<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
SCHEDULE 14D-1
Tender Offer Statement
Pursuant to Section 14(d)(1) of the
Securities Exchange Act of 1934
----------
U.S. OFFICE PRODUCTS COMPANY
-----------------------------------------------------
(Name of Subject Company)
CDR-PC ACQUISITION, L.L.C.
CLAYTON, DUBILIER & RICE FUND V LIMITED PARTNERSHIP
-----------------------------------------------------
(Bidders)
Common Stock, Par Value $.001 Per Share
-----------------------------------------------------
(Title of Class of Securities)
912 325 107
-----------------------------------------------------
(CUSIP Number of Class of Securities)
----------
DONALD J. GOGEL
Clayton, Dubilier & Rice
Fund V Limited Partnership
1403 Foulk Road
Suite 106
Wilmington, Delaware 19803
(302) 477-1679
-----------------------------------------------------
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of the person(s) filing statement)
With a copy to:
FRANCI J. BLASSBERG, ESQ.
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
(212) 909-6531
-----------------------------------------------------
Calculation of Filing Fee
<TABLE>
<S> <C>
Transaction valuation Amount of filing fee
$930,000,000(*) $186,000
</TABLE>
(*) Assumes purchase at $27 per share of approximately 32 million Shares
and 5 million Option Shares (with an average exercise price of $14 per
Share).
<PAGE>
/X/ Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $186,000
-----------------------------------------------------
Form or Registration No.: Schedule 13E-4
---------------------------------------------------
Filing Party: U.S. Office Products Company
---------------------------------------------------------------
Date Filed: May 4, 1998
--------------
2
<PAGE>
Item 1. Security and Subject Company.
(a) The name of the subject company is U.S. Office Products
Company, a Delaware corporation (the "Company"), which has its principal
executive offices at 1025 Thomas Jefferson Street, N.W., Suite 600 East,
Washington, D.C. 20007.
(b) This statement relates to the offer by U.S. Office
Products Company, a Delaware corporation, to purchase 37,037,037 shares of
its Common Stock, par value $.001 per share (the "Shares"), at a price of
$27 per Share. The number of Shares to be purchased by the Company includes
Shares that may be tendered upon exercise of stock options with an exercise
price of less than $27 per Share ("Option Shares"). Unless otherwise noted,
the term Shares includes Option Shares. The Company's offer is subject to the
terms and conditions set forth in the Offer to Purchase dated May 4, 1998
(the "Offer to Purchase") and the related Letter of Transmittal, copies of
which are filed as Exhibits (a)(ii) and (a)(vi), respectively, to the
Company's Schedule 13E-4. Information concerning the number of outstanding
Shares, Shares being sought and the consideration being offered for the
Shares and the Option Shares is incorporated by reference to Section 1,
"Number of Shares; Proration; Expiration Date" and "Introduction" of the
Offer to Purchase.
(c) The information set forth in Section 8, "The
Offer--Price Range of Shares; Dividends" of the Offer to Purchase is
incorporated herein by reference.
Item 2. Identity and Background.
(a)-(d) and (g) This statement is filed by CDR-PC
Acquisition, L.L.C., a Delaware limited liability company ("CDR-PC"), and
Clayton, Dubilier & Rice Fund V Limited Partnership, a Cayman Islands
exempted limited partnership ("CDR Fund V"), which may be deemed to be
"co-bidders" in connection with the offer. The sole member of CDR-PC is CDR
Fund V. The information set forth in Appendix 1 hereto is incorporated herein
by reference. The filing of this Schedule 14D-1 is not an admission that
either CDR-PC or CDR Fund V is a "bidder" within the meaning of Rule 14d-1
under the Securities Exchange Act of 1934, as amended.
(e) and (f) None of the persons or entities with respect to
whom information is required by this item was, during the last five years,
either (i) convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors) or (ii) a party to a civil
3
<PAGE>
proceeding of a judicial or administrative body of competent jurisdiction and
as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, U.S. federal or state securities laws or finding any violation of such laws.
Item 3. Past Contracts, Transactions or Negotiations
with the Subject Company.
(a) Not applicable.
(b) The information in "The Strategic Restructuring Plan
- --Background and Purpose of the Equity Investment" in
Annex A to the Offer to Purchase is incorporated herein by reference.
Item 4. Source and Amount of Funds or Other Consideration.
(a) The information set forth in Section 9, "The Offer
- --Source and Amount of Funds" of the Offer to Purchase is incorporated herein
by reference.
(b) The information set forth in Section 9, "The Offer
- --Source and Amount of Funds" in the Offer to Purchase, and in "The Strategic
Restructuring Plan -- Financing Transactions" "--Background of and Reasons for
the Equity Investment" and "--Information About the Board of Directors
After the Equity Investment" in Annex A to the Offer to Purchase is
incorporated herein by reference.
Item 5. Purpose of the Tender Offer and Plans or Proposals
of the Bidder.
(a) The information set forth in "Background and Purpose of
the Offer" in the Offer to Purchase and in "The Strategic Restructuring Plan"
in Annex A to the Offer to Purchase is incorporated herein by reference.
(b) The information set forth in "Background and Purpose of
the Offer" in the Offer to Purchase and in "The Strategic Restructuring Plan"
in Annex A to the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in "Background and Purpose of
the Offer" in the Offer to Purchase, and in "The Strategic Restructuring Plan
- -- Equity Investment", "--Background of and Reasons for the Equity Investment"
and "--Information About the Board of Directors After the Equity
Investment" in Annex A to the Offer to Purchase is incorporated
herein by reference.
(d) The information set forth in "Background and Purpose of
the Offer" and Section 9, "The Offer -- Source and Amount of Funds" in
4
<PAGE>
the Offer to Purchase and in "The Strategic Restructuring Plan -- Financing
Transactions" in Annex A to the Offer to Purchase is incorporated herein by
reference.
(e) The information set forth in "Background and Purpose of
the Offer" in the Offer to Purchase and in "The Strategic Restructuring Plan"
in Annex A to the Offer to Purchase is incorporated herein by reference.
(f) and (g) Not applicable.
Item 6. Interest in Securities of the Subject Company.
(a) Except as described in "The Strategic Restructuring
Plan -- Equity Investment" in Annex A to the Offer to Purchase, none of the
persons named in Item 2 of this Schedule 14D-1 beneficially owns or has the
right to acquire shares of the Company.
(b) None.
Item 7. Contracts, Arrangements, Understandings or
Relationships with Respect to the Subject
Company's Securities.
The information set forth in "Background and Purpose of the
Offer" in the Offer to Purchase and in "The Strategic Restructuring Plan" in
Annex A to the Offer to Purchase is incorporated herein by reference.
Item 8. Persons Retained, Employed or to be Compensated.
The information set forth in Section 13, "The Offer -- Fees
and Expenses" in the Offer to Purchase is incorporated herein by reference.
5
<PAGE>
Item 9. Financial Statements of Certain Bidders.
The financial statements of CDR Fund V are set forth in
Appendix 2 and are incorporated herein by reference.
The incorporation by reference of the above-referenced
financial information does not constitute an admission that such information is
material to a decision by a stockholder of the Company whether to sell, tender
or hold Shares being sought pursuant to the Offer.
Item 10. Additional Information.
(a) None.
(b)-(c) The information set forth in Section 11, "The Offer --
Certain Legal Matters; Regulatory Approvals" of the Offer to Purchase is
incorporated herein by reference.
(d) Not applicable.
(e) The information set forth in Section 11, "The Offer --
Certain Legal Matters; Regulatory Approvals" of the Offer to Purchase is
incorporated herein by reference.
(f) Reference is made to the Offer to Purchase and related
Letter of Transmittal, copies of which are filed as exhibits (a)(ii) and (a)(vi)
to the Company's Schedule 13E-4 and incorporated herein by reference.
Item 11. Material to be Filed as Exhibits.
The following Exhibits are filed herewith:
*(a)(i) Form of Press Release, dated May 4, 1998.
*(a)(ii) Form of Offer to Purchase, dated May 4, 1998.
*(a)(iii) Form of Letter, dated May 4, 1998, from Thomas Morgan,
President and Chief Executive Officer of U.S.
Office Products Company to Stockholders.
*(a)(iv) Form of Letter, dated May 4, 1998, from Morgan Stanley &
Co. Incorporated (Dealer Manager), to Brokers,
Dealers, Commercial Banks, Trust Companies and
Other Nominees.
6
<PAGE>
*(a)(v) Form of Letter to Clients for use by Brokers, Dealers,
Commercial Banks, Trust Companies and Other Nominees.
*(a)(vi) Form of Letter of Transmittal.
*(a)(vii) Form of Notice of Guaranteed Delivery.
*(a)(viii) Form of proposed advertisement to be printed in the Wall
Street Journal on May 4, 1998.
*(a)(ix) (1) Form of Memorandum dated May 4, 1998 from U.S. Office
Products Company to Holders of USOP Options; (2) Form of
Questions and Answers on Tender Offer and Procedures for
Holders of Options; and (3) Form of Notice of Instructions
(Options).
*(a)(x) (1) Form of Memorandum dated May 4, 1998 from U.S. Office
Products Company to Participants in the Employee Stock
Purchase Plan; (2) Form of Questions and Answers on Tender
Offer and Procedures for Participants in the U.S. Office
Products Company Employee Stock Purchase Plan; (3) Form of
Tender Instructions Form for Shares in the U.S. Office
Products Company Employee Stock Purchase Plan; and (4) Form
of Notice to Participants in the U.S. Office Products
Company Employee Stock Purchase Plan from American Stock
Transfer & Trust Company dated May 4, 1998.
*(a)(xi) (1) Form of Memorandum dated May 4, 1998 from the Company
to Stockholders who own Pledged Shares; (2) Form of
Questions and Answers on Tender Offer and Procedures for
Stockholders who own Pledged Shares; and (3) Form of Notice
of Instructions, Power of Attorney and Agreement (Pledged
Shares).
*(b) Commitment Letter dated March 24, 1998 from The Chase
Manhattan Bank, Chase Securities Inc., Bankers Trust Company,
BT Alex. Brown Incorporated, Merrill Lynch Capital
Corporation and Merrill Lynch, Pierce, Fenner & Smith
Incorporated to U.S. Office Products Company, as amended
April 22, 1998.
*(c)(i) Agreement dated as of January 13, 1998 between
U.S. Office Products Company and Jonathan J.
Ledecky (to be filed by amendment).
7
<PAGE>
*(c)(ii) Investment Agreement dated as of January 12, 1998 between
U.S. Office Products Company and CDR-PC Acquisition, L.L.C.,
as amended February 3, 1998.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
- --------
* Incorporated by reference to the exhibits of the same number to the
Company's Schedule 13E-4 filed on May 4, 1998.
8
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief,
I certify that the information set forth in this statement is true, complete and
correct.
CDR-PC ACQUISITION, L.L.C.
By: /s/ Donald J. Gogel
--------------------------
Donald J. Gogel
President
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
By: CD&R Associates V Limited
Partnership, the General
Partner
By: CD&R Investment
Associates II, Inc.,
its managing general
partner
By: /s/ Donald J. Gogel
--------------------------
Donald J. Gogel
President
Dated: May 4, 1998
9
<PAGE>
EXHIBIT INDEX
Exhibit Description
- -------------------------------------------------------------------------------
*(a)(i) Form of Press Release, dated May 4, 1998.
*(a)(ii) Form of Offer to Purchase, dated May 4,
1998.
*(a)(iii) Form of Letter, dated May 4, 1998, from
Thomas Morgan, President and Chief
Executive Officer of U.S. Office
Products Company to Stockholders.
*(a)(iv) Form of Letter, dated May 4, 1998, from
Morgan Stanley & Co. Incorporated
(Dealer Manager), to Brokers,
Dealers, Commercial Banks, Trust
Companies and Other Nominees.
*(a)(v) Form of Letter to Clients for use by
Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
*(a)(vi) Form of Letter of Transmittal.
*(a)(vii) Form of Notice of Guaranteed Delivery.
*(a)(viii) Form of proposed advertisement to
be printed in the Wall Street
Journal on May 4, 1998.
*(a)(ix) (1) Form of Memorandum dated May 4, 1998
from U.S. Office Products Company
to Holders of USOP Options; (2) Form of
Questions and Answers on Tender
Offer and Procedures for Holders of
Options; and (3) Form of Notice of
Instructions (Options).
*(a)(x) (1) Form of Memorandum dated May 4, 1998
from U.S. Office Products Company
to Participants in the Employee
Stock Purchase Plan; (2) Form of Questions
and Answers on Tender Offer and
Procedures for Participants in the
U.S. Office Products Company
Employee Stock Purchase Plan; (3) Form of
Tender Instructions Form for Shares
in the U.S. Office Products Company
Employee Stock Purchase Plan; and
(4) Form of Notice to Participants in the
U.S. Office Products Company
Employee Stock Purchase Plan from
American Stock Transfer & Trust
Company dated May 4, 1998.
10
<PAGE>
*(a)(xi) (1) Form of Memorandum dated May 4, 1998
from the Company to Stockholders
who own Pledged Shares; (2) Form of
Questions and Answers on Tender
Offer and Procedures for
Stockholders who own Pledged
Shares; and (3) Form of Notice of
Instructions, Power of Attorney and
Agreement (Pledged Shares).
*(b) Commitment Letter dated March 24, 1998 from The Chase
Manhattan Bank, Chase Securities Inc., Bankers Trust
Company, BT Alex. Brown Incorporated, Merrill Lynch
Capital Corporation and Merrill Lynch, Pierce, Fenner &
Smith Incorporated to U.S. Office Products Company, as
amended April 22, 1998.
*(c)(i) Agreement dated as of January 13,
1998 between U.S. Office Products
Company and Jonathan J. Ledecky (to be filed by
amendment).
*(c)(ii) Investment Agreement dated as of January 12, 1998
between U.S. Office Products Company and CDR-PC
Acquisition, L.L.C., as amended February 3, 1998.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
- ------------------------------------
* Incorporated by reference to the exhibits of the same number to the
Company's Schedule 13E-4 filed on May 4, 1998.
11
<PAGE>
Appendix 1
CDR-PC
CDR-PC is a newly formed Delaware limited liability company
organized in connection with the transactions contemplated by the Investment
Agreement, dated as of January 12, 1998, between the Company and CDR-PC, as
amended February 3, 1998. As a special-purpose acquisition vehicle, CDR-PC is
not expected to have significant assets or liabilities (other than those
arising under the Investment Agreement or in connection with the investment)
or to engage in any activities (other than those incident to its formation
and to the Equity Investment described in "The Strategic Restructuring Plan
- -- Equity Investment" in Annex A to the Offer to Purchase). The sole member
of CDR-PC is CDR Fund V. The principal executive offices of CDR-PC are c/o
Clayton, Dubilier & Rice Fund V Limited Partnership, 1403 Foulk Road, Suite
106, Wilmington, Delaware 19803.
Set forth below are the names, business addresses, present
occupations or employment and five year employment histories of each officer
of CDR-PC, each of whom is a United States citizen. The business address of
each person listed below is c/o Clayton, Dubilier & Rice, Inc., 375 Park
Avenue, New York, New York 10125.
Donald J. Gogel is the President of CDR-PC. Mr. Gogel has been a
principal of Clayton, Dubilier & Rice, Inc. ("CDR") since 1989 and the
President, Assistant Secretary and Assistant Treasurer of CDR since 1995. Mr.
Gogel is a Director, President, Assistant Treasurer and Assistant Secretary
of both Associates II Inc. and Associates Inc., and a shareholder and
Director of CD&R Investment Associates Cayman Inc. (See "CDR Fund V" below.)
Mr. Gogel is also a Director of APS Holding Corporation, A.P.S., Inc., CDRF
Holding, Inc., Alliant Foodservice, Inc., Kinko's, Inc., Global Decisions
Group, L.L.C. and Jafra Cosmetics International, Inc. Brian D. Finn is the
Executive Vice President of CDR-PC. Mr. Finn is a principal and a Director of
CDR and has been a professional employee of CDR since 1997. Mr. Finn serves
as a Director of Associates II Inc. Prior to joining CDR, Mr. Finn worked at
Credit Suisse First Boston, an investment banking firm, for 15 years, most
recently as co-head of the Mergers and Acquisitions division. David A. Novak
is the Executive Vice President and Secretary of CDR-PC. Mr. Novak is a
professional employee of CDR and a director of Jafra Cosmetics International,
Inc. Prior to joining CDR in 1997, he worked at Morgan Stanley & Co.
Incorporated, an investment banking firm.
1
<PAGE>
CDR Fund V
CDR Fund V, a Cayman Islands exempted limited partnership, is a
private investment fund managed by CDR. Amounts contributed to CDR Fund V by
its limited partners are invested at the discretion of the general partner in
equity or equity-related securities of entities formed to effect leveraged
acquisition transactions and in the equity of corporations where the infusion
of capital, coupled with the provision of managerial assistance by CDR, can
be expected to generate returns on investments comparable to returns
historically achieved in leveraged acquisition transactions. The general
partner of CDR Fund V is CD&R Associates V Limited Partnership, a Cayman
Islands exempted limited partnership ("Associates V"). Associates V has three
general partners. The managing general partner of Associates V is CD&R
Investment Associates II, Inc., a Cayman Islands exempted company
("Associates II Inc."). The other general partners of Associates V are CD&R
Cayman Investment Associates, Inc., a Cayman Islands exempted company
("Associates Cayman Inc."), and CD&R Investment Associates, Inc., a Delaware
corporation ("Associates Inc."). Under the partnership agreement of
Associates V, all management authority (other than with respect to the
amendment of the partnership agreement) is vested in Associates II Inc. CDR
Fund V has committed to purchase, immediately prior to the Equity Investment,
membership interests in CDR-PC for $270 million. The principal executive
offices of CDR Fund V, Associates V, Associates II Inc. and Associates Inc.
are located at 1403 Foulk Road, Suite 106, Wilmington, Delaware 19803. The
principal executive offices of Associates Cayman Inc. are located at Ugland
House, South Church Street, Grand Cayman, Cayman Islands, BWI.
Set forth below are the names, business addresses, present principal
occupations or employment and five year employment histories of each director
and officer of Associates II Inc. and Associates Inc. and each director and
shareholder of Associates Cayman Inc., each of whom is a United States
citizen. The business address of each of the persons listed below is c/o
Clayton, Dubilier & Rice, Inc., 375 Park Avenue, New York, New York 10125.
The shareholders of Associates Inc. and Associates II Inc. are principals of
CDR. No shareholder holds more than approximately 18% of the voting stock of
either Associates Inc. or Associates II Inc. Associates Cayman Inc. has no
officers.
Joseph L. Rice, III has been a principal of CDR since 1978 and the
Chairman and Chief Executive Officer of CDR since 1995. Mr. Rice is a
Director and the Chairman and Chief Executive Officer of both Associates II
Inc. and Associates Inc. and is a shareholder and Director of Associates
Cayman Inc. Mr. Rice also serves as a Director of RACI Holding, Inc. and
Remington Arms Company, Inc. B. Charles Ames has been a principal of CDR
since 1989, and is a director of both Associates II Inc. and Associates Inc.
Since October 1996, Mr. Ames has served as Chairman of Riverwood Holding,
Inc., RIC Holding, Inc. and Riverwood International Corporation. Mr Ames is
also Chairman of WESCO Distribution, Inc. and CDW Holding Corporation, and
Remington Arms
2
<PAGE>
Company, Inc. Donald J. Gogel has been a principal of CDR since 1989 and the
President, Assistant Secretary and Assistant Treasurer of CDR since 1995. Mr.
Gogel is a Director, President, Assistant Treasurer and Assistant Secretary
of both Associates II Inc. and Associates Inc. and is a shareholder and
Director of Associates Cayman Inc. Mr. Gogel is President of CDR-PC and also
a Director of APS Holding Corporation, A.P.S., Inc., CDRF Holding, Inc.,
Alliant Foodservice, Inc., Kinko's, Inc., Global Decisions Group, L.L.C. and
Jafra Cosmetics International, Inc. William A. Barbe is a principal of CDR and
has been a professional employee of CDR since 1992. Mr. Barbe serves as a
Director and Vice President, Secretary and Treasurer of CDR and of both
Associates II Inc. and Associates Inc. Mr. Barbe also serves as a Director of
WESCO Distribution, Inc., CDW Holding Corporation and Kinko's, Inc. Brian D.
Finn is a principal and a Director of CDR and has been a professional
employee of CDR since 1997. Mr. Finn serves as a Director of Associates II
Inc. and as Executive Vice President of CDR-PC. Prior to joining CDR, Mr.
Finn worked at Credit Suisse First Boston, an investment banking firm, for 15
years, most recently as co-head of the Mergers and Acquisitions division.
Charles Pieper is a principal and a Director of CDR and has been a
professional employee of CDR since 1997. Mr. Pieper is a Director of
Associates II Inc. and serves as Chairman of North American Van Lines, Inc.
and as a Director of Alliant Foodservice, Inc. and CDRF Holding, Inc.
Previously, Mr. Pieper was President and Chief Executive Officer of GE
Lighting Europe and GE Japan, GE Korea, GE Taiwan, GE Medical Systems Asia,
Yokogawa Medial Systems and GE Trading Co. Kevin J. Conway is a principal of
CDR, has been a professional employee of CDR since 1994. Mr. Conway is a
Director of both Associates II Inc. and Associates Inc. and is also a
Director of Riverwood Holding, Inc., RIC Holding, Inc. and Riverwood
International Corporation. Prior to joining CDR, Mr. Conway spent ten years
with Goldman, Sachs & Co., where he was elected a partner. He was a senior
member of the Mergers and Acquisitions Department at Goldman, Sachs & Co. and
served as Chief of Staff of the Investment Banking Division. Michael G.
Babiarz is a principal of CDR and has been a professional employee of CDR
since 1990. Mr. Babiarz is also a Director of Associates II Inc.
3
<PAGE>
Appendix 2
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
DECEMBER 31, 1997 and 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
Clayton, Dubilier & Rice Fund V
Limited Partnership
Wilmington, Delaware
We have audited the accompanying balance sheets of Clayton, Dubilier & Rice Fund
V Limited Partnership as of December 31, 1997 and 1996, and the related
statements of operations, changes in partners' capital and cash flows for each
of the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Clayton, Dubilier & Rice Fund V
Limited Partnership at December 31, 1997 and 1996, and the results of its
operations and its cash flows for the each of the years then ended in conformity
with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
New York, New York
January 31, 1998
As to Note C[2]
March 9, 1998
<PAGE>
CLAYTON, DUBLIER & RICE FUND V
LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Balance Sheets
December 31,
------------
1997 1996
---- ----
ASSETS
<S> <C> <C>
Investments in leveraged buyouts, at fair value $480,643,790 $405,537,945
Cash and cash equivalents 1,303,270 36,525,093
Other assets 36,203 468,853
Organization costs, net of accumulated amortization of $200,725
and $129,881 in 1997 and 1996, respectively 153,498 224,342
Deferred syndication costs 4,491,960 8,559,119
------------ ------------
$486,628,721 $451,315,352
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Due to placement agents $3,790,000 $ 7,850,000
Due to management company 270,000 270,000
Due to limited partners 30,712,055
Accrued expenses and accounts payable 428,529 84,966
------------ ------------
4,488,529 38,917,021
Commitments
Partners' capital 482,140,192 412,398,331
------------ ------------
$486,628,721 $451,315,352
------------ ------------
------------ ------------
See notes to financial statements
</TABLE>
2
<PAGE>
CLAYTON, DUBLIER & RICE FUND V
LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Statements of Operations
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Interest income $ 105,305 $ 519,600
------------ ------------
Expenses:
Management fee 12,600,739 13,126,487
Professional fees 71,277 139,131
Amortization of organization costs 70,844 70,844
Other operating expenses 104,770 71,584
------------ ------------
12,847,630 13,408,046
------------ ------------
Net investment loss (12,742,325) (12,888,446)
Net unrealized appreciation (depreciation) on investments 70,222,058 (33,750,000)
------------ ------------
Net income (loss) $ 57,479,733 $(46,638,446)
------------ ------------
------------ ------------
See notes to financial statements
</TABLE>
3
<PAGE>
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
Statement of Changes in Partners' Capital
1997 1996
---- ----
<S> <C> <C>
Partners' capital at January 1, $412,398,331 $ 1,598,770
Capital contributions 16,329,287 461,696,680
Syndication costs (4,067,159) (4,258,673)
Net Investment loss (12,742,325) (12,888,446)
Net unrealized appreciation (depreciation) on investments 70,222,058 (33,750,000)
-------------- ------------
Partners' capital at December 31, $482,140,192 $412,398,331
-------------- ------------
-------------- ------------
See notes to financial statements
</TABLE>
4
<PAGE>
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 57,479,733 $(46,638,446)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Amortization of organization costs 70,844 70,844
Change in unrealized depreciation on investments (70,222,058) 33,750,000
Changes in:
Other assets 432,650 (461,538)
Accrued expenses and accounts payable (40,163) 33,790
------------ ------------
Net cash used in operating activities (12,278,994) (13,245,350)
------------ ------------
Cash flows from investing activities:
Investments in leveraged buyouts (4,500,061) (439,287,945)
------------ ------------
Cash flows from financing activities:
Syndication costs (4,060,000) (4,060,000)
Partners' capital contributions 16,329,287 461,696,680
Due to limited partners (30,712,055) 30,712,055
------------ ------------
Net cash provided by (used in) financing activities (18,442,768) 488,348,735
------------ ------------
Net (decrease) increase in cash and cash equivalents (35,221,823) 35,815,440
Cash and cash equivalents, beginning of year 36,525,093 709,653
------------ ------------
Cash and cash equivalents, end of year $ 1,303,270 $ 36,525,093
------------ ------------
------------ ------------
</TABLE>
Noncash transactions:
Deferred syndication cost amortization of $7,159 and $198,673 was charged
directly to partners' capital during the years ended December 31, 1997 and
1996, respectively. In addition, $4,060,000 was charged directly to partners'
capital each year during the two-year period ended December 31, 1997 for
amortization of placement fees.
In March 1998, the Partnership paid an additional $383,726 for shares of
Kinko's, Inc. purchased during 1997. Such amount has been accrued and
therefore increased the cost basis of the investment at December 31, 1997.
See notes to financial statements
5
<PAGE>
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997 and 1996
NOTE A -- DESCRIPTION OF THE PARTNERSHIP
Clayton, Dubilier & Rice Fund V Limited Partnership (the "Fund") was formed in
March 1995 by CD&R Associates V Limited Partnership (the "General Partner"),
each a Connecticut limited partnership. Clayton, Dubilier & Rice, Inc. (the
"Management Company") is owned by two persons who are also stockholders of the
general partner's managing general partner. The Fund is to continue through
December 31, 2004 unless an event of termination, as defined, occurs. However,
it may be extended for up to three one-year periods.
On March 25, 1996, the Fund and its General Partner were reorganized first as
Delaware limited partnerships and then as Cayman Islands exempted limited
partnerships, and thereafter are governed by partnership agreements reflecting
the same economic arrangements as their predecessor partnerships, but governed
by Cayman Islands law. The reorganized General Partner has, in addition to its
managing general partner, a general partner which is a Cayman Islands exempted
company and is owned by the two stockholders of the Management Company.
The purpose of the Fund is to make investments in equity or equity-related
securities (a) of companies formed to effect or that are the subjects of
buy-outs sponsored by the Management Company or (b) that can be expected to
generate returns on the investment that approximate those that historically have
been achieved in buy-out transactions. The Fund endeavors to realize long-term
appreciation.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Valuation of investments:
Investments are recorded at fair value as determined in good faith by
the General Partner, subject to approval by the Fund's Advisory Board as
to the methods of valuation, after consideration of pertinent
information, such as available market prices, types of securities,
marketability, restrictions on disposition, original purchase price,
estimates of liquidation value, prices received in recent significant
private placements, current financial position and operating results,
and other appropriate information. The values assigned to these
investments and any unrealized gains or losses reported are based upon
available information and do not necessarily represent amounts which
might be realized if a ready market existed and such difference could be
material. Furthermore, the ultimate realization of such amounts depend
on future events and circumstances and therefore valuation estimates may
differ from the valuation when the individual positions are liquidated
(see Note C).
[2] Amortization of organization costs:
Professional fees incurred in organizing the Fund have been capitalized
and are presently being amortized over 60 months on a straight-line
basis. Such fees and other capital raising costs, other than placement
fees, were limited to $1 million.
[3] Deferred syndication costs:
Deferred syndication costs are composed of placement fees of $16,240,000
and other capital raising costs of $646,000 net of accumulated
amortization of approximately $12,394,000. Placement fees are charged
99.8% to the capital accounts of the specific Limited Partners with
respect to which the fees are incurred and 0.2% to the General Partner's
capital account over a four-year period as they are collected from the
Limited Partners. Other syndication costs are charged to the partners'
capital accounts on a pro rata basis as significant capital
contributions are received from the Limited Partners. Amounts due to
placement agents are being paid over a four-year period.
6
<PAGE>
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997 and 1996
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4] Income taxes:
No provision is required for United States federal, state and local
income taxes since the Fund, itself, is not subject to such taxes. Each
partner must separately report its proportionate share of taxable income
or loss. The Fund is not subject to taxation in the Cayman Islands.
[5] Statement of cash flows:
For purposes of the statement of cash flows, the Fund considers all
highly liquid debt investments purchased with maturities of three months
or less to be cash equivalents.
[6] 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 disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE C -- INVESTMENTS
The securities of the Fund's investees held by the Fund have not been registered
under the Securities Act of 1933.
The investments held by the Fund are as follows:
<TABLE>
<CAPTION>
December 31,1997
-----------------
Percentage Fair Value
Industry and Company Of Fair Value Cost Fair Value December 31, 1996
- -------------------- ------------- ------------- ---------- -----------------
<S> <C> <C> <C> <C>
Paperboard Packaging:
Riverwood Holding, Inc.
2,250,000 shares of
Class A Common stock [1] 39.8% $ 225,000,000 $ 191,250,000 $191,250,000
Business Service Retailer:
Kinko's, Inc.
4,134,197 and 4,038,885 shares of
Common Stock in 1997 and 1996 [2] 60.2% 219,171,732 289,393,790 214,287,945
---------- -------------- ------------- ----------------
100.0% $ 444,171,732 $ 480,643,790 $405,537,945
---------- -------------- ------------- -----------------
---------- -------------- ------------- -----------------
</TABLE>
7
<PAGE>
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997 and 1996
NOTE C -- INVESTMENTS (CONTINUED)
[1] In March 1996, the Fund purchased 2,250,000 shares of Class A common
stock, having an aggregate purchase price of $225 million, of New River
Holding, Inc. (subsequently renamed Riverwood Holding, Inc.
"Riverwood"), a company formed to acquire, through the merger of its
indirect subsidiary CDRO Acquisition Corporation, all of the capital
stock of Riverwood International Corporation.
Under the terms of certain agreements relating to the sale of stock to
Riverwood's management, Riverwood is required to obtain an annual
valuation of its shares. The Board of Directors of Riverwood, having
received a valuation from an outside advisor, determined the implied
market value of Riverwood's common equity to be $85 per share as of
December 31, 1997 and 1996. The General Partner adjusted the
Partnership's investment in Riverwood at each year end to reflect such
implied market value (see Note B [1]).
[2] In December 1996, the Fund purchased 4,038,885 shares of Common Stock
(subject to post-closing adjustment), having an aggregate purchase price
of $214,287,945, of Kinko's New Master Corporation (which has been
renamed Kinko's, Inc. "Kinko's") a company formed to consolidate and
succeed to the business and operating entities and affiliates thereof
that constitute The Kinko's Group. In February 1997, the Fund purchased
an additional 95,312 shares for $4,883,787 (subject to post-closing
adjustment), $4,500,061 of which was paid at that time and the balance
of $383,726 which was paid in March 1998. The March 1998 payment was
accrued at December 31, 1997.
Under the terms of certain agreements relating to the sale of stock to
Kinko's management, Kinko's is required to obtain an annual valuation of
its shares. The Board of Directors of Kinko's, having received a
valuation from an outside advisor, determined the implied market value
of Kinko's common equity to be $70 per share as of December 31, 1997.
The General Partner adjusted the Partnership's investment in Kinko's at
year end to reflect such implied market value (see Note B[1]).
NOTE D -- CAPITAL CONTRIBUTIONS AND INCOME (LOSS) ALLOCATION
The Fund entered into subscription agreements with its Limited Partners for
investment commitments totaling $1,500,000,000. The agreements provide that
capital contributions shall be payable in installments as follows:
[1] Up to one-eleventh of one percent of such commitment was payable on
March 7, 1995 (the "First Closing").
[2] Each Limited Partner is to contribute capital to pay its share of the
management fee payable pursuant to the Fund's partnership agreement (the
"Partnership Agreement").
[3] The remaining capital contributions shall be payable to permit the
purchase of investments or for working capital needs.
[4] The General Partner will contribute capital to the Fund upon the
dissolution and termination of the Fund if and to the extent required
under the terms of the Partnership Agreement.
Each Limited Partner, through September 30, 1999, may elect to reduce,
effective January 1, 2000, the portion of its capital commitment that
has not yet been invested, so that it shall no longer be obligated to
contribute capital for portfolio investments, subject, however, to such
Limited Partner's obligation to contribute capital to cover its share of
Fund expenses, including the management fee, and to complete investments
in transactions as to which commitments were made through December 31,
1999.
8
<PAGE>
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997 and 1996
NOTE D -- CAPITAL CONTRIBUTIONS AND INCOME (LOSS) ALLOCATION (CONTINUED)
[4] (continued)
Gains and income attributable to investments in portfolio companies and
bridge financing are generally allocated 80% to the partners in
accordance with their participation in the investment and 20% to the
General Partner after adjustments for prior losses and certain expenses
in accordance with the Partnership Agreement. Losses are generally
allocated 80% to the Limited Partners and 20% to the General Partner in
an amount that takes into account prior realized gains, and 99.8% and
0.2%, respectively, thereafter.
Other income, as defined in the Partnership Agreement, is generally
allocated to the partners in accordance with a formula pursuant to the
Partnership Agreement. Currently, such income is allocated 98.36% to the
Limited Partners and 1.64% to the General Partner. Expenses are
generally allocated 99.8% to the Limited Partners and 0.2% to the
General Partner.
NOTE E-- DISTRIBUTION TO PARTNERS
The Fund is obligated to make cash distributions in amounts intended to enable
the partners to discharge their federal, state and local tax liabilities arising
from their respective allocations of gain from portfolio investments and certain
gain from bridge financings ("Tax Liability Distributions"). Distributions other
than Tax Liability Distributions are made out of available assets in such
amounts and at such dates as determined by the General Partner.
Net proceeds attributable to the disposition of an investment in a portfolio
company or of a bridge financing (other than net bridge financing income as
defined in the Partnership Agreement), together with any dividends or interest
income in respect of such investment, when distributed, generally will be
distributed to all partners participating in such investment in the following
order of priority:
[a] first, 100% to Limited Partners until the cumulative amount
distributed equals the sum of the following:
(i) the cost basis of such investment and of any such
investments previously disposed of;
(ii) the Partners' share of any realized losses on investments and
any net unrealized losses on investments as of that time;
(iii) management fees and organizational expenses allocable to such
investment not already returned;
(iv) certain portfolio company-related litigation expenses not
already returned;
(v) 80% of net investment income (a positive amount) or 100% of
net investment loss (a negative amount), each as defined in
the Partnership Agreement; and
(vi) certain reductions in the management fee (a negative amount);
and
[b] thereafter, 100% to the General Partner, except that, subject to
certain limitations, 20% of such amount will be held back and
deposited in a segregated reserve account pending the future
performance of the Fund.
Distributions not attributable to investments in portfolio
companies or bridge financings, and distributions of net bridge
financing income, generally will be made among the partners in
proportion to their capital commitments.
9
<PAGE>
CLAYTON, DUBILIER & RICE FUND V
LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 1997 and 1996
NOTE F -- MANAGEMENT CONTRACTS
The Management Company has been engaged by the General Partner to provide
administrative services and economic and investment analysis, and to render
significant managerial assistance and advice to the investee companies.
The Management Company is paid, in advance at the beginning of each semi-annual
period, a management fee equal to 1.4% per annum of the aggregate capital
commitments of all of the partners until 95% of the aggregate capital
commitments have been invested in portfolio investments and/or contributed to
the Fund to fund expenses or the partners are no longer required to contribute
additional capital for investments. Thereafter, the Fund is to pay, in advance
at the beginning of each semi-annual period, a management fee equal to 3/4 of 1%
per annum of the aggregate investment of all of the partners.
The management fee will, in any semi-annual period, be reduced (but not below
zero) by the sum of (a) the amount of any consulting, monitoring, directors' or
similar fees, any break-up fees and any excess origination fees (each as defined
in the Partnership Agreement), in each case received by the Management Company
or its affiliates from any portfolio company, (b) a portion of the capital
contributions made by the Limited Partners in respect of making investments or
paying expenses, (c) a portion of the loss realized upon the disposition of a
portfolio investment or a bridge investment and (d) the amount of any placement
fees paid, and will, in such period, be increased by the sum of (i) any amounts
received in respect of management fees from additional Limited Partners and (ii)
the amount by which the management fee was reduced pursuant to clause (b) above
for any investment disposed of, in each case in respect of the preceding
semi-annual period.
NOTE G -- SUBSEQUENT EVENTS
[1] In December 1997, a company formed by the Partnership entered into a
definitive agreement to participate in an equity recapitalization of
Dynatech Corporation, a publicly traded company, valued at approximately
$900 million, of which the Partnership will invest approximately $277
million in exchange for approximately 92% of the recapitalized company.
The transaction is expected to be completed in May 1998.
[2] In January 1998, a company formed by the Partnership agreed to purchase
all of the common and preferred stock of North American Van Lines, Inc.
from Norfolk Southern Corporation and the current holder of the preferred
stock for approximately $201 million of which the Partnership will invest
approximately $65 million. The transaction is expected to be completed in
March 1998.
[3] In January 1998, a company formed by the Partnership agreed to purchase
for approximately $270 million, approximately 25% of the common stock of
U.S. Office Products Company, a publicly traded company, together with
warrants to purchase additional stock. The transaction is expected to be
completed in May 1998.
[4] In January 1998, a company formed by the Partnership entered into a
definitive agreement to purchase the Jafra Cosmetics business from The
Gillette Company for approximately $200 million, of which the Partnership
will invest approximately $80 million. The transaction is expected to be
completed in April 1998.
10
