested, or when actually received. Either party
may change the address for notice by notifying the other party of such change
in accordance with this paragraph 13.
14. Severability; Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall
be given to the intent manifested by the portion held invalid or inoperative.
This severability provision shall be in addition to, and not in place of,
the provisions of Section 3(d) hereof. The paragraph headings herein are for
reference purposes only and are not intended in any way to describe,
interpret, define or limit the extent or intent of the Agreement or of any
part hereof .
15. Arbitration. Any unresolved dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by
arbitration, conducted in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators shall not have the
authority to add to, detract from, or modify any provision hereof nor to
award punitive damages to any injured party. The arbitrators shall have the
authority to order back-pay, severance compensation, reimbursement of costs,
including those incurred to enforce this Agreement, and interest thereon in
the event the arbitrators determine that Employee was terminated without
disability or good cause, as defined in paragraphs 5(b) and 5(c) ,
respectively, or that the Company has otherwise materially breached this
Agreement. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. The direct expense of any arbitration proceeding shall
be borne by the Company. The arbitration proceeding shall be held in the
city where the Company's corporate headquarters is located. Notwithstanding
the foregoing, the Company shall be entitled to seek injunctive or other
equitable relief, as contemplated by Section 3(b) above, from any court of
competent jurisdiction, without the need to resort to arbitration.
16. Governing Law. This Agreement shall in all respects be construed
according to the laws of the State of Delaware.
17. Change in Control.
(a) Unless he elects to terminate this Agreement pursuant to (c) below,
Employee understands and acknowledges that the Company may be merged or
consolidated with or into another entity and that such entity shall
automatically succeed to the rights and obligations of the Company hereunder.
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In the event of a Change in Control, Employee may, at his sole
discretion, elect to terminate this Agreement by providing written notice to
the Company at least five (5) business days after the closing of the
transaction giving rise to the Change in Control. In such case, the
applicable provisions of paragraph 5(d) will apply as though the Company had
terminated the Agreement without cause; however, under such circumstances,
Employee shall be entitled to continue to receive his base salary at the rate
then in effect for whatever time period is remaining under the Term of this
Agreement or for two (2) years, whichever amount is greater, payable over the
term of such payment and the non-competition provisions of paragraph 3 shall
all apply for a period equal to the duration of such payment.
(b) In the event of a Change in Control, Employee will be given
sufficient time and opportunity to elect whether to exercise all or any of
his vested options to purchase USOP Common Stock including any options with
accelerated vesting under the provisions of USOP's Stock Option Plan, such
that he may convert the options to shares of USOP Common Stock at or prior to
the closing of the transaction giving rise to the Change in Control, if he so
desires.
(c) A "Change in Control" shall be deemed to have occurred if:
(i) any person, other than the Company or an employee benefit plan of
the Company, acquires directly or indirectly the Beneficial Ownership (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended) of any voting security of the Company and immediately after such
acquisition such person is, directly or indirectly, the Beneficial Owner of
voting securities representing 50% or more of the total voting power of all
of the then-outstanding voting securities of the Company;
(ii) the individuals (A) who, as of the closing date of the Company's
initial public offering, constitute the Board of Directors of the Company
(the "Original Directors") or (B) who thereafter are elected to the Board
of Directors of the Company and whose election, or nomination for election,
to the Board of Directors of the Company was approved by a vote of at least
two-thirds (2/3) of the Original Directors then still in office (such
directors becoming "Additional Original Directors" immediately following
their election) or (C) who are elected to the Board of Directors of the
Company and whose election, or nomination for elections to the Board of
Directors of the Company was approved by a vote of at least two-thirds
(2/3) of the original Directors and Additional Original Directors then
still in office (such directors also becoming "Additional Original
Directors" immediately following their election) (such individuals being
the "Continuing Directors"), cease for any reason to constitute a majority
of the members of the Board of Directors of the Company;
(iii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization, or reorganization of the Company, a
reverse stock split of outstanding voting security or consummation of any
such transaction if stockholder approval is not
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sought or obtained, other than any such transaction which would result in
at least 75% of the total voting power represented by the voting
securities of the surviving entity outstanding immediately after such
transaction being beneficially owned by at least 75% of the holders of
outstanding voting securities of the Company immediately prior to the
transactions with the voting power of each such continuing holder
relative to other such continuing holders not substantially altered in
the transaction; or
(iv) the stockholders of the Company shall approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or a substantial portion of the Company's assets (i.e.,
50% or more of the total assets of the Company).
(d) Employee must be notified in writing by the Company at any time that
the Company or any member of its Board anticipates that a Change in Control
may take place.
(e) Employee shall be reimbursed by the Company or its successor for any
excise taxes that Employee incurs under Section 4999 of the Internal Revenue
Code of 1986 as a result of any Change in Control. Such amount will be due
and payable by the Company or its successor within ten (10) days after
Employee delivers a written request for reimbursement accompanied by a copy
of his tax return(s) showing the excise tax actually incurred by Employee.
[Execution Page Following]
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IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the date first above written:
U.S. OFFICE PRODUCTS COMPANY
By: /s/Timothy J. Flynn
-----------------------------
Title:
JONATHAN J. LEDECKY
/s/Johnathan J. Ledecky
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EXHIBIT 11.1
U.S. OFFICE PRODUCTS COMPANY
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Primary earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ------------------------
OCTOBER 25, OCTOBER 26, OCTOBER 25, OCTOBER 26,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income before extraordinary item.............................. $ 28,004 $ 20,933 $ 53,056 $ 39,087
Extraordinary item--loss on early termination of credit
facility.................................................... 612 612
----------- ----------- ----------- -----------
Net income.................................................... $ 28,004 $ 20,321 $ 53,056 $ 38,475
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average shares outstanding........................... 115,804 95,338 115,057 92,803
Common stock equivalents from stock options................... 2,932 1,766 2,383 1,859
----------- ----------- ----------- -----------
Total weighted average shares outstanding..................... 118,736 97,104 117,440 94,662
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Income before extraordinary item.............................. $ .24 $ .22 $ .45 $ .41
Extraordinary item............................................ .01
----------- ----------- ----------- -----------
Net income.................................................. $ .24 $ .21 $ .45 $ .41
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Page 21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FOUND ON PAGES 3
AND 4 OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-25-1998
<PERIOD-START> APR-27-1997
<PERIOD-END> OCT-25-1997
<CASH> 49,300
<SECURITIES> 0
<RECEIVABLES> 514,566
<ALLOWANCES> (12,312)
<INVENTORY> 308,490
<CURRENT-ASSETS> 965,510
<PP&E> 287,132
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,088,231
<CURRENT-LIABILITIES> 689,683
<BONDS> 595,594
0
0
<COMMON> 116
<OTHER-SE> 965,266
<TOTAL-LIABILITY-AND-EQUITY> 2,088,231
<SALES> 1,855,964
<TOTAL-REVENUES> 1,855,964
<CGS> 1,328,268
<TOTAL-COSTS> 1,753,513<F1>
<OTHER-EXPENSES> (6,885)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,972
<INCOME-PRETAX> 88,964
<INCOME-TAX> 35,908
<INCOME-CONTINUING> 59,058
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,056
<EPS-PRIMARY> .45
<EPS-DILUTED> 0
<FN>
<F1>THE COSTS INCLUDE $10,252 OF NON-RECURRING AQUISITION COSTS INCURRED IN
CONJUNCTION WITH COMBINATIONS ACCOUNTED FOR UNDER THE POOLING-OF-INTERESTS
METHOD.
</FN>
</TABLE>
