<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1997
REGISTRATION NO. 333-19447
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
U.S. OFFICE PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5112 52-1906050
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 600E
WASHINGTON, D.C. 20007
(202) 339-6700
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JONATHAN J. LEDECKY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
MARK D. DIRECTOR
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
U.S. OFFICE PRODUCTS COMPANY
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 600E
WASHINGTON, D.C. 20007
(202) 339-6700
(Name, address, including zip code, and telephone number, including area code,
of agents for service)
----------------------------------
COPIES TO:
<TABLE>
<S> <C>
LINDA L. GRIGGS, ESQ. LELAND E. HUTCHINSON, ESQ.
Morgan, Lewis & Bockius LLP John L. MacCarthy, Esq.
1800 M Street, N.W. Winston & Strawn
Washington, D.C. 20036-5869 35 West Wacker Drive
(202) 467-7000 Chicago, Illinois 60601-9703
(312) 558-5600
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _____
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _____
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, JANUARY 30, 1997
[LOGO]
10,000,000 SHARES
COMMON STOCK
Of the 10,000,000 shares of Common Stock, par value $.001 per share (the
"Common Stock"), of U.S. Office Products Company (the "Company" or "U.S. Office
Products") offered hereby, 7,959,639 shares are being sold by the Company and
2,040,361 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of the Common Stock offered
by the Selling Stockholders. On January 29, 1997, the last sale price of the
Company's Common Stock, as reported on the Nasdaq National Market, was $33.56
per share. The Company's Common Stock is traded on the Nasdaq National Market
under the symbol "OFIS."
The Company has filed shelf registration statements with the Securities and
Exchange Commission relating to the separate offering of up to 38,381,471 shares
of Common Stock to be used in connection with acquisitions and resales of the
shares issued thereunder by the recipients of such shares.
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 10.
-------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................................. $ $ $ $
Total (2).................................. $ $ $ $
</TABLE>
(1) Before deducting expenses, payable by the Company, estimated at $1,000,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 1,500,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such options are exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ ,
respectively.
--------------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order in
whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company LLC ("Robertson, Stephens &
Company"), San Francisco, California, on or about February , 1997.
ROBERTSON, STEPHENS & COMPANY
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
LAZARD FRERES & CO. LLC
LEHMAN BROTHERS
The date of this Prospectus is , 1997
<PAGE>
Artwork--inside front cover
[LOGO]
Title--"U.S. Office Products SM"
Sub-Title "The World's America's
[the word "America's" has a line running through it] Hometown Stationers SM"
[Map of North America showing (using dots) the locations of the Company's 361
Facilities. The phrase "361 Facilities" appears below the map.
Map of New Zealand showing (using a star) the Auckland headquarters of the
Company's New Zealand operations. The phrase "267 Facilities" appears below
the map.
Map of Australia showing (using a star) the Sydney headquarters of the
Company's Australian operations. The phrase "96 Facilities" appears below the
map.
Map of the United Kingdom showing (using a star) the London headquarters of
the Company's United Kingdom operations. The phrase "6 Facilities" appears
under the map.]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10b-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information...................................................................................... 3
Incorporation of Certain Information by Reference.......................................................... 4
Prospectus Summary......................................................................................... 5
Risk Factors............................................................................................... 10
Use of Proceeds............................................................................................ 16
Dividend Policy............................................................................................ 16
Price Range of Common Stock................................................................................ 16
Capitalization............................................................................................. 17
Selected Financial Data.................................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21
Business................................................................................................... 29
Management................................................................................................. 38
Principal and Selling Stockholders......................................................................... 44
Underwriting............................................................................................... 46
Legal Matters.............................................................................................. 47
Experts.................................................................................................... 47
Index to Financial Statements.............................................................................. F-1
</TABLE>
--------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-3 under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and the regulations of
the Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. The Company is subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements, and other information with the
3
<PAGE>
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional Offices of the Commission: Seven World
Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison Avenue,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, or from the Commission's Internet
web site at http://www.sec.gov. In addition, such materials also may be
inspected and copied at the offices of the Nasdaq National Market, 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents of the Company filed with the Commission (File No.
0-25372) are incorporated herein by reference:
(a) Historical financial statements required by Item 3-05 of Regulation S-X
relating to the following companies acquired by the Company included in the
Company's Amendment No. 1 to Registration Statement on Form S-4 (File No.
333-13133) filed on October 9, 1996: MISSCO Commercial Division; Emmons-Napp
Office Products, Inc. -- Commercial Division; and Blue Star Group Limited;
(b) The Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1996 filed with the Commission on July 16, 1996;
(c) The Company's Quarterly Reports on Form 10-Q for the interim periods
ended July 27, 1996 (filed with the Commission on September 10, 1996) and
October 26, 1996 (filed with the Commission on December 11, 1996);
(d) The Company's Current Reports on Form 8-K dated January 29, 1997,
January 9, 1997, October 25, 1996 (as amended), September 23, 1996, August 20,
1996, July 26, 1996 (as amended), July 23, 1996, July 16, 1996 and May 2, 1996
(as amended); and
(e) The description of the Company's Common Stock under the caption
"Description of Registrant's Securities to be Registered" in the Company's
Amendment No. 1 to Registration Statement on Form 8-A, dated February 13, 1995,
and the Company's Quarterly Report on Form 10-Q for the interim period ended
July 27, 1996 disclosing, among other things, an amendment to the Company's
Amended and Restated Certificate of Incorporation.
In addition, all reports and other documents filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act
subsequent to the date of effectiveness of the Registration Statement of which
this Prospectus is a part and prior to the termination of the offering made
hereby, shall be deemed to be incorporated by reference into this Prospectus.
Any statement contained herein or incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY BY CONTACTING MARK D. DIRECTOR, 1025 THOMAS JEFFERSON STREET, N.W.,
SUITE 600E, WASHINGTON, DC 20007. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD ALLOW AT LEAST FIVE (5) BUSINESS DAYS FOR
DELIVERY.
------------------------
4
<PAGE>
PROSPECTUS SUMMARY
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," AND "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 IN "RISK FACTORS." THIS PROSPECTUS ALSO CONTAINS PRO FORMA FINANCIAL
INFORMATION THAT GIVES EFFECT TO CERTAIN EVENTS. SUCH INFORMATION IS NOT
NECESSARILY INDICATIVE OF THE RESULTS THAT THE COMPANY WOULD HAVE ATTAINED HAD
THE EVENTS OCCURRED AT THE BEGINNING OF THE PERIODS PRESENTED, AS ASSUMED, OR OF
THE FUTURE RESULTS OF THE COMPANY. SEE "PRO FORMA COMBINED FINANCIAL
STATEMENTS."
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE FINANCIAL STATEMENTS AND
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY
REFERENCE HEREIN. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN THE COMMON STOCK. UNLESS THE CONTEXT OTHERWISE
REQUIRES, THE TERMS "U.S. OFFICE PRODUCTS" OR THE "COMPANY" REFER TO U.S. OFFICE
PRODUCTS COMPANY, A DELAWARE CORPORATION, AND ITS SUBSIDIARIES AND PREDECESSORS.
ALL REFERENCES TO YEARS, UNLESS OTHERWISE NOTED, REFER TO THE COMPANY'S FISCAL
YEAR, WHICH ENDED ON APRIL 30 OF EACH YEAR UNTIL YEARS BEGINNING WITH THE 1997
FISCAL YEAR, WHICH END ON THE LAST SATURDAY OF APRIL. THIS PROSPECTUS IS BEING
USED BY THE COMPANY AND THE SELLING STOCKHOLDERS TO OFFER, RESPECTIVELY,
7,959,639 SHARES AND 2,040,361 SHARES OF COMMON STOCK (THE "OFFERING"). THE
INFORMATION SET FORTH HEREIN ASSUMES AN OFFERING PRICE OF $35.00 PER SHARE FOR
THE COMMON STOCK OFFERED HEREBY AND, UNLESS OTHERWISE SPECIFIED, NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION WITH RESPECT TO THE OFFERING.
THE COMPANY
U.S. Office Products is one of the world's largest and fastest growing
suppliers of a broad range of office products and business services to
corporate, commercial, industrial and educational customers. Since its founding
in October 1994, the Company has emerged as a leading consolidator of several
highly fragmented industries that serve the office needs of business and
educational customers. The Company has annualized revenues of $2.8 billion
(double the pro forma revenues for the six months ended October 26, 1996). U.S.
Office Products currently provides products and services from over 350
facilities in North America, and from over 350 facilities in New Zealand,
Australia and the United Kingdom. The Company currently has over 13,000
employees.
The Company's strategy is to serve as the sole source for the full range of
business products, services, and equipment used by middle market businesses
around the world. The Company believes that middle market businesses, which it
defines as those with between 20 and 500 employees, constitute the fastest
growing sector of the economy and have served as a greater source of new job
growth in recent years than have larger organizations. The Company sells to its
business and educational customers a full range of more than 34,000 products and
services, including office supplies, office furniture, office coffee services,
computer and telecommunications network services, forms management and school
supplies and school furniture. The Company believes that in many middle market
businesses most of these products and services are purchased by a single
decisionmaker. The Company's goal is to emerge as the provider of choice for all
of a customer's office needs by offering superior customer service, convenience
and a full range of products and services to such decisionmakers.
The Company has an aggressive acquisition program through which it has
acquired and seeks to acquire companies with established sales presences and
brand names in given geographic, product or service markets. Since its founding
through January 25, 1997, the Company has completed 138 acquisitions (the
"Completed Acquisitions"). The Company believes that the fragmented nature of
many of the markets it serves has both allowed it to identify suitable
acquisition candidates and enabled it, through acquisitions, to establish a
leadership position in these markets. For example, the Company believes that,
5
<PAGE>
based on current sales volume, it is now one of the largest contract stationers
in the United States, one of the largest school supply distributors in the
United States, one of the largest providers of office coffee services in the
United States and one of the largest providers of contract furniture in the
United States. The Company is currently organized into six divisions to serve
its various product, service, and geographic markets, and to identify and pursue
complementary acquisitions within these markets. See "Business."
During the current fiscal year through January 25, 1997, the Company has
acquired 72 businesses located in the United States and 18 businesses located in
Australia, New Zealand, Canada and the United Kingdom. During this period, the
Company's acquisitions in the United States included 34 contract stationers, 10
office coffee services companies, 12 furniture companies and eight school
supplies and school furniture companies. In addition, the Company recently
acquired three businesses in the computer and telecommunications network
services markets; one business in the software and management information
systems market for the office products industry; two businesses in the forms
management market; one business in the corporate travel services market; and one
business which is an office products wholesaler. The Company also entered into
an exclusive arrangement to distribute Starbucks-Registered Trademark- coffee in
the North American office coffee services market for a period of five years
subject to, among other things, the satisfaction of certain minimum purchase
requirements.
The Company's 18 international acquisitions included the November 1996
acquisition of a 49% interest in Dudley Stationery Limited ("Dudley"), the
United Kingdom's largest independent office products dealer, and the July 1996
acquisition of New Zealand-based Whitcoulls Group Limited ("Whitcoulls"), the
Company's largest single acquisition since its inception. Dudley serves as the
stationer to Her Majesty the Queen and The Prince of Wales. The investment in
Dudley was the Company's first acquisition in the European office products
market. Whitcoulls, which the Company acquired for cash consideration of $220
million, sells a broad array of office, educational and printing products and
services to the commercial, retail, government and school supply markets
throughout New Zealand and Australia.
As a result of its aggressive acquisition program, the Company has been in
discussions with potential acquirees at most times since its founding. It
currently has, and from time to time expects to enter into, letters of intent
with respect to additional acquisitions, both in the United States and
internationally. There can be no assurance, however, that definitive agreements
for additional acquisitions will be executed or that additional acquisitions
will be completed. See "Risk Factors--Rapid Expansion; Dependence on
Acquisitions for Future Growth."
The Company operates with a decentralized sales and customer contact
strategy in an effort to provide superior customer service and retain the
historical customers of acquired businesses. The Company believes that many
customers purchase office products and business services based on established
long-term commercial relationships. The Company seeks to preserve these
relationships by retaining the management, sales organizations, and brand name
identity of acquired companies. By broadening the range of products and services
that it sells, the Company also believes that it can create additional sales
opportunities for its local sales organizations.
While retaining the identities of acquired businesses, the Company also
seeks to achieve the operating efficiencies of a large organization by (i)
generating cost savings through volume purchasing of office products and
increasing the percentage of office supplies purchased directly from
manufacturers; (ii) combining certain general and administrative functions at
the corporate level and eliminating redundant facilities; and (iii) implementing
improved technology and operating systems. In its acquisition program, the
Company utilizes a "hub and spoke" strategy, which involves the acquisition of
(i) a larger established, high quality local company, or hub, and (ii)
additional smaller companies, or spokes, in secondary markets surrounding the
hubs. Where possible, the operations of the acquired spokes are integrated into
the operations of existing hubs, thereby eliminating a portion of the operating
expenses of the acquired spokes. The Company also has begun to develop regional
consolidation and integration plans, such as to establish regional warehouses
(referred to by the Company as district fulfillment centers), which
6
<PAGE>
will enable certain operational activities to be shared among hubs and spokes
located within a specific geographic area. The Company expects that this
regional approach will permit the elimination of duplicative facilities and
costs.
The Company is a Delaware corporation. Its executive offices are located at
1025 Thomas Jefferson Street, N.W., Suite 600 East, Washington, D.C. 20007, and
its telephone number is 202-339-6700.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company............................ 7,959,639 shares (1)
Common Stock Offered by the Selling Stockholders............... 2,040,361 shares
Common Stock to be Outstanding After the Consummation of the
Offering..................................................... 59,311,770 shares (1)(2)
Use of Proceeds................................................ Repayment of indebtedness.
See "Use of Proceeds."
Nasdaq National Market Symbol.................................. OFIS
</TABLE>
- ------------------------
(1) Excludes 1,500,000 shares of Common Stock subject to the Underwriters'
over-allotment option.
(2) Excludes 870,957 shares of Common Stock subject to options exercisable as of
January 25, 1997.
7
<PAGE>
SUMMARY FINANCIAL DATA(1)
(In thousands, except per share data and footnotes)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
---------------------------------------------------------------------------------------
PRO FORMA
PRO FORMA 1996 AS
1992 1993 1994 1995 1996 1996(2) ADJUSTED(3)
----------- ----------- -------- -------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................. $ 381,161 $ 458,456 $533,018 $723,794 $ 1,149,691 $2,685,610 $2,685,610
Cost of revenues......... 271,011 328,608 382,197 534,562 848,003 1,910,068 1,910,068
----------- ----------- -------- -------- ------------- ---------- -----------
Gross profit............. 110,150 129,848 150,821 189,232 301,688 775,542 775,542
Selling, general and
administrative
expenses............... 102,001 123,275 135,526 162,423 256,681 652,435 652,435
Nonrecurring acquisition
costs.................. 8,057
Nonrecurring
restructuring costs.... 8,092 8,092
Discontinuation of
printing division at
subsidiary............. 682 682 682
----------- ----------- -------- -------- ------------- ---------- -----------
Operating income......... 8,149 6,573 15,295 26,809 36,268 114,333 114,333
Interest expense......... 3,397 4,083 4,139 6,182 13,115 39,716 21,530
Interest income.......... (420) (280) (405) (682) (3,750)
Foreign currency gain....
Other (income) expense... (2,248) (1,414) (633) (549) (1,063) (2,554) (2,554)
Equity in net income of
affiliated company..... 1,155 1,155
----------- ----------- -------- -------- ------------- ---------- -----------
Income before income
taxes and extraordinary
item................... 7,420 4,184 12,194 21,858 27,966 78,326 96,512
Provision for income
taxes.................. 1,315 1,899 1,947 3,009 6,610 33,986 41,260
----------- ----------- -------- -------- ------------- ---------- -----------
Income before
extraordinary item..... 6,105 2,285 10,247 18,849 21,356 44,340 55,252
---------- -----------
---------- -----------
Extraordinary item(4)....
----------- ----------- -------- -------- -------------
Net income............... $ 6,105 $ 2,285 $ 10,247 $ 18,849 $ 21,356(5)
----------- ----------- -------- -------- -------------
----------- ----------- -------- -------- -------------
Net income per
share(7)............... $ 0.67(5) $ 0.86 $ 0.93
------------- ---------- -----------
------------- ---------- -----------
Weighted average shares
outstanding(8)......... 31,789 51,729 59,689
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, 1995 AND OCTOBER 26, 1996
------------------------------------------------------------
PRO FORMA
PRO FORMA PRO FORMA FISCAL 1997
FISCAL FISCAL FISCAL AS
1996 FISCAL 1997 1996(2) 1997(2) ADJUSTED(3)
-------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................. $485,546 $ 996,414 $1,303,376 1,388,669 $1,388,669
Cost of revenues......... 361,534 716,849 938,709 985,605 985,605
-------- ------------ ---------- ---------- -----------
Gross profit............. 124,012 279,565 364,667 403,064 403,064
Selling, general and
administrative
expenses............... 106,852 227,245 316,531 332,645 332,645
Nonrecurring acquisition
costs.................. 5,192 5,727
Nonrecurring
restructuring costs....
Discontinuation of
printing division at
subsidiary.............
-------- ------------ ---------- ---------- -----------
Operating income......... 11,968 46,593 48,136 70,419 70,419
Interest expense......... 4,639 18,643 21,358 21,358 12,265
Interest income.......... (662) (5,382)
Foreign currency gain.... (3,420) (3,420) (3,420)
Other (income) expense... (718) (476) 864 (1,187) (1,187)
Equity in net income of
affiliated company..... 629 782 782
-------- ------------ ---------- ---------- -----------
Income before income
taxes and extraordinary
item................... 8,709 37,228 26,543 54,450 63,543
Provision for income
taxes.................. 494 13,948 11,402 23,614 27,251
-------- ------------ ---------- ---------- -----------
Income before
extraordinary item..... 8,215 23,280 15,141 30,836 36,292
---------- ---------- -----------
---------- ---------- -----------
Extraordinary item(4).... 612
-------- ------------
Net income............... $ 8,215(5) $ 22,668(5)
-------- ------------
-------- ------------
Net income per
share(7)............... $ 0.29(5) $ 0.52(5)(6) $ 0.29 $ 0.59 $ 0.60
-------- ------------ ---------- ---------- -----------
-------- ------------ ---------- ---------- -----------
Weighted average shares
outstanding(8)......... 28,166 43,622 51,453 52,360 60,320
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 30,231 $ 30,233 $ 36,635 $ 59,674 $ 247,918
Total assets........................................................... 120,504 140,518 152,555 258,773 792,229
Long-term debt less current portion.................................... 21,180 16,958 23,785 29,939 181,593
Stockholders' equity................................................... 38,843 39,289 43,275 90,803 334,518
<CAPTION>
OCTOBER 26, 1996
----------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(9) ADJUSTED(10)
--------- --------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 120,806 $ 75,523 $ 341,979
Total assets........................................................... 1,444,231 1,569,064 1,569,064
Long-term debt less current portion.................................... 383,367 383,367 383,367
Stockholders' equity................................................... 526,223 563,067 829,523
</TABLE>
8
<PAGE>
- ------------------------
(1) As a result of the substantial continuing interests in the Company of the
former stockholders of the four companies acquired by the Company for a
combination of Common Stock and cash concurrent with the closing of its
initial public offering (the "IPO") (the "Combined Companies"), the
historical financial information of the Combined Companies and the
historical financial information of the businesses that were acquired after
the closing of the IPO in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") have been combined on a
historical cost basis in accordance with generally accepted accounting
principles ("GAAP") to present this financial data as if the Combined
Companies and the Pooled Companies had always been members of the same
operating group. The financial information of the businesses acquired in the
business combinations accounted for under the purchase method (the
"Purchased Companies") is included from the dates of their respective
acquisitions. The pro forma data reflect acquisitions completed by the
Company through January 25, 1997.
(2) Gives effect to: (i) the acquisitions completed by the Company since May 1,
1995 as if such acquisitions had been made on May 1, 1995; (ii) the sales by
the Company in August 1995 of 4,025,000 shares of Common Stock as if such
sales had been made on May 1, 1995; (iii) the sales by the Company in
February and March 1996 of 5,543,045 shares of Common Stock and 5 1/2%
Convertible Subordinated Notes due 2001 in the principal amount of $143.75
million as if such sales had been made on May 1, 1995; (iv) the sales by the
Company in May and June 1996 of 5 1/2% Convertible Subordinated Notes due
2003 in the principal amount of $230.0 million as if such sales had been
made on May 1, 1995; and (v) the sale by the Company in September 1996 of
1,250,000 shares of Common Stock as if such sale had been made on May 1,
1995.
(3) Gives effect to: (i) the acquisitions completed by the Company since May 1,
1995 as if such acquisitions had been made on May 1, 1995; (ii) the sales by
the Company in August 1995 of 4,025,000 shares of Common Stock as if such
sales had been made on May 1, 1995; (iii) the sales by the Company in
February and March 1996 of 5,543,045 shares of Common Stock and 5 1/2%
Convertible Subordinated Notes due 2001 in the principal amount of $143.75
million as if such sales had been made on May 1, 1995; (iv) the sales by the
Company in May and June 1996 of 5 1/2% Convertible Subordinated Notes due
2003 in the principal amount of $230.0 million as if such sales had been
made on May 1, 1995; (v) the sale by the Company in September 1996 of
1,250,000 shares of Common Stock as if such sale had been made on May 1,
1995; and (vi) the sale by the Company of 7,959,639 shares of Common Stock
in the Offering as if such sale has been made on May 1, 1995.
(4) Extraordinary item represents the loss associated with the early termination
of the Company's $50 million credit facility with First Bank National
Association, net of the related income tax benefit.
(5) Net income and net income per share include nonrecurring acquisition costs
incurred in conjunction with the business combinations with the Pooled
Companies and the costs associated with the discontinuation of the printing
division at a subsidiary. GAAP requires the Company to expense all costs
related to acquisitions accounted for under the pooling-of-interests method.
(6) Includes a loss of $.01 per share related to the extraordinary item.
(7) Pro forma net income per share is pro forma income before extraordinary item
per share.
(8) For calculation of the pro forma weighted average shares outstanding for the
year ended April 30, 1996 and for each of the six months ended October 26,
1996 and October 31, 1995, see Note 2(j) of Notes to Pro Forma Combined
Financial Statements included herein.
(9) Gives effect to acquisitions completed after October 26, 1996 as if they had
been made on October 26, 1996.
(10) Gives effect to (i) acquisitions completed after October 26, 1996 as if
they had been made on October 26, 1996; and (ii) the sale by the Company of
7,959,639 shares of Common Stock in the Offering.
9
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the following risk factors, as well as the other information in this
Prospectus or incorporated herein by reference, in evaluating an investment in
the Common Stock. This Prospectus contains forward-looking statements which
involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," and "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 in the following risk factors.
RAPID EXPANSION; DEPENDENCE ON ACQUISITIONS FOR FUTURE GROWTH
One of the Company's strategies is to increase its revenues and the markets
it serves through the acquisition of additional businesses offering a broad
array of office and educational products, services and equipment. From its
inception through January 25, 1997, the Company completed 138 acquisitions. The
Company is actively negotiating to acquire additional office and educational
products and services businesses, both in the United States and internationally,
consistent with its strategy of pursuing an aggressive acquisition program.
There can be no assurance, however, that the Company's management and financial
controls, personnel, computer systems and other corporate support systems will
be adequate to manage the continuing increase in the size and scope of the
Company's operations and acquisition activity.
The Company depends on 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 or be available to the Company on favorable terms,
if at all. For example, if the market price of the Common Stock were to decline
significantly over a sustained period, the owners of potential acquisition
targets might not be willing to receive shares of Common Stock in exchange for
their businesses, thereby adversely affecting the pace of the Company's
acquisition program. Such an effect on the pace of the Company's acquisition
program could further reduce the price of a share of Common Stock, to the
further detriment of the Company's acquisition strategy. In addition, the
consolidation of the domestic contract stationer industry has reduced the number
of larger companies available for sale, which could lead to higher prices being
paid for the acquisition of the remaining domestic, independent companies.
RISKS RELATED TO EXPANSION INTO NEW PRODUCT AND SERVICE AREAS
The Company's ability to manage an aggressive consolidation program in
markets other than the domestic contract stationer market, including furniture,
office coffee services, computer and telecommunications network services and
school supplies and school furniture, has not yet been fully tested. In
addition, there can be no assurance that companies that have been acquired or
that may be acquired in the future will achieve sales and profitability levels
that justify the 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.
10
<PAGE>
INTERNATIONAL EXPANSION
As of January 25, 1997, the Company's international operations were in New
Zealand, Australia, Canada and, through its 49% interest in Dudley, the United
Kingdom. In addition to their contract stationery, office furniture, and school
supply and school furniture operations, the Company's international operations
have retail book and stationery stores which the Company does not have
domestically. If the Company had acquired its international operations as well
as the other Completed Acquisitions at the beginning of fiscal 1996, the
Company's international operations would have accounted for approximately 33.3%
of the Company's fiscal 1996 pro forma revenues and 29.7% of pro forma revenues
for the six months ended October 26, 1996. International operations constituted
approximately 6.5% of historical fiscal 1996 revenues and 25% of historical
revenues for the six months ended October 26, 1996. The Company intends to focus
significant attention and resources on international expansion in the future and
expects foreign sales to represent a significant proportion of the Company's
total sales. Expansion into international markets involves additional risks
relating to currency exchange rates; new and different legal, regulatory and
competitive requirements; difficulties in staffing and managing foreign
operations; different business lines; and other factors.
INTEGRATION OF ACQUISITIONS AND LIMITED COMBINED OPERATING HISTORY
U.S. Office Products was founded in October 1994 and conducted no operations
prior to the acquisition of its founding companies in February 1995. From its
inception through January 25, 1997, U.S. Office Products has acquired 138
companies, and it intends to continue to make acquisitions. In most cases, the
managers of the acquired companies have continued to operate their companies
after being acquired by U.S. Office Products. There can be no assurance that the
Company will be able to successfully integrate these companies within its
operations without substantial costs, delays or other problems. In addition,
there can be no assurance that the Company's executive management group will be
able to oversee the combined entity and effectively implement the Company's
operating or growth strategies in each of the markets that the Company serves.
There also can be no assurance that the pace of the Company's acquisitions will
not adversely affect the Company's efforts to integrate acquisitions and manage
those acquisitions profitably. Finally, although the Company conducts due
diligence and generally requires representations, warranties, and
indemnifications from the former owners of acquired companies, there can be no
assurance that such owners will have accurately represented the financial and
operating conditions of their companies; if not, this could have a material
adverse effect on the Company's results of operations and financial condition.
DEPENDENCE ON IMPLEMENTATION AND OPERATION OF SYSTEMS
The Company believes that the successful operation of the businesses that it
has acquired and intends to acquire depends in part on the implementation of
computerized inventory management and order processing systems and warehouse
management and distribution systems. While the Company recently acquired The
Systems House, Inc. ("TSH"), its primary software and management information
systems provider, the Company may experience delays, complications or expenses
in implementing, integrating and operating these systems, any of which could
have a material adverse effect on the Company's results of operations and
financial condition. In addition, interruptions or disruptions in systems
operations could adversely affect the financial results of particular locations.
Finally, while the Company believes that its operating and technology systems
will be adequate for its future needs as a result of the acquisition of TSH,
such systems will require modification, improvement or replacement as the
Company expands or as new technologies make these systems obsolete. Such
modifications, improvements or replacements may require substantial expenditures
to design and implement and may require interruptions in operations during
periods of implementation, any of which could have a material adverse effect on
the Company's results of operations and financial condition.
11
<PAGE>
SUBSTANTIAL COMPETITION
The Company operates in a highly competitive environment. In the markets in
which the Company 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 the Company's large competitors
operate in many of the Company's geographic and product markets, and other
competitors may choose to enter the Company's geographic and product markets in
the future. In addition, as a result of this competition, the Company may lose
customers or have difficulty acquiring new customers. As a result of competitive
pressures on the pricing of products, the Company's revenues and/or margins may
decline.
The Company faces significant competition to acquire additional businesses
as the office products industry undergoes continuing consolidation. Significant
competition exists, or is expected to develop, in the other markets that the
Company serves or is planning to enter as consolidation occurs (or accelerates)
in those markets. A number of the Company's major competitors are actively
pursuing acquisitions outside of the United States. These companies, or other
large companies, may compete with the Company for acquisitions in markets other
than the market for office products. Such competition could lead to higher
prices being paid for acquired companies.
CONSIDERATION FOR OPERATING COMPANIES EXCEEDS ASSET VALUE
The purchase prices of the Company's acquisitions have not been established
by independent appraisals, but generally have been determined through
arms-length negotiations between the Company and representatives of such
companies. The consideration for each such company has been based primarily on
the value of such company as a going concern and not on the value of the
acquired assets. Valuations of these companies determined solely by appraisals
of the acquired assets would have been less than the consideration paid for the
companies. No assurance can be given that the future performance of such
companies will be commensurate with the consideration paid. Moreover, the
Company has incurred and expects to continue to incur significant amortization
charges resulting from consideration paid in excess of the fair value of the net
assets of the companies acquired in business combinations accounted for under
the purchase method of accounting.
EFFECT OF QUARTERLY FLUCTUATIONS IN OPERATING RESULTS ON PRICE OF COMMON STOCK
The Company's business is subject to seasonal influences. The Company's
historical sales and profitability in its core office products business have
been lower in the first two quarters of its fiscal year, primarily due to the
lower level of business activity in North America during the summer months. The
seasonality of the core office products business, however, is expected to be
impacted by the seasonality of its other operations, which have been expanding
through acquisitions. For example, the revenues and profitability of the
Company's school supplies and school furniture business 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.
Quarterly results also may be materially affected by the timing of
acquisitions, the timing and magnitude of costs related to such acquisitions,
variations in the prices paid by the Company for the products it sells, the mix
of products sold and general economic conditions. Moreover, the operating
margins of companies acquired by the Company may differ substantially from those
of the Company which could contribute to the further fluctuation in the
Company's quarterly operating results. Therefore, results for any quarter are
not necessarily indicative of the results that the Company may achieve for any
12
<PAGE>
subsequent fiscal quarter or for a full fiscal year. Fluctuations caused by
variations in quarterly operating results may have a material adverse effect on
the market price of the Company's Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock is subject to significant fluctuations
caused by variations in stock market conditions, changes in financial estimates
by securities analysts or failures by the Company to meet such estimates,
quarterly operating results, announcements by the Company or its competitors,
general conditions in the office products and services industry and other
factors. Since the beginning of fiscal 1997 through January 25, 1997, the Common
Stock has traded in the range of $24.25 to $45.50 per share. The stock market in
recent years has experienced extreme price and volume fluctuations that often
have been unrelated or disproportionate to the operating performance of publicly
traded companies. These broad fluctuations may have a material adverse effect on
the market price of the Common Stock.
NEED FOR ADDITIONAL FINANCING TO CONTINUE ACQUISITION STRATEGY
The Company has financed most acquisitions, and intends to finance future
acquisitions in the United States, by using cash and shares of Common Stock. If
the Company does not have sufficient cash resources to pay the cash
consideration for acquisitions, or if potential acquisition candidates are
unwilling to accept the Common Stock as part of the consideration for the sale
of their businesses because the Common Stock does not maintain sufficient value
or for other reasons, the Company may be unable to continue the current pace of
its aggressive acquisition program, which could have a material adverse impact
on the Company and the market price of its Common Stock. The Company has filed
shelf registration statements with the Commission relating to the offering of
38,381,471 shares of Common Stock to be used as consideration for acquisitions
by the Company, of which approximately 31,643,549 shares remain available. In
addition, the Company has sold debt and equity securities to raise cash proceeds
for acquisitions. In May and June 1996, the Company completed the sales of $230
million in aggregate principal amount of 5 1/2% Convertible Subordinated Notes
due 2003 (the "May Notes"). The proceeds from the sale of the May Notes were
used for general corporate purposes, including to pay the cash consideration
($220 million) for the acquisition of Whitcoulls. In addition, in September
1996, the Company completed the sale of 1,250,000 shares of Common Stock for
$38.1 million in a privately negotiated transaction. The proceeds from such sale
were used to reduce outstanding indebtedness. The Company expects that future
acquisitions outside the United States may be for cash consideration.
Assuming that the current pace of the Company's acquisitions continues, the
Company may need additional debt or equity financing in order to continue its
acquisition program. There can be no assurance that the Company will be able to
obtain such financing if and when it is needed or that any such financing will
be available on terms the Company deems acceptable. In August 1996, the Company
entered into an agreement under which a syndicate of financial institutions led
by Bankers Trust Company, as Agent, is providing the Company with a $500 million
credit facility (the "Credit Facility"). The amount available to be borrowed
under the Credit Facility for acquisitions will vary from time to time depending
on the level of, on a pro forma basis reflecting consummated acquisitions, the
Company's consolidated earnings before interest, taxes, depreciation and
amortization and the Company's total indebtedness and related interest expense.
As of January 25, 1997, the Company had $347.1 million outstanding under the
Credit Facility at an annual interest rate of approximately 7.2%. The amount
outstanding under the Credit Facility is expected to be significantly reduced
with the proceeds of the Offering. See "Use of Proceeds" and "Capitalization."
RELIANCE ON KEY PERSONNEL
The Company's operations depend on the continued efforts of Jonathan J.
Ledecky, its Chairman of the Board and Chief Executive Officer; Timothy J.
Flynn, its President and Chief Operating Officer; its other executive officers;
and the senior management of its subsidiaries. Furthermore, the Company will
13
<PAGE>
likely depend on the senior management of companies that may be acquired in the
future. If any of these people become unable to continue in their present roles,
or if the Company is unable to attract and retain other skilled employees, the
Company's business would be adversely affected. The Company currently has key
man life insurance covering Mr. Ledecky in the amount of $20 million, but does
not have and does not intend to obtain key man life insurance covering any of
its other executive officers or other members of senior management.
CONTROL BY MANAGEMENT AND STOCKHOLDERS
As of January 3, 1997, officers and directors of the Company and its
subsidiaries beneficially own approximately 34.0% of the outstanding shares of
Common Stock. Assuming consummation of the Offering, the officers and directors
of the Company and its subsidiaries will beneficially own 26.8% of the
outstanding shares of Common Stock. These stockholders acting together may be
able to elect a sufficient number of directors to control the Board of Directors
and to approve or disapprove any matter submitted to a vote of stockholders.
RISKS RELATED TO UNIONIZED EMPLOYEES
A small number of the Company's employees are members of labor unions. If
unionized employees were to engage in a strike or other work stoppage, or if
other employees were to become unionized, the Company could experience a
disruption of operations or higher labor costs, which could have a material
adverse effect on operations.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
As of January 25, 1997, there were 51,352,131 shares of Common Stock of the
Company outstanding, of which 28,531,451 shares were issued by the Company
pursuant to registration statements in connection with acquisitions of
businesses, and 6,948,065 shares were issued in private transactions and are
registered for resale pursuant to a shelf registration statement (the "Selling
Stockholder Shelf"). Of the 28,531,451 and 6,948,065 shares, 8,638,276 shares
are subject to contractual restrictions on the transfer thereof (other than
restrictions relating to shares issued in transactions accounted for under the
pooling-of-interests method of accounting, described below) and 2,040,361 shares
are being offered in the Offering. The contractual restrictions expire at
various times, generally up to two years from the date of issuance of the
shares. In addition, the Company has 31,643,549 shares of Common Stock remaining
on registration statements filed with the Commission to be used as consideration
in future acquisitions and in connection with earn-out provisions relating to
prior acquisitions.
The Company has an aggressive acquisition program under which it
periodically makes, and expects to continue to make, acquisitions that are
accounted for under the pooling-of-interests method of accounting. Under the
pooling-of-interests method of accounting, the affiliates of the acquired
companies, which are generally all of the stockholders of the companies acquired
by U.S. Office Products, must be free to sell or otherwise transfer shares of
the Common Stock received in the acquisition, subject to their compliance with
federal securities laws, as soon as the Company releases results of operations
that reflect the combined post-acquisition operations of the Company and the
acquired company for a minimum of 30 days. For example, the Company has issued
approximately 4,786,779 shares of Common Stock in connection with acquisitions
that were recently completed and which were accounted for under the pooling-of-
interests method of accounting. Of such shares, 707,604 will become freely
transferable at the time the Company publicly announces results of operations
for its third quarter of fiscal 1997 and 4,079,175 shares, which were issued in
connection with acquisitions completed in January, 1997, will become freely
transferable at the time the Company publicly announces results of operations
reflecting 30 days of combined post-acquisition operations of the Company and
the acquired companies, subject to certain volume and other restrictions of Rule
145(d) of the Securities Act applicable to affiliates of the acquired companies.
In addition, the Company expects to complete additional acquisitions in the
future that will be
14
<PAGE>
accounted for under the pooling-of-interests method. If a significant number of
shares of Common Stock are issued in acquisitions that are consummated in close
proximity to each other, such shares will become freely tradeable at the same
time. If a large number of shares are sold by stockholders in the market as soon
as their shares become freely transferable, the price of the Common Stock could
be adversely affected.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is empowered to issue preferred stock
without stockholder action. The existence of this "blank-check" preferred stock
could render more difficult or discourage an attempt to obtain control of the
Company by means of a tender offer, merger, proxy contest or otherwise.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 7,959,639 shares of
Common Stock offered hereby by the Company are expected to be approximately
$266.5 million ($316.9 million if the Underwriters' over-allotment option is
exercised in full), assuming a public offering price of $35.00 per share and
after deducting estimated underwriting discounts, commissions and offering
expenses payable by the Company.
The Company intends to use the net proceeds of the Offering to repay
indebtedness incurred under the Credit Facility and, if there are any excess
proceeds, for general corporate purposes. As of January 25, 1997, the balance
outstanding under the Credit Facility, which matures on August 21, 2001, was
$347.1 million at an annual interest rate of approximately 7.2%. The borrowings
under the Credit Facility were incurred primarily to refinance $180 million in
high interest rate debt outstanding in Australia and New Zealand and for
domestic and international acquisitions. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Shareholders. See
"Principal and Selling Stockholders."
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its shares of
Common Stock in the foreseeable future because it intends to retain its
earnings, if any, to finance the expansion of its business and for general
corporate purposes. Any payment of future dividends will be at the discretion of
the Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
factors that the Company's Board of Directors deems relevant. Further, the
Credit Facility prohibits the payment of dividends without the lenders' consent.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"OFIS." On January 29, 1997, the last sale price of the Common Stock was $33.56
per share. The following table sets forth, for the fiscal periods indicated, the
range of high and low sale prices for the Company's Common Stock on the Nasdaq
National Market. On January 29, 1997, there were approximately 657 stockholders
of record of the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1995
Fourth Quarter.......................................................................... $ 15.50 $ 10.00(1)
FISCAL YEAR ENDED APRIL 30, 1996
First Quarter........................................................................... $ 15.88 $ 10.50
Second Quarter.......................................................................... $ 18.13 $ 13.50
Third Quarter........................................................................... $ 26.38 $ 16.25
Fourth Quarter.......................................................................... $ 40.00 $ 22.00
FISCAL YEAR ENDED APRIL 26, 1997
First Quarter........................................................................... $ 45.50 $ 24.50
Second Quarter.......................................................................... $ 38.00 $ 24.75
Third Quarter........................................................................... $ 37.25 $ 26.25
</TABLE>
- ------------------------
(1) Represents the initial public offering price.
16
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 26, 1996, (i) on an actual basis; (ii) on a pro forma basis to reflect
the acquisitions completed between October 26, 1996 and January 25, 1997; and
(iii) on a pro forma basis as adjusted to reflect acquisitions completed between
October 26, 1996 and January 25, 1997, and to reflect the receipt and
application of the net proceeds from the sale of 7,959,639 shares of the Common
Stock offered by the Company hereby at an assumed public offering price of
$35.00 per share. The following table should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the historical consolidated financial statements and the pro forma
combined financial statements of the Company, and the related notes to each
thereof, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 26, 1996
-------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- ------------
<CAPTION>
(In thousands)
<S> <C> <C> <C>
Short-term debt and current portion of long-term debt...................... $ 227,571 $ 270,844 $ 4,388
---------- ----------- ------------
---------- ----------- ------------
Long-term debt, excluding current portion.................................. $ 383,367 $ 383,367 $ 383,367
Stockholders' equity:
Preferred Stock $0.001 par value, 500,000 shares authorized, none
outstanding............................................................
Common Stock, $0.001 par value, 500,000,000 shares authorized and
45,698,248 shares issued and outstanding (1); 51,352,131 shares issued
and outstanding on a pro forma basis (1); and 59,311,770 shares issued
and outstanding on a pro forma basis and as adjusted (1)............... 46 51 59
Additional paid-in capital............................................... 467,687 479,543 745,991
Cumulative translation adjustment........................................ 4,988 4,988 4,988
Retained earnings........................................................ 53,502 78,485 78,485
---------- ----------- ------------
Total stockholders' equity........................................... 526,223 563,067 829,523
---------- ----------- ------------
Total capitalization................................................. $ 909,590 $ 946,434 $ 1,212,890
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- ------------------------
(1) Excludes 414,076 shares of Common Stock subject to options that were
exercisable as of October 26, 1996.
17
<PAGE>
SELECTED FINANCIAL DATA
The Selected Financial Data for the fiscal years ended April 30, 1994, 1995,
and 1996 (except pro forma amounts) have been derived from the Company's
consolidated financial statements that have been audited by Price Waterhouse LLP
and are included elsewhere in this Prospectus. The Selected Financial Data for
the fiscal years ended April 30, 1992 and 1993 have been derived from unaudited
combined financial statements. The financial statements for the 1992 and 1993
fiscal years are not included elsewhere in this Prospectus or incorporated
herein by reference. The Selected Financial Data for the six months ended
October 31, 1995 and October 26, 1996 (except pro forma amounts) have been
derived from unaudited consolidated financial statements that appear elsewhere
in this Prospectus. The unaudited combined financial statements have been
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, contain all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for the periods presented.
The pro forma data gives effect, as applicable, to (i) the acquisitions
completed by the Company between May 1, 1995 and January 25, 1997 as if all of
such acquisitions had been made on May 1, 1995, (ii) the sales by the Company of
4,025,000 shares of Common Stock in the second offering in August 1995 as if
such sales had been made on May 1, 1995, (iii) the sales by the Company in
February and March 1996 of 5,543,045 shares of Common Stock and 5 1/2%
Convertible Subordinated Notes due 2001 in the principal amount of $143.75
million as if such sales had been made on May 1, 1995, (iv) the sales by the
Company in May and June 1996 of the May Notes in the principal amount of $230
million as if such sales had been made on May 1, 1995, (v) the sale by the
Company in September 1996 (the "September Stock Sale") of 1,250,000 shares of
Common Stock as if such sale had been made on May 1, 1995, and (vi) the sale by
the Company of 7,959,639 shares of Common Stock in the Offering. In addition,
the pro forma information is based on available information and certain
assumptions and adjustments. The Selected Financial Data provided herein should
be read in conjunction with the historical financial statements, including the
notes hereto, of U.S. Office Products and the other companies whose financial
statements appear elsewhere in, or are incorporated by reference into, this
Prospectus, the pro forma financial statements, including the notes thereto, and
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that appear elsewhere in this Prospectus.
18
<PAGE>
SELECTED FINANCIAL DATA(1)
(In thousands, except per share data and footnotes)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
---------------------------------------------------------------------------------------
PRO FORMA
PRO FORMA 1996 AS
1992 1993 1994 1995 1996 1996(2) ADJUSTED(3)
----------- ----------- -------- -------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................. $ 381,161 $ 458,456 $533,018 $723,794 $ 1,149,691 $2,685,610 $2,685,610
Cost of revenues......... 271,011 328,608 382,197 534,562 848,003 1,910,068 1,910,068
----------- ----------- -------- -------- ------------- ---------- -----------
Gross profit............. 110,150 129,848 150,821 189,232 301,688 775,542 775,542
Selling, general and
administrative
expenses............... 102,001 123,275 135,526 162,423 256,681 652,435 652,435
Nonrecurring acquisition
costs.................. 8,057
Nonrecurring
restructuring costs.... 8,092 8,092
Discontinuation of
printing division at
subsidiary............. 682 682 682
----------- ----------- -------- -------- ------------- ---------- -----------
Operating income......... 8,149 6,573 15,295 26,809 36,268 114,333 114,333
Interest expense......... 3,397 4,083 4,139 6,182 13,115 39,716 21,530
Interest income.......... (420) (280) (405) (682) (3,750)
Foreign currency gain....
Other (income) expense... (2,248) (1,414) (633) (549) (1,063) (2,554) (2,554)
Equity in net income of
affiliated company..... 1,155 1,155
----------- ----------- -------- -------- ------------- ---------- -----------
Income before income
taxes and extraordinary
item................... 7,420 4,184 12,194 21,858 27,966 78,326 96,512
Provision for income
taxes.................. 1,315 1,899 1,947 3,009 6,610 33,986 41,260
----------- ----------- -------- -------- ------------- ---------- -----------
Income before
extraordinary item..... 6,105 2,285 10,247 18,849 21,356 44,340 55,252
---------- -----------
---------- -----------
Extraordinary item(4)....
----------- ----------- -------- -------- -------------
Net income............... $ 6,105 $ 2,285 $ 10,247 $ 18,849 $ 21,356(5)
----------- ----------- -------- -------- -------------
----------- ----------- -------- -------- -------------
Net income per
share(7)............... $ 0.67(5) $ 0.86 $ 0.93
------------- ---------- -----------
------------- ---------- -----------
Weighted average shares
outstanding(8)......... 31,789 51,729 59,689
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, 1995 AND OCTOBER 26, 1996
------------------------------------------------------------
PRO FORMA
PRO FORMA PRO FORMA FISCAL 1997
FISCAL FISCAL FISCAL AS
1996 FISCAL 1997 1996(2) 1997(2) ADJUSTED(3)
-------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues................. $485,546 $ 996,414 $1,303,376 1,388,669 $1,388,669
Cost of revenues......... 361,534 716,849 938,709 985,605 985,605
-------- ------------ ---------- ---------- -----------
Gross profit............. 124,012 279,565 364,667 403,064 403,064
Selling, general and
administrative
expenses............... 106,852 227,245 316,531 332,645 332,645
Nonrecurring acquisition
costs.................. 5,192 5,727
Nonrecurring
restructuring costs....
Discontinuation of
printing division at
subsidiary.............
-------- ------------ ---------- ---------- -----------
Operating income......... 11,968 46,593 48,136 70,419 70,419
Interest expense......... 4,639 18,643 21,358 21,358 12,265
Interest income.......... (662) (5,382)
Foreign currency gain.... (3,420) (3,420) (3,420)
Other (income) expense... (718) (476) 864 (1,187) (1,187)
Equity in net income of
affiliated company..... 629 782 782
-------- ------------ ---------- ---------- -----------
Income before income
taxes and extraordinary
item................... 8,709 37,228 26,543 54,450 63,543
Provision for income
taxes.................. 494 13,948 11,402 23,614 27,251
-------- ------------ ---------- ---------- -----------
Income before
extraordinary item..... 8,215 23,280 15,141 30,836 36,292
---------- ---------- -----------
---------- ---------- -----------
Extraordinary item(4).... 612
-------- ------------
Net income............... $ 8,215(5) $ 22,668(5)
-------- ------------
-------- ------------
Net income per
share(7)............... $ 0.29(5) $ 0.52(5)(6) $ 0.29 $ 0.59 $ 0.60
-------- ------------ ---------- ---------- -----------
-------- ------------ ---------- ---------- -----------
Weighted average shares
outstanding(8)......... 28,166 43,622 51,453 52,360 60,320
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
-----------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 30,231 $ 30,233 $ 36,635 $ 59,674 $ 247,918
Total assets........................................................... 120,504 140,518 152,555 258,773 792,229
Long-term debt less current portion.................................... 21,180 16,958 23,785 29,939 181,593
Stockholders' equity................................................... 38,843 39,289 43,275 90,803 334,518
<CAPTION>
OCTOBER 26, 1996
----------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(9) ADJUSTED(10)
--------- --------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................................ $ 120,806 $ 75,523 $ 341,979
Total assets........................................................... 1,444,231 1,569,064 1,569,064
Long-term debt less current portion.................................... 383,367 383,367 383,367
Stockholders' equity................................................... 526,223 563,067 829,523
</TABLE>
19
<PAGE>
- ------------------------
(1) As a result of the substantial continuing interests in the Company of the
former stockholders of the four companies acquired by the Company for a
combination of Common Stock and cash concurrent with the closing of its
initial public offering (the "IPO") (the "Combined Companies"), the
historical financial information of the Combined Companies and the
historical financial information of the businesses that were acquired after
the closing of the IPO in business combinations accounted for under the
pooling-of-interests method (the "Pooled Companies") have been combined on a
historical cost basis in accordance with generally accepted accounting
principles ("GAAP") to present this financial data as if the Combined
Companies and the Pooled Companies had always been members of the same
operating group. The financial information of the businesses acquired in the
business combinations accounted for under the purchase method (the
"Purchased Companies") is included from the dates of their respective
acquisitions. The pro forma data reflect acquisitions completed by the
Company through January 25, 1997.
(2) Gives effect to: (i) the acquisitions completed by the Company since May 1,
1995 as if such acquisitions had been made on May 1, 1995; (ii) the sales by
the Company in August 1995 of 4,025,000 shares of Common Stock as if such
sales had been made on May 1, 1995; (iii) the sales by the Company in
February and March 1996 of 5,543,045 shares of Common Stock and 5 1/2%
Convertible Subordinated Notes due 2001 in the principal amount of $143.75
million as if such sales had been made on May 1, 1995; (iv) the sales by the
Company in May and June 1996 of 5 1/2% Convertible Subordinated Notes due
2003 in the principal amount of $230.0 million as if such sales had been
made on May 1, 1995; and (v) the sale by the Company in September 1996 of
1,250,000 shares of Common Stock as if such sale had been made on May 1,
1995.
(3) Gives effect to: (i) the acquisitions completed by the Company since May 1,
1995 as if such acquisitions had been made on May 1, 1995; (ii) the sales by
the Company in August 1995 of 4,025,000 shares of Common Stock as if such
sales had been made on May 1, 1995; (iii) the sales by the Company in
February and March 1996 of 5,543,045 shares of Common Stock and 5 1/2%
Convertible Subordinated Notes due 2001 in the principal amount of $143.75
million as if such sales had been made on May 1, 1995; (iv) the sales by the
Company in May and June 1996 of 5 1/2% Convertible Subordinated Notes due
2003 in the principal amount of $230.0 million as if such sales had been
made on May 1, 1995; (v) the sale by the Company in September 1996 of
1,250,000 shares of Common Stock as if such sale had been made on May 1,
1995; and (vi) the sale by the Company of 7,959,639 shares of Common Stock
in the Offering as if such sale has been made on May 1, 1995.
(4) Extraordinary item represents the loss associated with the early termination
of the Company's $50 million credit facility with First Bank National
Association, net of the related income tax benefit.
(5) Net income and net income per share include nonrecurring acquisition costs
incurred in conjunction with the business combinations with the Pooled
Companies and the costs associated with the discontinuation of the printing
division at a subsidiary. GAAP requires the Company to expense all costs
related to acquisitions accounted for under the pooling-of-interests method.
(6) Includes a loss of $.01 per share related to the extraordinary item.
(7) Pro forma net income per share is pro forma income before extraordinary item
per share.
(8) For calculation of the pro forma weighted average shares outstanding for the
year ended April 30, 1996 and for each of the six months ended October 26,
1996 and October 31, 1995, see Note 2(j) of Notes to Pro Forma Combined
Financial Statements included herein.
(9) Gives effect to acquisitions completed between October 26, 1996 and January
25, 1997 as if they had been made on October 26, 1996.
(10) Gives effect to (i) acquisitions completed between October 26, 1996 and
January 25, 1997 as if they had been made on October 26, 1996; and (ii) the
sale by the Company of 7,959,639 shares of Common Stock in the Offering.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. When used herein, the words "anticipate," "believe,"
"estimate," and "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 in "Risk Factors."
INTRODUCTION
The Company's revenues have been derived primarily from the sale of a wide
variety of office supplies, office furniture and other office and educational
products, services and equipment to corporate, commercial, educational and
industrial customers. The cost of revenues represents the purchase price of
office supplies, office furniture and other office products. Cost of revenues
includes occupancy and delivery expenses and is reduced by rebates and discounts
on inventory purchases.
The Company has an aggressive acquisition strategy that involves the
acquisition of additional companies in related lines of businesses. These
acquisitions may change the Company's mix of businesses and operating margins.
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
initially may necessitate costs and expenditures to expand corporate management
and administration. These various costs and possible cost-savings may make
historical operating results not indicative of future performance. In addition,
the Company expects to focus significant attention and resources on future
international expansion. The Company's operations in foreign markets are subject
to a number of inherent risks, including currency exchange rates, new and
different legal and regulatory requirements, difficulties in staffing and
managing foreign operations, different business lines and other factors.
RESULTS OF OPERATIONS
The following table sets forth various items as a percentage of revenues for
the three fiscal years ended April 30, 1996 and for the six months ended October
31, 1995 and October 26, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, 1995 AND
FISCAL YEAR ENDED APRIL 30, OCTOBER 26, 1996
------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
FISCAL FISCAL
1994 1995 1996 1996 1997
--------- --------- --------- ------------- -------------
Revenues.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.................................. 71.7 73.9 73.8 74.5 71.9
--------- --------- --------- ----- -----
Gross profit................................ 28.3 26.1 26.2 25.5 28.1
Selling, general and administrative expenses...... 25.4 22.4 22.3 22.0 22.8
Nonrecurring acquisition costs.................... 0.7 1.0 0.6
Discontinuation of printing division at
subsidiary...................................... 0.1
--------- --------- --------- ----- -----
Operating income............................ 2.9 3.7 3.1 2.5 4.7
Other (income) expense:
Interest expense................................ 0.8 0.9 1.1 0.9 1.9
Interest Income................................. (0.1) (0.1) (0.3) (0.1) (0.5)
Foreign currency gain........................... (0.3)
Other........................................... (0.1) (0.1) (0.1) (0.1) (0.1)
--------- --------- --------- ----- -----
Income before income taxes and extraordinary
item............................................ 2.3 3.0 2.4 1.8 3.7
Provision for income taxes........................ 0.4 0.4 0.6 0.1 1.4
--------- --------- --------- ----- -----
Income before extraordinary item.................. 1.9 2.6 1.8 1.7 2.3
Extraordinary item--loss on early termination of
credit facility, net of income tax benefit 0.1
--------- --------- --------- ----- -----
Net income........................................ 1.9% 2.6% 1.8% 1.7% 2.2%
--------- --------- --------- ----- -----
--------- --------- --------- ----- -----
</TABLE>
21
<PAGE>
CONSOLIDATED RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 26, 1996 COMPARED TO SIX MONTHS ENDED OCTOBER 31,
1995
The Company's revenues increased 105.2%, from $485.5 million for the six
months ended October 31, 1995 to $996.4 million for the six months ended October
26, 1996. This increase was primarily due to the 26 acquisitions completed
during fiscal 1996 that were accounted for under the purchase method of
accounting and the 45 acquisitions completed during fiscal 1997 that were
accounted for under the purchase method of accounting and were included in the
revenues for the six months ended October 26, 1996 (collectively, the "71
Purchased Companies").
Gross profit increased 125.4%, from $124.0 million, or 25.5% of revenues,
for the six months ended October 31, 1995, to $279.6 million, or 28.1% of
revenues, for the six months ended October 26, 1996. The increase in gross
profit as a percentage of revenues was due primarily to a shift in revenue mix
resulting in a higher proportion of revenues in traditionally higher margin
products, such as office coffee services, school supplies and school furniture,
and products sold in Australia and New Zealand.
Selling, general and administrative expenses increased 112.7%, from $106.9
million, or 22.0% of revenues, for the six months ended October 31, 1995 to
$227.2 million, or 22.8% of revenues for the six months ended October 26, 1996.
The increase in selling, general and administrative expenses was due primarily
to the inclusion of the 71 Purchased Companies in the six months ended October
26, 1996. The increase in selling, general and administrative expenses as a
percentage of revenues was due primarily to the inclusion of the 71 Purchased
Companies, which had higher selling, general and administrative expenses as a
percentage of revenues.
The Company incurred nonrecurring acquisition costs of approximately $5.7
million and $5.2 million during the six months ended October 26, 1996 and
October 31, 1995, respectively, in conjunction with business combinations that
were accounted for under the pooling-of-interests method. The nonrecurring
acquisition costs for the six months ended October 26, 1996 represented costs
associated with 21 business combinations accounted for under the
pooling-of-interests method compared to four such business combinations during
the six month period ended October 31, 1995. The nonrecurring acquisition costs
for the six months ended October 31, 1995 included a charge of approximately
$4.7 million related to one business combination which included the payment of
significant transaction related compensation obligations.
Interest expense, net of interest income, increased 233.5% from $4.0 million
for the six months ended October 31, 1995 to $13.3 million for the six months
ended October 26, 1996. This increase was due primarily to the increase in the
Company's borrowings through the issuance of an aggregate of $373.75 million of
convertible subordinated notes during the fourth quarter of fiscal 1996 and the
first quarter of fiscal 1997 and an increase in the outstanding balance on the
Company's Credit Facility. The proceeds from the issuance of the notes and the
additional borrowings from the Credit Facility were used to fund the cash
portion of the consideration in business combinations and the refinancing of
indebtedness assumed in such business combinations.
Foreign currency gain of $3.4 million represents the effect of the change in
the exchange rate between the New Zealand and U.S. dollars during the three
months ended October 26, 1996 on short-term loans between the Company and Blue
Star Group Limited ("Blue Star"), its wholly owned subsidiary in New Zealand. At
October 26, 1996, the Company had advanced Blue Star approximately $255.9
million.
Provision for income taxes increased from $494,000 for the six months ended
October 31, 1995 to $13.9 million for the six months ended October 26, 1996,
reflecting effective tax rates of 5.7% and 37.5% for the six month periods ended
October 31, 1995 and October 26, 1996, respectively. The low effective rate for
the six months ended October 31, 1995, compared to the federal statutory rate of
34.0% plus state, local and foreign taxes, was primarily due to the fact that
several of the companies that were included in the results of such six month
period and were acquired by the Company in business combinations
22
<PAGE>
accounted for under the pooling-of-interests method were subchapter S
corporations that were not subject to corporate federal income taxes prior to
being acquired by the Company.
The Company incurred an extraordinary item of $612,000 which represents the
aggregate expenses, net of the expected 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.
YEAR ENDED APRIL 30, 1996 COMPARED TO THE YEAR ENDED APRIL 30, 1995
Revenues increased by 58.8%, from $723.8 million in fiscal 1995 to $1,149.7
million in fiscal 1996. This increase was due primarily to the 26 acquisitions
completed during fiscal 1996 that were accounted for under the purchase method
of accounting and the five acquisitions completed during fiscal 1995 that were
accounted for under the purchase method of accounting and were included for the
entire 1996 fiscal year (collectively, the "31 Purchased Companies").
Gross profit increased by 59.4%, from $189.2 million in fiscal 1995 to
$301.7 million in fiscal 1996. Gross profit as a percentage of revenues
increased from 26.1% in fiscal 1995 to 26.2% in fiscal 1996. This increase in
gross profit was due primarily to the inclusion of the 31 Purchased Companies.
Selling, general and administrative expenses increased by 58.0%, from $162.4
million in fiscal 1995 to $256.7 million in fiscal 1996. Selling, general, and
administrative expenses as a percentage of revenues decreased from 22.4% in
fiscal 1995 to 22.3% in fiscal 1996. The increase in selling, general and
administrative expenses was due primarily to the inclusion of the 31 Purchased
Companies.
During fiscal 1996, the Company incurred $8.7 million in one-time charges,
which represented 0.8% of revenues. These charges consisted of $8.1 million in
nonrecurring acquisition costs incurred in conjunction with the 14 business
combinations completed during fiscal 1996 that were accounted for under the
pooling-of-interests method of accounting (the "Pooled Companies") and $682,000
associated with the discontinuation of the printing division at a subsidiary,
which consisted primarily of the write-down of printing division assets to their
estimated market value. GAAP requires the Company to expense all acquisition
expenses related to the combinations accounted for under the
pooling-of-interests method of accounting.
Interest expense increased by 112.1%, from $6.2 million in fiscal 1995 to
$13.1 million in fiscal 1996. The increase was due primarily to the increase in
the Company's borrowings. The increase in interest expense was partially offset
by an increase in interest income of $3.1 million for fiscal 1996 compared to
fiscal 1995. The increase in interest income was primarily the result of the
investment by the Company of a portion of the proceeds from the sales of
5,543,045 shares of Common Stock at $23.25 per share, including the
underwriters' over-allotment option of 610,000 shares, and the issuance of
$143.75 million principal amount of the February Notes, including the
underwriters' over-allotment option of $18.75 million, at a time when it did not
need to borrow under its line of credit.
Other income increased by $1.3 million from $425,000 in fiscal 1995 to $1.7
million in fiscal 1996.
Provision for income taxes increased by 119.7%, from $3.0 million in fiscal
1995 to $6.6 million in fiscal 1996, reflecting effective income tax rates of
13.8% and 23.6% in fiscal 1995 and 1996, respectively. The increase in income
taxes was primarily due to increased pretax income resulting from the inclusion
of the Purchased Companies. The increase in the effective income tax rate is due
primarily to the fact that the pretax income of the Pooled Companies that had
elected to be treated as subchapter S corporations prior to their acquisition by
the Company constituted a higher proportion of the total pretax income during
fiscal 1995 and to the addition of non-deductible expenses, primarily
non-deductible goodwill relating to the Purchased Companies.
23
<PAGE>
YEAR ENDED APRIL 30, 1995 COMPARED TO THE YEAR ENDED APRIL 30, 1994
Revenues increased by 35.8%, from $533.0 million in fiscal 1994 to $723.8
million in fiscal 1995. This increase was due primarily to the inclusion of the
five Purchased Companies acquired during fiscal 1995 (the "1995 Purchased
Companies").
Gross profit increased by 25.5% from $150.8 million in fiscal 1994 to $189.2
million in fiscal 1995. Gross profit as a percentage of revenues decreased from
28.3% in fiscal 1994 to 26.1% in fiscal 1995. The decrease as a percentage of
revenues was primarily due to the inclusion of the 1995 Purchased Companies,
which had a higher proportion of sales of traditionally lower margin product
lines, such as business machines and office furniture.
Selling, general and administrative expenses increased by 19.8%, from $135.5
million in fiscal 1994 to $162.4 million in fiscal 1995. Selling, general and
administrative expenses as a percentage of revenues decreased from 25.4% in
fiscal 1994 to 22.4% in fiscal 1995. This decrease, as a percentage of revenues,
was primarily due to the inclusion of the 1995 Purchased Companies, which had
lower selling, general and administrative expenses as a percentage of revenues.
Interest expense increased by 49.4%, from $4.1 million in fiscal 1994 to
$6.2 million in fiscal 1995. The increase in interest expense was primarily due
to incremental interest expense incurred by the 1995 Purchased Companies and to
higher interest rates. The interest expense was partially offset by an increase
in interest income of $277,000.
Other income decreased by 18.9% from $524,000 in fiscal 1994, to $425,000 in
fiscal 1995.
The provision for income taxes increased by 54.5%, from $1.9 million in
fiscal 1994 to $3.0 million in fiscal 1995, reflecting effective income tax
rates of 16.0% and 13.8% in fiscal 1994 and 1995, respectively. This increase in
income taxes was due primarily to increased pretax income. The low effective
income tax rates for fiscal 1994 and fiscal 1995, compared to the federal
statutory rate of 34.0% plus state and local taxes, were the result of the
election by certain companies included in the results to be treated as
subchapter S corporations prior to their acquisitions by the Company in
transactions accounted for under the pooling-of-interests method of accounting.
LIQUIDITY AND CAPITAL RESOURCES
At October 26, 1996, the Company had cash of $51.4 million and working
capital of $120.8 million. The Company's capitalization, defined as the sum of
long-term debt and stockholders' equity, at October 26, 1996 was $909.6 million.
In October 1996, the Company refinanced $180 million in high interest rate
debt outstanding in New Zealand and Australia with the $180 million that was
available under the Credit Facility solely for purposes of such refinancing. The
average annual interest rate on such debt prior to such refinancing was
approximately 11.0%. At October 26, 1996, the Company had $215 million
outstanding on the Credit Facility at an annual interest rate of approximately
7.2%.
In September 1996, the Company sold 1,250,000 shares of common stock in a
direct equity investment to Quantum Partners LDC. The Company received proceeds
of approximately $38.1 million as a result of the sale. The proceeds were used
to repay a portion of the then outstanding balance on the Credit Facility.
In August 1996, the Company entered into an agreement under which a
syndicate of financial institutions, held by Bankers Trust Company, as Agent
(the "Bank"), is providing the Company with the $500 million Credit Facility
bearing interest, at the Company's option, at the Bank's base rate plus an
applicable margin of up to 1.25%, or a Eurodollar rate plus an applicable margin
of up to 2.5%. The availability under the Credit Facility is subject to certain
sublimits including $100 million for working capital loans and $400 million for
acquisition loans, with $180 million of the acquisition loan sublimit available
solely to refinance certain outstanding indebtedness of the Company in Australia
and New
24
<PAGE>
Zealand. The Credit Facility is secured by a majority of the assets of the
Company and its subsidiaries and contains customary covenants, including
financial covenants with respect to the Company's consolidated leverage and
interest coverage ratios, capital expenditures, payment of dividends and
purchases and sales of assets, and customary default provisions, including
provisions related to non-payment of principal and interest, default under other
debt agreements and bankruptcy. Assuming the repayment of outstanding
indebtedness with the proceeds from this Offering, the Company intends to seek
to amend the Credit Facility to eliminate the $180 million acquisition sublimit.
In May and June 1996, the Company completed the sales, in an offshore
offering and in a concurrent private placement in the United States, of 5 1/2%
Convertible Subordinated Notes due 2003 (the "May Notes") in the principal
amount of $230 million, including the manager's over-allotment option of $30
million principal amount of May Notes (the "May Notes Offering"). The net
proceeds from the May Notes Offering, after deducting the manager's discounts
and commissions and offering expenses, were approximately $223.1 million and
were used for working capital and acquisition purposes, including the repayment
of higher interest rate debt assumed in business combinations.
In February and March 1996, the Company completed the February Offerings.
The net proceeds to the Company from the February Offerings, after deducting
underwriting discounts and commissions and offering expenses, were approximately
$259.7 million and have been used to repay indebtedness and for acquisition
purposes and are expected to be used for working capital and acquisition
purposes.
In August 1995, the Company completed the sales of 4,025,000 shares of
Common Stock at $14.25 per share, including the underwriters' over-allotment
option of 525,000 shares. The net proceeds to the Company, after deducting
underwriting discounts and commissions and offering expenses, were approximately
$53.5 million and were used for working capital and acquisition purposes.
In February 1995, the Company completed its initial public offering, in
which it sold 3,735,000 shares of Common Stock at $10.00 per share including the
underwriters' over-allotment option of 487,500 shares. The net proceeds to the
Company, after deducting underwriting discounts and commission and offering
expenses, were approximately $32.7 million and were used to repay indebtedness
and for working capital and acquisition purposes.
During the six months ended October 26, 1996, net cash used in operating
activities was $42.4 million which resulted primarily from the increase in
accounts receivable in the Company's school supply and school furniture business
and a decrease in accounts payable due to the Company's aggressive policy of
taking recently negotiated cash discounts. Accounts receivable increased in the
Company's school supply and school furniture business due primarily to the
seasonality of such business. Net cash used in investing activities was $291.7
million, including $273.7 million used for acquisitions, $10.3 million used for
additions to property and equipment and deposits of $9.0 million. Net borrowings
increased $170.1 million during the six months ended October 26, 1996 primarily
to fund acquisitions, including the repayment of higher interest rate debt
assumed in business combinations. The Company also received $38.1 million in
cash as a result of the sale of common stock during the period.
During the six months ended October 31, 1995, net cash provided by operating
activities was $1.1 million. Net cash used in investing activities was $49.9
million, including $43.4 million used for acquisitions, $3.5 million used for
additions to property and equipment and deposits of $3.2 million. Net borrowings
increased $2.6 million during the six months ended October 31, 1995. The Company
also received $53.5 million in cash as a result of the sale of common stock
during the period.
During fiscal 1996, net cash provided by operating activities was $17.8
million. Net cash used in investing activities during fiscal 1996 was $116.5
million, consisting primarily of net cash paid in acquisitions of $95.6 million,
net cash paid for additions to property and equipment of $14.5 million and an
investment in affiliate of $5.6 million. Net cash provided by financing
activities during fiscal 1996 was $254.9 million, consisting primarily of $174.7
million from the two public offerings of Common Stock and
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the public offering of debt of $138.4 million, net of offering expenses,
partially offset by a reduction in net borrowings of $45.4 million and dividends
paid by certain Pooled Companies prior to their acquisitions by the Company of
$13.8 million.
During fiscal 1995, net cash provided by operating activities was $13.8
million. Net cash used in investing activities during fiscal 1995 was $24.7
million, consisting primarily of net cash paid in acquisitions of $18.1 million
and net cash paid for additions to property and equipment of $6.9 million. Net
cash provided by financing activities during fiscal 1995 was $18.5 million,
representing proceeds from the initial public offering of $33.5 million, net of
offering expenses, and an increase in net borrowings of $447,000, partially
offset by payments of $11.3 million to the stockholders of four companies
acquired in the initial public offering and dividends paid by certain Pooled
Companies prior to their acquisitions by the Company of $7.2 million.
During fiscal 1994, net cash provided by operating activities was $12.2
million. Net cash used in investing activities during fiscal 1994 was $7.0
million, consisting primarily of net cash paid for additions to property and
equipment of $6.6 million. Net cash used in financing activities during fiscal
1994 was $4.6 million, consisting primarily of dividends paid by certain Pooled
Companies prior to their acquisitions by the Company of $4.2 million.
From October 26, 1996 through January 25, 1997, the Company completed 24
business combinations for an aggregate purchase price of $227.3 million,
consisting of approximately $62.6 million of cash and 5,407,985 shares of the
Company's common stock with an aggregate market value on the dates of
acquisition of approximately $164.8 million. This includes the acquisition of a
49% equity interest in Dudley, the largest independent office products dealer in
the United Kingdom. Under the terms of the agreement, the Company agreed to
invest approximately $80 million for working capital into Dudley over a two-year
period. In addition, Dudley plans to raise approximately an additional $80
million in debt financing. The Company has currently invested approximately
$41.3 million of the total $80 million in Dudley.
The Company's strategy is to continue to consolidate and modernize its
distribution facilities and systems with the creation of district fulfillment
centers and the consolidation of existing facilities into such centers. The
Company expects to incur capital expenditures of approximately $20 million to
$30 million over the next fiscal year for this and other purposes.
The Company anticipates that its current cash on hand, cash flow from
operations, the net proceeds from the Offering and additional financing
available under the Credit Facility will be sufficient to meet the Company's
liquidity requirements for its operations through the end of fiscal 1997.
However, the Company is currently, and intends to continue, pursuing additional
acquisitions, which are expected to be funded through a combination of cash and
shares of Common Stock. There can be no assurances that additional sources of
financing will not be required during the next twelve months or thereafter.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's business is subject to seasonal influences. The Company's
historical revenues and profitability in its core office products business have
been lower in the first two quarters of its fiscal year, primarily due to the
lower level of business activity in North America during the summer months. The
seasonality of the core office products business, however, is expected to be
impacted by the seasonality of its other operations, which have expanded through
acquisitions. For example, the revenues and profitability of the Company's
school supplies and school furniture business 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
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the prices paid by the Company for the products it sells, the mix of products
sold and general economic conditions. 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.
The following table sets forth certain unaudited consolidated quarterly
financial data for the fiscal year ended April 30, 1996 and the six months ended
October 26, 1996. The information has been derived from unaudited consolidated
financial statements that in the opinion of management reflect all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of such quarterly information.
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS FISCAL 1997 QUARTERS
---------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
FIRST SECOND THIRD(1) FOURTH FIRST SECOND
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues......................................... $ 214,481 $ 271,065 $ 316,621 $ 347,524 $ 408,527 $ 587,887
Gross profit..................................... 54,980 69,032 81,848 95,828 112,033 167,532
Operating income(2)(3)........................... 2,078 9,890 15,887 8,413 18,487 28,106
Net income(2)(3)................................. 1,637 6,578 9,224 3,917 10,221 12,447
</TABLE>
- ------------------------
(1) The quarterly financial data for the fiscal year ended April 30, 1996
includes the financial results of two companies subject to significant
seasonal influences which had fiscal years ended December 31, 1995 and were
acquired in business combinations accounted for under the
pooling-of-interests method of accounting. GAAP requires that the results of
these acquired companies for their third quarter ended September 30, 1995 be
included in the Company's results for the third quarter ended January 31,
1996. Because the acquired companies are significantly more profitable
during the three months ended September 30 than the three months ended
January 31, the Company's revenues and operating income for the quarter
ended January 31, 1996, as reported in accordance with GAAP appear high. The
Company's revenues and operating income for such quarter would have been
$47.2 million lower and $14.2 million lower, respectively, if the Company's
results for the quarter ended January 31, 1996 had included the acquired
companies' results for the three months ended January 31, 1996.
(2) Includes costs of $682,000 incurred during the third quarter of 1996 in
connection with the discontinuation of a printing division at a subsidiary.
(3) Includes one-time nonrecurring acquisition costs of $3,940,000 and
$1,787,000 for each of the first two quarters of fiscal 1997, respectively,
and $4,671,000, $521,000, $824,000 and $2,041,000 for each of the four
quarters of fiscal 1996, respectively. These one-time nonrecurring
acquisition costs are the result of business combinations consummated during
the fiscal year and accounted for under the pooling-of-interests method of
accounting. Under GAAP, acquisition costs incurred in conjunction with
pooling-of-interests combinations must be recorded as expense.
INFLATION
The Company does not believe that inflation has had a material impact on its
results of operations.
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 has an aggressive acquisition strategy that has involved, and is
expected to continue to involve, the acquisition of a significant number of
additional companies in related lines of businesses. From its inception through
January 25, 1997, the Company completed 138 acquisitions. In addition, the
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Company currently has, and from time to time expects to enter into, letters of
intent with respect to the acquisition of additional office and educational
products and equipment businesses, both in the United States and
internationally, consistent with its strategy of pursuing an aggressive
acquisition program.
The Company depends on 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 or be available to the Company on favorable terms,
if at all. For example, if the market price of the Common Stock were to decline
significantly over a sustained period, the owners of potential acquisition
targets may not be willing to receive shares of Common Stock in exchange for
their businesses, thereby adversely affecting the pace of the Company's
acquisition program. Such an effect on the pace of the Company's acquisition
program could further reduce the price of a share of Common Stock, to the
further detriment of the Company's acquisition strategy. In addition, the
consolidation of the contract stationer industry has reduced the number of
larger companies available for sale, which could lead to higher prices being
paid to acquire such companies. The failure to acquire additional businesses and
to acquire such businesses on favorable terms in accordance with the Company's
growth strategy could have a material adverse impact on future sales and
profitability.
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 and administration. These various costs and possible
cost-savings strategies may make historical operating results not indicative of
future performance. In addition, there can be no assurance that the pace of the
Company's acquisitions will not adversely affect the Company's efforts to
implement its cost-savings strategies and to manage its acquisitions profitably.
The Company operates in a highly competitive environment. Some of the
Company's current and potential competitors are larger than the Company and have
greater financial resources. No assurances can be given that competition will
not have a material adverse effect on the Company's business.
The Company expects to continue to focus significant attention and resources
on future international expansion. 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 and regulatory requirements,
difficulties in staffing and managing foreign operations, risks specific to
different business lines that the Company may enter and other factors.
For a more complete discussion of the above factors, see "Risk Factors."
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BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. When used herein, the words "anticipate,"
"believe," "estimate," and "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 in "Risk Factors."
COMPANY OVERVIEW
U.S. Office Products is one of the world's largest and fastest growing
suppliers of a broad range of office products and business services to
corporate, commercial, industrial and educational customers. Since its founding
in October 1994, the Company has emerged as a leading consolidator of several
highly fragmented industries that serve the office needs of business and
educational customers. The Company has annualized revenues of $2.8 billion
(double the pro forma revenues for the six months ended October 26, 1996). U.S.
Office Products currently provides products and services from over 300
facilities in North America, and from over 350 facilities in New Zealand,
Australia, and the United Kingdom. The Company currently has over 13,000
employees.
The Company's strategy is to serve as the sole source for the full range of
business products, services, and equipment used by middle market businesses
around the world. The Company believes that middle market businesses, which it
defines as those with between 20 and 500 employees, constitute the fastest
growing sector of the economy and have served as a greater source of new job
growth in recent years than have larger organizations. The Company sells to its
business and educational customers a full range of more than 34,000 products and
services, including office supplies, office furniture, office coffee services,
computer and telecommunications network services, forms management and school
supplies and school furniture. The Company believes that, in many middle market
businesses, most of these products and services are purchased by a single
decisionmaker. The Company's goal is to emerge as the provider of choice for all
of a customer's office needs by offering superior customer service, convenience
and a full range of products and services to such decisionmakers.
The Company has an aggressive acquisition program through which it has
acquired and seeks to acquire companies with established sales presences and
brand names in given geographic, product or service markets. From its founding
through January 25, 1997, the Company has completed 138 acquisitions. The
Company believes that the fragmented nature of many of the markets it serves has
both allowed it to identify suitable acquisition candidates and enabled it,
through acquisitions, to establish a leadership position in these markets. For
example, the Company believes that, based on current sales volume, it is now one
of the largest contract stationers in the United States, one of the largest
school supply distributors in the United States, one of the largest providers of
office coffee services in the United States and one of the largest providers of
contract furniture in the United States. The Company is currently organized into
six divisions to serve its various product, service, and geographic markets, and
to identify and pursue complementary acquisitions within these markets.
As a result of its aggressive acquisition program, the Company has been in
discussions with potential acquirees at most times since its founding. It
currently has, and from time to time expects to enter into, letters of intent
with respect to additional companies, both in the United States and
internationally. There can be no assurance, however, that definitive agreements
for additional acquisitions will be executed or that additional acquisitions
will be completed. See "Risk Factors --Rapid Expansion; Dependence on
Acquisitions for Future Growth."
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<PAGE>
The Company operates with a decentralized sales and customer contact
strategy in an effort to provide superior customer service and retain the
historical customers of acquired businesses. The Company believes that many
customers purchase office products and business services based on established
long-term commercial relationships. The Company seeks to preserve these
relationships by retaining the management, sales organizations, and brand name
identity of acquired companies. By broadening the range of products and services
that it sells, the Company also believes that it can create additional sales
opportunities for its local sales organizations.
At the same time, the Company seeks to achieve the operating efficiencies of
a large organization by (i) generating cost savings through volume purchasing of
office products and increasing the percentage of office supplies purchased
directly from manufacturers; (ii) combining certain general and administrative
functions at the corporate level and eliminating redundant facilities; and (iii)
implementing improved technology and operating systems. In its acquisition
program, the Company utilizes a "hub and spoke" strategy, which involves the
acquisition of (i) a larger established, high quality local company, or hub, and
(ii) additional smaller companies, or spokes, in secondary markets surrounding
the hubs. Where possible, the operations of the acquired spokes are integrated
into the operations of existing hubs, thereby eliminating a portion of the
operating expenses of the acquired spokes. The Company also has begun to develop
regional consolidation and integration plans to enable certain operational
activities, such as warehousing, to be shared among the hubs and spokes located
within a specific geographic area. The Company expects this regional approach
will permit the elimination of duplicative facilities and costs.
MARKET OVERVIEW
The Company has served the following related markets in North America and
abroad:
NORTH AMERICAN OFFICE PRODUCTS
CONTRACT STATIONERY
According to independent research reports, the traditional office supplies
market in the United States generates approximately $60 billion in annual sales.
The companies servicing this market include: (i) discount superstore retailers;
(ii) mail order marketers; (iii) traditional retail stores; and (iv) contract
stationers. Independent estimates indicate that the aggregate size of the retail
and mail order markets is approximately $30 billion in annual sales and that the
size of the contract stationer market is also approximately $30 billion in
annual sales. The Company believes that the total $60 billion market can be
classified by customer type into three segments: the large corporate segment,
the middle market corporate segment and the small office segment.
The large corporate segment is comprised of companies with 500 or more
employees. These customers often negotiate contract pricing on many of the
office products they routinely purchase, and the Company believes that this
segment of the market is more price sensitive than the middle market corporate
segment. The large corporate segment has historically been served by contract
stationers, and the Company believes that this segment is currently the focus of
several of its largest competitors.
The middle market corporate segment, which is the focus of the Company's
sales efforts, is composed of companies between 20 and 500 employees. The
Company believes that companies in this segment do not have large numbers of
employees to devote to the function of purchasing office products, and that,
while these products are important to the functioning of businesses, office
products are not necessarily a large portion of the costs of companies in this
segment. As a result, the Company believes that this segment is more driven by
the level of service provided than by price. This segment historically has been
served primarily by contract stationers, and, to a much lesser extent, by mail
order marketers and traditional retail dealers. Discount superstore chains and
mail order marketers have attempted to gain market share in this segment by
providing delivery services and allowing credit card purchases. However,
30
<PAGE>
the Company believes that discount superstores and mail order marketers have
achieved only limited penetration because they do not provide the level of
service required by customers in this segment.
The small office segment consists of home offices and small businesses with
20 or fewer employees. These customers historically have purchased office
supplies from retail dealers at or near manufacturers' list prices. Discount
superstores and mail order marketers have captured an increasing share of sales
to this segment primarily by offering lower prices and providing a better
product selection than retail dealers.
The $30 billion U.S. corporate office supplies segment has historically been
serviced by numerous contract stationers, most of which operate in only one
metropolitan area and have annual sales of less than $15 million. However, as
the office products industry undergoes rapid consolidation, the Company believes
that many smaller office supply companies will be unable to compete because, in
part, of their inability to purchase products at favorable prices. As a result,
these companies will be acquired by larger companies or closed. The Company
believes that it has five competitors with revenues in excess of $500 million
supplying office products to the corporate segments, that none of these
competitors has a market share in excess of 10% and that their combined market
share is less than 35%. See "--Competition."
OFFICE COFFEE SERVICES
The Company believes that the office coffee services ("OCS") industry in the
United States generates approximately $3 billion in annual sales. The Company
believes that this industry is also highly fragmented, with most companies in
the industry having sales of under $15 million.
OFFICE FURNITURE
The Company believes that there are thousands of companies selling office
furniture to the corporate, commercial and industrial markets. The Company
believes that the office furniture market in North America had sales of
approximately $12 billion in 1995.
SCHOOL SUPPLIES AND SCHOOL FURNITURE
According to the National Center of Education Statistics, there are
approximately 137,000 private and public schools that serve approximately 54.4
million kindergarten through 12th grade students in the United States. The
Company believes that these schools are serviced by a fragmented industry of
over 1,000 independent dealers, who generated sales totaling over $3 billion in
1995.
INTERNATIONAL OFFICE PRODUCTS
The Company believes that the international office products industry, like
the office supplies industry in the United States, is highly fragmented and
therefore represents a consolidation opportunity for the Company. According to
independent research estimates, annual sales in the contract stationer market in
developed countries excluding the United States exceed $100 billion.
COMPUTER AND TELECOMMUNICATIONS NETWORK SERVICES
According to independent research reports, computer and telecommunications
network services constitute a combined market of over $50 billion. The Company
believes that this market is growing rapidly and that an opportunity exists for
the Company to provide these services to its middle market customers.
BUSINESS STRATEGY
The Company's objective is to become the premier provider of office products
and business services to middle market companies around the world. The Company
is pursuing several strategies to accomplish this objective, including:
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MAKING STRATEGIC ACQUISITIONS TO CONSOLIDATE THE DOMESTIC OFFICE PRODUCTS
MARKET. The Company believes that various North American office products markets
remain highly fragmented and that it has the opportunity to continue to
consolidate these markets through selective acquisitions of leading companies.
The Company believes that its policy of retaining the brand name and empowering
the management of acquired companies helps to make it the acquirer of choice for
many companies. Moreover, this strategy enables the Company to draw on the
contacts and expertise of local management by empowering them to identify
acquisition candidates and to participate in the process of integrating newly
acquired companies into U.S. Office Products.
EXPANDING THE COMPANY'S PRODUCT AND SERVICE OFFERINGS. The Company intends
to continue to broaden the complement of products and services it offers in
order to increase its sales to existing customers. The Company believes that
many of its subsidiaries can maximize their sales, warehousing and distribution
capabilities by offering a broader array of products and services to their
customers. The Company's strategy in making acquisitions in complementary
office-related markets is to maximize the cross-selling opportunities and
operating efficiencies available to these subsidiaries. For example, certain of
the Company's subsidiaries offer to the same customers office supplies, contract
furniture, and office coffee services, although the Company believes that this
is occurring at a relatively small number of subsidiaries and that significant
additional cross-selling opportunities exist among its existing subsidiaries.
Over time, the Company's strategy is to complement these offerings with
additional office-related products and services, such as computer network
services and forms management.
ACHIEVING OPERATING EFFICIENCIES. The Company's strategy is to continue to
reduce costs as a percentage of sales by taking advantage of purchasing,
operating, and administrative efficiencies which it believes can be achieved
with the Company's increased size and scale. For example, office product
manufacturers historically have offered more favorable prices and rebates to
high volume purchasers. As it has grown, the Company has negotiated certain
additional discounts and rebates with its suppliers and vendors and believes
that it will be able to increase the discounts and rebates in the future. The
Company believes that it will be able to achieve operating efficiencies by
eliminating redundant facilities and reducing overhead and by combining certain
general and administrative functions, such as purchasing and implementation of
computer systems, purchasing or leasing of delivery vehicles, and the process of
securing accounting, insurance, financial management, marketing, human resources
and legal support. The Company has also begun to develop regional consolidation
and integration plans, such as to establish regional warehouses (referred to by
the Company as district fulfillment centers), which will enable certain
operational activities to be shared among the hubs and spokes that are located
within a specific geographic area. In addition, the Company publishes its annual
proprietary catalog of its office products including approximately 5,000 stock
keeping units ("SKUs"). The Company believes this catalog assists its
subsidiaries in reducing their reliance on wholesalers and in enabling them to
purchase more items directly from manufacturers at lower cost. Consistent with
the Company's decentralized operating approach, the Company-wide catalog is
customized for each subsidiary so that the cover bears the name of the
subsidiary and the initial pages can provide information specifically about that
subsidiary.
IMPLEMENTING SYSTEM AND TECHNOLOGY IMPROVEMENTS. Certain subsidiaries have
developed operating and technology systems designed to improve and enhance their
operations, including computerized inventory management and order processing
systems, computerized quotation and job costing systems, and computerized
logistics and distribution systems. The Company plans to incorporate
industry-standard technology platforms, including frame relay networks, bar
coding, and radio frequency technologies at its existing and planned regional
warehouses, referred to by the Company as district fulfillment centers ("DFCs").
The Company believes that these platforms will allow it to process orders and
track inventory and order fulfillment on a real-time basis, forecast demand by
specific inventory item, or SKU, and generate customized usage and billing
reports for their customers. The Company believes that implementation of these
systems at additional facilities will significantly increase the speed and
accuracy of order processing and fulfillment at the subsidiaries, while reducing
inventory turns and providing measurement and analysis
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tools that facilitate efficient operation. In addition, in December 1996, the
Company acquired TSH, a leading vendor of management information systems to the
office products industry. A substantial portion of the Company's North American
contract stationery subsidiaries currently use TSH software for their
computerized inventory management systems, order processing systems and
warehouse management and distribution systems. The Company believes that TSH's
leading historical position in supplying MIS to the industry will enable it to
speed the adoption of systems throughout the Company.
SEEKING TO CONSOLIDATE THE INTERNATIONAL OFFICE PRODUCTS MARKET BY MAKING
ACQUISITIONS IN ATTRACTIVE MARKETS. The Company believes that the international
office products market represents an attractive consolidation opportunity. In
the past year, the Company acquired Blue Star, a leading office products company
in New Zealand, through which it has acquired numerous office products companies
in New Zealand and Australia, including Whitcoulls. In 1996, the Company
acquired numerous office products companies in Australia and a 49% ownership
stake in Dudley, the largest independent office products dealer in the United
Kingdom. The Company currently operates from 267 facilities in New Zealand, 96
facilities in Australia, six facilities in the United Kingdom, and two
facilities in Canada. The Company's initial focus has been to acquire companies
in English speaking countries, although the Company expects in the future to
acquire companies in other countries.
PRINCIPAL PRODUCTS AND SERVICES
The Company has operated through six divisions which provide products and
services and through which it seeks to identify and pursue complementary
acquisitions.
NORTH AMERICAN OFFICE PRODUCTS
Sales of office products to business customers in North America accounted
for the largest portion of the Company's revenues for fiscal year 1996 and for
the first six months of fiscal year 1997. The Company's strategy is to continue
to increase its presence in this market by acquiring profitable companies which
have established a leading market position in a given geographic area. To
continue to implement successfully its strategy of acquiring and integrating
leading independent companies in geographic regions throughout the United
States, the Company has established an organizational structure in which
regional "quarterbacks" (similar to regional vice presidents) are responsible
for coordinating the Company's activities in 12 Company-defined geographic
regions of the country. The Company sells office products in the North American
market through three divisions: contract stationery, office coffee services and
office furniture.
CONTRACT STATIONERY DIVISION
The Company sells office and related supplies and equipment in the domestic
office contract stationer market. The Company's offerings include desktop
accessories, writing instruments, paper products, computer consumables and
business machines. As of January 25, 1997, the Company served this market from
38 hubs and 40 spokes. The Company believes it has over 200,000 corporate
customers for office supplies in the North American market. The Company believes
its decentralized management philosophy results in better customer service by
allowing local management the flexibility to implement policies and make
decisions based on the needs and desires of local customers. The Company
encourages its local managers to work collaboratively within geographic regions
and to share successful operating strategies.
The Company generally provides next-day delivery of ordered items and, on
request, same-day delivery. This "just in time" service enables certain
customers to reduce overhead cost by reducing inventory and the associated
personnel and space requirements. The Company believes that many of its
customers purchase office products based on an established long-term business
relationship with one primary supplier. The Company obtains office products from
many sources, including manufacturers and wholesalers, and maintains warehouses
from which ordered items are delivered to customers. With respect to office
supplies, approximately one-third of ordered items are not kept in inventory but
are obtained by
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the Company from wholesalers with which the Company has relationships. The
Company does not believe that its ability to deliver goods to its customers is
dependent on any particular wholesaler.
Orders are received by the Company's sales personnel primarily by telephone
or facsimile. In addition, the Company uses an electronic data interchange
("EDI") system between the Company and certain of its customers. Using this
system, customers are able to place orders directly into the Company's computer
systems, manage their own inventory and generate customized usage reports and
invoices. Orders to be filled are routed electronically to either the Company's
warehouse or, if the ordered item is not stocked by the Company at its local
warehouse, to a wholesaler.
After receiving a customer order, the Company fills the order (excluding
items to be supplied by wholesalers) by "picking" the goods from the Company's
warehouse. At certain facilities, the Company's computer systems automatically
generate "picking" orders arranged according to the location of ordered items
within the Company's warehouse, improving the efficiency of warehouse personnel
in filling orders. The Company also has installed conveyer systems at these
facilities to move orders through the Company's warehouses more efficiently.
When orders have been picked, they are combined with the wholesaler portion of
the order, if required. Finally, delivery-ready orders are staged and loaded
onto trucks on a first-in, last-out basis, based on delivery routes. At these
facilities, staging and loading of trucks and delivery routes are computer
generated to improve delivery and distribution efficiency. The Company intends
to implement additional computerized warehouse systems as it consolidates
additional warehouses and implements a system of regional distribution
fulfillment centers. The Company delivers ordered items using Company-owned
trucks, leased trucks and unaffiliated delivery companies.
OFFICE COFFEE SERVICES DIVISION
Office coffee services ("OCS") businesses typically provide and install
coffee brewing equipment in a customer's office at no charge but require
customers to purchase, on an ongoing basis, a minimum volume of coffee and
related items from the OCS business. OCS businesses generally also offer a wide
assortment of both coffee and related products, including creamers, sugar,
stirrers, teas, sodas, juices and bottled waters, as well as snack items and all
other items that are likely to be found in an employee "breakroom" or lunch
room, including plastic flatware, napkins, paper cups, straws and similar items.
In the last two years, the Company has acquired 13 OCS companies serving the
following North American markets: Washington, D.C., Atlanta, Miami, Baltimore,
Milwaukee, Madison (WI), Wilkes Barre/Scranton, Philadelphia, New Orleans, Los
Angeles, Portland, Seattle, El Paso, Dallas and Vancouver and Ottawa, Canada.
In September 1996, the Company signed an agreement through which it secured
an exclusive arrangement to distribute Starbucks-Registered Trademark- coffee in
the North American OCS market for five years subject to, among other things,
satisfaction of certain minimum purchase requirements. The Company is in the
process of developing promotional materials, preparing materials for its
catalog, and allowing certain of its employees to receive training at Starbucks'
facilities in connection with this strategic alliance with Starbucks. The
Company believes that this strategic alliance will strengthen its position in
the OCS market and will enhance its ability to cross-sell office coffee services
to its existing clients.
OFFICE FURNITURE DIVISION
The Company sells catalog, contract and remanufactured furniture to the
office furniture market, both through its office supplies businesses and through
13 subsidiaries that principally serve the furniture market. The Company
believes that it has over 35,000 corporate customers for office furniture.
The Company sells furniture to three different types of customers. The
smaller customer typically purchases furniture such as lower-priced chairs and
file cabinets from the Company's office supplies catalogs. The middle market
customer typically purchases furniture of higher quality and functionality, and
34
<PAGE>
the large customer buys high-quality furniture of a more sophisticated design
and tends to make project-oriented purchases. The Company also sells refurbished
and remanufactured furniture specially designed for contract and middle market
customers. To a lesser extent, the Company rents furniture to various customers
on a short-term basis.
SCHOOL SUPPLIES AND SCHOOL FURNITURE DIVISION
The Company sells school and office supplies and school furniture to the
kindergarten through 12th grade ("K-12") educational market primarily through
its School Specialty, Inc. subsidiary, which recently has acquired six companies
serving this market, as well as through its Re-Print Corporation subsidiary.
The Company's school supplies and school furniture business focuses on the
approximately 137,000 private and public schools that serve approximately 54.4
million K-12 students in the United States. Categories of sales in the
educational market include classroom, art, office and instructional materials
(excluding textbooks), and desks, chairs, tables and other furniture for
classroom, cafeteria, library, locker and laboratory use.
The Company employs a three-tiered approach to the industry. It utilizes a
direct sales force group to market products to individual school systems
throughout the United States. A National Bid Desk group responds to Requests for
Proposals ("RFPs") and larger regional or statewide contracts. The Company's
Re-Print Corporation subsidiary uses a direct mail program to reach over 1.6
million teachers with what the Company believes is the largest and most
comprehensive catalog in the U.S. school supply market-place.
The Company believes that the school supplies and school furniture market
has been growing as school enrollments have increased. The Company believes that
it is one of the leading distributors of supplies and furniture to this market,
and is therefore well-positioned to further consolidate the market.
COMPUTER AND TELECOMMUNICATIONS NETWORK SERVICES DIVISION
The Company believes that there is a significant and growing market for
computer and telecommunications network services in the middle market office
environment, due to the increasing acceptance of Local Area Networks, Wide Area
Networks, and Internent/Intranet Services and systems by this customer base. The
Company believes it is well-positioned to offer such services due to its current
status as a supplier of computer furniture, computer supplies, and computer and
printer consumable items to this market segment.
In October 1996, the Company acquired Bay State Computer Group, a leading
New England-based network computer systems provider with approximately $80
million in revenues for the 12 months ended October 1996, and Fortran
Corporation, a Virginia-based telecommunications, technology and services firm.
The Company believes that many of its current customers would like to purchase
computer and telecommunications network services from suppliers from whom they
already purchase office and computer-related supplies.
INTERNATIONAL OFFICE PRODUCTS DIVISION
The Company intends to focus significant attention and resources on
international expansion. The Company's initial acquisition efforts outside of
the United States have focused on companies in English-speaking countries. The
Company currently sells office and educational products and equipment and
certain other products and services in New Zealand and Australia through Blue
Star and its subsidiaries, including Whitcoulls, and in the United Kingdom
through its 49% interest in Dudley. See "Recent Developments."
The Company's operations in New Zealand and Australia currently include, in
addition to the office products business, the sale and leasing of
telecommunications and office automation equipment and
35
<PAGE>
products, as well as the provision of related maintenance and system design and
implementation services, retail stationery and book stores, manufacturing of
commercial, scholastic and household stationery products and printing
operations. Blue Star has completed 39 acquisitions during the last three years
to become one of the largest office products companies in New Zealand. The
Company believes that its acquisitions of Blue Star and Whitcoulls have made it
one of the largest office products suppliers in the Pacific Rim.
The Company believes that Dudley is the largest independent office products
dealer in the United Kingdom. Under the Company's joint venture agreement with
Dudley, the Company has made and will make further investments of working
capital in Dudley to enable Dudley to seek to consolidate the United Kingdom
office products market.
The Company's strategy is to continue to make international acquisitions to
increase its presence in the international office products market. The Company
expects to focus its international acquisition program in Western Europe and
Scandinavia.
SALES AND MARKETING
The Company believes that its ability to maintain and grow its customer and
revenue base will depend, in part, on its ability to maintain a high level of
customer satisfaction, as well as competitive prices. The Company believes that
its customers typically purchase office products based on an established
long-term business relationship with one primary supplier. The Company
establishes and maintains its relationships with customers by assigning a sales
representative to most customers. The Company currently employs approximately
3,000 North American sales representatives and 2,000 sales representatives in
New Zealand and Australia.
Sales representatives, who are compensated almost exclusively on a
commission and/or incentive basis, have frequent contact with their customers
and share responsibility for increasing account penetration and providing
customer service. Sales representatives also are responsible for marketing
efforts directed to prospective customers and for responding to all bid and/or
contract requests for their existing and prospective customers. The Company
emphasizes a team approach, and generally integrates management, sales, customer
service, purchasing and other personnel into the relationship with each
customer. The Company believes that its decentralized management strategy offers
it a competitive advantage because, by not adhering to a standardized national
model, it has greater flexibility to respond to the needs of each local customer
while achieving the buying power and operating efficiencies of a large company.
The Company focuses its marketing efforts on the middle market business
segment of the office products industry. The Company believes that a significant
opportunity exists in the middle market business segment and that the larger
office products companies with which the Company competes have focused more on
the large corporate segment. The Company sells primarily through direct contact
with customers and potential customers and does not conduct significant mass
market advertising.
The Company continues to leverage its expertise in operations that are not
typical of traditional contract stationers, such as office coffee service
operations, by training its sales personnel in these different areas and
emphasizing a full service approach to its sales. The Company believes that, by
integrating its office products operations with these other related operations,
it can leverage its sales, warehousing and distribution capabilities, while
offering its corporate, commercial, industrial and educational customers a
single source vendor for more of their office requirements.
COMPETITION
The Company operates in a highly competitive environment. The Company's
competitors in the markets that it serves are generally smaller, independent
companies, many of which are well-established in their markets. In addition, in
the contract stationer market, the Company competes with five large office
36
<PAGE>
products companies, each of which is believed to have annual revenues in excess
of $500 million: Boise Cascade Office Products Corporation; Corporate Express,
Inc.; Office Depot, Inc.; BT Office Products International, Inc.; and Staples,
Inc. Two of these five competitors are divisions of discount superstore chains
and two others are owned in substantial portion by large manufacturers of office
products. In addition, Office Depot, Inc. and Staples, Inc. recently announced a
proposed merger between the two companies.
In the contract stationer market, as well as the other markets that it
serves or proposes to serve, the Company believes that customers not only are
concerned with the overall reduction of their office products costs but also
place an emphasis on dependability, superior levels of service and flexible
delivery capabilities. The Company believes that it competes favorably with the
five large companies in the contract stationer market on the basis of service
and price. However, some of these companies have greater financial resources
than the Company.
The Company faces significant competition to acquire additional businesses
as the office products industry undergoes continuing consolidation. Significant
competition exists, or is expected to develop, in the other markets that the
Company serves or is planning to enter as consolidation occurs (or accelerates)
in those markets. A number of the Company's major competitors are actively
pursuing acquisitions outside of the United States. These companies, or other
large companies, may compete with the Company for acquisitions in markets other
than the market for office products. Such competition could lead to higher
prices being paid for acquired companies. The Company believes that its
decentralized management strategy and other operating strategies make it an
attractive acquirer of other companies. However, no assurance can be given that
the Company's acquisition program will be successful in the future.
EMPLOYEES
As of October 26, 1996, the Company had over 13,000 full-time employees, a
small number of which are members of labor unions. The Company considers its
relations with its employees to be satisfactory.
37
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning each of the
executive officers, directors and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Jonathan J. Ledecky................. 38 Chief Executive Officer and Chairman of the Board
Timothy J. Flynn.................... 43 President and Chief Operating Officer
Donald H. Platt..................... 50 Senior Vice President, Chief Financial Officer and Treasurer
Mark D. Director.................... 38 Executive Vice President, General Counsel and Secretary
Martin S. Pinson.................... 51 Executive Vice President
John K. Burgess..................... 40 President--Burgess, Anderson & Tate, Inc. ("BAT"); Director
Jack L. Becker, Jr. ................ 45 President--Dameron-Pierson Company, Limited ("Dameron-Pierson");
Director
David C. Gezon...................... 43 President--C.W. Mills Acquisition Corp. ("C.W. Mills"); Director
David C. Copenhaver................. 32 Senior Vice President--The Smith-Wilson Co. ("Smith-Wilson");
Director
Clifton B. Phillips................. 36 Director
Milton H. Kuyers.................... 58 Director
Allon H. Lefever.................... 48 Director
Edward J. Mathias................... 55 Director
John A. Quelch...................... 43 Director
KEY EMPLOYEES
Roger L. Choquette.................. 48 President--Furniture Division
H. Steve Swink...................... 55 President--Coffee and Beverage Division
Daniel P. Spalding.................. 41 President--School Supply Division; President--School Specialty Inc.
James T. Claypoole.................. 63 President--Computer and Telecommunications Network Services Division;
President--Bay State Computer Group, Inc.
Eric J. Watson...................... 37 President--International Division; President--Blue Star
Kevin J. Thimjon.................... 30 Vice President, Corporate Controller and Assistant Treasurer
</TABLE>
JONATHAN J. LEDECKY founded the Company in October 1994 and has served since
then as its Chairman of the Board and Chief Executive Officer. Prior to founding
the Company, Mr. Ledecky served from 1989 to 1991 as the President of The Legacy
Fund, Inc. and from 1991 until September 1994 as President and Chief Executive
Officer of Legacy Dealer Capital Fund, Inc., a wholly owned subsidiary of
Steelcase Inc., the nation's largest manufacturer of office furniture products.
While at Legacy Dealer Capital Fund, Mr. Ledecky was responsible for providing
corporate advisory services for Steelcase's network of office products
distributors. In addition, Mr. Ledecky has served as a director of, or corporate
advisor and/or
38
<PAGE>
consultant to, several office products companies. Prior to his tenure at The
Legacy Fund, Inc., Mr. Ledecky was a partner at Adler and Company and a Senior
Vice President at Allied Capital Corporation, a publicly traded investment
management company. Mr. Ledecky serves as a director of publicly traded MLC
Holdings, Inc. Mr. Ledecky is a graduate of Harvard College and Harvard Business
School.
TIMOTHY J. FLYNN is a Director and the President and Chief Operating Officer
of the Company. Mr. Flynn held a variety of positions at Andrews Office Supply
and Equipment Company ("Andrews"), including President, Executive Vice President
and Chief Operating Officer between 1987 and 1996. Mr. Flynn joined Andrews in
1986 after being employed for 10 years in the commercial sales division of M.S.
Ginn and Company, an office products supplier in Washington, D.C. Mr. Flynn is a
former member of the board of directors of the National Purchasing Association
("NPA"), an association of office products companies, and the former Vice
Chairman of the Commercial Dealer Division of the Business Products
International Association (formerly known as the National Office Products
Association ("NOPA")). Mr. Flynn received his undergraduate degree and a Masters
in Administration from the University of Maryland.
DONALD H. PLATT has served as the Senior Vice President and Chief Financial
Officer of the Company since August 1995 and as Treasurer since August 1996.
From April 1995 until August 1995, Mr. Platt served as the Company's Senior Vice
President--Corporate Development. From 1990 through 1993, Mr. Platt served as
Dealer Business Consultant and, from January 1994 through April 1995, as Vice
President of Dealer Financing for Steelcase Financial Services, Inc., a finance
subsidiary of Steelcase. Mr. Platt was responsible for 22 acquisitions and
divestures of independent Steelcase dealerships in the U.S. and Canada from
January 1994 through April 1995. Mr. Platt has served as a director of 10
different office furniture dealerships, several of which were also prominent
office products dealers. Mr. Platt is a graduate of Stanford University and the
Stanford Graduate School of Business.
MARK D. DIRECTOR joined the Company as its Executive Vice President, General
Counsel and Assistant Secretary in February 1996. In August, 1996, he was
appointed Secretary of the Company. From 1990 through February 1995, Mr.
Director was a principal of the law firm of Fields & Director, P.C., located in
Washington, D.C., which he founded after his association from 1984 to 1990 with
the law firm of Debevoise & Plimpton. From February 1995 to September 1995, he
served as Vice President, General Counsel and Assistant Secretary of Radio Movil
Digital Americas, Inc. ("RMD"), a company that owns and operates specialized
mobile radio networks throughout South America. From September 1995 to February
1996, Mr. Director served as Executive Vice President of RMD. Mr. Director
received his undergraduate degree from Harvard College and his law degree from
Harvard Law School.
MARTIN S. PINSON has served as Executive Vice President of the Company since
the Company's organization. He previously served as Secretary of the Company
from October 1994 through August 1996 and as Chief Financial Officer from
October 1994 to August 1995. From 1991 to 1994, Mr. Pinson was the President and
Chief Executive Officer of Pinson and Associates, a Washington, D.C. firm
providing consulting and corporate finance services to private and publicly held
corporations. Prior to forming Pinson and Associates, Mr. Pinson was Senior Vice
President at Greater Washington Investors, Inc., a publicly traded venture
capital investment company located in Washington, D.C. Mr. Pinson has served on
the board of directors of more than 15 private and publicly held companies. He
received his undergraduate degree from Union College and his law degree from
Georgetown University.
JOHN K. BURGESS is a Director of the Company and the President of BAT. Mr.
Burgess has served since April 1993 as the Chief Operating Officer of BAT. From
April 1990 through March 1993, Mr. Burgess served as Vice President--Sales and
Marketing for BAT. Prior to April 1990, Mr. Burgess held a variety of positions
at BAT. Mr. Burgess received a bachelor's degree in business management from
Florida Southern College.
39
<PAGE>
JACK L. BECKER, JR. is a Director of the Company and the President of
Dameron-Pierson. Mr. Becker has served as the President of Dameron-Pierson since
May 1992. From 1989 through April 1992, Mr. Becker served as Executive Vice
President of Dameron-Pierson, with responsibility for sales and office furniture
operations. Mr. Becker is a former member of the board of directors of NPA and a
member of the dealer councils of Office Furniture USA and Krueger International,
each of which is an office products trade organization. Mr. Becker received a
bachelor's degree in management from the University of New Orleans.
DAVID C. GEZON is a Director of the Company and the President of C.W. Mills.
Mr. Gezon has worked for C.W. Mills since 1970 and has served as its President
since 1988. Mr. Gezon received an undergraduate degree from Calvin College and a
Masters in Business Administration ("M.B.A.") from Western Michigan University.
DAVID C. COPENHAVER is a Director of the Company. Mr. Copenhaver has served
as Senior Vice President--Smith-Wilson since Copenhaver Holdings, Incorporated
purchased Smith-Wilson in 1989. Mr. Copenhaver received both his undergraduate
degree and an M.B.A. from the University of Virginia.
CLIFTON B. PHILLIPS is a Director of the Company. Mr. Phillips served as
President of Mills Morris Inc. ("Mills Morris Arrow") from 1993 to May 1996. For
more than four years prior to becoming President of Mills Morris Arrow, he held
a variety of positions at Mills Morris Arrow including President of Mills Morris
Business Interiors and General Manager of Arrow Business Products. Mr. Phillips
received his undergraduate degree from Columbia University and an M.B.A. from
The University of Pennsylvania.
MILTON H. KUYERS is a Director of the Company. Mr. Kuyers is a part owner
and executive officer of a number of privately held companies, including Zero
Zone Refrigeration Manufacturing Co., a manufacturer of commercial refrigeration
units; Desert Air Corp., a manufacturer of commercial dehumidification
equipment; Northwest Coatings, Inc., a manufacturer of coating products;
Grayline, Inc., a manufacturer of tubing used in the appliance and electrical
industries; Barch Communications, Inc., a distributor of business telephone
systems and cellular telephones; and Faustel, Inc., a manufacturer of custom
coating equipment. Prior to 1993, Mr. Kuyers served as the President of Star
Sprinkler Corp., a manufacturer of sprinkler heads for fire protection systems.
He serves on the board of directors of Medical Advances, Inc., a manufacturer of
parts for medical diagnostic applications. Prior to its acquisition by the
Company, Mr. Kuyers also served as a director of H.H. West. He holds an
undergraduate degree in Business Administration and a M.B.A. from the University
of Michigan.
ALLON H. LEFEVER is a Director of the Company. Mr. Lefever has served as
Vice President of the Affiliated Companies for High Industries, Inc. since April
1988. From 1988 until its acquisition by the Company, Mr. Lefever served as the
Chairman of the Board and Chief Executive Officer of The Office Works, Inc. He
currently serves on the boards of directors of several private companies. Mr.
Lefever also is a director of the Lancaster Chamber of Commerce and serves on
the Business Advisory Board of Millersville State University. Mr. Lefever
received his undergraduate degree from Millersville State University and a
Masters in Economics from Pennsylvania State University.
EDWARD J. MATHIAS is a Director of the Company. Mr. Mathias is currently a
Managing Director of The Carlyle Group, a Washington, D.C. based merchant bank.
From 1971 through 1993, Mr. Mathias was with T. Rowe Price Associates, Inc., a
major investment management organization, most recently as a Managing Director.
He also served on the board of directors of T. Rowe Price and was a member of
its management committee. While at T. Rowe Price, Mr. Mathias served as Chairman
of various equity mutual funds, including the New Horizons Fund from 1982
through 1993. Mr. Mathias is the Chairman of the Board of Visitors at American
University's Kogod School of Business Administration and serves on the board of
overseers at The University of Pennsylvania's School of Arts and Sciences. Mr.
Mathias presently serves on the board of directors of Sirrom Capital
Corporation, a publicly traded small business investment company, Pathogenesis,
a publicly traded bio-technology company, and on the boards of directors of
40
<PAGE>
several private companies. Mr. Mathias holds an undergraduate degree from The
University of Pennsylvania and an M.B.A. from the Harvard Business School.
JOHN A. QUELCH is a Director of the Company. Dr. Quelch is the Sebastian S.
Kresge Professor of Marketing at the Harvard Business School. Dr. Quelch is the
author of 12 books on marketing and is widely published in leading American
business publications. Dr. Quelch serves on the boards of directors of Reebok
International Ltd., a worldwide manufacturer and distributor of athletic
footwear and apparel, and WPP Group plc, a marketing services company that
includes Ogilvy & Mather, J. Walter Thompson and Hill & Knowlton. Dr. Quelch
received an undergraduate degree from Oxford University in England, an M.B.A.
from The University of Pennsylvania, and M.S. and Doctor of Business
Administration degrees from Harvard University.
ROGER L. CHOQUETTE is the President of the Furniture Division of the
Company. Prior to joining the Company, Mr. Choquette spent 17 years in the
contract office furniture industry, serving in a variety of management and
officer level assignments with Steelcase, Inc. the world's largest office
furniture manufacturer. In his capacity as Vice President--Dealer Alliances,
from 1992 to 1993, Mr. Choquette was responsible for managing Steelcase's
extensive network of approximately 450 independently owned contract office
furniture dealers, several of which were also prominent office products dealers.
In 1994, Mr. Choquette was promoted to Executive Vice President--Sales and
Marketing, where he had direct responsibility for managing approximately $2
billion in contract office furniture and office product sales by Steelcase. Mr.
Choquette received his B.A. from American International College.
H. STEVE SWINK has served as President of the Coffee and Beverage Division
of the Company since August 1995. Prior to joining the Company, Mr. Swink served
for 18 years as the Vice President and Chief Operating Officer, and then
President of Coffee Butler Services, Inc. ("Coffee Butler") during which time he
guided the operations and growth of Coffee Butler into 10 branches located
throughout the Southeast and Mid-Atlantic regions. Under his leadership and
direction, Coffee Butler became one of the top three independently owned
companies in the coffee service industry. Mr. Swink received his Bachelor of
Science and Master of Education degrees from Mississippi State University and
received a Doctorate of Philosophy from Georgia State University.
DANIEL P. SPALDING has served as the President of the School Supply Division
of the Company since May 1996 and has served as the President and Chief
Executive Officer of School Specialty since 1988. From 1984 to 1988, Mr.
Spalding was the Division President (and one of the co-founders) of JanSport, a
manufacturer of sports apparel and backpacking equipment and a division of Blue
Bell. Mr. Spalding is currently the President and a director of the National
School Supply and Equipment Association ("NSSEA").
JAMES T. CLAYPOOLE is President of Bay State Computer Group and has served
as the President of the Computer and Telecommunications Network Services
Division of the Company since October 1996. He has been in the computer sales
business for 25 years, and formed Bay State Computer Group 12 years ago. He has
also served as a board member for 12 years and as President for the last two
years of the Digital Dealers Association. He received his undergraduate degree
in Business Finance from the University of Colorado.
ERIC J. WATSON has served as President of the International Division of the
Company since May 1996. Mr. Watson has served as the President of Blue Star
since 1991. Mr. Watson has substantial experience in company restructuring,
acquisition and management, particularly within the office products and
automation industry. Previously, he held general and divisional management
positions at Xerox Corporation, where he was responsible for operations in
Australia and New Zealand, and Whitcoulls Group. Mr. Watson is a graduate of the
General Management Programme of the University of Auckland.
41
<PAGE>
KEVIN J. THIMJON has served as Vice President and Corporate Controller since
joining the Company in August 1995 and as Assistant Treasurer since August 1996.
From January 1993 to July 1995, Mr. Thimjon was an Audit Manager at Price
Waterhouse LLP. From September 1991 to December 1992, he was the assistant
controller for Centran Resource Group, Inc., a natural gas marketing company.
Prior to September 1991, Mr. Thimjon was employed by Price Waterhouse LLP. Mr.
Thimjon is a certified public accountant and a graduate of Concordia College in
Moorhead, Minnesota.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of January 9, 1997, except as otherwise
provided and with respect to percentages, information with respect to beneficial
ownership of the Company's Common Stock by (i) each director, (ii) each
executive officer, (iii) the executive officers and directors as a group, (iv)
each key employee, (v) each person known to the Company who beneficially owns 5%
or more of the outstanding shares of the Common Stock, and (vi) each Selling
Stockholder. Unless otherwise indicated, each of the stockholders has sole
voting and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY NUMBER SHARES TO BE
OWNED PRIOR TO OF SHARES BENEFICIALLY OWNED
OFFERING OFFERED AFTER OFFERING
---------------------- --------- ----------------------
<S> <C> <C> <C> <C> <C>
NAME NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------------------- --------- ----------- --------- -----------
OFFICERS AND DIRECTORS
Jonathan J. Ledecky(1)..................................... 1,793,750 3.5% 0 1,793,750 3.0%
Clifton B. Phillips(2)(3).................................. 1,233,857 2.4% 20,000 1,213,857 2.1%
Timothy J. Flynn(3)(4)..................................... 536,181 1.0% 0 536,181 *
Edward J. Mathias(5)....................................... 196,250 * 0 196,250 *
David C. Copenhaver(3)(6).................................. 220,498 * 0 220,498 *
David C. Gezon(3)(7)....................................... 112,830 * 0 112,830 *
Martin S. Pinson(8)........................................ 132,051 * 0 132,051 *
Milton H. Kuyers(3)(9)..................................... 86,521 * 0 86,521 *
Jack L. Becker, Jr.(3)(10)................................. 36,648 * 0 36,648 *
John K. Burgess(11)........................................ 39,745 * 2,900 36,845 *
Donald H. Platt (12)....................................... 61,952 * 0 61,952 *
Allon H. Lefever(3)(13).................................... 17,900 * 1,700 16,200 *
John A. Quelch(14)......................................... 15,000 * 0 15,000 *
Mark D. Director(15)....................................... 25,081 * 0 25,081 *
---------
All executive officers and directors as a group............ 4,508,264 6.9% 24,600 4,483,664 6.1%
KEY EMPLOYEES
Eric J. Watson(16)......................................... 1,930,145 3.8% 900,000 1,030,145 2.0%
James T. Claypoole......................................... 513,727 1.0% 0 513,727 *
Daniel P. Spalding......................................... 149,511 * 15,000 134,511 *
H. Steve Swink............................................. 92,409 * 12,409 80,000 *
Roger L. Choquette(17)..................................... 28,750 * 0 *
Kevin J. Thimjon(18)....................................... 15,456 * 0 15,456 *
5% STOCKHOLDERS
Pilgrim Baxter & Associates(19)............................ 3,851,600 7.5% 0 3,851,600 6.5%
1255 Drummers Lane, Suite 300
Wayne, PA 19087-1950
ADDITIONAL SELLING STOCKHOLDERS
Vass & Lynn Sirpolaidis(3)................................. 1,370,175 2.7% 500,000 870,175 1.5%
Williams Exempt Trust(3)................................... 537,992 1.0% 179,692 358,300 *
Thomas J. Reaser(3)........................................ 226,250 * 10,000 215,648 *
Marvin and Joan Cooper Joint 1996 Revocable Trust(3)....... 208,642 * 108,642 100,000 *
Leonard Ganz(3)............................................ 144,708 * 100,000 44,708 *
Other Selling Stockholders(3).............................. 376,698 * 190,018 186,680 *
--------- -- --------- --------- --
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 175,000 shares which may be acquired upon exercise of options which
currently are exercisable or are exercisable within 60 days. Mr. Ledecky is
the Chief Executive Officer and Chairman of the Board of Directors of the
Company.
(2) Mr. Phillips is a Director of the Company.
(3) These persons were stockholders, executive officers, directors or employees
of entities acquired by, or combined into, the Company.
43
<PAGE>
(4) Includes 90,000 shares which may be acquired upon exercise of options which
currently are exercisable or are exercisable within 60 days. Mr. Flynn is
the President and Chief Operating Officer and a Director of the Company.
(5) Includes 15,000 shares which may be acquired upon exercise of options which
currently are exercisable or are exercisable within 60 days, 50,000 shares
owned by Mr. Mathias' wife and 181,250 shares that are subject to
contractual restrictions on the resale thereof. Mr. Mathias is a Director of
the Company.
(6) Includes 53,163 shares held in a trust in which Mr. Copenhaver has a 50%
beneficial interest and of which Mr. Copenhaver is a co-trustee. Mr.
Copenhaver is a Director of the Company and Senior Vice President of Smith
Wilson, a subsidiary of the Company.
(7) Includes 74,688 shares that are subject to contractual restrictions on the
resale thereof. Mr. Gezon is a Director of the Company and President of C.W.
Mills, a subsidiary of the Company.
(8) Includes 100,000 shares owned by the Pinson and Associate Profit Sharing
Plan of which Mr. Pinson is the trustee and beneficiary and 31,250 shares
which may be acquired upon exercise of options which currently are
exercisable or are exercisable within 60 days. Martin S. Pinson is an
Executive Vice President of the Company.
(9) Includes 86,251 shares held by the Kuyers 1996 Joint Revocable Trust in
which Mr. Kuyers serves as a trustee; 85,107 of these shares are subject to
contractual restrictions on the resale thereof. Mr. Kuyers is a Director of
the Company.
(10) Includes 31,250 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days. Mr.
Becker is a Director of the Company and President of Dameron-Pierson, a
subsidiary of the Company.
(11) Includes 36,250 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days and 3,100
shares that are subject to contractual restrictions. Mr. Burgess is a
Director of the Company and President of BAT, a subsidiary of the Company.
(12) Includes 60,850 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days. Mr. Platt
is Senior Vice President, Chief Financial Officer and Treasurer of the
Company.
(13) Includes 15,000 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days and 17,900
shares that are subject to contractual restrictions. Mr. Lefever is a
Director of the Company and was Chief Executive Officer and Chairman of the
Board of The Office Works, Inc. prior to its acquisition by the Company.
(14) Includes 15,000 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days. Mr.
Quelch is a Director of the Company.
(15) Includes 25,000 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days. Mr.
Director is Executive Vice President, General Counsel and Secretary of the
Company.
(16) Mr. Watson is the President of the Company's International Division and
Chief Executive Officer of Blue Star Group Limited, a subsidiary of the
Company.
(17) Includes 28,750 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days. Mr.
Choquette is President of the Furniture Division of the Company.
(18) Includes 15,000 shares which may be acquired upon the exercise of options
which currently are exercisable or are exercisable within 60 days. Mr.
Thimjon is Vice President, Corporate Controller and Assistant Treasurer of
the Company.
(19) Based upon a Schedule 13F filed on September 30, 1996.
44
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, Morgan Stanley & Co. Incorporated, Smith
Barney Inc., Lazard Freres and Co. LLC, and Lehman Brothers (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock set forth opposite their
respective names below. The Underwriters are committed to purchase and pay for
all such shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
Robertson, Stephens & Company LLC...............................................
Morgan Stanley & Co. Incorporated...............................................
Smith Barney Inc................................................................
Lazard Freres and Co. LLC.......................................................
Lehman Brothers.................................................................
------------
Total..................................................................... 10,000,000
------------
------------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession of not more than $ per share, of which
$ may be reallowed to other dealers. After the consummation of the
Offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by the Company and Selling Stockholders set forth on the
cover page of this Prospectus.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 1,500,000
additional shares of Common Stock to cover over-allotments, if any, at the same
price per share as the Company and the Selling Stockholders will receive for the
10,000,000 shares that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise such option for shares of Common Stock, each of
the Underwriters will have made a firm commitment to purchase approximately the
same percentage of such additional shares as the number of shares of Common
Stock to be purchased by it shown in the above table represents as a percentage
of the shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 10,000,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
Certain of the Company's executive officers and directors and certain
stockholders of the Company have agreed not to offer or sell 5,244,750 shares of
Common Stock and the Company has agreed not to offer or sell any shares of
Common Stock until the expiration of a period of 90 days from the date of this
Prospectus (the "Lockup Period") without the prior written consent of Robertson,
Stephens & Company, except that the Company may issue shares of Common Stock in
connection with acquisitions and pursuant to its employee benefit plans. In
addition, the Company has agreed that during the Lockup Period, without the
prior written consent of Robertson, Stephens & Company, the Company will not
waive the contractual restrictions on the sale of Common Stock issued or to be
issued in connection with acquisitions.
The Underwriters do not intend to confirm sales to accounts over which they
exercise discretionary authority.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during a two-business day "cooling-off"
45
<PAGE>
period immediately preceding the commencement of sales in the Offering. The
Commission has, however, adopted an exemption from these rules that permits
passive market making under certain conditions. These rules permit an
Underwriter or other member of the selling group to continue to make a market in
the Company's Common Stock subject to the conditions, among others, that its bid
not exceed the highest bid by a market maker not connected with the Offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters and other members of the
selling group intend to engage in passive market making in the Company's Common
Stock during the cooling-off period.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered by this Prospectus
has been passed upon for the Company by Morgan, Lewis & Bockius LLP, 1800 M
Street, N.W., Washington, D.C. 20036. Certain legal matters will be passed upon
for the Underwriters by Winston & Strawn, 35 West Wacker Drive, Chicago,
Illinois 60601.
EXPERTS
The consolidated financial statements and supplemental consolidated
financial statements of the Company as of April 30, 1996 and 1995, and for each
year in the three year period ended April 30, 1996, except as they relate to
School Specialty, Inc., Re-Print Corporation, Fortran Corporation, Baystate
Computer Group, Inc., SFI Corp. and Hano Document Printers, Inc., wholly owned
subsidiaries of the Company, have been audited by Price Waterhouse LLP,
independent accountants, and insofar as they relate to School Speciality, Inc.,
Re-Print Corporation, Fortran Corporation, Bay State Computer Group, Inc., SFI
Corp. and Hano Document Printers, Inc., by Ernst & Young LLP, BDO Seidman, LLP,
Parent McLaughlin & Nangle, Rubin, Roehmstedt & Nadler, PLC and KPMG Peat
Marwick LLP whose reports thereon appear herein or are incorporated herein by
reference. Such financial statements have been included in this Prospectus or
incorporated herein by reference in reliance upon the reports of such
independent accountants given on the authority of such firms as experts in
auditing and accounting.
The financial statements of Emmons-Napp Office Products, Inc. as of December
31, 1995 and 1994 and for the years then ended; the financial statements of
Raleigh Office Supply Company as of August 31, 1995 and for the year then ended;
the financial statements of McWhorter Stationery Co. as of March 31, 1996 and
for the year then ended; the financial statements of Mark's Office Furniture as
of March 31, 1996 and for the year then ended; the financial statements of
David's Office Supply and Furniture Company, Inc. as of May 31, 1996 and for the
year then ended; the financial statements of Mile High Office Supply, Inc. as of
December 31, 1995 and 1994 and for the years then ended; the financial
statements of WBT Holdings, Inc. (d.b.a. Office Furniture Distributors) as of
December 31, 1995 and for the year then ended; the financial statements of
Carolina Office Equipment Company as of March 31, 1996 and for the year then
ended; and the financial statements of The Office Furniture Store, Inc. as of
December 31, 1995 and for the year then ended have been incorporated herein by
reference in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of Blue Star as of March 31, 1995 and for the year
then ended have been incorporated herein by reference in reliance on the report
of Price Waterhouse (Auckland, New Zealand), independent accountants, given on
the authority of such firm as experts in auditing and accounting.
The financial statements of the MISSCO Commercial Division as of March 31,
1995 and 1994, and for the year ended March 31, 1995, the nine-month period
ended March 31, 1994 and the year ended June 30, 1993 and the financial
statements of SFI Corp and Hano Document Printers, Inc., as of December 31, 1995
and the year then ended have been incorporated herein by reference in reliance
on the reports of KPMG
46
<PAGE>
Peat Marwick LLP, independent certified public accountants, also incorporated
herein by reference, and upon the authority of said firm as experts in auditing
and accounting.
The financial statements of New Office Plus, Inc. as of December 31, 1995
and for the year then ended, have been incorporated herein by reference in
reliance on the report of Shinners, Hucovski & Co., independent accountants,
given on the authority of such firm as experts in auditing and accounting.
The financial statements of American Loose Leaf/Business Products, Inc. as
of September 30, 1995 and for the year then ended, have been incorporated herein
by reference in reliance on the report of Swink, Fiehler and Hoffman, PC,
independent accountants, given on the authority of such firm as experts in
auditing and accounting.
The financial statements of Re-Print Corporation as of December 31, 1995 and
1994 and for the years then ended, have been incorporated herein by reference in
reliance on the report of BDO Seidman, LLP, independent accountants, given on
the authority of such firm as experts in auditing and accounting.
The financial statements of Pear Commercial Interiors as of December 31,
1995 and for the year then ended, have been incorporated herein by reference in
reliance on the report of Ehrhardt Keefe Steiner & Hottman P.C., independent
accountants, given on the authority of such firm as experts in auditing and
accounting.
The financial statements of Arbuckle Foods Inc. as of August 31, 1995 and
for the year then ended, have been incorporated herein by reference in reliance
on the report of Thorne Little, independent accountants, given on the authority
of such firm as experts in auditing and accounting.
The financial statements of Prudential of Florida, Inc. as of December 31,
1995 and for the year then ended, have been incorporated herein by reference in
reliance on the report of Joel S. Baum P.A., independent accountant, given on
the authority of such firm as experts in auditing and accounting.
The financial statements of Wang of New Zealand as of June 30, 1995 and for
the year then ended, have been incorporated herein by reference in reliance on
the report of Ernst & Young (Auckland, New Zealand), independent accountants,
given on the authority of such firm as experts in auditing and accounting.
The financial statements of Whitcoulls Group Limited as of June 30, 1995,
1994, and 1993 and for the years then ended incorporated in this prospectus by
reference from the Company's Current Report on Form 8-K dated July 23, 1996 have
been audited by Deloitte Touche Tohmatsu (Auckland, New Zealand), independent
auditors, as stated in their reports, which are incorporated herein by
reference, and have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of International Interiors, Inc. as of September
30, 1995 and 1994 and for the years then ended have been incorporated herein by
reference in reliance on the report of Petherbridge, Davis & Company, PA,
independent accountants, given on the authority of such firm as experts in
auditing and accounting.
The financial statements of Ausdoc Office Pty Ltd as of June 30, 1996 and
1995 and for the years then ended; the financial statements of Canberra
Wholesale Stationers Pty Ltd as of June 30, 1996 and 1995 and for the years then
ended; the financial statements of H & P Stationery Pty Ltd as of June 30, 1996
and 1995 and for the years then ended; and the financial statements Perth
Stationery Supplies Pty Ltd as of June 30, 1996 and 1995 and for the years then
ended, have been incorporated herein by reference in reliance upon the report of
Day Neilson, independent accountants, given on the authority of such firm as
experts in auditing and accounting.
47
<PAGE>
The financial statements of Fortran Corp. as of March 31, 1996 and for the
year then ended have been incorporated herein by reference in reliance on the
report of Rubin, Koehmstedt & Nadler, PLC, independent accountants, given on the
authority of such firm as experts in auditing and accounting.
The financial statements of PC Direct Limited as of March 31, 1996 and for
the year then ended have been incorporated herein by reference in reliance on
the report of KPMG (Auckland, New Zealand), independent accountants, given on
the authority of such firm as experts in auditing and accounting.
The financial statements of Bay State Computer Group, Inc. as of March 31,
1996 and for the year then ended have been incorporated herein by reference in
reliance on the report of Parent, McLaughin & Nangle, independent accountants,
given on the authority of such firm as experts in auditing and accounting.
48
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
U.S. OFFICE PRODUCTS COMPANY
Introduction to Pro Forma Financial Information............................................................ F-2
Pro Forma Combined Balance Sheet as of October 26, 1996 (unaudited)........................................ F-4
Pro Forma Combined Statement of Income for the year ended April 30, 1996 (unaudited)....................... F-5
Pro Forma Combined Statement of Income for the six months ended October 26, 1996 (unaudited)............... F-6
Pro Forma Combined Statement of Income for the six months ended October 31, 1995 (unaudited)............... F-7
Pro Forma Combined Statement of Income for the year ended April 30, 1995 (unaudited)....................... F-8
Pro Forma Combined Statement of Income for the year ended April 30, 1994 (unaudited)....................... F-9
Notes to Pro Forma Combined Financial Statements........................................................... F-10
Report of Price Waterhouse LLP, Independent Accountants.................................................... F-12
Report of Ernst & Young, LLP, Independent Auditors......................................................... F-13
Report of BDO Seidman, LLP, Independent Auditors........................................................... F-14
Report of Parent, McLaughlin & Nangle, Independent Auditors................................................ F-15
Report of Rubin, Koehmstedt & Nadler, PLC, Independent Auditors............................................ F-16
Consolidated Balance Sheet as of April 30, 1995 and 1996 and October 26, 1996 (unaudited).................. F-17
Consolidated Statement of Income for the years ended April 30, 1994, 1995, and 1996 and for the six months
ended October 31, 1995 (unaudited) and October 26, 1996 (unaudited)...................................... F-18
Consolidated Statement of Stockholders' Equity for the fiscal years ended April 30, 1994, 1995, and 1996
and the six months ended October 26, 1996 (unaudited).................................................... F-19
Consolidated Statement of Cash Flows for the years ended April 30, 1994, 1995, and 1996 and for the six
months ended October 31, 1995 (unaudited) and October 26, 1995 (unaudited)............................... F-21
Notes to Consolidated Financial Statements................................................................. F-23
</TABLE>
F-1
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements give effect to, where
applicable, acquisitions completed through January 25, 1997. The unaudited pro
forma combined balance sheet gives effect to the 24 businesses acquired by the
Company after October 26, 1996 (the "Fiscal 1997 Post 2nd Quarter
Acquisitions"), as if all such acquisitions had occurred as of the Company's
most recent balance sheet date, October 26, 1996.
The pro forma combined statement of income for the year ended April 30, 1996
gives effect to (i) the 26 acquisitions completed during fiscal 1996 which were
business combinations accounted for under the purchase method of accounting (the
"Fiscal 1996 Purchased Companies") as if all such acquisitions had been made on
May 1, 1995; (ii) the 60 acquisitions completed during fiscal 1997 which were
business combinations accounted for under the purchase method of accounting (the
"Fiscal 1997 Purchased Companies") as if all such acquisitions had been made on
May 1, 1995; (iii) the 9 acquisitions completed after October 26, 1996 which
were combinations accounted for under the pooling-of-interests method of
accounting as if all such acquisitions had been made on May 1, 1995 (the "Fiscal
1997 Post 2nd Quarter Pooled Companies", which together with the Fiscal 1997
Purchased Companies are referred to as the "Fiscal 1997 Completed
Acquisitions"); (iv) the sales by the Company in February and March 1996 (the
"February Offerings") of 5,543,045 shares of Common Stock and 5 1/2% Convertible
Subordinated Notes due 2001 (the "February Notes") in the principal amount of
$143.75 million as if such sales had been made on May 1, 1995; (vi) the sales by
the Company of 5 1/2% Convertible Subordinated Notes due 2003 in May and June
1996 (the "May Notes") in the principal amount of $230 million as if such sales
had been made on May 1, 1995; (vii) the sales by the Company in September 1996
(the "September Stock Sale") of 1,250,000 shares of the Common Stock (the
"Common Stock") as if such sale had been made on May 1, 1995, and (viii) the
sale by the Company of 7,959,639 shares of Common Stock in the Offering.
The historical financial statements of the Company give retroactive effect
to the results of the 21 companies acquired by the Company during the six months
ended October 26, 1996 and the 14 companies acquired during fiscal 1996 which
were business combinations accounted for under the pooling-of-interests method
of accounting.
The pro forma combined statement of income for the year ended April 30, 1996
includes (i) the audited financial statements of the Company for the year ended
April 30, 1996; (ii) the unaudited financial information of the Fiscal 1996
Purchased Companies for the period from May 1, 1995 to the consummation date;
(iii) the unaudited financial information for the Fiscal 1997 Purchased
Companies for the most recently completed fiscal year, except that unaudited
financial information for the year ended April 30, 1996 is included for each
such acquisition where the entity's fiscal year end is not within 93 days of the
Company's year end; and (iv) the unaudited financial information of the Fiscal
1997 Post 2nd Quarter Pooled Companies for the most recently completed fiscal
year.
The pro forma combined statement of income for the six months ended October
26, 1996 includes the unaudited financial information of the Company and gives
effect to (i) the 60 acquisitions completed during fiscal 1997 accounted for
under the purchase method of accounting for the period May 1, 1996 to the
consummation date and (ii) the 9 acquisitions completed after October 26, 1996
which were combinations accounted for under the pooling-of-interests method of
accounting as if all such acquisitions had been made on May 1, 1996.
The pro forma combined statement of income for the six months ended October
31, 1995 includes the unaudited financial information of the Company and gives
effect to the Fiscal 1996 Purchased Companies and the Fiscal 1997 Completed
Acquisitions as if all such acquisitions had been made on May 1, 1995.
F-2
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The pro forma combined statement of income for the years ended April 30,
1995 and 1994 includes the audited financial information of the Company and
gives effect to the Fiscal 1997 Post 2nd Quarter Pooled Companies.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein does not purport to
represent the results that the Company would have obtained had the transactions
which are the subject of pro forma adjustments occurred at the beginning of the
period, as assumed, or the future results of the Company. The pro forma combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Prospectus and
incorporated herein by reference.
F-3
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED BALANCE SHEET
OCTOBER 26, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. OFFICE FISCAL YEAR 1997
PRODUCTS COMPLETED PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS SUBTOTAL
------------ ---------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 51,442 $ 4,297 $ (19,521)(a) $
(41,270)(a)
5,052(a)
Accounts receivable..................................... 294,175 58,039 352,214
Lease receivables....................................... 29,865 29,865
Inventory............................................... 225,616 30,667 256,283
Prepaid and other current assets........................ 38,730 4,884 43,614
------------ -------- ------------ ------------
Total current assets................................ 639,828 97,887 (55,739) 681,976
Property and equipment, net............................... 182,222 13,933 196,155
Intangible assets, net.................................... 541,422 4,746 19,098(a) 565,266
Investment in affiliate................................... 41,270(a) 41,270
Lease receivables......................................... 46,379 46,379
Other assets.............................................. 34,380 3,638 38,018
------------ -------- ------------ ------------
Total assets........................................ $ 1,444,231 $ 120,204 $ 4,629 $ 1,569,064
------------ -------- ------------ ------------
------------ -------- ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt......................................... $ 227,571 $ 20,925 $ 22,348(a) $ 270,844
Accounts payable........................................ 159,632 31,060 190,692
Accrued compensation.................................... 33,302 2,134 35,436
Other accrued liabilities............................... 98,517 10,964 109,481
------------ -------- ------------ ------------
Total current liabilities........................... 519,022 65,083 22,348 606,453
Long-term debt............................................ 383,367 17,296 (17,296)(a) 383,367
Deferred income taxes..................................... 7,824 8 7,832
Other long-term liabilities............................... 3,123 550 3,673
------------ -------- ------------ ------------
Total liabilities................................... 913,336 82,937 5,052 1,001,325
Minority interest......................................... 4,672 4,672
Stockholders' equity:
Common stock............................................ 46 176 (170)(a) 51
Additional paid-in capital.............................. 467,687 32 11,823(a) 479,543
Cumulative translation adjustment....................... 4,988 4,988
Retained earnings....................................... 53,502 24,983 78,485
Equity of purchased companies........................... 12,076 (12,076)(a)
------------ -------- ------------ ------------
Total stockholders' equity.......................... 526,223 37,267 (423) 563,067
------------ -------- ------------ ------------
Total liabilities and stockholders' equity.......... $ 1,444,231 $ 120,204 $ 4,629 $ 1,569,064
------------ -------- ------------ ------------
------------ -------- ------------ ------------
<CAPTION>
PRO FORMA
OFFERING PRO FORMA
ADJUSTMENTS COMBINED
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 266,456 b) $
(266,456 (b)
Accounts receivable..................................... 352,214
Lease receivables....................................... 29,865
Inventory............................................... 256,283
Prepaid and other current assets........................ 43,614
------------- ------------
Total current assets................................ 681,976
Property and equipment, net............................... 196,155
Intangible assets, net.................................... 565,266
Investment in affiliate................................... 41,270
Lease receivables......................................... 46,379
Other assets.............................................. 38,018
------------- ------------
Total assets........................................ $ $ 1,569,064
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt......................................... $ (266,456 (b) $ 4,388
Accounts payable........................................ 190,692
Accrued compensation.................................... 35,436
Other accrued liabilities............................... 109,481
------------- ------------
Total current liabilities........................... (266,456) 339,997
Long-term debt............................................ 383,367
Deferred income taxes..................................... 7,832
Other long-term liabilities............................... 3,673
------------- ------------
Total liabilities................................... (266,456) 734,869
Minority interest......................................... 4,672
Stockholders' equity:
Common stock............................................ 8(b) 59
Additional paid-in capital.............................. 266,448(b) 745,991
Cumulative translation adjustment....................... 4,988
Retained earnings....................................... 78,485
Equity of purchased companies...........................
------------- ------------
Total stockholders' equity.......................... 266,456 829,523
------------- ------------
Total liabilities and stockholders' equity.......... $ $ 1,569,064
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-4
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. OFFICE 1996 1997 PRO FORMA
PRODUCTS PURCHASED COMPLETED PRO FORMA OFFERING PRO FORMA
COMPANY COMPANIES ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- --------- ----------- -----------
Revenues............. $1,149,691 $ 307,954 $1,227,965 $2,685,610 $2,685,610
Cost of revenues..... 848,003 214,072 847,993 1,910,068 1,910,068
----------- ----------- ----------- ----------- --------- ----------- -----------
Gross profit....... 301,688 93,882 379,972 775,542 775,542
Selling, general and
administrative
expenses........... 256,681 84,070 317,954 $ 7,835(c) 652,435 652,435
(11,573)(d)
(2,532)(e)
Nonrecurring
acquisition
costs.............. 8,057 (8,057)(e)
Nonrecurring
restructuring
costs.............. 8,092 8,092 8,092
Discontinuation of
printing division
at subsidiary...... 682 682 682
----------- ----------- ----------- ----------- --------- ----------- -----------
Operating income... 36,268 1,720 62,018 14,327 114,333 114,333
Other (income)
expense:
Interest expense... 13,115 2,761 11,899 11,941(f) 39,716 $ (18,186)(l) 21,530
Interest income.... (3,750) (682) 4,432(f)
Other.............. (1,063) (24) (796) (671)(g) (2,554) (2,554)
Equity in net income
of affiliated
company............ 1,155(h) 1,155 1,155
----------- ----------- ----------- ----------- --------- ----------- -----------
Income (loss) before
provision for
income taxes....... 27,966 (1,017) 51,597 (220) 78,326 18,186 96,512
Provision for income
taxes.............. 6,610 45 12,986 14,345(i) 33,986 7,274 41,260
----------- ----------- ----------- ----------- --------- ----------- -----------
Net income (loss).... $ 21,356 $ (1,062) $ 38,611 $ (14,565) $ 44,340 $ 10,912 $ 55,252
----------- ----------- ----------- ----------- --------- ----------- -----------
----------- ----------- ----------- ----------- --------- ----------- -----------
Weighted average
shares
outstanding........ 31,789 51,729(j) 59,689(m)
Net income per
share.............. $ 0.67 $ 0.86 $ 0.93
----------- --------- -----------
----------- --------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-5
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 26, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. OFFICE FISCAL 1997 PRO FORMA
PRODUCTS COMPLETED PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
----------- ----------- ------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................... $ 996,414 $ 392,255 $1,388,669 $1,388,669
Cost of revenues................... 716,849 268,756 985,605 985,605
----------- ----------- ------------- --------- ------------- -----------
Gross profit................... 279,565 123,499 403,064 403,064
Selling, general and administrative
expenses......................... 227,245 107,188 $ 1,258(c) 332,645 332,645
(3,046)(d)
Nonrecurring acquisition costs..... 5,727 (5,727)(e)
----------- ----------- ------------- --------- ------------- -----------
Operating income............... 46,593 16,311 7,515 70,419 70,419
Other (income) expense:
Interest expense................. 18,643 3,667 (952)(f) 21,358 $ (9,093)(l) 12,265
Interest income.................. (5,382) (226) 5,608(f)
Foreign currency gain............ (3,420) (3,420) (3,420)
Other............................ (476) (711) (1,187) (1,187)
Equity in net income of affiliated
company.......................... 782(h) 782 782
----------- ----------- ------------- --------- ------------- -----------
Income before provision for income
taxes and extraordinary item..... 37,228 13,581 3,641 54,450 9,093 63,543
Provision for income taxes......... 13,948 2,809 6,857(i) 23,614 3,637 27,251
----------- ----------- ------------- --------- ------------- -----------
Income before extraordinary item... $ 23,280 $ 10,772 $ (3,216) $ 30,836 $ 5,456 $ 36,292
----------- ----------- ------------- --------- ------------- -----------
----------- ----------- ------------- --------- ------------- -----------
Weighted average shares
outstanding...................... 43,622 52,360(j) 60,320(m)
Net income per share before
extraordinary item............... $ 0.53 $ 0.59 $ 0.60
----------- --------- -----------
----------- --------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-6
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED OCTOBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------
U.S. OFFICE 1996 1997 PRO FORMA
PRODUCTS PURCHASED COMPLETED PRO FORMA OFFERING PRO FORMA
COMPANY COMPANIES ACQUISITIONS ADJUSTMENTS SUBTOTAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ------------- --------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 485,546 $ 223,016 $ 594,814 $ 1,303,376 1,303,376
Cost of revenues........ 361,534 158,215 418,960 $ 938,709 $ 938,709
----------- ----------- ----------- ------------- --------- ------------- -----------
Gross profit........ 124,012 64,801 175,854 364,667 364,667
Selling, general and
administrative
expenses.............. 106,852 55,209 153,571 5,273(c) 316,531 316,531
(4,374)(d)
Nonrecurring acquisition
costs................. 5,192 (5,192)(e)
----------- ----------- ----------- ------------- --------- ------------- -----------
Operating income.... 11,968 9,592 22,283 4,293 48,136 48,136
Other (income) expense:
Interest expense...... 4,639 2,001 6,853 7,865(f) 21,358 $ (9,093)(l) 12,265
Interest income....... (662) (40) (518) 1,220(f)
Other................. (718) 2,022 (440) 864 864
Equity in net income of
affiliated company.... 629(h) 629 629
----------- ----------- ----------- ------------- --------- ------------- -----------
Income (loss) before
provision for income
taxes................. 8,709 5,609 16,388 (4,163) 26,543 9,093 35,636
Provision for income
taxes................. 494 1,726 3,862 5,320(i) 11,402 3,637 15,039
----------- ----------- ----------- ------------- --------- ------------- -----------
Net income (loss)....... $ 8,215 $ 3,883 $ 12,526 $ (9,483) $ 15,141 $ 5,456 $ 20,597
----------- ----------- ----------- ------------- --------- ------------- -----------
----------- ----------- ----------- ------------- --------- ------------- -----------
Weighted average shares
outstanding........... 28,166 51,453(j) 59,413(m)
Net income per share.... $ 0.29 $ 0.29 $ 0.35
----------- --------- -----------
----------- --------- -----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-7
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1995
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL
1997
POST 2ND
U.S. OFFICE QTR. PRO-FORMA
PRODUCTS POOLINGS ADJUSTMENTS TOTAL
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Revenues.............................................. $ 723,794 $ 182,905 $ $ 906,699
Cost of revenues...................................... 534,562 129,984 664,546
----------- ------------ ----------- ----------
Gross profit...................................... 189,232 52,921 242,153
Selling, general and administrative expenses.......... 162,423 43,482 205,905
----------- ------------ ----------- ----------
Operating income.................................. 26,809 9,439 36,248
Other (income) expense:
Interest expense.................................... 6,182 1,372 7,554
Interest income..................................... (682) (167) (849)
Other............................................... (549) 29 (520)
----------- ------------ ----------- ----------
Income before provision for income taxes.............. 21,858 8,205 30,063
Provision for income taxes............................ 3,009 250 9,969(k) 13,228
----------- ------------ ----------- ----------
Net income............................................ $ 18,849 $ 7,955 $ (9,969) $ 16,835
----------- ------------ ----------- ----------
----------- ------------ ----------- ----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-8
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1994
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FISCAL
1997
POST 2ND
U.S. OFFICE QTR. PRO-FORMA
PRODUCTS POOLINGS ADJUSTMENTS TOTAL
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenues..................................................... $ 533,018 $ 146,319 $ $ 679,337
Cost of revenues............................................. 382,197 102,854 485,051
----------- ------------ ----------- ----------
Gross profit............................................. 150,821 43,465 194,286
Selling, general and administrative expenses................. 135,526 37,359 172,885
----------- ------------ ----------- ----------
Operating income......................................... 15,295 6,106 21,401
Other (income) expense:
Interest expense........................................... 4,139 1,210 5,349
Interest income............................................ (405) (1) (406)
Other...................................................... (633) 117 (516)
----------- ------------ ----------- ----------
Income before provision for income taxes..................... 12,194 4,780 16,974
Provision for income taxes................................... 1,947 292 5,230(k) 7,469
----------- ------------ ----------- ----------
Net income................................................... $ 10,247 $ 4,488 $ (5,230) $ 9,505
----------- ------------ ----------- ----------
----------- ------------ ----------- ----------
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-9
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars and Share Numbers in Thousands)
1. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a)(i) Adjustment to reflect purchase price adjustments and repayment of
certain long-term debt associated with the Fiscal 1997 Purchased
Companies noted below. The portion of the consideration assigned to
goodwill ($19,098) in transactions accounted for as purchases
represents the excess of the cost over the fair value of the net
assets acquired. The Company amortizes goodwill over a period of 40
years. The recoverability of the unamortized goodwill will be
assessed on an ongoing basis by comparing anticipated undiscounted
future cash flows from operations to net book value.
(ii) Adjustment to reflect the investment of $41,270 representing a 49%
equity interest in Dudley.
(iii) Borrowings on the Company's Credit Facility to cover a portion of
the purchase price of certain acquired companies and the refinancing
of debt of certain acquired companies.
(b) Adjustment to reflect $266,456 of net proceeds from the sale of 7,960
shares of Common Stock as part of the Offering (net of expenses and
underwriting discount) and the utilization of the proceeds to repay
short-term debt.
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS
(c) Adjustment to reflect the increase in amortization expense relating to
goodwill recorded in purchase accounting related to the Fiscal 1996 Purchased
Companies and the Fiscal 1997 Purchased Companies. The goodwill is being
amortized over an estimated life of 40 years.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
YEAR ENDED ------------------------
APRIL 30, OCTOBER 26, OCTOBER 31,
1996 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Fiscal 1996 Purchased Companies............................................ $ 1,570 $ -- $ 688
Fiscal 1997 Purchased Companies............................................ 6,265 1,258 4,585
----------- ----------- -----------
$ 7,835 $ 1,258 $ 5,273
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
(d) Adjustment to reflect reductions in executive compensation as a result
of the elimination of certain executive positions and the renegotiations of
executive compensation agreements resulting from certain acquisitions.
(e) Adjustment to reflect the reduction of (i) nonrecurring acquisition
costs related to pooling-of-interests business combinations of $8,057 for the
year ended April 30, 1996, $5,727 and $5,192 for the six months ended October
26, 1996 and October 31, 1995, respectively, and (ii) certain other
restructuring charges from certain acquisitions of $2,532 for the year ended
April 30, 1996.
(f) Adjustment to reflect an increase (decrease) in interest expense
resulting from the utilization of the proceeds from the sales of the February
Notes and the May Notes to effect acquisitions as if such debt had been
outstanding for the entire period. In addition, the adjustment reflects an
increase in interest expense resulting from the amortization of debt issue costs
over the terms of the February Notes and the May Notes. Adjustment also reflects
a decrease in interest income resulting from the utilization of the
F-10
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(Dollars and Share Numbers in Thousands)
2. UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME ADJUSTMENTS (CONTINUED)
proceeds from the issuance of the Common Stock and the February Notes in the
February Offerings and the May Notes to effect certain transactions and
refinance existing debt.
(g) Adjustment to reflect the elimination of the minority interest
representing 49% of the net income of Blue Star for the year ended April 30,
1996.
(h) Adjustment to reflect the 49% equity interest in the net income of
Dudley Stationery Limited.
(i) Adjustment to calculate the provision for income taxes on the combined
pro forma results at an effective income tax rate of approximately 43%. The
difference between the effective tax rate of 43% and the statutory tax rate of
35% relates primarily to state income taxes and non-deductible goodwill.
(j) The weighted average shares outstanding used to calculate pro forma
earnings per share is based on 51,729, 52,360, and 51,453 shares of Common Stock
and Common Stock equivalents outstanding for the year ended April 30, 1996 and
the six months ended October 26, 1996 and October 31, 1995, respectively. The
amounts are comprised of 45,698 shares outstanding for each of the periods,
5,408 shares issued for acquisitions completed subsequent to October 26, 1996
and 623, 1,254, and 347 common stock equivalents considered to be outstanding
related to stock options, for the year ended April 30, 1996, and the six month
periods ended October 26, 1996 and October 31, 1995, respectively.
(k) Adjustment to reflect the income taxes for certain acquisitions
accounted for under the poolings-of-interest method which were taxed as
subchapter S corporations as if these companies had been subject to taxation as
C corporations. As a result of being subchapter S corporations, any tax
liabilities prior to acquisition were the responsibility of the individual
company stockholder.
(l) Adjustment to reflect a decrease in interest expense as a result of the
utilization of the net proceeds from the Offering of $266,456 to repay short
term debt at an effective rate of 6.825%.
(m) Adjustment to include in weighted average shares outstanding the 7,960
shares to be sold by the Company as part of the Offering.
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
U.S. Office Products Company
In our opinion, based upon our audits and the reports of other auditors, the
accompanying consolidated balance sheet and the related consolidated statements
of income, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of U.S. Office Products Company and
its subsidiaries at April 30, 1996 and 1995 and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
April 30, 1996, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of School Specialty,
Inc. and Re-Print Corporation (wholly owned subsidiaries) which statements
reflect total assets of approximately $44.3 million at December 31, 1994 and
total revenues of $150.5 million, $119.5 million and $21.4 million for the years
ended December 31, 1995, 1994 and 1993, respectively. We also did not audit the
financial statements of Baystate Computer Group, Inc. and Fortran Corp. (wholly
owned subsidiaries) which statements reflect total assets of approximately $20.5
million at March 31, 1995 and total revenues of $83.9 million, $64.0 million and
$37.5 million for the years ended March 31, 1996, 1995 and 1994, respectively.
Those statements were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amounts included for School Specialty, Inc., Re-Print Corporation, Baystate
Computer Group, Inc. and Fortran Corp. is based solely on the reports of the
other auditors. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits and the reports of other auditors provide a reasonable
basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
May 31, 1996, except as to the third paragraph
of Note 3 which is as of October 26, 1996 and
Note 14, which is as of July 10, 1996
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
School Specialty, Inc.
We have audited the accompanying balance sheets of School Specialty, Inc.
(formerly known as EDA Corporation) (the Company) as of December 31, 1995 and
1994, and the related statements of operations, changes in shareholders' deficit
and cash flows for the years then ended (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Ernst & Young, LLP
Milwaukee, Wisconsin
February 2, 1996
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Re-Print Corporation
Birmingham, Alabama
We have audited the accompanying balance sheets of The Re-Print Corporation
as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for three years ended December 31, 1995,
1994, and 1993 (not presented separately herein). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Re-Print Corporation at
December 31, 1995 and 1994, and the results of its operations and its cash flows
for three years ended December 31, 1995, 1994, and 1993 in conformity with
generally accepted accounting principles.
BDO Seidman, LLP
Atlanta, Georgia
February 8, 1996
F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Bay State Computer Group, Inc.
Boston, Massachusetts
We have audited the balance sheets of Bay State Computer Group, Inc. as of
March 31, 1996 and 1995, and the related statements of earnings and retained
earnings, and cash flows for three years ended March 31, 1996, 1995, and 1994
(none of which are presented herein separately). These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Bay State Computer Group,
Inc. at March 31, 1996 and 1995, and the results of its operations and its cash
flows for three years ended March 31, 1996, 1995, and 1994 in conformity with
generally accepted accounting principles.
Parent, McLaughlin & Nangle
Boston, Massachusetts
May 23, 1996, except for Note N
as to which the date is October 14, 1996
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
and Board of Directors
Fortran Corp.
Newington, Virginia
We have audited the balance sheet of Fortran Corp. as of March 31, 1996 and
1995, and the related statements of earnings, changes in stockholders' equity,
and cash flows for three years ended March 31, 1996, 1995, and 1994 (not
presented separately herein). These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fortran Corp. at March 31,
1996 and 1995, and the results of its operations and its cash flows for three
years ended March 31, 1996, 1995, and 1994 in conformity with generally accepted
accounting principles.
As described in Note 9 to the financial statements, on August 21, 1996, the
Company entered into a letter of intent to exchange all of its issued and
outstanding shares of common stock for shares of U.S. Office Products Company
common stock.
Rubin, Koehnmstedt & Nadler, PLC
Newington, Virginia
June 7, 1996, except for Note 9,
as to which the date is October 24, 1996
F-16
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30,
---------------------- OCTOBER 26,
1995 1996 1996
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................ $ 19,408 $ 175,386 $ 51,442
Accounts receivable, less allowance for doubtful accounts of $696, $3,386
and $5,872, respectively............................................... 107,701 170,111 294,175
Lease receivables........................................................ 24,808 29,865
Inventories.............................................................. 58,672 113,503 225,616
Prepaid expenses and other current assets................................ 6,172 25,445 38,730
---------- ---------- ------------
Total current assets................................................. 191,953 509,253 639,828
Property and equipment, net................................................ 35,738 75,011 182,222
Intangible assets, net..................................................... 26,111 142,240 541,422
Lease receivables.......................................................... 47,005 46,379
Other assets............................................................... 4,971 18,720 34,380
---------- ---------- ------------
Total assets......................................................... $ 258,773 $ 792,229 $ 1,444,231
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt.......................................................... $ 52,720 $ 120,488 $ 227,571
Accounts payable......................................................... 53,735 98,010 159,632
Accrued compensation..................................................... 10,310 16,126 33,302
Other accrued liabilities................................................ 15,514 26,711 98,517
---------- ---------- ------------
Total current liabilities............................................ 132,279 261,335 519,022
Long-term debt............................................................. 29,939 181,593 383,367
Deferred income taxes...................................................... 4,357 7,056 7,824
Other long-term liabilities................................................ 1,395 1,703 3,123
---------- ---------- ------------
Total liabilities.................................................... 167,970 451,687 913,336
---------- ---------- ------------
Commitments and contingencies
Minority interest.......................................................... 6,024 4,672
Stockholders' equity:
Preferred stock, $.001 par value, 500,000 shares authorized, none
outstanding............................................................
Preferred stock of a pooled company...................................... 1,000
Common stock, $.001 par value 500,000,000 shares authorized, 24,149,288,
39,393,480 and 45,698,248 shares issued and outstanding,
respectively........................................................... 24 39 46
Additional paid-in capital............................................... 50,720 298,120 467,687
Cumulative translation adjustment........................................ (193) 358 4,988
Retained earnings........................................................ 39,252 36,001 53,502
---------- ---------- ------------
Total stockholders' equity........................................... 90,803 334,518 526,223
---------- ---------- ------------
Total liabilities and stockholders' equity........................... $ 258,773 $ 792,229 $ 1,444,231
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE FISCAL YEAR ENDED APRIL 30, ------------------------
------------------------------------ OCTOBER 31, OCTOBER 26,
1994 1995 1996 1995 1996
---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues......................................... $ 533,018 $ 723,794 $ 1,149,691 $ 485,546 $ 996,414
Cost of revenues................................. 382,197 534,562 848,003 361,534 716,849
---------- ---------- ------------ ----------- -----------
Gross profit............................... 150,821 189,232 301,688 124,012 279,565
Selling, general and administrative expenses..... 135,526 162,423 256,681 106,852 227,245
Nonrecurring acquisition costs................... 8,057 5,192 5,727
Discontinuation of printing division at
subsidiary..................................... 682
---------- ---------- ------------ ----------- -----------
Operating income........................... 15,295 26,809 36,268 11,968 46,593
Other (income) expense:
Interest expense............................... 4,139 6,182 13,115 4,639 18,643
Interest income................................ (405) (682) (3,750) (662) (5,382)
Foreign currency gain.......................... (3,420)
Other.......................................... (633) (549) (1,063) (718) (476)
---------- ---------- ------------ ----------- -----------
Income before provision for income taxes and
extraordinary item............................. 12,194 21,858 27,966 8,709 37,228
Provision for income taxes....................... 1,947 3,009 6,610 494 13,948
---------- ---------- ------------ ----------- -----------
Income before extraordinary item................. 10,247 18,849 21,356 8,215 23,280
Extraordinary item--loss on early termination of
credit facility, net of income tax benefit..... 612
---------- ---------- ------------ ----------- -----------
Net income....................................... $ 10,247 $ 18,849 $ 21,356 $ 8,215 $ 22,668
---------- ---------- ------------ ----------- -----------
---------- ---------- ------------ ----------- -----------
Weighted average common shares outstanding....... 31,789 28,166 43,622
------------ ----------- -----------
------------ ----------- -----------
Net income per share:
Income before extraordinary item............... $ .67 $ .29 $ .53
Extraordinary item............................. (.01)
------------ ----------- -----------
Net income per share............................. $ .67 $ .29 $ .52
------------ ----------- -----------
------------ ----------- -----------
Unaudited pro forma net income (see Note 8)...... $ 7,463 $ 13,397 $ 14,743 $ 4,767 $ 20,251
---------- ---------- ------------ ----------- -----------
---------- ---------- ------------ ----------- -----------
Unaudited pro forma net income per share:
Pro forma income before extraordinary item..... $ .46 $ .17 $ .47
Extraordinary item............................. (.01)
------------ ----------- -----------
Pro forma net income per share................... $ .46 $ .17 $ .46
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED APRIL 30, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------------- ------------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1993.................................. 1 $ 1,000 15,645,225 $ 15 $ 18,368
Transactions of Combined Companies:
Dividends..............................................
Purchase of treasury stock.............................
Adjustment to conform fiscal year-ends of certain
Combined Companies.....................................
Other.................................................... 512
Dividends of certain Pooled Companies....................
Net income...............................................
-
----------- ------------ --- -----------
Balance at April 30, 1994.................................. 1 1,000 15,645,225 15 18,880
Transactions of Combined Companies:
Issuance of common stock............................... 251
Capital contributed by principal stockholder........... 1,814
Dividends..............................................
Issuance of common stock in conjunction with the
formation of U.S. Office Products...................... 800,000 1
Issuance of common stock in the initial public offering,
net of offering expenses of $4,686..................... 3,737,500 4 32,686
Issuance of common stock to the stockholders of the
Combined Companies..................................... 3,078,000 3 (3)
Distributions to the stockholders of the Combined
Companies..............................................
Issuance of common stock in acquisition.................. 875,000 1 8,749
Adjustment to conform the year-ends of certain Pooled
Companies..............................................
Adjustment to stockholders' equity accounts to reflect
the Mergers............................................ (12,597)
Cumulative translation adjustment........................
Conversion of warrants to equity of certain Pooled
Companies.............................................. 13,563 201
Issuance of stock by certain Pooled Companies............ 739
Dividends of certain Pooled Companies....................
Net income...............................................
-
----------- ------------ --- -----------
Balance at April 30, 1995.................................. 1 1,000 24,149,288 24 50,720
<CAPTION>
CUMULATIVE
TRANSLATION RETAINED TREASURY TOTAL
ADJUSTMENT EARNINGS STOCK EQUITY
------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Balance at April 30, 1993.................................. $ (400) $ 27,090 $ (5,048) $ 41,025
Transactions of Combined Companies:
Dividends.............................................. (115) (115)
Purchase of treasury stock............................. (2,514) (2,514)
Adjustment to conform fiscal year-ends of certain
Combined Companies..................................... 273 273
Other.................................................... (950) (438)
Dividends of certain Pooled Companies.................... (4,399) (4,399)
Net income............................................... 10,247 10,247
----- ---------- --------- ----------
Balance at April 30, 1994.................................. (400) 32,146 (7,562) 44,079
Transactions of Combined Companies:
Issuance of common stock............................... 251
Capital contributed by principal stockholder........... 1,814
Dividends.............................................. (222) (222)
Issuance of common stock in conjunction with the
formation of U.S. Office Products...................... 1
Issuance of common stock in the initial public offering,
net of offering expenses of $4,686..................... 32,690
Issuance of common stock to the stockholders of the
Combined Companies.....................................
Distributions to the stockholders of the Combined
Companies.............................................. (11,300) (11,300)
Issuance of common stock in acquisition.................. 8,750
Adjustment to conform the year-ends of certain Pooled
Companies.............................................. 2,235 2,235
Adjustment to stockholders' equity accounts to reflect
the Mergers............................................ 5,035 7,562
Cumulative translation adjustment........................ 207 207
Conversion of warrants to equity of certain Pooled
Companies.............................................. 201
Issuance of stock by certain Pooled Companies............ 739
Dividends of certain Pooled Companies.................... (7,491) (7,491)
Net income............................................... 18,849 18,849
----- ---------- --------- ----------
Balance at April 30, 1995.................................. (193) 39,252 90,803
</TABLE>
(Continued)
F-19
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE FISCAL YEARS ENDED APRIL 30, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED OCTOBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE
---------------------- ------------------------- PAID-IN TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT
----------- --------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1995........................... 1 $ 1,000 24,149,288 $ 24 $ 50,720 $ (193)
Issuance of warrants by Pooled Companies............ 473,750 672
Exercise of warrants by Pooled Companies............ 178,865 784
Options issued by Pooled Companies.................. 296
Issuance of common stock in the second public
offering, net of offering expenses of $3,902...... 4,025,000 4 53,450
Issuance of common stock in the third public
offering, net of offering expenses of $7,594...... 5,543,045 6 121,277
Issuance of common stock in acquisitions............ 3,885,349 4 60,363
Issuance of common stock for stock options
exercised, including tax benefits................. 63,350 1,023
Issuance of common stock to repay indebtedness...... 419,408 3,855
Adjustment to conform fiscal year-ends of certain
Pooled Companies..................................
Capital contribution by former shareholders of
pooled company.................................... 1,154
Conversion of Pooled Company preferred stock upon
acquisition....................................... (1) (1,000) 1,000
Issuance of stock by certain Pooled Companies....... 91,000 2,164
Dividends of certain Pooled Companies............... 564,425 1 1,362
Cumulative translation adjustment................... 551
Net income..........................................
--- --------- ------------ --- ---------- -----------
Balance at April 30, 1996........................... 39,393,480 39 298,120 358
Issuance of common stock in acquisitions............ 4,327,781 4 120,202
Issuance of common stock............................ 1,250,000 1 38,112
Exercise of stock options........................... 152,327 780
Exercise of stock warrants.......................... 166,750 1 1,200
Retirement of treasury stock........................ 68,205 34
Capital contribution by former shareholders of
Pooled Companies.................................. 168,854 1 5,878
Issuance of common stock for stock options
exercised, including tax benefit.................. 77,541 1,633
Issuance of common stock for employee stock purchase
plan, net of expenses of $25...................... 93,310 1,728
Adjustment to conform fiscal year-ends of certain
Pooled Companies..................................
Dividends of certain Pooled Companies...............
Cumulative translation adjustment................... 4,630
Net income..........................................
--- --------- ------------ --- ---------- -----------
Balance at October 26, 1996 (unaudited)............. $ 45,698,248 $ 46 $ 467,687 $ 4,988
--- --------- ------------ --- ---------- -----------
--- --------- ------------ --- ---------- -----------
<CAPTION>
RETAINED TREASURY TOTAL
EARNINGS STOCK EQUITY
---------- ----------- ----------
<S> <C> <C> <C>
Balance at April 30, 1995........................... $ 39,252 $ 90,803
Issuance of warrants by Pooled Companies............ 672
Exercise of warrants by Pooled Companies............ 784
Options issued by Pooled Companies.................. 296
Issuance of common stock in the second public
offering, net of offering expenses of $3,902...... 53,454
Issuance of common stock in the third public
offering, net of offering expenses of $7,594...... 121,283
Issuance of common stock in acquisitions............ 60,367
Issuance of common stock for stock options
exercised, including tax benefits................. 1,023
Issuance of common stock to repay indebtedness...... 3,855
Adjustment to conform fiscal year-ends of certain
Pooled Companies.................................. (4,410) (4,410)
Capital contribution by former shareholders of
pooled company.................................... 1,154
Conversion of Pooled Company preferred stock upon
acquisition.......................................
Issuance of stock by certain Pooled Companies....... 2,164
Dividends of certain Pooled Companies............... (20,197) (18,834)
Cumulative translation adjustment................... 551
Net income.......................................... 21,356 21,356
---------- ----------- ----------
Balance at April 30, 1996........................... 36,001 334,518
Issuance of common stock in acquisitions............ 120,206
Issuance of common stock............................ 38,113
Exercise of stock options........................... 780
Exercise of stock warrants.......................... 1,201
Retirement of treasury stock........................ (34)
Capital contribution by former shareholders of
Pooled Companies.................................. 5,879
Issuance of common stock for stock options
exercised, including tax benefit.................. 1,633
Issuance of common stock for employee stock purchase
plan, net of expenses of $25...................... 1,728
Adjustment to conform fiscal year-ends of certain
Pooled Companies.................................. 183 183
Dividends of certain Pooled Companies............... (5,316) (5,316)
Cumulative translation adjustment................... 4,630
Net income.......................................... 22,668 22,668
---------- ----------- ----------
Balance at October 26, 1996 (unaudited)............. $ 53,502 $ $ 526,223
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED APRIL MONTHS ENDED
30, ------------------------
--------------------------------- OCTOBER 31, OCTOBER 26,
1994 1995 1996 1995 1996
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income...................................................... $ 10,247 $ 18,849 $ 21,356 $ 8,215 $ 22,668
Adjustment to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization expense....................... 7,510 9,283 13,372 5,184 13,974
Deferred income taxes....................................... (165) (51) (264) 156 3,553
Write-off of deferred compensation.......................... (1,501)
Foreign currency gain....................................... (3,420)
Changes in assets and liabilities (net of assets acquired
and liabilities assumed in business combinations):
Accounts receivable....................................... (6,091) (23,948) 1,893 (12,510) (56,018)
Lease receivables......................................... (17,705) (1,394)
Inventory................................................. (2,149) (502) 2,140 (4,675) (2,876)
Prepaid expenses and other current assets................. (2,392) (1,145) (9,412) (4,999) 1,647
Accounts payable.......................................... 3,505 5,674 1,969 10,295 (10,582)
Accrued liabilities....................................... 1,689 5,633 4,462 (584) (8,490)
--------- --------- ----------- ----------- -----------
Net cash provided by (used in) operating activities..... 12,154 13,793 17,811 1,082 (42,439)
--------- --------- ----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment............................. (6,629) (6,873) (14,521) (3,503) (10,277)
Cash used in acquisitions....................................... (18,099) (95,574) (43,406) (273,704)
Investment in affiliate......................................... (5,603)
Deposits........................................................ (74) (77) (256) (3,239) (9,007)
Other........................................................... (265) 344 (543) 216 1,309
--------- --------- ----------- ----------- -----------
Net cash used in investing activities................... (6,968) (24,705) (116,497) (49,932) (291,679)
--------- --------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt........................ 3,750 4,220 148,499 2,158 225,098
Payments of long-term debt...................................... (5,929) (7,632) (17,423) (6,546) (145,306)
Increases in short-term debt.................................... 1,504 3,859 (38,105) 6,952 90,285
Proceeds from issuance of common stock.......................... 33,454 176,287 53,454 38,113
Proceeds from exercise of stock options and
warrants...................................................... 597 2,937
Proceeds from issuance of common stock in employee stock
purchase plan................................................. 1,728
Contributions of capital by stockholders of Pooled Companies.... 2,557 1,848 1,802
Payments to stockholders of combined companies.................. (27) (11,330) (42)
Adjustments to conform fiscal year-ends of certain Pooled
Companies..................................................... 230 601 (1,119) (72) 184
Payments of dividends........................................... (4,172) (7,232) (13,844) (8,286) (5,316)
--------- --------- ----------- ----------- -----------
Net cash provided by (used in) financing activities..... (4,644) 18,497 254,850 49,508 209,525
--------- --------- ----------- ----------- -----------
Effect of exchange rates on cash and cash equivalents............. 237 (180) (186) (11) 649
Net increase (decrease) in cash and cash equivalents.............. 779 7,405 155,978 647 (123,944)
Cash and cash equivalents at beginning of period.................. 11,224 12,003 19,408 19,408 175,386
--------- --------- ----------- ----------- -----------
Cash and cash equivalents at end of period........................ $ 12,003 $ 19,408 $ 175,386 $ 20,055 $ 51,442
--------- --------- ----------- ----------- -----------
--------- --------- ----------- ----------- -----------
</TABLE>
F-21
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED APRIL MONTHS ENDED
30, ------------------------
--------------------------------- OCTOBER 31, OCTOBER 26,
1994 1995 1996 1995 1996
--------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Supplemental disclosures of cash flow information:
Interest paid................................................... $ 7,427 $ 10,426 $ 11,519 $ 3,091 $ 11,895
Income taxes paid............................................... $ 3,108 $ 3,253 $ 8,330 $ 1,857 $ 9,924
</TABLE>
The Company issued common stock, notes payable and cash in connection with
certain business combinations in fiscal years ended April 30, 1994, 1995 and
1996. The fair values of the assets and liabilities of the acquired companies at
the dates of the acquisitions are presented as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE FISCAL YEAR ENDED APRIL 30, ------------------------
----------------------------------- OCTOBER 31, OCTOBER 26,
1994 1995 1996 1995 1996
---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Accounts receivable............................................. $ -- $ 23,462 $ 72,231 $ 23,576 $ 66,509
Inventories..................................................... 20,074 51,425 17,309 107,086
Prepaid expenses and other current assets....................... 1,779 8,914 3,845 12,111
Property and equipment.......................................... 5,459 34,978 17,105 102,244
Intangible assets............................................... 21,079 118,422 45,451 398,932
Lease receivables............................................... 55,095 870
Other assets.................................................... 339 1,257 872 3,732
Short-term debt................................................. (15,038) (105,814) (16,425) (8,783)
Accounts payable................................................ (15,627) (38,357) (14,384) (73,042)
Accrued liabilities............................................. (4,958) (16,244) (3,485) (99,158)
Long-term debt.................................................. (6,283) (17,949) (7,708) (114,649)
Deferred income taxes........................................... (1,635)
Other long-term liabilities..................................... (437) (247) (825) (1,942)
Minority interest............................................... (5,349)
---------- ---------- ----------- ----------- -----------
Net assets acquired..................................... $ -- $ 29,849 $ 156,727 $ 65,331 $ 393,910
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
The acquisitions were funded as follows:
Common stock.................................................... $ -- $ 8,750 $ 60,367 $ 21,925 $ 120,206
Notes payable................................................... 3,000 786
Cash............................................................ 18,099 95,574 43,406 273,704
---------- ---------- ----------- ----------- -----------
$ -- $ 29,849 $ 156,727 $ 65,331 $ 393,910
---------- ---------- ----------- ----------- -----------
---------- ---------- ----------- ----------- -----------
</TABLE>
Noncash transactions:
- During fiscal 1996, one Pooled Company converted $1,385 of notes payable
to common stock.
- During fiscal 1996, the Company issued 194,447 shares of common stock to
repay $2,470 of indebtedness.
- During fiscal 1996, the Company recorded additional paid-in capital of
approximately $483 related to the tax benefit on stock options exercised.
- During fiscal 1994, one Combined Company issued $1,800 of debt in exchange
for nonvoting shares of common stock.
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1--BUSINESS ORGANIZATION
U.S. Office Products Company ("U.S. Office Products" and the "Company") was
founded in October 1994 with the goal of creating a world-wide office products
supplier, primarily to corporate, commercial and industrial customers.
Concurrent with the closing of its initial public offering (the "IPO") in
February 1995, the Company acquired four companies for a combination of its
common stock and cash which are referred to herein as the "Combined Companies"
and acquired two companies in business combinations accounted for under the
purchase method. The six companies are referred to as the "Founding Companies."
Simultaneously with the closing of the IPO, U.S. Office Products acquired by
merger each of the Combined Companies (the "Mergers"). The accompanying
consolidated financial statements and related notes to consolidated financial
statements are representative of what the financial position, results of
operations and cash flows would have been if U.S. Office Products and the
Combined Companies had been combined on May 1, 1993. The assets and liabilities
of the Combined Companies are reflected at their historical amounts. Capital
stock of the Combined Companies is included in additional paid-in capital. The
Combined Companies previously reported on fiscal years ending other than April
30. Commencing on May 1, 1994, the fiscal year-ends were changed to April 30
which resulted in an adjustment to retained earnings during fiscal 1994 of $273
which resulted from revenues of $8,983 and expenses of $8,710.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of U.S. Office Products,
the Combined Companies 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
DEFINITION OF FISCAL YEAR
As used in these consolidated financial statements and related notes to
consolidated financial statements, "fiscal 1994," "fiscal 1995" and "fiscal
1996" refer to the Company's fiscal years ended April 30, 1994, 1995 and 1996,
respectively.
F-23
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers temporary cash investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company invests a portion of its cash in highly
rated corporate commercial paper with original maturities of 30 days or less and
in overnight investments collateralized by U.S. government securities.
Receivables arising from sales to customers are not collateralized and, as a
result, management continually monitors the financial condition of its customers
to reduce the risk of loss.
INVENTORIES
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out (FIFO) basis and consist primarily of product held for
sale.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Additions and improvements are
capitalized. Maintenance and repairs are expensed as incurred. Depreciation of
property and equipment is calculated using the straight-line method over the
estimated useful lives of the respective assets. The estimated useful lives
range from 25 to 40 years for buildings and its components and 5 to 15 years for
furniture, fixtures and equipment. Property and equipment leased under capital
leases are being amortized over the lesser of their useful lives or their lease
terms.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill, which represents the excess
of cost over the fair value of assets acquired in business combinations
accounted for under the purchase method. Goodwill is amortized on a straight
line basis over an estimated useful life of 40 years. Management periodically
evaluates the recoverability of goodwill, which would be adjusted for a
permanent decline in value, if any, by comparing anticipated undiscounted future
cash flows from operations to net book value.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign subsidiaries are translated using the
year-end exchange rate, and statement of income accounts are translated using
the average exchange rate for the year. Translation adjustments are recorded as
a separate component of stockholders' equity.
F-24
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS
The Company's majority owned foreign subsidiary has entered into forward
foreign currency exchange contracts (the "Exchange Contracts") with
counterparties to hedge the exposure to foreign currency fluctuations to the
extent permissible by hedge accounting requirements. At April 30, 1996, the
Exchange Contracts, in the notional amount of $4,616, hedge approximately $5,292
of foreign currency denominated assets. Discounts or premiums on the Exchange
Contracts are amortized over the life of the contracts.
The Company's majority owned foreign subsidiary has also entered into
interest rate swap agreements (the "Swap Agreements") with counterparties to
convert the interest rates associated with certain outstanding debt from
variable rates to fixed rates. The notional amount of the Swap Agreements was
$43,000 at April 30, 1996. The market risks associated with these Swap
Agreements result from short-term fluctuations in interest rates. The credit
risks related to non-performance of the Swap Agreements by the counterparties
are not deemed to be significant; however, non-performance would result in the
Company terminating the Swap Agreements and recognizing a gain or loss,
depending on the fair market value of the Swap Agreements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 107,
"Disclosure About Fair Value of Financial Instruments," the Company has
estimated the fair value of its financial instruments using the following
methods and assumptions:
- The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value;
- The fair value of the 5 1/2% Convertible Subordinated Notes due 2001 is
based on quoted market prices;
- The carrying amounts of the Company's debt, other than the 5 1/2%
Convertible Subordinated Notes due 2001, approximates fair value,
estimated by discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". One Combined Company and certain Pooled Companies
were organized as subchapter S corporations prior to being acquired by the
Company and, as a result, the federal tax on their income was the responsibility
of their individual stockholders. The asset and liability approach used in SFAS
109 requires the recognition of deferred tax assets and liabilities for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
TAXES ON UNDISTRIBUTED EARNINGS
No provision is made for U.S. income taxes on earnings of foreign subsidiary
companies which the Company controls but does not include in the consolidated
federal income tax return since it is management's practice and intent to
permanently reinvest the earnings.
F-25
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenue is recognized upon the delivery of office products to customers. The
Company also leases equipment to customers under both short-term and long-term
lease agreements. Revenue related to the short-term leases is recognized on a
monthly basis over the life of the lease. Certain long-term leases qualify as
sales-type leases and accordingly the present value of the future lease payments
are recognized as income upon delivery of the equipment to the customer.
COST OF REVENUES
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to cost of revenues. Delivery and occupancy costs
are included as an increase to cost of revenues.
NONRECURRING ACQUISITION COSTS
Nonrecurring acquisition costs represent acquisition costs incurred by the
Company in business combinations accounted for under the pooling-of-interests
method. These costs include legal and accounting fees, investment banking fees,
recognition of transaction related obligations and various other acquisition
related costs.
DISCONTINUATION OF PRINTING DIVISION AT SUBSIDIARY
During fiscal 1996, the Company discontinued the printing division at one of
its subsidiaries and incurred a one time charge of $682, which consisted
primarily of the writedown of printing division assets to their estimated market
value.
NET INCOME PER SHARE
Net income per share for fiscal 1996 is calculated by dividing net income by
the weighted average number of common shares outstanding during the year
including common stock equivalents, if dilutive.
Net income per share for fiscal 1995 and fiscal 1994 has not been presented
as it is not considered meaningful due to the Mergers and the IPO in conjunction
with the formation of the Company during fiscal 1995.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
"Accounting for Stock Based Compensation." SFAS 123 establishes a fair value
based method of accounting for employee stock based compensation plans and
encourages companies to adopt that method. However, it also allows companies to
continue to apply the intrinsic value based method currently prescribed under
APB Opinion No. 25, provided certain pro forma disclosures are made. SFAS 123 is
not required to be adopted by the Company until fiscal 1997. The Company
currently intends to continue to apply the accounting method prescribed by APB
Opinion 25 and, accordingly, the adoption of SFAS 123 will not have a material
impact on the Company's operating results. In March, 1995, the Financial
Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain identifiable intangibles
to be held
F-26
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. SFAS 121 is not required to be adopted by the Company until fiscal
1997. The Company does not anticipate that SFAS 121 will have a material effect
on the Company's operating results.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial condition of the Company as of October 26, 1996 and the results
of operations and of cash flows for the six months ended October 31, 1995 and
October 26, 1996, as presented in the accompanying unaudited consolidated
financial statements.
NOTE 3--BUSINESS COMBINATIONS
POOLING-OF-INTERESTS METHOD
In fiscal 1996, the Company issued 8,440,852 shares of common stock to
acquire 14 companies in acquisitions accounted for under the
pooling-of-interests method. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. Certain of the Pooled Companies previously reported on fiscal
years ending other than April 30. The results of these Pooled Companies were
previously reported on June 30, September 30 and December 31 year-ends.
The accounts of these Pooled Companies for the years ended December 31, 1993
and 1994, for the years ended June 30, 1994 and 1995 and for the years ended
September 30, 1994 and 1995 have been combined with the accounts of U.S. Office
Products for the years ended April 30, 1994 and 1995, respectively. Commencing
on May 1, 1995, the year-ends of these companies were changed to April 30,
resulting in an increase to retained earnings of $2,235 during fiscal 1995.
Subsequent to April 30, 1996, the Company issued 8,525,976 shares of common
stock to acquire 21 companies in acquisitions accounted for under the
pooling-of-interests method. The Company's consolidated financial statements
give retroactive effect to the acquisitions of the Pooled Companies for all
periods presented. Certain of the Pooled Companies previously reported on fiscal
years ending other than April 30. The results of these Pooled Companies were
previously reported on January 31, March 31, May 31, June 30, August 31 and
December 31 year-ends.
The accounts of these Pooled Companies for the years ended December 31, 1994
and 1995, for the years ended January 31, 1995 and 1996, for the year ended
March 31, 1995 and 1996, for the years ended May 31, 1995 and 1996, for the
years ended June 30, 1995 and 1996, and the years ended August 31, 1995 and 1996
have been combined with the accounts of U.S. Office Products for the years ended
April 30, 1995 and 1996, respectively. Commencing on May 1, 1996, the year-ends
of these Companies were changed to April 30, resulting in a reduction to
retained earnings of $4,410 during fiscal 1996 and an increase of $183 for the
six months ended October 26, 1996.
F-27
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
Following is a summary of the results related to the adjustments to retained
earnings for these Pooled Companies:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR FOR THE SIX MONTHS
ENDED APRIL 30, ENDED
-------------------- OCTOBER 26,
1995 1996 1996
--------- --------- ------------------
<S> <C> <C> <C>
(UNAUDITED)
Revenues................................................................ $ 55,126 $ 84,626 $ (4,740)
Costs and expenses...................................................... 52,891 89,036 (4,923)
--------- --------- -------
Net income (loss)................................................... $ 2,235 $ (4,410) $ 183
--------- --------- -------
--------- --------- -------
</TABLE>
The separate results of operations of U.S. Office Products Company and the
Pooled Companies for periods prior to the mergers are presented below:
<TABLE>
<CAPTION>
U.S. OFFICE POOLED
FOR THE YEAR ENDED APRIL 30, PRODUCTS COMPANIES COMBINED
----------- ----------- ---------
<S> <C> <C> <C>
1996
Revenue................................................... $ 488,670 $ 661,021 $1,149,691
Net income................................................ $ 7,828 $ 13,528 $ 21,356
1995
Revenue................................................... $ 120,479 $ 603,315 $ 723,794
Net income................................................ $ 1,514 $ 17,335 $ 18,849
1994
Revenue................................................... $ 76,541 $ 456,477 $ 533,018
Net income................................................ $ 1,114 $ 9,133 $ 10,247
FOR THE SIX MONTHS ENDED OCTOBER 26, 1996 (UNAUDITED):
Revenue................................................... $ 858,093 $ 138,321 $ 996,414
Net income................................................ $ 15,500 $ 7,168 $ 22,668
FOR THE SIX MONTHS ENDED OCTOBER 31, 1995 (UNAUDITED):
Revenue................................................... $ 146,491 $ 339,055 $ 485,546
Net income................................................ $ 3,734 $ 4,481 $ 8,215
</TABLE>
PURCHASE METHOD
In fiscal 1996, the Company made 27 acquisitions accounted for under the
purchase method for an aggregate purchase price of $156,727 consisting of
$95,574 of cash, $786 of notes payable and 3,885,349 shares of common stock with
a market value of $60,367. The total assets related to these 27 acquisitions
were $342,322, including goodwill of $118,422. The results of these acquisitions
have been included in the Company's results from their respective dates of
acquisition.
In fiscal 1995, in addition to the Mergers, the Company made six
acquisitions accounted for under the purchase method for an aggregate purchase
price of $29,849, consisting of $18,099 of cash, $3,000 of notes payable and
875,000 shares of common stock with a market value of $8,750. The total assets
related to
F-28
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 3--BUSINESS COMBINATIONS (CONTINUED)
these six acquisitions were $72,192, including goodwill of $21,079. The results
of these acquisitions have been included in the Company's results from their
respective dates of acquisition.
The following presents the unaudited pro forma results of operations of the
Company for the fiscal years ended April 30, 1995 and 1996 as if the purchase
acquisitions described above had been consummated as of the beginning of fiscal
1995. The results presented below include certain pro forma adjustments to
reflect the amortization of intangible assets, adjustments in executive
compensation and the inclusion of a federal income tax provision:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
--------------------------
<S> <C> <C>
1995 1996
------------ ------------
Revenues.......................................................... $ 1,224,371 $ 1,457,645
Net income........................................................ 19,531 24,407
Net income per share.............................................. 0.49 0.63
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1995 or the
results which may occur in the future.
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
----------------------
<S> <C> <C>
1995 1996
---------- ----------
Land.................................................................. $ 2,515 $ 4,339
Buildings............................................................. 13,809 25,617
Furniture and fixtures................................................ 19,720 39,612
Warehouse equipment................................................... 22,986 31,462
Equipment under capital leases........................................ 4,175 7,264
Leasehold improvements................................................ 7,238 7,978
---------- ----------
70,443 116,272
Less: Accumulated depreciation........................................ (34,705) (41,261)
---------- ----------
Net property and equipment............................................ $ 35,738 $ 75,011
---------- ----------
---------- ----------
</TABLE>
Depreciation expense for the fiscal years ended April 30, 1994, 1995 and
1996 was $5,987, $7,763 and $9,876, respectively.
F-29
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 5--INTANGIBLE ASSETS
Intangible assets and accumulated amortization consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------- OCTOBER 26,
1995 1996 1996
--------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
Goodwill................................................. $ 22,634 $ 141,382 $ 544,486
Other.................................................... 8,309 8,184 7,677
--------- ---------- ------------
30,943 149,566 552,163
Less: Accumulated amortization........................... (4,832) (7,326) (10,741)
--------- ---------- ------------
$ 26,111 $ 142,240 $ 541,422
--------- ---------- ------------
--------- ---------- ------------
</TABLE>
Other intangible assets consist primarily of non-compete arrangements which
are amortized over the term of the agreements. Amortization expense for the
fiscal years ended April 30, 1994, 1995 and 1996 was $1,523, $1,520 and $3,496,
respectively.
NOTE 6--LEASE RECEIVABLES
Lease receivables represent the present value of future lease payments
related to equipment sold to customers as sales type leases. The future minimum
lease payments to be received are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 34,146
1998.............................................................. 29,885
1999.............................................................. 17,181
2000.............................................................. 5,800
2001 and thereafter............................................... 1,647
---------
Total lease receivable............................................ 88,659
Less: Amounts representing interest............................... (16,846)
---------
Present value of net lease receivable............................. $ 71,813
---------
---------
</TABLE>
F-30
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7--CREDIT FACILITIES
SHORT-TERM DEBT
Short-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
<S> <C> <C>
1995 1996
--------- ----------
Bank lines of credit, secured by accounts receivable and
inventory,interest rates ranging from prime to prime plus 2.25% (9.0%
to 10.0% at April 30, 1996).......................................... $ 43,666 $ 14,428
Annual renewal loans provided by banks and other financial institutions
of foreign subsidiary secured by lease receivables of foreign
subsidiary. Interest rates ranging from 7.8% to 10.2% at April 30,
1996................................................................. 80,949
Bank lines of credit of foreign subsidiary operations secured by assets
of those operations. Interest rates ranging from 9.2% to 9.8% at
April 30, 1996....................................................... 12,731
Other.................................................................. 1,813 2,249
Current maturities of long-term debt................................... 7,241 10,131
--------- ----------
Total short-term debt.............................................. $ 52,720 $ 120,488
--------- ----------
--------- ----------
</TABLE>
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
<S> <C> <C>
1995 1996
--------- ----------
Notes payable, secured by certain assets of the Company, interest rates
ranging from 8.0% to 10.0%, maturities from October 1996 through
2003................................................................. $ 13,378 $ 2,768
Convertible Subordinated Notes due 2001, interest at 5 1/2%,
convertible into shares of common stock at any time prior to maturity
at a conversion price of $28.50 per share, subject to adjustment in
certain events....................................................... 143,750
Debt facility payable over five years secured by lease receivables of
the Company's foreign subsidiaries. Interest rates ranging from 11.0%
to 12.0% at April 30, 1996........................................... 8,943
Other.................................................................. 22,421 31,134
Capital lease obligations.............................................. 1,381 5,129
--------- ----------
37,180 191,724
Less: Current maturities of long-term debt............................. (7,241) (10,131)
--------- ----------
Total long-term debt............................................... $ 29,939 $ 181,593
--------- ----------
--------- ----------
</TABLE>
F-31
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 7--CREDIT FACILITIES (CONTINUED)
The 5 1/2% Convertible Subordinated Notes due 2001 (the "Notes") are
redeemable, in whole or in part, at the Company's option at specified redemption
prices on or after February 3, 1998, but may not be redeemed prior to February
2, 1999 unless the closing price of the common stock is at least 150% of the
conversion price for a period of time prior to the notice of redemption. Costs
incurred in connection with the issuance of the Notes are included in other
assets and are being amortized over the five year period of maturity. The fair
value of the Notes at April 30, 1996, based upon quoted market prices, totaled
$211,313.
MATURITIES OF LONG-TERM DEBT
Maturities on long-term debt, including capital lease obligations, are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $ 10,131
1998.............................................................. 13,881
1999.............................................................. 12,661
2000.............................................................. 1,786
2001.............................................................. 144,504
Thereafter........................................................ 8,761
---------
$ 191,724
---------
---------
</TABLE>
NOTE 8--INCOME TAXES
U.S. Office Products will file a consolidated federal income tax return for
periods subsequent to the Mergers described in Note 3. Each of the Combined
Companies and Pooled Companies will file "short-period" federal tax returns
through the dates of the Mergers and business combinations.
The provision for income taxes consists of:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED APRIL 30,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
Income taxes currently payable:
Federal........................................................ $ 1,805 $ 1,722 $ 5,679
State.......................................................... 307 529 359
Foreign taxes currently payable.................................. 809 836
--------- --------- ---------
2,112 3,060 6,874
--------- --------- ---------
Deferred income tax expense (benefit)............................ (165) (51) (264)
--------- --------- ---------
Total provision for income taxes............................. $ 1,947 $ 3,009 $ 6,610
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-32
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--INCOME TAXES (CONTINUED)
Deferred taxes are comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
<S> <C> <C>
1995 1996
--------- ---------
Current deferred tax assets:
Inventory.............................................................. $ 178 $ 291
Allowance for doubtful accounts........................................ 95 826
Accrued liabilities.................................................... 445 4
--------- ---------
Total current deferred tax assets.................................... 718 1,121
--------- ---------
Long-term deferred tax liabilities:
Property and equipment................................................. (1,028) (2,701)
Internal Revenue Service tax assessment................................ (3,383) (3,383)
Other.................................................................. 54 (972)
--------- ---------
Total long-term deferred tax liabilities............................. (4,357) (7,056)
--------- ---------
Net deferred tax asset (liability)................................... $ (3,639) $ (5,935)
--------- ---------
--------- ---------
</TABLE>
The Internal Revenue Service ("IRS") tax assessment relates to the deferral
of a gain on the sale of land and building by a subsidiary of the Company. The
IRS has determined that a portion of the gain recorded by the subsidiary does
not qualify for deferral and has required that the Company pay additional taxes.
The subsidiary has recorded a deferred tax liability as a result of the
assessment and the related interest. The Company has filed an appeal with the
IRS relating to the above assessment; however, the IRS has not yet responded to
the appeal.
The Company's effective income tax rate varied from the U.S. federal
statutory tax rate as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED APRIL
30,
-------------------------------
<S> <C> <C> <C>
1994 1995 1996
--------- --------- ---------
U.S. federal statutory rate........................................... 34.0% 34.0% 35.0%
State income taxes, net of federal income tax benefit................. 4.0 4.1 5.4
Subchapter S corporation income not subject to corporate level
taxation............................................................ (25.0) (26.9) (24.0)
Foreign earnings not subject to U.S. taxes............................ (.6)
Minority interest in foreign taxes.................................... 2.5
Nondeductible goodwill................................................ 1.4 2.6
Other................................................................. 3.0 1.2 2.7
--------- --------- ---------
Effective tax rate.................................................... 16.0% 13.8% 23.6%
--------- --------- ---------
--------- --------- ---------
</TABLE>
One Combined Company and certain Pooled Companies were organized as
subchapter S corporations prior to the closing of their acquisitions by the
Company and, as a result, the federal tax on their income was the responsibility
of their individual stockholders. Accordingly, the Combined Company and the
specific Pooled Companies provided no federal income tax expense prior to these
acquisitions by the Company.
F-33
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 8--INCOME TAXES (CONTINUED)
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the Combined Company and the specific Pooled
Companies had been subject to federal income taxes for the entire periods
presented.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR SIX MONTHS ENDED
ENDED APRIL 30, ------------------------
------------------------------- OCTOBER 31, OCTOBER 26,
1994 1995 1996 1995 1996
--------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net income per consolidated statement of income........ $ 10,247 $ 18,849 $ 21,356 $ 8,215 $ 22,668
Pro forma income tax provision adjustment.............. 2,784 5,452 6,613 3,448 2,417
--------- --------- --------- ----------- -----------
Pro forma net income................................... $ 7,463 $ 13,397 $ 14,743 $ 4,767 $ 20,251
--------- --------- --------- ----------- -----------
--------- --------- --------- ----------- -----------
</TABLE>
NOTE 9--LEASE COMMITMENTS
The Company leases various types of retail, warehouse and office space and
equipment, furniture and fixtures under noncancellable lease agreements which
expire at various dates. Future minimum lease payments under noncancellable
capital and operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1997.................................................................... $ 1,922 $ 14,102
1998.................................................................... 1,390 11,410
1999.................................................................... 743 10,179
2000.................................................................... 446 9,248
2001.................................................................... 320 7,920
Thereafter.............................................................. 2,541 27,438
--------- -----------
Total minimum lease payments............................................ 7,362 $ 80,297
-----------
-----------
Less: Amounts representing interest..................................... (2,233)
---------
Present value of net minimum lease payments............................. $ 5,129
---------
---------
</TABLE>
Rent expense for all operating leases for the fiscal years ended April 30,
1994, 1995 and 1996 was $10,409, $11,731 and $17,379, respectively.
NOTE 10--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of this litigation
will have a material adverse effect on the financial position or results of
operations or cash flows of the Company.
F-34
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 10--COMMITMENTS AND CONTINGENCIES (CONTINUED)
POSTEMPLOYMENT BENEFITS
The Company has entered into employment agreements with several employees
that would result in payments to these employees upon change of control or
certain other events. No amounts have been accrued at April 30, 1995 or 1996
related to these agreements.
NOTE 11--EMPLOYEE BENEFIT PLANS
Certain subsidiaries of the Company have qualified defined contribution
benefit plans, which allow for voluntary pre-tax contributions by the employees.
The subsidiaries pay all general and administrative expenses of the plans and in
some cases make matching contributions on behalf of the employees. For the
fiscal years ended April 30, 1994, 1995 and 1996, the subsidiaries incurred
expenses totaling $220, $451 and $683, respectively, related to these plans.
One Combined Company entered into agreements with three officers which
provided for future compensation to those officers subsequent to termination of
employment with the Combined Company for a period of five years. The future
compensation would not be received, however, in the event that an officer
received payment under that Company's Restricted Stock Purchase Plan (the
"Purchase Plan") in excess of the purchase price of the stock paid by the
officer. No compensation expense was recorded with respect to the agreement
related to two of the officers, as it was probable that they would receive
payment under the Restricted Stock Purchase Plan. Future compensation expense of
approximately $1,030 was being recognized as expense for the third officer over
the estimated term of the officer's service to the Company of approximately
eleven years. The compensation expense equaled $95 in fiscal 1994 and $71 in
fiscal year 1995. The agreements were terminated upon closing of the Merger.
The Purchase Plan was considered to be compensatory, for the benefit of
certain officers. Two of these officers each purchased 1,000 shares of stock for
$1 under the Purchase Plan. The stock was restricted and could only be purchased
by the Combined Company at specified prices that varied upon the occurrence of
certain events. As a result, the Combined Company's future compensation expense
of $1,398, under this Purchase Plan, was being recognized as expense over the
expected periods of the officers' future service to the Combined Company of 20
and 28 years. Compensation expense of approximately $60 and $45 was recognized
in fiscal 1994 and fiscal 1995, respectively. The Plan was terminated upon
closing of the Merger.
NOTE 12--STOCKHOLDERS' EQUITY
LONG-TERM COMPENSATION PLAN
In October 1994, the Board of Directors and the Company's stockholders
approved the Company's 1994 Long-Term Compensation Plan (the "Plan"). The
purpose of the Plan is to provide directors, officers, key employees and
consultants with additional incentives by increasing their ownership interests
in the Company. The maximum number of options to purchase Common Stock granted
in any calendar or fiscal year under the Plan is equal to the greater of 855,000
shares or 15% of the aggregate number of shares of the Common Stock outstanding
at the time an award is granted, less, in each case, the number of shares
subject to previously outstanding awards under the Plan.
F-35
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 12--STOCKHOLDERS' EQUITY (CONTINUED)
Under the provisions of the Plan, non-qualified stock options and other
stock awards are granted at prices not less than fair market value at the date
of grant. A summary of option transactions follows:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER RANGE PER EXPIRATION
OF SHARES SHARE DATE
---------- --------------- -----------
<S> <C> <C> <C>
Outstanding at April 30, 1994......................................... -- -- --
Granted............................................................. 629,500 $8.00-$10.00 2004
Canceled............................................................ (7,000) $10.00 2004
---------- --------------- -----------
Outstanding at April 30, 1995......................................... 622,500 $8.00-$10.00 2004
Granted............................................................. 2,764,591 $11.31-$31.75 2004-2006
Exercised........................................................... (63,350) $8.00-$10.00 2004
Canceled............................................................ (16,200) $10.00-$17.13 2004-2005
---------- --------------- -----------
Outstanding at April 30, 1996......................................... 3,307,541 $8.00-$31.75 2004-2006
---------- --------------- -----------
---------- --------------- -----------
Exercisable at April 30, 1996......................................... 132,867 $8.00-$10.00 2004
---------- --------------- -----------
---------- --------------- -----------
</TABLE>
Non-qualified options are generally exercisable beginning one year from the
date of grant in cumulative yearly amounts of 25% of the shares under option and
generally expire ten years from the date of grant.
Subsequent to year-end, the Company granted options to purchase 1,132,050
shares of common stock at exercise prices ranging from $36.00 to $44.875 per
share.
COMMON STOCK
In November 1994, the Board of Directors of the Company approved a one
thousand-for-one split of the Company's common stock and changed the par value
of common stock from $1 per share to $.001 per share. The consolidated financial
statements have been adjusted to reflect the stock split. In February 1996, the
stockholders approved the amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 25,000,000 to 100,000,000 shares.
F-36
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 13--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1996 QUARTERS
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ------------
Revenues........................................... $ 214,481 $ 271,065 $ 316,621 $ 347,524 $ 1,149,691
Gross profit....................................... 54,980 69,032 81,848 95,828 301,688
Operating income................................... 2,078 9,890 15,887 8,413 36,268
Net income......................................... 1,637 6,578 9,224 3,917 21,356
Pro forma net income (loss) (see Note 8)........... (1,734) 4,446 8,306 3,725 14,743
Net income per share............................... .07 .21 .29 .10 .67
Pro forma net income (loss) per share.............. (.07) .14 .26 .10 .46
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995 QUARTERS
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ----------
Revenues............................................. $ 137,546 $ 161,044 $ 216,548 $ 208,656 $ 723,794
Gross profit......................................... 37,174 43,094 58,637 50,326 189,232
Operating income..................................... 3,472 6,074 14,584 2,678 26,809
Net income........................................... 2,113 4,218 11,794 724 18,849
Pro forma net income (loss) (see Note 8)............. 1,194 3,239 9,153 (189) 13,397
</TABLE>
NOTE 14--SUBSEQUENT EVENTS
BUSINESS COMBINATIONS SUBSEQUENT TO YEAR-END
Between April 30, 1996 and July 10, 1996, the Company acquired 14 companies
and the remaining 49% of Blue Star in business combinations accounted for under
the purchase method for $65,333, consisting of 1,663,692 shares of common stock
with a market value of $44,149 and cash of $21,184. In addition, the Company
considers the consummation to be probable of a total of 46 additional businesses
(the "Pending Acquisitions"). The Pending Acquisitions provide for consideration
of $286,740, consisting of 7,206,323 shares of common stock with a market value
of $254,659 and cash of $32,081.
The following presents the unaudited pro forma results of operations of the
Company for fiscal 1996 as if the acquisitions described above had been
consummated as of the beginning of fiscal 1996. The results presented below
include certain pro forma adjustments to reflect the amortization of intangible
assets, reductions in executive compensation, the inclusion of a federal income
tax provision and the removal of certain restructuring costs:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
APRIL 30, 1996
----------------
<S> <C>
Revenues.................................................................... $ 1,869,254
Net income.................................................................. 34,112
Net income per share........................................................ .80
</TABLE>
The unaudited pro forma results of operations are prepared for comparative
purposes only and do not necessarily reflect the results that would have
occurred had the acquisitions occurred at the beginning of fiscal 1996, or the
results which may occur in the future.
F-37
<PAGE>
U.S. OFFICE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 14--SUBSEQUENT EVENTS (CONTINUED)
ISSUANCE OF CONVERTIBLE SUBORDINATED NOTES
In May 1996, the Company completed an offshore offering and a concurrent
private placement of $230,000, principal amount of 5 1/2% Convertible
Subordinated Notes due 2003, including the underwriters' over-allotment option
of $30,000. The underwriters exercised their over-allotment option in June 1996.
The net proceeds to the Company, after deducting underwriting discounts and
commissions and offering expenses, were approximately $223,000.
NOTE 15--SUBSEQUENT EVENTS (UNAUDITED)
During the first six months of fiscal 1997, the Company completed a total of
66 business combinations, 21 accounted for under the pooling-of-interests method
and 45 accounted for under the purchase method. In the second quarter of fiscal
1997, the Company completed a total of 38 business combinations, 11 accounted
for under the pooling-of-interests method and 27 accounted for under the
purchase method.
In August 1996, the Company entered into an agreement with Bankers Trust
Company (the "Bank"), whereby the Bank, or a syndicate of financial institutions
including the Bank, will provide a $500,000 revolving credit facility (the
"Credit Facility") bearing interest, at the Company's option, at the Bank's base
rate plus an applicable margin of up to 1.25%, or a eurodollar rate plus an
applicable margin of up to 2.5%. The availability under the Credit Facility is
subject to certain sublimits including $100,000 for working capital loans and
$400,000 for acquisition loans, with $180,000 of the acquisition loan submit
available and expected to be used to refinance certain outstanding indebtedness
of the Company in Australia and New Zealand. The Credit Facility is secured by a
majority of the assets of the Company and contains customary covenants,
including financial covenants with respect to the Company's leverage and
interest coverage ratios, capital expenditures, payment of dividends and
purchases and sales of assets, and customary default provisions, including
provisions related to non-payment of principal and interest, default under other
debt agreements and bankruptcy.
In August 1996, at the Company's Annual Meeting of Stockholders, the
stockholders approved, among other things, a proposal by the Board of Directors
of the Company to adopt an amendment to Article Four of the Company's Restated
Certificate of Incorporation to increase the number of shares of the Company's
Common Stock, par value $.001 per share, authorized for issuance from
100,000,000 shares to 500,000,000 shares.
On August 20, 1996, the Company's Board of Directors approved a change in
the Company's fiscal year-end, effective for the 1997 fiscal year, from April 30
to the last Saturday of April.
Subsequent to October 26, 1996, the Company has completed 17 business
combinations for an aggregate purchase price of $97,100, consisting of
approximately $62,200 of cash and 1,090,861 shares of the Company's common stock
with an aggregate market value on the dates of acquisition of approximately
$34,900. This includes the acquisition of a 49% equity interest in Dudley
Stationery Limited ("Dudley"), an independent office products dealer in the
United Kingdom. Under the terms of the agreement, the Company agreed to invest
approximately $80,000 of working capital into Dudley over a two-year period. In
addition, Dudley plans to raise approximately an additional $80,000 in debt
financing. The Company has currently invested approximately $41,300 of the total
$80,000 in Dudley.
F-38
<PAGE>
Artwork--inside back cover
[A globe of the world showing the western hemisphere
with the names of the 131 companies acquired by the
Company since its inception superimposed thereon.
The Company's logo appears on the base of the globe.]
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses (other than underwriting
compensation expected to be incurred) in connection with the offering described
in this Registration Statement. All of such amounts (except the SEC Registration
Fee, the National Association of Securities Dealers, Inc. ("NASD") Filing Fee
and the Nasdaq National Market Listing Fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 118,376
NASD Filing Fee................................................. 30,500
Blue Sky Fees and Expenses*..................................... 15,000
Nasdaq National Market Listing Fee.............................. 17,500
Printing and Engraving Costs*................................... 100,000
Legal, Accounting and Other Professional Services............... $ 600,000
Transfer Agent and Registrar Fees and Expenses.................. 5,000
Miscellaneous*.................................................. 113,624
---------
Total*...................................................... $1,000,000
---------
---------
</TABLE>
- ------------------------
* estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Amended and Restated By-laws provide that the Company shall,
to the fullest extent permitted by Section 145 of the General Corporation Law of
the State of Delaware, as amended from time to time, indemnify all persons whom
it may indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability. The General Corporation Law of the State of Delaware
permits the purchase of insurance on behalf of directors and officers against
any liability asserted against directors and officers incurred by such persons
in such capacity, whether or not the corporation would have the power to
indemnify officers and directors against such liability. The Company has
obtained liability insurance coverge, which includes coverage to reimburse the
Company for amounts required or permitted by law to be paid to indemnify
executive officers and directors.
Article Eight of the Company's Amended and Restated Certificate of
Incorporation provides that the Company's directors will not be personally
liable to the Company or its stockholders for monetary damages
II-1
<PAGE>
resulting from breaches of their fiduciary duty as directors except (a) for any
breach of the duty of loyalty to the Company or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the General Corporation Law
of the State of Delaware, which makes directors liable for unlawful dividends or
unlawful stock repurchases or redemptions or (d) for transactions from which
directors derive improper personal benefit.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement among the Company, certain stockholders of the Company and Robertson
Stephens & Company LLC, Morgan Stanley & Co. Incorporated, Smith Barney Inc., Lazard Freres & Co. Inc,
and Lehman Brothers Inc. as representatives of the several Underwriters
5.1 Opinion of Morgan, Lewis & Bockius LLP as to the legality of the securities being registered
23.1(a )* Consent of Price Waterhouse LLP
23.1(b )* Consent of Price Waterhouse
23.2* Consent of Ernst & Young LLP
23.3(a )* Consent of KPMG Peat Marwick LLP
23.3(b )* Consent of KPMG
23.4* Consent of Swink, Fiehler & Hoffman, P.C.
23.5* Consent of Shinners, Hucovski & Company
23.6* Consent of BDO Seidman LLP
23.7* Consent of Thorne Little
23.8* Consent of Ehrhardt Keefe Steiner & Hottman PC
23.9* Consent of Ernst & Young
23.10* Consent of Joel S. Baum P.A.
23.11* Consent of Hamilton & Associates
23.12* Consent of Petheridge, Davis & Company, P.A.
23.13* Consent of Deloitte Touche Tohmatsu
23.14* Consent of Day Neilson
23.15* Consent of Day Neilson
23.16* Consent of Day Neilson
23.17* Consent of Day Neilson
23.18* Consent of Rubin, Koehmstedt & Nadler, PLC
23.19* Consent of KPMG
23.20* Consent of Parent, McLaughlin & Nangle
23.21 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
24.1* Power of Attorney (included on signature page)
27* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
II-2
<PAGE>
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 14, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Washington, District of Columbia, on January 29,
1997.
U.S. OFFICE PRODUCTS COMPANY
By: /s/ JONATHAN J. LEDECKY
-----------------------------------------
Name: Jonathan J. Ledecky
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ JONATHAN J. LEDECKY Chairman of the Board and Chief
------------------------------------------- Executive Officer (Principal January 29, 1997
Jonathan J. Ledecky Executive Officer)
/s/ DONALD H. PLATT Chief Financial Officer (Principal
------------------------------------------- Financial Officer and Principal January 29, 1997
Donald H. Platt* Accounting Officer)
/s/ TIMOTHY J. FLYNN
------------------------------------------- Director January 29, 1997
Timothy J. Flynn*
/s/ JOHN K. BURGESS
------------------------------------------- Director January 29, 1997
John K. Burgess*
/s/ JACK L. BECKER, JR.
------------------------------------------- Director January 29, 1997
Jack L. Becker, Jr.*
/s/ MILTON H. KUYERS
------------------------------------------- Director January 29, 1997
Milton H. Kuyers*
/s/ ALLON H. LEFEVER
------------------------------------------- Director January 29, 1997
Allon H. Lefever*
/s/ EDWARD J. MATHIAS
------------------------------------------- Director January 29, 1997
Edward J. Mathias*
/s/ JOHN A. QUELCH
------------------------------------------- Director January 29, 1997
John A. Quelch*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------------------------------ ------------------------------------ -------------------
<C> <S> <C>
/s/ DAVID C. GEZON
------------------------------------------- Director January 29, 1997
David C. Gezon*
/s/ DAVID C. COPENHAVER
------------------------------------------- Director January 29, 1997
David C. Copenhaver*
/s/ CLIFTON B. PHILLIPS
------------------------------------------- Director January 29, 1997
Clifton B. Phillips*
</TABLE>
* Mark D. Director by signing his name hereto signs this document on behalf of
each of the persons indicated above pursuant to the powers of attorney duly
executed by such persons and set forth on the signature page of the
Registration Statement filed with the Securities and Exchange Commission on
January 9, 1997.
<TABLE>
<S> <C>
/s/ MARK D. DIRECTOR
------------------------------------------
Mark D. Director
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among the Company, certain stockholders of the Company and Robertson
Stephens & Company LLC and Morgan Stanley Incorporated, Lazard Freres & Co. Inc. and Lehman Brothers
Inc. as representatives of the several Underwriters.
5.1 Opinion of Morgan, Lewis & Bockius LLP
23.1(a)* Consent of Price Waterhouse LLP
23.1(b)* Consent of Price Waterhouse
23.2* Consent of Ernst & Young LLP
23.3(a)* Consent of KPMG Peat Marwick LLP
23.3(b)* Consent of KPMG
23.4* Consent of Swink, Fiehler & Hoffman, P.C.
23.5* Consent of Shinners, Hucovski & Company
23.6* Consent of BDO Seidman LLP
23.7* Consent of Thorne Little
23.8* Consent of Ehrhardt Keefe Steiner & Hottman PC
23.9* Consent of Ernst & Young
23.10* Consent of Joel S. Baum P.A.
23.11* Consent of Hamilton & Associates
23.12* Consent of Petheridge, Davis & Company, P.A.
23.13* Consent of Deloitte Touche Tohmatsu
23.14* Consent of Day Neilson
23.15* Consent of Day Neilson
23.16* Consent of Day Neilson
23.17* Consent of Day Neilson
23.18* Consent of Rubin, Koehmstedt & Nadler, PLC
23.19* Consent of KPMG
23.20* Consent of Parent, McLaughlin & Nangle
23.21 Consent of Morgan, Lewis & Bockius LLP (contained in Exhibit 5.1)
24.1* Power of Attorney (included on signature page)
27* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT A
10,000,000 Shares*
U.S. OFFICE PRODUCTS COMPANY
Common Stock
FORM OF UNDERWRITING AGREEMENT
___________, 1997
ROBERTSON, STEPHENS & COMPANY LLC
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.,
as Representatives of the several Underwriters
(the "Representatives")
c/o Robertson, Stephens & Company LLC
555 California Street, Suite 2600
San Francisco, California 94104
Ladies and Gentlemen:
U.S. Office Products Company, a Delaware corporation (the "Company"), and
the Selling Stockholders, as hereinafter defined, address you as the
Representatives of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirm their respective agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
6,000,000 shares of its authorized and unissued Common Stock to the several
Underwriters. Certain of the Selling Stockholders named in Schedule B hereto
(hereinafter called the "Firm Selling Stockholders"), acting severally and
not jointly, propose to sell an aggregate of 4,000,000 shares of authorized
and outstanding Common Stock of the Company to the several Underwriters. The
6,000,000 shares of Common Stock of the Company to be sold by the Company are
hereinafter called the "Company Shares", and the 4,000,000 shares of Common
Stock of the Company to be sold by the Firm Selling Stockholders are
hereinafter called the "Selling Stockholder Firm Shares". The Company Shares
and the Selling Stockholder Firm Shares are hereinafter collectively referred
to as the "Firm Shares". The Company also proposes to grant to the
Underwriters an option to purchase up to 900,000 additional shares of Common
Stock of the Company (the "Company Option Shares"), and
________________________
* Plus an option to purchase up to 900,000 additional Shares from the
Company and 600,000 additional Shares from the Option Selling Stockholders to
cover over-allotments, if any.
<PAGE>
certain of the Selling Stockholders named in Schedule B hereto (hereinafter
called the "Option Selling Stockholders", and together with the Firm Selling
Stockholders, the "Selling Stockholders") propose to grant to the
Underwriters an option to purchase up to 600,000 additional shares of Common
Stock of the Company (hereinafter called the "Selling Stockholder Option
Shares"), as provided in Section 7 hereof. The Company Option Shares and the
Selling Stockholder Option Shares are collectively referred to herein as the
"Option Shares". As used in this Agreement, the term "Shares" shall include
the Firm Shares and the Option Shares. All shares of Common Stock of the
Company, including the Shares, are hereinafter referred to as "Common Stock".
2. Representations, Warranties and Agreements of the Company and the
Selling Stockholders.
I. The Company represents and warrants to and agrees with each
Underwriter that:
(a) A registration statement on Form S-3 (File No.
333-___________) with respect to the Shares, including a prospectus subject
to completion, has been prepared by the Company in conformity in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the applicable rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "Commission")
under the Act and has been filed with the Commission; such amendments to such
registration statement and such amended prospectuses subject to completion,
as may have been required prior to the date hereof, have been similarly
prepared and filed with the Commission; and the Company will file such
additional amendments to such registration statement and such amended
prospectuses subject to completion, as may hereafter be required. The
Company has complied with the conditions for the use of a registration
statement on Form S-3 set forth in the general instructions thereto. Copies
of such registration statement and amendments and of each related prospectus
subject to completion (individually, a "Preliminary Prospectus", and,
collectively, the "Preliminary Prospectuses") have been delivered to you.
If the registration statement has been declared effective under
the Act by the Commission, the Company will prepare and promptly file with
the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) of the Rules and Regulations pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as
part of a post-effective amendment to the registration statement (including a
final form of prospectus). If the registration statement has not been
declared effective under the Act by the Commission, the Company will prepare
and promptly file a further amendment to the registration statement,
including a final form of prospectus. The term "Registration Statement" as
used in this Agreement shall mean such
-2-
<PAGE>
registration statement, including consolidated financial statements,
schedules and exhibits, in the form in which it became or becomes, as the
case may be, effective (including, if the Company omitted information from
the registration statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the registration
statement at the time it became effective pursuant to Rule 430A(b) of the
Rules and Regulations), any registration statement filed pursuant to Rule
462(b) of the Rules and Regulations (a "Rule 462(b) Registration Statement")
and, in the event of any amendment thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment) such registration statement as so amended (including any Rule
462(b) Registration Statement). The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares as included in
such Registration Statement at the time it became or becomes, as the case may
be, effective (including, if the Company omitted information from the
Registration Statement pursuant to Rule 430A(a) of the Rules and Regulations,
the information deemed to be a part of the Registration Statement at the time
it became effective pursuant to Rule 430A(b) of the Rules and Regulations),
except that if any revised prospectus shall be provided to the Underwriters
by the Company for use in connection with the offering of the Shares that
differs from the Prospectus on file with the Commission at the time the
registration statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use.
Any reference herein to the Registration Statement, any
Preliminary Prospectus or to the Prospectus shall be deemed to refer to and
include any documents incorporated by reference therein.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings
for that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; at the time the Registration Statement became or
becomes, as the case may be, effective, on the Closing Date (as hereinafter
defined) and on any later date on which Option Shares are to be purchased,
(i) the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained or will contain all material information
required to be included therein by the Act and the Rules and Regulations and
conformed or will conform in all material respects
-3-
<PAGE>
to the requirements of the Act and the Rules and Regulations, and (ii)
neither the Registration Statement nor the Prospectus, nor any amendments or
supplements thereto, included or will include any untrue statement of a
material fact or omitted or will omit to state any material fact required to
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; the
documents incorporated by reference in the Prospectus, at the time filed with
the Commission, conformed in all aspects to the requirements of the
Securities Exchange of 1934, as amended (the "Exchange Act"), or the Act, as
applicable, and the rules and regulations of the Commission thereunder;
provided, however, that none of the representations and warranties contained
in this subparagraph shall apply to information contained in or omitted from
the Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon, and in conformity with, information furnished to
the Company by any Underwriter through you specifically for inclusion therein.
(c) Each of the Company and its Subsidiaries (as defined
below) has been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its incorporation with
full power and authority (corporate and other) to own, lease and operate its
properties and conduct its business as described in the Registration
Statement; the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, except for the capital stock of
certain of its subsidiaries pledged in connection with that certain Credit
Agreement dated as of August 21, 1996 by and among the Company, Bankers Trust
Company, as agent for various lending institutions, and such lending
institutions; each of the Company and its Subsidiaries is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure
to be so qualified or to be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its
Subsidiaries considered as one enterprise (a "Material Adverse Effect"); each
of the Company and its Subsidiaries is in possession of and operating in
compliance with all authorizations, licenses, certificates, consents, orders
and permits from state, federal and other regulatory authorities which are
material to the conduct of the business of the Company and its Subsidiaries
considered as one enterprise, all of which are valid and in full force and
effect, except when such noncompliance would not have a Material Adverse
Effect; each of the Company and its Subsidiaries is not in violation of its
respective charter or bylaws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
-4-
<PAGE>
agreement or other evidence of indebtedness, or any lease, contract, joint
venture, or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the property of the Company or any of its
Subsidiaries is bound or in violation of any law, order, rule, regulation,
writ, injunction, judgment or decree of any government, governmental agency
or body or court, domestic or foreign, except as contemplated by the
Prospectus or where such violation or default would not have a Material
Adverse Effect. The Company does not own or control, directly or indirectly,
any corporation, association or other entity conducting material operations
other than those entities listed in Schedule C hereto and all references in
this Agreement to "Subsidiaries" shall be deemed to refer to such entities.
(d) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company and, assuming due execution and delivery by the other parties hereto,
is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification and
contribution hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally, or by general equitable principles; the
performance of this Agreement and the consummation of the transactions herein
contemplated will not, with respect to the Company and its Subsidiaries,
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) any material indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, or any material lease, contract, joint venture or other
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the property of the Company or any of its Subsidiaries is
bound, which breach or default would have a Material Adverse Effect, (ii) the
charter or bylaws of the Company or any of its Subsidiaries or (iii) any law,
order, rule, regulation, writ, injunction, judgment or decree of any
government or governmental agency or body or court, domestic or foreign,
having jurisdiction over the Company or any of its Subsidiaries or over the
properties of the Company or any of its Subsidiaries, which breach would have
a Material Adverse Effect; and no consent, approval, authorization or order
of any court or governmental agency or body is required for the consummation
by the Company of the transactions herein contemplated, except such as may be
required under the Act, the Exchange Act, or under state or other securities
or Blue Sky laws.
(e) Except as described in the Prospectus, there is not any
pending or, to the Company's knowledge, threatened action, suit, claim or
proceeding against the Company, any of its Subsidiaries or any of their
respective officers or directors or
-5-
<PAGE>
any of their respective properties, assets or rights before any court or
governmental agency or body or otherwise which (i) might result in a Material
Adverse Effect, (ii) might prevent consummation of the transactions
contemplated hereby or (iii) is required to be disclosed in the Registration
Statement or Prospectus and is not so disclosed; and there are no contracts
or documents of the Company or any of its Subsidiaries that are required to
be described in the Prospectus or filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
accurately described in all material respects in the Prospectus or filed as
exhibits to the Registration Statement. The contracts so described in the
Prospectus are in full force and effect on the date hereof; and neither the
Company nor any of its Subsidiaries nor, to the Company's knowledge, any
other party is in breach of or default under any of such contracts. All
material relationships between the Company and its Subsidiaries and
directors, executive officers and stockholders have been fully and accurately
described in the Registration Statement as required by the Rules and
Regulations.
(f) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities (other than
such preemptive rights or other rights to subscribe for or purchase
securities as were fully complied with or expressly waived or with respect to
the violation of which the right to make claim is barred by the applicable
statute of limitations), and the authorized and outstanding capital stock of
the Company conforms in all material respects to the statements relating
thereto contained in the Registration Statement and the Prospectus (and such
statements correctly state the substance of the instruments defining the
capitalization of the Company); the Shares to be purchased from the Company
hereunder have been duly authorized for issuance and sale to the Underwriters
pursuant to this Agreement and, when issued and delivered by the Company
against payment therefor in accordance with the terms of this Agreement, will
be duly and validly issued and fully paid and nonassessable; and no
preemptive right, co-sale right, registration right, right of first refusal
or other similar right of stockholders exists with respect to any of the
Shares or the issuance and sale thereof other than those that have been
expressly waived prior to the date hereof. No further approval or
authorization of any stockholder, the Board of Directors or others is
required for the issuance and sale or transfer of the Shares except as may be
required under the Act, the Exchange Act or under state or other securities
or Blue Sky laws. All issued and outstanding shares of capital stock of each
Subsidiary of the Company have been duly authorized and validly issued and
are fully paid and nonassessable. Except as disclosed in or contemplated by
the Prospectus or the financial statements of the Company
-6-
<PAGE>
(including the notes thereto) included in the Prospectus, neither the Company
nor any Subsidiary has outstanding any options to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, shares of its capital stock or any such options, rights, convertible
securities or obligations. The description of the Company's stock option,
stock bonus and other stock plans or arrangements, and the options or other
rights granted or exercised thereunder, set forth in the Prospectus
accurately and fairly presents in all material respects the information
required to be shown with respect to such plans, arrangements, options and
rights.
(g) Each of the accounting firms that has examined certain of
the financial statements that are filed with the Commission or incorporated
by reference as a part of the Registration Statement and are included or
incorporated by reference in the Prospectus, are to the Company's knowledge,
independent accountants within the meaning of the Act and the Rules and
Regulations; the financial statements (including the related notes) included
or incorporated by reference in the Registration Statement and the Prospectus
(and any amendments or supplements thereto) present fairly, in all material
respects, the financial position, the results of operations and cash flows of
the applicable company at the dates and for the periods indicated in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated except as may otherwise be
stated therein. The interim financial statements set forth or incorporated
by reference in the Registration Statement and the Prospectus (and any
amendments and supplements thereto) have been prepared, to the extent such
information relates to the Company, on a basis consistent with the audited
financial statements and reflect all adjustments that are necessary to a fair
statement of the results for the interim periods presented. All pro forma
financial information required to be included in the Prospectus has been
included or incorporated by reference therein and such required information
has been prepared, in all material respects, in accordance with the
Commission's rules and guidelines with respect to pro forma financial
information. No financial statements or schedules, other than the financial
statements or schedules that are included or incorporated by reference in the
Registration Statement, are required to be included or incorporated by
reference in the Registration Statement.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as described in
or contemplated by the Registration Statement and Prospectus, there has not
been (i) any material adverse change in the business, properties or assets
described or referred to in the Registration Statement, or the results of
operations, condition (financial or otherwise) earnings, operations, business
or business prospects, of the Company and its
-7-
<PAGE>
Subsidiaries considered as one enterprise, (ii) any transaction that is
material to the Company and its Subsidiaries considered as one enterprise,
except transactions in the ordinary course of business, (iii) any obligation
that is material to the Company and its Subsidiaries considered as one
enterprise incurred by the Company or its Subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock of the Company or any of its Subsidiaries, (v) any change in the
outstanding indebtedness of the Company or any of its Subsidiaries that is
material to the Company and its Subsidiaries considered as one enterprise or
(vi) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its Subsidiaries.
(i) The Company, together with its Subsidiaries, has all
assets necessary to conduct its business as described in the Prospectus.
Except as set forth in the Prospectus, (i) each of the Company and its
Subsidiaries has good and marketable title to all properties and material
assets described in the Prospectus as owned by it, free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest
other than such as are not material to the business of the Company and its
Subsidiaries considered as one enterprise, and except for those matters
listed on the title insurance policies insuring the material real property,
(ii) any agreements to which the Company or any of its Subsidiaries is a
party described in the Prospectus are valid agreements, enforceable by the
Company and its Subsidiaries (as applicable), except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally, or by
general equitable principles and, to their knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements and (iii) the Company and its Subsidiaries have valid
and enforceable leases for the properties described in the Prospectus as
leased by them, except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally, or by general equitable
principles.
(j) The Company and its Subsidiaries have timely filed all
necessary federal and state income and franchise tax returns and have paid
all taxes shown thereon as due, and there is no tax deficiency that has been
or, to the Company's knowledge, might be asserted against the Company or any
of its Subsidiaries that might have a Material Adverse Effect. All tax
liabilities are adequately provided for on the books of the Company and its
Subsidiaries.
(k) The Company and its Subsidiaries maintain insurance of the
types and in the amounts generally deemed adequate for their respective
businesses and consistent with insurance
-8-
<PAGE>
coverage maintained by similar companies in similar businesses, including,
but not limited to, insurance covering real and personal property owned or
leased by the Company or its Subsidiaries against all risks customarily
insured against, all of which insurance is in full force and effect.
(l) To the Company's knowledge, no labor disturbance by the
employees of the Company or any of its Subsidiaries exists or is imminent,
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its principal suppliers or manufacturers, in either
case, that might be expected to result in a Material Adverse Effect. Except
as provided in the Prospectus, no collective bargaining agreement exists with
any of the Company's employees and, to the Company's knowledge, no such
agreement is imminent. Neither the Company nor any of its Subsidiaries has
violated any federal, state or local law relating to discrimination in the
hiring, promotion or pay of employees nor any applicable wage or hour laws,
nor any provisions of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations promulgated thereunder, except for
violations that, individually and collectively, would not have a Material
Adverse Effect. There is no unfair labor practice complaint pending against
the Company or any of its Subsidiaries, or to the best knowledge of the
Company, threatened against any of them, before the National Labor Relations
Board or any state or local labor relations board, which if adversely
determined would have a Material Adverse Effect.
(m) Except as described in the Prospectus, each of the Company
and its Subsidiaries owns or possesses adequate and enforceable rights to use
all material patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names and copyrights described or referred
to in the Prospectus as owned or used by it or which are necessary for the
conduct of its businesses as described in the Prospectus; the Company has not
received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
(n) Neither the Company nor any of its Subsidiaries has been
advised, or has reason to believe, that it is not conducting business in
compliance with all of the laws, rules and regulations of the jurisdictions
in which it is conducting business, except where failure to be so in
compliance would not have a Material Adverse Effect.
(o) The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and is quoted on the National Association of Securities
Dealers Automated Quotation National
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Market (the "NASDAQ National Market"). Upon their issuance, the Shares will
be approved for listing on the NASDAQ National Market.
(p) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" within the meaning of the 1940 Act and such
rules and regulations.
(q) The Company has not distributed and will not distribute
prior to the Closing Date or on any date on which Option Shares are to be
purchased, as the case may be, any offering material in connection with the
offering and sale of the Shares other than the Prospectus, the Registration
Statement and other materials permitted by the Act.
(r) Neither the Company nor any of its Subsidiaries, to the
Company's knowledge, has at any time during the last five (5) years (i) made
any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(s) Except as would not, individually or in the aggregate,
have a Material Adverse Effect, (i) neither the Company nor any of its
Subsidiaries is in violation of any federal, state, local or foreign laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to wastes, toxic
substances, hazardous substances, petroleum and petroleum products
("Materials of Environmental Concern"), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations required
for the operation of the business of the Company or its Subsidiaries under
applicable Environmental Laws, or noncompliance with the terms and conditions
thereof, nor has the Company or any of its Subsidiaries received any written
communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its
Subsidiaries is in violation; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation with
respect to which the Company has received written notice and no written
notice by any
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person or entity, alleging potential liability for investigatory costs,
cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from the presence, or release into the environment,
of any Materials of Environmental Concern at any location owned or operated
by the Company or any of its Subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the Company's knowledge, threatened
against the Company or any of its Subsidiaries or, to the Company's
knowledge, against any person or entity whose liability for any Environmental
Claim the Company or any of its Subsidiaries has retained or assumed either
contractually or by operation of law; and (iii) to the Company's knowledge,
there are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Materials of Environmental Concern,
that reasonably could result in the violation of any Environmental Law or
form the basis of any potential Environmental Claim against the Company or
any of its Subsidiaries or against any person or entity whose liability for
any Environmental Claim the Company or any of its Subsidiaries has retained
or assumed either contractually or by operation of law.
(t) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in the stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(u) Each executive officer of the Company, each person named
in the Prospectus as a director of the Company, each Selling Stockholder and
each of certain other holders of Common Stock named in Schedule D hereto
have, or prior to the Closing Date will have, agreed in writing that such
person will not, for a period expiring 90 days after the effective date of
the Registration Statement, directly or indirectly, offer to sell, contract
to sell, sell short, or otherwise sell or dispose of any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock, or any
securities convertible into or exchangeable for shares of the Common Stock,
owned by such person or with respect to which such person has the power of
disposition, other than (i) the sale of Shares by the Selling Stockholders
hereunder, (ii) as a gift or gifts, provided the donee or donees thereof
agree to be bound by this restriction, (iii) the exercise of options
outstanding as of the date hereof or (iv) with the prior written consent of
Robertson, Stephens & Company LLC. Each such person has also agreed and
consented to the entry of stop transfer instructions with the Company's
transfer agent against the transfer of shares of Common Stock held by such
person except in compliance with the foregoing restrictions.
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II. Each Selling Stockholder, severally and not jointly, represents
and warrants to and agrees with each Underwriter and the Company that:
(a) Such Selling Stockholder now has, and on any date Shares
are to be sold by such Selling Stockholder hereunder will have, valid
marketable title to such of the Shares as are to be sold by such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest other than pursuant to this
Agreement; such Selling Stockholder has full right, power and authority to
sell, assign, transfer and deliver the Shares to be sold by such Selling
Stockholder hereunder; and upon delivery of such Shares hereunder and payment
of the purchase price as herein contemplated, each of the Underwriters will
obtain valid marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, including any liability for estate
or inheritance taxes, or any liability to or claims of any creditor, devisee,
legatee or beneficiary of such Selling Stockholder.
(b) Such Selling Stockholder has duly authorized (if
applicable), executed and delivered, in the form heretofore furnished to the
Representatives, a Custody Agreement and Power of Attorney (the "Custody
Agreement and Power of Attorney") with U.S. Office Products Company, as
custodian (the "Custodian"), and appointing Jonathan J. Ledecky and Mark D.
Director (the "Attorneys") attorneys-in-fact with respect to the sale of the
Shares to be sold by such Selling Stockholder hereunder; the Custody
Agreement and Power of Attorney constitutes a valid and binding agreement of
such Selling Stockholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights and remedies generally, or by general equitable principles;
and each of the Attorneys, acting alone, is authorized to execute and deliver
this Agreement and the certificate referred to in Section 6(k) hereof on
behalf of such Selling Stockholder, to determine the purchase price to be
paid by the several Underwriters to such Selling Stockholder as provided in
Section 3 hereof, to authorize the delivery of the Shares to be sold by such
Selling Stockholder under this Agreement and to duly endorse (in blank or
otherwise) the certificate or certificates representing such Shares or a
stock power or powers with respect thereto, to accept payment therefor, and
otherwise to act on behalf of such Selling Stockholder in connection with
this Agreement.
(c) All authorizations, approvals, consents and orders
necessary for the execution and delivery by such Selling Stockholder of the
Custody Agreement and Power of Attorney, the execution and delivery by or on
behalf of such Selling Stockholder of this Agreement and the sale and
delivery of the Shares to be
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sold by such Selling Stockholder under this Agreement (other than, at the
time of the execution hereof (if the Registration Statement has not yet been
declared effective by the Commission), the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state or
other securities or Blue Sky laws) have been obtained and are in full force
and effect; such Selling Stockholder, if other than a natural person, has
been duly organized and is validly existing and in good standing under the
laws of the jurisdiction of its organization as the type of entity that it
purports to be; and such Selling Stockholder has full right, power and
authority to enter into and perform its obligations under this Agreement and
such Custody Agreement and Power of Attorney, and to sell, assign, transfer
and deliver the Shares to be sold by such Selling Stockholder under this
Agreement.
(d) Such Selling Stockholder will not, for a period expiring
90 days after the effective date of the Registration Statement, directly or
indirectly, offer to sell, contract to sell, sell short, or otherwise sell or
dispose of any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, owned by such Selling Stockholder or
with respect to which such Selling Stockholder has the power of disposition,
other than (i) the sale of Shares by such Selling Stockholder hereunder, (ii)
as a gift or gifts, provided the donee or donees thereof agree to be bound by
this restriction, (iii) the exercise of options outstanding as of the date
hereof or (iv) with the prior written consent of Robertson, Stephens &
Company LLC. Such Selling Stockholder agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of shares of Common Stock held by such Selling Stockholder except in
compliance with the foregoing restrictions.
(e) The certificates in negotiable form for all Shares to be
sold by such Selling Stockholder under this Agreement, together with a stock
power or powers duly endorsed in blank by such Selling Stockholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
(f) This Agreement has been duly authorized by such Selling
Stockholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Stockholder and, assuming due
execution and delivery by the other parties hereto, is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as the indemnification and contribution provisions hereunder
may be limited by applicable law and except as the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights and remedies
generally, or by general equitable principles; and the performance of this
Agreement and the consummation of the
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transactions herein contemplated will not, with respect to the Selling
Stockholders, result in a breach of or default under any material bond,
debenture, note or other evidence of indebtedness, or any material contract,
indenture, mortgage, deed of trust, loan agreement, lease or other agreement
or instrument to which such Selling Stockholder is a party or by which such
Selling Stockholder or any Shares to be sold by such Selling Stockholder
hereunder may be bound or, to such Selling Stockholder's knowledge, result in
any violation of any law, order, rule, regulation, writ, injunction or decree
of any court or governmental agency or body or, if such Selling Stockholder
is other than a natural person, result in any violation of any provisions of
the charter, bylaws or other organizational documents of such Selling
Stockholder.
(g) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in the stabilization or manipulation of the
price of the Common Stock to facilitate the sale or resale of the Shares.
(h) Such Selling Stockholder has not distributed and will not
distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(i) All information furnished by or on behalf of such Selling
Stockholder relating to such Selling Stockholder and the Shares to be sold by
such Selling Stockholder hereunder that is contained in the representations
and warranties of such Selling Stockholder in such Selling Stockholder's
Custody Agreement and Power of Attorney or set forth in the Registration
Statement and the Prospectus is, and on the Closing Date and on any later
date on which Option Shares are to be purchased hereunder will be, true,
correct and complete, and does not, and on the Closing Date and on any later
date on which Option Shares are to be purchased hereunder will not, contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make such information not
misleading.
(j) Such Selling Stockholder will review the Prospectus and
will comply with all agreements and satisfy all conditions on its part to be
complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date and, in the case of the Option Selling Stockholders, any later
date on which Option Shares are to be purchased hereunder and will advise the
Attorneys prior to the Closing Date and, in the case of the Option Selling
Stockholders, any later date on which Option Shares are to be purchased
hereunder if any statement to be made on behalf of such Selling Stockholder
in the certificate contemplated by Section 6(k) would be inaccurate if made
as of such date.
(k) Such Selling Stockholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale
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<PAGE>
right or right of first refusal or other similar right to purchase any of the
Shares that are to be sold by the Company or any of the other Selling
Stockholders to the Underwriters pursuant to this Agreement; and such Selling
Stockholder does not own any warrants, options or similar rights to acquire,
and does not have any right or arrangement to acquire, any capital stock,
rights, warrants, options or other securities from the Company, other than
options issued pursuant to the Company's presently authorized 1995 Employee
Stock Purchase Plan or those described in the Registration Statement and the
Prospectus.
(l) In addition to the other representations and warranties
set forth in this Section 2.II, each Selling Stockholder, severally and not
jointly, further represents and warrants that, to its knowledge, (i) the
representations and warranties of the Company set forth in Section 2.I hereof
are true and correct, and (ii) each Preliminary Prospectus, as of its date,
has not included any untrue statement of a material fact or omitted to state
a material fact necessary to make the statements therein not misleading; and
at the time the Registration Statement became or becomes, as the case may be,
effective, on the Closing Date and on any later date on which Option Shares
are to be purchased hereunder, neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, included or will include
any untrue statement of a material fact or omitted or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that none of the representations and
warranties contained in this subsection (l) shall apply to information
contained in or omitted from the Registration Statement or the Prospectus or
any such amendment or supplement in reliance upon, and in conformity with,
information furnished to the Company by any Underwriter through you
specifically for inclusion therein.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company and the Firm Selling
Stockholders agree, severally and not jointly, to sell to the Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company and the Firm Selling Stockholders, respectively, at a purchase price
of $_____ per Share, the respective number of Company Shares and Selling
Stockholder Firm Shares set forth opposite the names of the Company and the
Firm Selling Stockholders in Schedule B hereto. The obligation of each
Underwriter to the Company and to each Firm Selling Stockholder shall be to
purchase from the Company or such Firm Selling Stockholder that number of
Company Shares or Selling Stockholder Firm Shares, as the case may be, which
(as nearly as practicable, as determined by you) is in the same proportion to
the number of Company Shares or Selling Stockholder Firm Shares, as the case
may be, set forth opposite the name of the Company or such
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<PAGE>
Firm Selling Stockholder in Schedule B hereto as the number of Firm Shares
which is set forth opposite the name of such Underwriter in Schedule A hereto
(subject to adjustment as provided in Section 10 hereof) is to the total
number of Firm Shares to be purchased by all the Underwriters under this
Agreement.
The certificates in negotiable form for the Shares to be sold by the
Selling Stockholders hereunder have been placed in custody (for delivery
under this Agreement) under the Custody Agreement and Power of Attorney. Each
Selling Stockholder agrees that the certificates for the Shares of such
Selling Stockholder so held in custody are subject to the interests of the
Underwriters hereunder, that the arrangements made by such Selling
Stockholder for such custody, including the power of attorney provided in the
Custody Agreement and Power of Attorney, is to that extent irrevocable and
that the obligations of such Selling Stockholder hereunder shall not be
terminated by the act of such Selling Stockholder or by operation of law,
whether by the death or incapacity of such Selling Stockholder or the
occurrence of any other event, except as specifically provided herein or in
the Custody Agreement and Power of Attorney. If any Selling Stockholder
should die or be incapacitated, or if any other such event should occur,
before the delivery of the certificates for the Shares of such Selling
Stockholder hereunder, the Shares to be sold by such Selling Stockholder
shall, except as specifically provided herein or in the Custody Agreement and
Power of Attorney, be delivered by the Custodian in accordance with the terms
and conditions of this Agreement as if such death, incapacity or other event
had not occurred, regardless of whether the Custodian shall have received
notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made
against payment of the purchase price therefor by the several Underwriters by
wire transfer of immediately available funds to the Company with regard to
the Company Shares being purchased, and to either Attorney for the respective
accounts of the Firm Selling Stockholders with regard to the Selling
Stockholder Firm Shares being purchased. Such delivery and payment shall
take place at the Chicago office of Winston & Strawn (or at such other place
as may be agreed upon among the Representatives, the Company and the Selling
Stockholders) at 9:00 A.M., local time in Chicago, Illinois, on the third
(3rd) full business day following the date of this Agreement or at such other
time and date not later than seven (7) full business days thereafter as the
Representatives, the Company and the Selling Stockholders may determine (or
at such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery
being herein called the "Closing Date".
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The certificates for the Firm Shares to be so delivered will be made
available to you at such office or at such other location, including, without
limitation, in New York City, as you may reasonably request for checking at
least two (2) full business days prior to the Closing Date and will be in
such names and denominations as you may request, such request to be made at
least three (3) full business days prior to the Closing Date. If the
Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose payment or payments shall not have been received by you
prior to the Closing Date for the Firm Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to offer the Firm Shares to the public as set forth in
the Prospectus, but after the initial public offering (as such term is
described in Section 11 hereof) of such Shares, the several Underwriters may
in their discretion vary the public offering price.
The information set forth in the last paragraph on the front cover
page and under "Underwriting" (insofar as such information relates to the
Underwriters) in any Preliminary Prospectus and in the final form of
Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf
of the respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make such statements, in the light of the circumstances in which
they were made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the
time and date that this Agreement is executed and delivered by the parties
hereto, to become effective as promptly as possible; it will notify you,
promptly after it shall receive notice thereof, of the time when the
Registration Statement or any subsequent amendment to the Registration
Statement has become effective or any supplement to the Prospectus or any
document
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incorporated by reference therein has been filed; if the Company omitted
information from the Registration Statement at the time it was originally
declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time
period prescribed, with the Commission pursuant to subparagraph (1) or (4) of
Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective
which is declared effective by the Commission; if for any reason the filing
of the final form of Prospectus is required under Rule 424(b)(3) of the Rules
and Regulations, it will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed with the Commission
within the time period prescribed; it will notify you promptly of any request
by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; promptly upon your
request, it will prepare and file with the Commission any amendments or
supplements to the Registration Statement, the Prospectus or any document
incorporated by reference therein which, in the opinion of Winston & Strawn,
counsel for the several Underwriters ("Underwriters' Counsel"), may be
necessary or advisable in connection with the distribution of the Shares by
the Underwriters, unless advised by its counsel, Morgan, Lewis & Bockius LLP
(the "Company's Counsel"), that such filing is not necessary or advisable; it
will promptly prepare and file with the Commission, and promptly notify you
of the filing of, any amendments or supplements to the Registration
Statement, the Prospectus or any document incorporated by reference therein
that may be necessary to correct any statements or omissions, if, at any time
when a prospectus relating to the Shares is required to be delivered under
the Act, any event shall have occurred as a result of which the Prospectus or
any other prospectus relating to the Shares as then in effect would include
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; in case any Underwriter is
required to deliver a prospectus nine (9) months or more after the effective
date of the Registration Statement in connection with the sale of the Shares,
it will prepare promptly upon request, but at the expense of such
Underwriter, such amendment or amendments to the Registration Statement and
such prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act; and it will file no
amendment or supplement to the Registration Statement, the Prospectus or any
document incorporated by reference therein that shall not previously have
been submitted to you a reasonable time prior to the proposed filing thereof
or to which you shall reasonably object in writing, subject, however, to
compliance with the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and the provisions of this Agreement.
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(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of the Registration Statement
or of the initiation or threat of any proceeding for that purpose; and it
will promptly use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal at the earliest possible moment if such stop
order should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions
as you may designate and to continue such qualifications in effect for so
long as may be reasonably required for purposes of the distribution of the
Shares, except that the Company shall not be required in connection therewith
or as a condition thereof to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction or to make any
undertaking with respect to the conduct of its business. In each
jurisdiction in which the Shares shall have been qualified as provided above,
the Company will make and file such statements and reports in each year as
are or may be reasonably required by the laws of such jurisdiction.
(d) The Company has previously furnished, or will furnish to
you as soon as available, copies of the Registration Statement (three of
which will include all exhibits) and all documents incorporated by reference
therein, each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you
may from time to time reasonably request.
(e) The Company will make generally available to its
stockholders as soon as practicable, but in any event not later than the 45th
day following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act or Rule 158
thereunder and covering a twelve-month period beginning after the effective
date of the Registration Statement.
(f) During a period of five (5) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable after
the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and such
unaudited quarterly reports of operations for each of the first three (3)
quarters of the fiscal year as may be required by applicable law or the rules
of the NASDAQ National Market to be sent to stockholders, and will furnish to
you and, upon their request, the other several Underwriters hereunder, (i)
concurrently with furnishing such
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reports to its stockholders (if any), statements of operations of the Company
for each of the first three (3) quarters in the form furnished to the
Company's stockholders; (ii) concurrently with furnishing to its
stockholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of stockholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent accountants; (iii) as soon as
they are available, copies of all reports (financial or other) mailed to
stockholders; (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any
securities exchange or the National Association of Securities Dealers, Inc.
("NASD"); and (v) every material press release and every material news item
or article in respect of the Company or its affairs which was released or
prepared by the Company or any of its Subsidiaries (excluding, in each case,
customary product-related press releases and articles).
(g) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) The Company will use its best efforts to comply with all
criteria necessary to have its Common Stock listed on the NASDAQ National
Market.
(j) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement under Section 11(a) hereof, the
Company will reimburse the several Underwriters for all out-of-pocket
expenses (including fees and disbursements of Underwriters' Counsel) incurred
by the Underwriters in investigating, preparing to market or marketing the
Shares.
(k) During a period ending 90 days from the effective date of
the Registration Statement, the Company will not, without the prior written
consent of Robertson, Stephens & Company LLC, issue, sell, offer or agree to
sell, or otherwise dispose of, directly or indirectly, any shares of Common
Stock, any options, rights or warrants with respect to any shares of Common
Stock or any securities convertible into, exercisable for or exchangeable for
shares of Common Stock, other than (i) the sale of the Firm Shares and the
Option Shares hereunder, (ii) the issuance of shares of Common Stock upon the
exercise of options outstanding as of the
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date hereof, (iii) the issuance of options, or shares of Common Stock upon
the exercise of options granted, under the Company's presently authorized
1994 Long-Term Incentive Compensation Plan, (iv) the issuance of shares of
Common Stock pursuant to the Company's presently authorized 1995 Employee
Stock Purchase Plan, (v) the issuance of shares of Common Stock upon the
conversion of convertible subordinated notes and (vi) in connection with the
acquisitions of businesses by the Company. In addition, during a period
ending 90 days from the effective date of the Registration Statement, the
Company will not, without the prior written consent of Robertson, Stephens &
Company LLC, waive any contractual restrictions on the sale of Common Stock
issued or to be issued in connection with acquisitions.
5. Expenses.
(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters,
the Selected Dealer Agreement, the Blue Sky Survey, the Underwriters'
Questionnaire and Power of Attorney, and any instruments related to any of
the foregoing; the issuance and delivery of the Shares hereunder to the
several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars'
fees; the fees and disbursements of the Company's Counsel; all fees and other
charges of the Company's independent public accountants; the cost of
furnishing to the several Underwriters copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectus and the Prospectus,
and any amendments or supplements to any of the foregoing; NASD filing fees
and the cost of qualifying the Shares under the laws of such jurisdictions as
you may designate (including filing fees and fees and disbursements of
Underwriters' Counsel in connection with such NASD filings and Blue Sky
qualifications); and all other expenses directly incurred by the Company and
the Selling Stockholders. Any additional expenses incurred as a result of
the sale of the Shares by the Selling Stockholders will be borne collectively
by the Company and the Selling Stockholders. The provisions of this Section
5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Stockholders and the Company hereby
agree to pay, but shall not affect any agreement which the Selling
Stockholders and the Company may make, or may have made, for the sharing of
any of such expenses and costs. Such agreements shall not impair the
obligations of the Company and the Selling Stockholders hereunder to the
several Underwriters; and
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(ii) In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a), it will reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to reimburse the
Underwriters for such expenses and the possibility that a court of competent
jurisdiction may later determine that the Underwriters are not entitled to
indemnity under Section 8(a). To the extent that a court of competent
jurisdiction later determines that the Underwriters were not entitled to
indemnity under Section 8(a), the Underwriters shall promptly return any
interim reimbursement payments to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing) listed
from time to time in The Wall Street Journal which represents the base rate
on corporate loans posted by the substantial majority of the nation's 30
largest banks (the "Prime Rate"). Any such interim reimbursement payments
which are not made to the Underwriters within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(b) In addition to their obligations under Section 8(c) hereof, the
Underwriters agree that, as an interim measure during the pendency of any
claim, action, investigation, inquiry or other proceeding described in
Section 8(c), they will reimburse the Company on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Underwriters' obligation to reimburse the
Company for such expenses and the possibility that a court of competent
jurisdiction may later determine that the Company is not entitled to
indemnity under Section 8(c). To the extent that a court of competent
jurisdiction later determines that the Company was not entitled to indemnity
under Section 8(c), the Company shall promptly return any interim
reimbursement payments to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within 30 days of a
request for reimbursement shall bear interest at the Prime Rate from the date
of such request.
(c) It is agreed that any controversy arising out of the operation
of the interim reimbursement arrangements set forth in Sections 5(a)(ii) and
5(b) hereof, including the amounts of any requested reimbursement payments,
the method of determining such amounts and the basis on which such amounts
shall be apportioned
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among the reimbursing parties, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors
of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the National Association of Securities Dealers, Inc. Any such
arbitration must be commenced by service of a written demand for arbitration
or a written notice of intention to arbitrate, therein electing the
arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice,
then the party responding to said demand or notice is authorized to do so.
Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Sections 5(a)(ii) and 5(b) and will not
resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 8(a),
8(b) and 8(c) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and
any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company and the Selling
Stockholders herein, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not
later than 2:00 P.M., San Francisco time, on the date following the date of
this Agreement, or such later date as shall be consented to in writing by
you; and no stop order suspending the effectiveness thereof shall have been
issued and no proceedings for that purpose shall have been initiated or, to
the knowledge of the Company or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise)
shall have been complied with to the reasonable satisfaction of Underwriters'
Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus,
and the registration, authorization, issue, sale and delivery of the Shares,
shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such papers and information as they
may reasonably have requested to enable them to pass upon the matters
referred to in this Section 6.
(c) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its Subsidiaries considered as one
enterprise from that set forth in
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the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse and that makes it, in your sole judgment, impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, an opinion of Morgan, Lewis &
Bockius LLP, dated the Closing Date or such later date, as the case may be,
addressed to the Underwriters (with reproduced copies or signed counterparts
thereof for each of the Underwriters), to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Delaware;
(ii) Each Subsidiary incorporated in Delaware
(collectively, the "Delaware Subsidiaries" and, individually, a "Delaware
Subsidiary") has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware;
(iii) The Company and each Delaware Subsidiary have
all requisite corporate power and authority to own, lease and operate their
properties and to conduct their businesses as described in the Prospectus;
(iv) The Company and each Delaware Subsidiary are
duly qualified to do business as foreign corporations and are in good
standing in each jurisdiction, if any, in which the ownership or leasing of
their properties or the conduct of their businesses requires such
qualification, except where the failure to be so qualified or to be in good
standing would not have a Material Adverse Effect;
(v) The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein; the issued and outstanding
shares of capital stock of the Company have been duly and validly authorized
and issued, are fully paid and nonassessable, and have not been issued in
violation of any preemptive right or, to such counsel's knowledge, any
co-sale right, registration right, right of first refusal or other similar
right (other than such preemptive rights or other rights to subscribe for or
purchase securities as were fully complied with or expressly waived or with
respect to the violation of which the right to make claim is barred by the
applicable statute of limitations);
(vi) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of this
Agreement will be, upon issuance and delivery against payment
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therefor in accordance with the terms hereof, and the Shares to be sold by
the Selling Stockholders were, at the time of their issuance, duly authorized
and validly issued and fully paid and nonassessable, and will not be, or have
not been, issued in violation of any preemptive right or, to such counsel's
knowledge, any registration right, co-sale right, right of first refusal or
other similar right and the stockholders of the Company have no preemptive
rights or, to such counsel's knowledge, other rights to purchase any of the
Shares;
(vii) The Company has corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the Underwriters
the Firm Shares or the Option Shares, as the case may be, to be issued and
sold by it hereunder;
(viii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has been duly
executed and delivered by the Company;
(ix) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus,
and each amendment or supplement thereto and each document incorporated by
reference therein (other than the consolidated financial statements
(including supporting schedules), pro forma financial information and
financial data derived from such financial statements as to which such
counsel need express no opinion) as of the effective date of the Registration
Statement, complied as to form in all material respects with the requirements
of the Act or the Exchange Act, as applicable, and the rules and regulations
of the Commission thereunder. The conditions for the use of a registration
statement on Form S-3, set forth in the general instructions thereto, have
been satisfied;
(xi) The terms and provisions of the capital stock of
the Company conform in all material respects to the description thereof
incorporated by reference in the Registration Statement and the Prospectus;
(xii) The information incorporated by reference in the
Prospectus regarding the description of the capital stock of the Company, to
the extent that it constitutes matters of law or legal conclusions, has been
reviewed by such counsel and accurately and fairly summarizes the matters
described therein. The form of certificate evidencing the Common Stock
complies with Delaware law;
(xiii) The descriptions included or incorporated by
reference in the Registration Statement and the Prospectus of the
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charter and bylaws of the Company and of statutes and contracts are accurate
and fairly present the information required to be presented by the Act or the
Rules and Regulations;
(xiv) To such counsel's knowledge, there are no
agreements, contracts, leases or documents of a character required to be
described or referred to in the Registration Statement or the Prospectus or
to be filed as an exhibit to the Registration Statement which are not
described or referred to therein and filed as required;
(xv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than performance
of the Company's indemnification and contribution obligations hereunder,
concerning which no opinion need be expressed) will not (a) result in any
violation of the Company's charter or bylaws or (b) to such counsel's
knowledge, result in the material breach or violation of any of the terms and
provisions, or constitute a default under, any material indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement or other
evidence of indebtedness, or any material lease, contract, joint venture or
other agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which the property of the Company or any of its Subsidiaries
is bound, or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any court or
governmental agency or body having jurisdiction over the Company or any of
its Subsidiaries, or over any of their properties or operations; provided,
however, that no opinion need be rendered concerning state securities or Blue
Sky laws;
(xvi) No authorization, approval or consent of any
governmental authority or agency is necessary in connection with the
consummation of the transactions herein contemplated, except such as have
been obtained under the Act or such as may be required under state or other
securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters;
(xvii) To such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the Company or any
of its Subsidiaries of a character which are required to be disclosed in the
Registration Statement or the Prospectus, by the Act or the applicable Rules
and Regulations, other than those described therein;
(xviii) To such counsel's knowledge, neither the Company
nor any of its Subsidiaries is presently in material breach of, or in default
under, any material indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness, or any material
lease, contract, joint venture or other agreement or instrument to which the
Company or any of its
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Subsidiaries is a party or by which the property of the Company or any of its
Subsidiaries is bound that is material to the financial condition, earnings,
operations, business or business prospects of the Company and its
Subsidiaries considered as one enterprise;
(xix) To such counsel's knowledge, except as set forth
in the Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights to registration of such shares of Common Stock, or other securities,
because of the filing of the Registration Statement by the Company, have,
with respect to the offering contemplated thereby, waived such rights or such
rights have expired by reason of lapse of time following notification of the
Company's intent to file the Registration Statement, or have included
securities in the Registration Statement pursuant to the exercise of such
rights;
(xx) The Custody Agreement and Power of Attorney of
each Selling Stockholder who is a natural person has been duly executed and
delivered by such Selling Stockholder and constitutes the valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights and remedies generally, or by general equitable
principles;
(xxi) Each of the Selling Stockholders who is a
natural person has full right and power to enter into and to perform his or
her obligations under this Agreement and to sell, transfer, assign and
deliver the Shares to be sold by such Selling Stockholder hereunder;
(xxii) This Agreement has been duly executed and
delivered by or on behalf of each Selling Stockholder who is a natural
person; and
(xxiii) Upon the delivery of and payment for the Shares
as contemplated in this Agreement, each of the Underwriters will receive
valid marketable title to the Shares purchased by it from each Selling
Stockholder who is a natural person, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest. In rendering
such opinion, such counsel may assume that the Underwriters are without
notice of any defect in the title of any of such Selling Stockholders to the
Shares being purchased from such Selling Stockholders.
In addition, such counsel shall state that although they have not
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing
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has come to the attention of such counsel which leads them to believe that,
at the time the Registration Statement became effective, the Registration
Statement (other than the consolidated financial statements, including
supporting schedules and financial data derived therefrom and other financial
and statistical data, as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or at the Closing Date or any later date
on which the Option Shares are to be purchased, as the case may be, the
Prospectus (except as aforesaid) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the State of Delaware upon
opinions of local counsel (or in lieu thereof, deliver copies of such local
counsel opinions, addressed to the Underwriters, directly to the Underwriters
and Underwriters' Counsel), and as to questions of fact upon representations
or certificates of officers of the Company, and of government officials, in
which case their opinion is to state that they are so relying and that they
have no knowledge of any material misstatement or inaccuracy in such
opinions, representations or certificate. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
(e) You shall have received on the Closing Date an opinion from
counsel for each Selling Stockholder who is not a natural person, dated the
Closing Date and addressed to the Underwriters (with reproduced copies or
signed counterparts thereof for each of the Underwriters), to the effect that:
(i) Such Selling Stockholder has full right, power
and authority to enter into and to perform its obligations under the Custody
Agreement and Power of Attorney to be executed and delivered by it in
connection with the transactions contemplated herein; the Custody Agreement
and Power of Attorney of such Selling Stockholder has been duly authorized by
such Selling Stockholder; the Custody Agreement and Power of Attorney has
been duly executed and delivered by or on behalf of such Selling Stockholder,
and the Custody Agreement and Power of Attorney of such Selling Stockholder
constitutes the valid and binding agreement of such Selling Stockholder,
enforceable in accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights and remedies
generally, or by general equitable principles;
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(ii) Such Selling Stockholder has full right, power
and authority to enter into and to perform its obligations under this
Agreement and to sell, transfer, assign and deliver the Shares to be sold by
such Selling Stockholder hereunder;
(iii) This Agreement has been duly authorized by such
Selling Stockholder and has been duly executed and delivered by or on behalf
of such Selling Stockholder; and
(iv) Upon the delivery of and payment for the Shares
as contemplated in this Agreement, each of the Underwriters will receive
valid marketable title to the Shares purchased by it from such Selling
Stockholder, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest. In rendering such opinion, such
counsel may assume that the Underwriters are without notice of any defect in
the title of such Selling Stockholder to the Shares being purchased from such
Selling Stockholder.
Each counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the States of
New York and Delaware upon opinions of local counsel (or in lieu thereof,
deliver copies of such local counsel opinions, addressed to the Underwriters,
directly to the Underwriters and Underwriters' Counsel), and as to questions
of fact upon representations or certificates of the applicable Selling
Stockholder, and of government officials, in which case their opinion is to
state that they are so relying and that they have no knowledge of any
material misstatement or inaccuracy in such opinions, representations or
certificate. Copies of any opinion, representation or certificate so relied
upon shall be delivered to you, as Representatives of the Underwriters, and
to Underwriters' Counsel.
(f) You shall have received on the Closing Date an opinion from
counsel for each Subsidiary (other than the Delaware Subsidiaries), dated the
Closing Date and addressed to the Underwriters (with reproduced copies or
signed counterparts thereof for each of the Underwriters), to the effect that:
(i) Such Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its state of
incorporation;
(ii) Such Subsidiary has all requisite corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus; and
(iii) Such Subsidiary is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction, if any, in
which the ownership or leasing of its properties or the conduct of its
business requires such
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qualification, except where the failure to be so qualified or to be in good
standing would not have a Material Adverse Effect.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, an
opinion of Winston & Strawn, in form and substance satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby
as you may reasonably require, and the Company shall have furnished to such
counsel such documents as they may have requested for the purpose of enabling
them to pass upon such matters.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Price Waterhouse LLP addressed to the Company and the Underwriters,
dated the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, confirming that they are independent certified
public accountants with respect to the Company within the meaning of the Act
and the applicable published Rules and Regulations and based upon the
procedures described in their letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but
carried out to a date not more than three (3) business days prior to the
Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, (i) confirming, to the extent true, that the statements
and conclusions set forth in the Original Letter are accurate as of the
Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are
necessary to reflect any changes in the facts described in the Original
Letter since the date of such letter, or to reflect the availability of more
recent financial statements, data or information. The letter shall not
disclose any change, or any development involving a prospective change, in
or affecting the business or properties of the Company and its Subsidiaries
considered as one enterprise which, in your sole judgment, makes it
impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. Also, you shall have received an
Original Letter from Price Waterhouse LLP addressed to or for the use of the
Underwriters setting forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of April 30, 1995 and 1996
and related consolidated statements of income, stockholders' equity and cash
flows for the fiscal years ended April 30, 1994, 1995 and 1996, and certain
other financial statements and financial and statistical data contained or
incorporated by reference in the Registration Statement and the Prospectus.
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(i) You shall have received on the Closing Date a letter from each
of the accounting firms that has examined certain of the financial statements
that are filed with the Commission or incorporated by reference as a part of
the Registration Statement and are included or incorporated by reference in
the Prospectus addressed to the Company and the Underwriters, dated the
Closing Date, confirming that (i) they are independent certified public
accountants with respect to the applicable subsidiary of the Company within
the meaning of the Act and the applicable published Rules and Regulations and
(ii) the financial statements audited by such independent certified public
accountants and included or incorporated by reference in the Registration
Statement and the Prospectus comply as to form in all material respects with
the applicable accounting requirements of the Act and the applicable
published Rules and Regulations.
(j) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, a certificate
of the Company, dated the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, signed by the Chief Executive
Officer and Chief Financial Officer of the Company, to the effect that, and
you shall be reasonably satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct as if made on and as of the
Closing Date or any later date on which Option Shares are to be purchased, as
the case may be, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to the Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or threatened under the Act;
(iii) When the Registration Statement became effective
and at the time of delivery of such certificate, the Registration Statement
and the Prospectus and any amendments or supplements thereto contained all
statements and information required to be included therein, and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto included an untrue statement of a material fact or omitted to state a
material fact required to be made therein or necessary to make the statements
therein, in the light of the circumstances in which made, not misleading,
and, since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been so set forth; and
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(iv) Except as contemplated by the Registration
Statement, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been
(A) any material adverse change in the properties or assets described or
referred to in the Registration Statement and the Prospectus or in the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its Subsidiaries considered as one
enterprise, (B) any transaction which is material to the Company and its
Subsidiaries considered as one enterprise, except transactions entered into
in the ordinary course of business, (C) any obligation incurred by the
Company or any of its Subsidiaries which is material to the Company and its
Subsidiaries considered as one enterprise, except obligations incurred in the
ordinary course of business, (D) any change in the capital stock or
outstanding indebtedness of the Company or any of its Subsidiaries which is
material to the Company and its Subsidiaries considered as one enterprise or
(E) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its Subsidiaries.
(k) You shall be reasonably satisfied that, and you shall have
received a certificate, dated the Closing Date, or any later date on which
Option Shares are to be purchased, as the case may be, from the Attorneys for
each Selling Stockholder to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be,
they have not been informed that:
(i) The representations and warranties made by such
Selling Stockholder herein are not true or correct in any material respect on
the Closing Date; or
(ii) Such Selling Stockholder has not complied with
any obligation or satisfied any condition which is required to be performed
or satisfied on his or its part at or prior to the Closing Date.
(l) The Company shall have obtained and delivered to you prior to
the date hereof a written agreement from each executive officer and person
named in the Prospectus as a director of the Company, each Selling
Stockholder and each of certain other holders of Common Stock named in
Schedule D hereto that such person will not, for a period expiring 90 days
after the effective date of the Registration Statement, directly or
indirectly, offer to sell, contract to sell, sell short or otherwise sell or
dispose of any shares of Common Stock of the Company, any options or warrants
to purchase any shares of Common Stock of the Company, or any securities
convertible into or exchangeable for shares of Common Stock of the Company
owned by such person or with respect to which such person has the power of
disposition, other than (i) the sale of Shares by the Selling Stockholders
hereunder, (ii) as a gift or
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gifts, provided the donee or donees thereof agree to be bound by this
restriction, (iii) the exercise of options outstanding as of the date hereof
or (iv) with the prior written consent of Robertson, Stephens & Company LLC.
Each such person shall also agree and consent to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of shares
of Common Stock held by such person except in compliance with the foregoing
restrictions.
(m) The Company and the Selling Stockholders shall have furnished
to you such further certificates and documents as you shall reasonably
request (including certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when the Selling
Stockholder is not a natural person)) as to the accuracy of the
representations and warranties of the Company and the Selling Stockholders
herein, as to the performance by the Company and the Selling Stockholders of
their respective obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling
Stockholders will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company and the Option Selling Stockholders hereby grant, severally and not
jointly, to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm
Shares only, a non-transferable option to purchase, at the price per Share
for the Company Shares and the Selling Stockholder Firm Shares set forth in
Section 3 hereof, the respective number of Company Option Shares and Selling
Stockholder Option Shares set forth opposite the names of the Company and the
Option Selling Stockholders in Schedule B hereto. Such option may be
exercised by the Representatives on behalf of the several Underwriters on one
occasion in whole or in part during the period of 30 days from and after the
date on which the Firm Shares are initially offered to the public, by giving
written notice to the Company. [The first _________ Option Shares to be
purchased by the Underwriters upon the exercise of such option will be
purchased from one of the Option Selling Stockholders, ___________________.
The next ________ Option Shares to be purchased by the Underwriters upon the
exercise of such option will be purchased from one of the Option Selling
Stockholders, ______________. The next ___________ Option Shares to be
purchased
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by the Underwriters upon the exercise of such option will be purchased from
one of the Option Selling Stockholders, ______________. The final _______
Option Shares to be purchased by the Underwriters upon the exercise of such
option will be purchased from the Company.] The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the
same proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (set forth in Schedule A hereto)
bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the
Representatives in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by wire transfer of immediately
available funds to the Company with regard to the Company Option Shares being
purchased, and to either Attorney for the respective accounts of the Option
Selling Stockholders with regard to the Selling Stockholder Option Shares.
Such delivery and payment shall take place at the Chicago office of Winston &
Strawn (or at such other place as may be agreed upon among the
Representatives, the Company and the Selling Stockholders) (i) on the Closing
Date, if written notice of the exercise of such option is received by the
Company not later than three (3) full business days prior to the Closing
Date, or (ii) on a later date, not later than the third (3rd) full business
day following the date the Company receives written notice of the exercise of
such option, if such notice is not received by the Company at least three (3)
full business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or other location, including, without
limitation, in New York City, as you may reasonably request for checking at
least two (2) full business days prior to the date of payment and delivery
and will be in such names and denominations as you may request, such request
to be made at least three (3) full days prior to such date of payment and
delivery. If the Representatives so elect, delivery of the Option Shares may
be made by credit through full fast transfer to the accounts at The
Depository Trust Company by the Representatives.
It is understood that you, individually, and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price on behalf of any Underwriter or Underwriters
whose payment or payments shall not have been received by you prior to the
date of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any
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Underwriter or Underwriters of any of its or their obligations hereunder.
The several Underwriters intend to make an initial public offering
(as such term is described in Section 11 hereof) of the Option Shares to be
issued upon exercise of such option at the initial public offering price for
the Firm Shares set forth in Section 3 hereof but after the initial public
offering the several Underwriters may in their discretion vary the public
offering price.
(b) Upon exercise of any option provided for in Section 7(a)
hereof, the obligations of the Underwriters to purchase such Option Shares
will be subject (as of the date hereof and as of the date of payment for such
Option Shares) to the accuracy of and compliance with the representations and
warranties of the Company and the Selling Stockholders herein, to the
accuracy of the statements of the Company, officers of the Company and the
Selling Stockholders made pursuant to the provisions hereof, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder and to the condition that all proceedings taken at or
prior to the payment date in connection with the sale and transfer of such
Option Shares shall be satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants of the
Company and the Selling Stockholders or the compliance with any of the
conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities related to negligence on the part of any Underwriter,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any breach of any representation,
warranty, agreement, or covenant of the Company herein contained or any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of
the circumstances in which they were made, not misleading; and agrees to
reimburse each Underwriter for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such loss,
claim, damage, liability or action;
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provided, however, that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, such Preliminary
Prospectus or the Prospectus, or any such amendment or supplement, in
reliance upon and in conformity with information furnished to the Company by
any Underwriter, directly or through you, or by a Selling Stockholder
specifically for use in the preparation thereof and, provided further, that
the indemnity agreement provided in this Section 8(a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, charges, liabilities or
litigation based upon any untrue statement or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus
in which such untrue statement or alleged untrue statement or omission or
alleged omission was corrected has not been sent or given to such person
within the time required by the Act and the Rules and Regulations thereunder,
unless such failure is the result of noncompliance by the Company with
Section 4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act. This
indemnity agreement shall be in addition to any liabilities that the Company
may otherwise have.
(b) Subject to the limitations set forth in Section 8(f) hereof,
each Selling Stockholder, severally and not jointly, agrees to indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, specifically including, but not limited to,
losses, claims, damages or liabilities related to negligence on the part of
any Underwriter, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any breach of any
representation, warranty, agreement or covenant of such Selling Stockholder
herein contained or any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information
furnished by such Selling Stockholder to the Company or any Underwriter,
directly or through such Selling Stockholder's representatives, specifically
for inclusion therein; and each Selling Stockholder, severally and not
jointly, further agrees to reimburse each Underwriter for any
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legal or other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that such Selling Stockholder shall not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, such
Preliminary Prospectus or the Prospectus, or any such amendment or
supplement, in reliance upon and in conformity with information furnished to
the Company by any Underwriter, directly or through you, specifically for use
in the preparation thereof and, provided further, that the indemnity
agreement provided in this Section 8(b) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, charges, liabilities or litigation based
upon any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected has not been
sent or given to such person within the time required by the Act and the
Rules and Regulations thereunder, unless such failure is the result of
noncompliance by the Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person,
if any, who controls any Underwriter within the meaning of the Act. This
indemnity agreement shall be in addition to any liabilities that such Selling
Stockholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company and each Selling Stockholder against
any losses, claims, damages or liabilities, joint or several, to which the
Company or such Selling Stockholder may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims,
damages or liabilities related to negligence on the part of the Company or
such Selling Stockholder, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained or any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances in which
made, not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information
furnished to
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the Company by such Underwriter, directly or through you, specifically for
inclusion therein, and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the
Company in connection with investigating or defending any such loss, claim,
damage, liability or action.
The indemnity agreement in this Section 8(c) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer
and director of the Company and each Selling Stockholder, and each person, if
any, who controls the Company or any Selling Stockholder within the meaning
of the Act. This indemnity agreement shall be in addition to any liabilities
that each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party in writing of the
commencement thereof but the omission to so notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notified the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and to the extent that it may elect by written notice
delivered to the indemnified party promptly after the aforesaid notice from
such indemnified party, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified parties and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party
or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election to so assume the defense of such action and
approval by the indemnified party of counsel, the indemnifying party will not
be liable to such indemnified party under this Section 8 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall not
be liable for the expenses of more than one separate counsel (together with
appropriate local counsel) approved by the indemnifying party, representing
all the indemnified parties under Section 8(a), 8(b) or 8(c) hereof who are
parties to such action), (ii) the indemnifying party shall not have employed
counsel reasonably
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satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action or (iii)
the indemnifying party has authorized in writing the employment of counsel
for the indemnified party at the expense of the indemnifying party. In no
event shall any indemnifying party be liable in respect of any amounts paid
in settlement of any action unless the indemnifying party shall have approved
the terms of such settlement; provided, however, that such consent shall not
be unreasonably withheld.
(e) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section
8 but it is judicially determined (by the entry of a final judgment or decree
by a court of competent jurisdiction and the expiration of time to appeal or
the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 8 provides
for indemnification in such case, all the parties hereto shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that, except
as provided in Section 8(f) hereof, the Underwriters are responsible pro rata
for the portion represented by the percentage that the underwriting discount
bears to the initial public offering price, and the Company and the Selling
Stockholders are responsible for the remaining portion; provided, however,
that (i) no Underwriter shall be required to contribute any amount in excess
of the underwriting discount applicable to the Shares purchased by such
Underwriter and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to a
contribution from any person who is not guilty of such fraudulent
misrepresentation. This subsection (e) shall not be operative as to any
Underwriter to the extent that the Company or any Selling Stockholder has
received indemnity under this Section 8.
(f) The liability of each Selling Stockholder under the
representations and warranties contained herein and under the indemnity
agreements contained in the provisions of this Section 8 shall be limited to
an amount equal to the price paid by the Underwriters for the Shares to be
sold by such Selling Stockholder hereunder. The Company and such Selling
Stockholders may agree, as among themselves and without limiting the rights
of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to
investigate the
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Company and its business in order to assure that adequate disclosure is made
in the Registration Statement and Prospectus as required by the Act and the
Exchange Act. The parties are advised that federal or state public policy,
as interpreted by the courts in certain jurisdictions, may be contrary to
certain of the provisions of this Section 8, and the parties hereto hereby
expressly waive and relinquish any right or ability to assert such public
policy as a defense to a claim under this Section 8 and further agree not to
attempt to assert any such defense.
9. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties, covenants and agreements of the Company and the
Selling Stockholders herein or in certificates delivered pursuant hereto, and
the indemnity and contribution agreements contained in Section 8 hereof,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter or any controlling
person, or by or on behalf of the Company, its officers, directors or
controlling persons or any Selling Stockholder, and shall survive the
delivery of the Shares to the several Underwriters hereunder or termination
of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such
Firm Shares in accordance with the terms hereof, and if the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters so agreed
but failed to purchase does not exceed 10% of the Firm Shares, the remaining
Underwriters shall be obligated, severally in proportion to their respective
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters
agreed but failed to take up and pay for exceeds 10% of the Firm Shares, the
remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them)
the Firm Shares that the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If such remaining Underwriters do not, at the Closing
Date, take up and pay for the Firm Shares that the defaulting Underwriter or
Underwriters so agreed but failed to purchase, the Closing Date shall be
postponed for 24 hours to allow the several Underwriters the privilege of
substituting within 24 hours (including non-business hours) another
underwriter or underwriters (which may include any nondefaulting Underwriter)
satisfactory to the Company. If no such underwriter or underwriters shall
have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further 24
hours, if necessary, to allow the Company the privilege of finding another
underwriter or underwriters, satisfactory to
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you, to purchase the Firm Shares that the defaulting Underwriter or
Underwriters so agreed but failed to purchase. If it shall be arranged for
the remaining Underwriters or substituted underwriters to take up the Firm
Shares of the defaulting Underwriter or Underwriters as provided in this
Section 10, (i) the Company shall have the right to postpone the time of
delivery for a period of not more than seven (7) full business days, in order
to effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees promptly to file any amendments to the Registration
Statement or supplements to the Prospectus which may thereby be made
necessary, and (ii) the respective number of Firm Shares to be purchased by
the remaining Underwriters and substituted underwriters shall be taken as the
basis of their underwriting obligation. If the remaining Underwriters shall
not take up and pay for all such Firm Shares so agreed to be purchased by the
defaulting Underwriter or Underwriters or substitute another underwriter or
underwriters as aforesaid and the Company shall not find or shall not elect
to seek another underwriter or underwriters for such Firm Shares as
aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Stockholder shall be liable to any Underwriter (except as provided in
Sections 5 and 8 hereof) nor shall any Underwriter (other than an Underwriter
who shall have failed, otherwise than for some reason permitted under this
Agreement, to purchase the number of Firm Shares agreed by such Underwriter
to be purchased hereunder, which Underwriter shall remain liable to the
Company, the Selling Stockholders and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company or any Selling
Stockholder (except to the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier of (i)
6:30 A.M., San Francisco time, on the first full business day following the
effective date of the Registration Statement or when executed if the
Registration Statement is then effective, or (ii) the time of the initial
public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which
the Shares are first generally offered by the Underwriters to the public by
letter, telephone, telegram or telecopy, whichever shall first occur. By
giving notice as set forth in Section 12 hereof
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before the time this Agreement becomes effective, you, as Representatives of
the several Underwriters, or the Company, may prevent this Agreement from
becoming effective without liability of any party to any other party, except
that the Company and the Selling Stockholders shall remain obligated to pay
costs and expenses to the extent provided in Sections 4(j) (but only to the
extent that Section 4(j) by its terms applies), 5 and 8 hereof.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter
specified at any time at or prior to the Closing Date or on or prior to any
later date on which the Option Shares are to be purchased, as the case may
be, (i) if the Company or any Selling Stockholder shall have failed, refused
or been unable, to perform any agreement on its part to be performed, or
because any other condition of the Underwriters' obligations hereunder
required to be fulfilled by the Company or any Selling Stockholder is not
fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company and its Subsidiaries considered as one enterprise
from that set forth in the Registration Statement or Prospectus that, in your
sole judgment, is material and adverse, (ii) if trading generally on the New
York Stock Exchange shall have been suspended, or minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for
securities shall have been required on the New York Stock Exchange, by the
New York Stock Exchange or by order of the Commission or any other
governmental authority having jurisdiction, or if a banking moratorium shall
have been declared by federal or New York or California authorities, (iii) if
on or prior to the Closing Date, or on or prior to any later date on which
Option Shares are to be purchased, as the case may be, the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other
calamity of such character as to interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured, (iv) if there shall have been a material adverse
change in the general political or economic conditions or financial markets
in the United States as in your reasonable judgment makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares
or (v) if on or prior to the Closing Date, or on or prior to any later date
on which Option Shares are to be purchased, as the case may be, there shall
have been an outbreak or escalation of hostilities between the United States
and any foreign power or of any other insurrection or armed conflict
involving the United States or the declaration by the United States of a
national emergency which, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to offer or sell the Shares. In the
event of termination pursuant to subparagraph (i) above, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8
hereof. Any termination pursuant to any of subparagraphs (ii) through (v)
above shall be without liability
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of any party to any other party, except as provided in Sections 5 and 8
hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed
by letter. If the Company shall elect to prevent this Agreement from
becoming effective, the Company shall promptly notify you by telephone,
telecopy or telegram, in each case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company LLC, 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 693-3393, Attention: Robert E. Grady; if sent to the Company,
such notice shall be mailed, delivered, telegraphed (and confirmed by letter)
or telecopied (and confirmed by letter) to U.S. Office Products Company, 1025
Thomas Jefferson Street, N.W., Suite 600 East, Washington, D.C. 20007,
telecopier number (202) 339-6720, Attention: Jonathan J. Ledecky, Chairman
of the Board and Chief Executive Officer, and Mark D. Director, Executive
Vice President and General Counsel; and if sent to one or more of the Selling
Stockholders, such notice shall be sent, mailed, delivered, telegraphed (and
confirmed by letter) or telecopied (and confirmed by letter) to Jonathan J.
Ledecky or Mark D. Director, as Attorney-in-Fact for the Selling
Stockholders, at 1025 Thomas Jefferson Street, N.W., Suite 600 East,
Washington, D.C. 20007, telecopier number (202) 339-6720.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters, the Company, the Selling Stockholders,
and their respective executors, administrators, successors and assigns.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any person or corporation, other than the parties hereto
and their respective executors, administrators, successors and assigns, and
the controlling persons, officers and directors referred to in Section 8
hereof, any legal or equitable right, remedy or claim in respect of this
Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or
corporation. No purchaser of any of the Shares from any Underwriter shall be
construed a successor or assign by reason merely of such purchase.
In all dealings with the Company and the Selling Stockholders under
this Agreement, you shall act on behalf of each
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of the several Underwriters, and the Company and the Selling Stockholders
shall be entitled to act and rely upon any statement, request, notice or
agreement made or given by you jointly or by Robertson, Stephens & Company
LLC on behalf of you.
14. Applicable law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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If the foregoing correctly sets forth the understanding among the
Company, the Selling Stockholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Stockholders and the several Underwriters.
Very truly yours,
U.S. OFFICE PRODUCTS COMPANY
By:__________________________
Jonathan J. Ledecky
Chairman of the Board and
Chief Executive Officer
SELLING STOCKHOLDERS
By:__________________________
__________________________
Attorney-in-Fact for the Selling
Stockholders named in Schedule B
hereto
Accepted as of the date
first above written:
ROBERTSON, STEPHENS & COMPANY LLC
MORGAN STANLEY & CO. INCORPORATED
SMITH BARNEY INC.
On their behalf and on behalf of
each of the several Underwriters
named in Schedule A hereto:
ROBERTSON, STEPHENS & COMPANY LLC
By: ROBERTSON, STEPHENS & COMPANY GROUP, L.L.C.
By:_____________________________
Authorized Signatory
<PAGE>
SCHEDULE A
Number of
Firm Shares
Underwriters To Be Purchased
- ------------ ---------------
ROBERTSON, STEPHENS & COMPANY LLC.......
MORGAN STANLEY & CO. INCORPORATED.......
SMITH BARNEY INC........................
__________
TOTAL.............................. 10,000,000
==========
<PAGE>
SCHEDULE B
Number of
Number of Company
Company Shares Option Shares
To Be Sold To Be Sold
----------- -----------
U.S. Office Products Company 6,000,000 900,000
Number of Number of
Selling Selling
Stockholder Stockholder
Firm Shares Option Shares
To Be Sold To Be Sold
----------- ----------
Name of Firm Selling Stockholders
Total Selling Stockholder
----------
Firm Shares 4,000,000
Total Firm Shares
----------
10,000,000
Name of Option Selling Stockholders
Total Selling Stockholder
-----------
Option Shares 600,000
-----------
Total Option Shares 1,500,000
<PAGE>
SCHEDULE C
[to be provided by Morgan, Lewis & Bockius LLP]
<PAGE>
SCHEDULE D
<PAGE>
January 29, 1997
U.S. Office Products Company
1440 New York Avenue, NW
Suite 310
Washington, D.C. 20005
Re: Issuance of Shares Pursuant to Registration Statement on Form S-3
------------------------------------------------------------------
Dear Gentlemen:
We have acted as counsel to U.S. Office Products Company, a Delaware
corporation (the "Company"), in connection with the preparation and filing
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the "Act"), of a Registration Statement on Form S-3 (the
"Registration Statement") relating to the offering by the Company and certain
selling stockholders (the "Selling Stockholders") of an aggregate of
11,500,000 shares (including an over-allotment option of 1,500,000 shares
granted to the Underwriters) (the "Shares") of the Company's Common Stock,
$.001 par value per share. Any Shares sold by the Selling Stockholders will
be sold pursuant to an underwriting agreement entered into by and among the
Company, the Selling Stockholders and the Underwriters. Except as otherwise
defined herein, capitalized terms are used herein as defined in the
Registration Statement.
In so acting, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of such documents, records, certificates and
other instruments of the Company as in our judgment are necessary or
appropriate for purposes of this opinion. For purposes of this opinion, we
have assumed that (i) the issuance of the Shares will have been duly
authorized, (ii) the Shares will have been reserved for issuance and
certificates evidencing the same will have been duly executed and delivered
against receipt of the consideration, approved by the Board of Directors of
the Company or an authorized committee thereof, which will be not less than
the par value thereof and (iii) the Shares will be issued in compliance with
applicable federal and state securities laws.
<PAGE>
U.S. office Products Company
January 8, 1997
Page 2
Based upon the foregoing, we are of the opinion that the Shares, when and to
the extent issued and sold by the Company and the Selling Stockholders and
purchased by the Underwriters in the manner contemplated in the Registration
Statement, will be (or in the case of the Selling Stockholders, are) legally
issued, fully paid and non-assessable. This opinion is limited to the
Delaware General Corporation Law and no opinion is expressed herein as to any
matters governed by the laws of any other jurisdictions.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement. In giving such consent, we do not
hereby admit that we are acting within the category of persons whose consent
is required under Section 7 of the Act and the rules and regulations of the
Commission thereunder.
Very truly yours,
Morgan, Lewis & Bockius LLP
