<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
Registration No. 333-49531
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
U.S. OFFICE PRODUCTS COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5112 52-1906050
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
------------------------
1025 THOMAS JEFFERSON STREET, N.W., SUITE 600 EAST
WASHINGTON, D.C. 20007
(202) 339-6700
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
THOMAS MORGAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
U.S. OFFICE PRODUCTS COMPANY
1025 THOMAS JEFFERSON STREET, N.W., SUITE 600 EAST
WASHINGTON, D.C. 20007
(202) 339-6700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
WITH A COPY TO:
<TABLE>
<S> <C>
GEORGE P. STAMAS, ESQ. MARK D. DIRECTOR, ESQ.
WILMER, CUTLER AND PICKERING EXECUTIVE VICE PRESIDENT--ADMINISTRATION,
2445 M STREET, N.W. GENERAL COUNSEL AND SECRETARY
WASHINGTON, D.C. 20037 U.S. OFFICE PRODUCTS COMPANY
(202) 663-6000 1025 THOMAS JEFFERSON STREET, N.W.
SUITE 600 EAST
WASHINGTON, D.C. 20007
(202) 339-6700
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If 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, 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>
OFFERING CIRCULAR/PROSPECTUS
[LOGO]
OFFER TO EXCHANGE UP TO 8,889,920 SHARES OF COMMON STOCK
FOR 5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2001
AT A TEMPORARILY REDUCED NOTE CONVERSION PRICE
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME,
MAY 29, 1998, UNLESS EXTENDED.
U.S. Office Products Company (the "Company") hereby offers to exchange
shares of its common stock, par value $.001 per share (the "Common Stock"), for
its outstanding 5 1/2% Convertible Subordinated Notes due 2001 (the "Notes") at
an exchange rate that will effectively reduce the conversion price for a period
beginning on the date of this Offering Circular/Prospectus and ending at 12:00
midnight, New York City time, on May 29, 1998 or such later date as extended by
the Company, in its sole discretion (the "Expiration Date") (such period, the
"Exchange Period"). This offer is being made on the terms set forth in this
Offering Circular/Prospectus (the "Offering Circular/Prospectus") and the
accompanying Letter of Transmittal (the "Letter of Transmittal," which, together
with the Offering Circular/Prospectus, constitutes the "Exchange Offer").
The Notes are currently convertible into shares of Common Stock at a rate of
one share for each $19.00 principal amount of the Notes (the "Existing
Conversion Price"). During the Exchange Period, holders of the Notes (the
"Holders") will be able to exchange the Notes for Common Stock at an exchange
rate of 61.843 shares per $1,000 principal amount of the Notes, which
effectively reduces the conversion price to $16.17 per share (the "Reduced
Conversion Price"). The Company will pay in cash unpaid interest accrued on the
Notes through the Expiration Date with respect to all Notes tendered pursuant to
the Exchange Offer.
Holders who exchange pursuant to the Exchange Offer will be able to tender
shares they receive upon exchange in a self-tender offer for shares of Common
Stock that the Company is making. Holders who exchange also will be able to
receive shares of stock of four companies that the Company is spinning off to
its stockholders. See "The Strategic Restructuring Plan."
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will accept for exchange all Notes validly tendered and not withdrawn
prior to 12:00 midnight, New York City time, on the Expiration Date. The
Exchange Offer will expire on the Expiration Date. Tenders of Notes may be
withdrawn at any time on or prior to the Expiration Date and, unless accepted
for exchange by the Company, may be withdrawn at any time after 40 business days
after the date of this Offering Circular/Prospectus.
As of the date of this Offering Circular/Prospectus, there were $143,750,000
principal amount of the Notes outstanding. The Common Stock is traded on the
Nasdaq National Market System under the trading symbol "OFIS." On April 29,
1998, the closing sale price of the Common Stock on the Nasdaq National Market
System was $17.81 per share.
THE COMPANY WILL NOT BE REQUIRED TO COMPLETE THE EXCHANGE OFFER IF THE
OBLIGATION OF INVESTOR (AS DEFINED HEREIN) TO MAKE THE EQUITY INVESTMENT IS
TERMINATED, OR IF THE COMMITMENT WITH RESPECT TO A PROPOSED NEW CREDIT FACILITY
IS TERMINATED. IN ADDITION, THE EXCHANGE OFFER IS SUBJECT TO CERTAIN OTHER
CONDITIONS. SEE "THE TERMS OF THE EXCHANGE OFFER--CONDITIONS OF THE EXCHANGE
OFFER." [CONTINUED ON FOLLOWING PAGE]
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 OF THIS OFFERING CIRCULAR/PROSPECTUS
FOR A DISCUSSION OF CERTAIN FACTORS THAT HOLDERS SHOULD CONSIDER IN EVALUATING
WHETHER TO EXCHANGE THEIR NOTES FOR COMMON STOCK PURSUANT TO THE EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR/
PROSEPCTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
BancAmerica Robertson Stephens has been retained to act as Dealer Manager to
solicit exchanges of Notes for Common Stock. See "The Terms of the Exchange
Offer--Dealer Manager." State Street Bank and Trust Company has been retained to
act as the Exchange Agent in connection with the Exchange Offer. MacKenzie
Partners, Inc. has been retained to act as Information Agent to assist in
connection with the Exchange Offer.
------------------------
The Dealer Manager for the Exchange Offer is:
[LOGO]
The date of this Offering Circular/Prospectus is May 1, 1998.
<PAGE>
None of the Board of Directors of the Company or the Company makes any
recommendation to Holders as to whether to tender or refrain from tendering in
the Exchange Offer. Holders are urged to consult their financial and tax
advisors in making their decisions on what action to take in light of their own
particular circumstances.
In order to participate in the Exchange Offer, Holders must submit a Letter
of Transmittal and comply with the other procedures for tendering in accordance
with the instructions contained herein and in the Letter of Transmittal prior to
the Expiration Date. See "The Terms of the Exchange Offer-- Procedures for
Tender of Notes for Exchange."
The Company expressly reserves the right, in its sole discretion, subject to
applicable law, to (i) terminate the Exchange Offer, and not accept for exchange
any Notes and promptly return all Notes at any time for any reason, including
(without limitation) upon the failure of any of the conditions specified in "The
Terms of the Exchange Offer--Conditions of the Exchange Offer," (ii) waive any
condition to the Exchange Offer and accept all Notes previously tendered
pursuant to the Exchange Offer, (iii) extend the Expiration Date and retain all
Notes tendered pursuant to the Exchange Offer until the Expiration Date,
subject, however, to all withdrawal rights of Holders (see "The Terms of the
Exchange Offer--Withdrawal Rights") or (iv) amend or modify the terms of the
Exchange Offer in any manner. Any amendment applicable to the Exchange Offer
will apply to all Notes tendered pursuant to the Exchange Offer. The minimum
period during which the Exchange Offer must remain open following a material
change in the terms of the Exchange Offer or a waiver by the Company of a
material condition of the Exchange Offer, other than a change in the principal
amount of Notes being sought or in the consideration offered, will depend upon
the facts and circumstances, including the relative materiality of the change or
waiver. See "The Terms of the Exchange Offer--Expiration Date; Extension;
Amendment; Termination."
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the U.S. Securities and
Exchange Commission (the "Commission") (File No. 0-25372) are incorporated
herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended April
26, 1997, as amended through the date hereof;
(b) The Company's Quarterly Reports on Form 10-Q for the periods ended July
26, 1997, October 25, 1997 and January 24, 1998;
(c) The Company's Current Reports on Form 8-K filed with the Commission on
April 22, 1998; April 7, 1998; March 12, 1998; March 9, 1998; February 12, 1998;
January 16, 1998; December 24, 1997; November 24, 1997; November 6, 1997; and
July 21, 1997;
(d) The Company's definitive Proxy Statement on Schedule 14A filed on April
30, 1998; and
(e) The Company's Registration Statement on Form 8-A, as amended, filed with
the Commission on February 13, 1995.
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 Securities
Exchange Act of 1934 (the "Exchange Act"), subsequent to the date of
effectiveness of the Registration Statement of which this Offering Circular/
Prospectus is a part and prior to the termination of the offering made hereby,
shall be deemed to be incorporated by reference into this Offering
Circular/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 Offering Circular/Prospectus to the extent that a statement
contained or incorporated by reference 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 Offering Circular/Prospectus.
THIS OFFERING CIRCULAR/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL PROVIDE WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER OF NOTES, TO WHOM THIS
OFFERING CIRCULAR/PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF
SUCH PERSON, A COPY OF ANY OR ALL OF THE FOREGOING DOCUMENTS INCORPORATED HEREIN
BY REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). SUCH REQUESTS
SHOULD BE MADE BY CONTACTING MARK D. DIRECTOR, EXECUTIVE VICE PRESIDENT-
ADMINISTRATION, GENERAL COUNSEL AND SECRETARY, U.S. OFFICE PRODUCTS COMPANY,
1025 THOMAS JEFFERSON STREET, N.W., SUITE 600 EAST, WASHINGTON, D.C. 20007 OR
THE INFORMATION AGENT AT THE ADDRESS SET FORTH ON THE BACK PAGE OF THIS OFFERING
CIRCULAR/PROSPECTUS. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD ALLOW AT LEAST FIVE (5) BUSINESS DAYS FOR DELIVERY.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THOSE CONTAINED
IN THIS OFFERING CIRCULAR/PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE DEALER MANAGER. NEITHER THE DELIVERY OF THIS OFFERING
CIRCULAR/PROSPECTUS NOR ANY EXCHANGE CONTEMPLATED HEREBY SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE RESPECTIVE DATES AS OF WHICH INFORMATION IS
GIVE HEREIN.
The Exchange Offer is not being made to (nor will any tender of Notes for
exchange be accepted from or on behalf of) Holders in any jurisdiction in which
the making of the Exchange Offer or the acceptance of any tender of Notes for
exchange therein would not be in compliance with the laws of such jurisdiction.
However, the Company may, at its discretion, take such action as it may deem
necessary for the Company to make the Exchange Offer in any such jurisdiction
and extend the Exchange Offer to Holders in such jurisdiction. In any
jurisdiction the securities laws or blue sky laws of which require the Exchange
Offer to be made by a licensed broker or dealer, the Exchange Offer is being
made on behalf of the Company by the Dealer Manager or one or more registered
brokers or dealers which are licensed under the laws of such jurisdiction.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Summary............................................................... 1
Risk Factors.......................................................... 7
The Terms of the Exchange Offer....................................... 15
Dividend Policy....................................................... 24
Capitalization........................................................ 25
Selected Historical and Pro Forma Financial Data...................... 26
The Strategic Restructuring Plan...................................... 28
Effect of the Strategic Restructuring Plan on the Conversion Price for
the Notes........................................................... 44
U.S. Federal Income Tax Considerations................................ 45
Description of the Notes.............................................. 47
Description of the Common Stock....................................... 58
Legal Matters......................................................... 59
Experts............................................................... 59
Available Information................................................. 60
</TABLE>
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION INCLUDED ELSEWHERE IN THIS
OFFERING CIRCULAR/PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH THE EXCHANGE OFFER. 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 AFTER COMPLETION OF THE
STRATEGIC RESTRUCTURING PLAN. CERTAIN OTHER CAPITALIZED TERMS USED IN THIS
SUMMARY ARE DEFINED ELSEWHERE IN THIS OFFERING CIRCULAR/PROSPECTUS.
THIS OFFERING CIRCULAR/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS OFFERING CIRCULAR/PROSPECTUS,
THE WORDS "ANTICIPATE," "ESTIMATE," "INTEND," "MAY," "WILL," AND "EXPECT" AND
SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED
TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO
OBLIGATION TO REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY FUTURE
EVENTS OR CIRCUMSTANCES. 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 OFFERING
CIRCULAR/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.
THE COMPANY
U.S. Office Products is one of the world's leading suppliers of a broad
range of office products and business services to corporate customers. Through
its North American Office Products Group ("NAOPG"), U.S. Office Products
provides office supplies, office furniture and office coffee, beverage and
vending services primarily to middle market companies (25 to 500 employees).
Based on current sales, NAOPG is one of the largest contract stationers in the
United States. Outside North America, U.S. Office Products' Blue Star Group
Limited ("Blue Star") is a leading supplier of office products in New Zealand
and Australia, and U.S. Office Products owns a 49% interest in Dudley Stationery
Limited ("Dudley"), the second largest contract stationer in the United Kingdom.
With its November 1997 acquisition of Mail Boxes Etc. ("MBE"), U.S. Office
Products has expanded into the high growth small office and home office market.
MBE is the world's largest franchisor of local postal, packaging, business and
communications service centers with approximately 3,600 outlets worldwide.
Since its founding in October 1994, U.S. Office Products has grown primarily
through an aggressive acquisition program, which has included the purchase of
more than 230 businesses in the United States and internationally. U.S. Office
Products has focused on acquiring successful, established companies with
experienced management and sales presence in specific geographic, product or
service markets. It adheres to a rigorous due diligence and financial review
process in acquiring target companies.
U.S. Office Products is now transitioning into a new stage of development,
less reliant on acquisitions and more focused on operational efficiencies,
organic growth and improved profit margins. To execute this new strategy, U.S.
Office Products is implementing new product, sales and marketing programs to
leverage its extensive sales force and its existing distribution channels. U.S.
Office Products continues to pursue strategic alliances with well-known
companies to enable U.S. Office Products to increase sales by offering a broader
selection of services and products, such as its arrangement to distribute
Starbucks-Registered Trademark- coffee in the North American office market. In
addition, U.S. Office Products is centralizing a number of common business
functions, such as purchasing, distribution, inventory management and
information systems. Furthermore, U.S. Office Products is systematically
consolidating the operations of businesses located within the same geographic
areas into large, centrally-located regional warehouses known as district
fulfillment centers ("DFCs"). Through DFCs, U.S. Office Products believes it can
achieve greater regional
1
<PAGE>
efficiencies and economies of scale in purchasing, distribution and asset
utilization. At the same time, U.S. Office Products continues to encourage
entrepreneurial innovation and management of customer relationships at the local
level. U.S. Office Products believes that its organizational structure combines
the best elements of both centralized and decentralized management for its
business.
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 STRATEGIC RESTRUCTURING PLAN
The Board of Directors of U.S. Office Products has adopted a comprehensive
restructuring plan. The principal elements of the plan (including modifications
the Board of Directors has made since first adopting this plan, as so modified,
the "Strategic Restructuring Plan") are as follows:
- EQUITY SELF-TENDER. Pursuant to a self-tender offer, the Company will
offer to purchase 37,037,037 shares of its Common Stock, including shares
issuable upon exercise of options (vested and unvested) to purchase Common
Stock, at $27.00 per share (or, in the case of shares underlying stock
options, $27.00 minus the exercise price of such options) (the "Equity
Self-Tender"). Holders who exchange their Notes for Common Stock in the
Exchange Offer will be able to tender such Common Stock in the Equity
Self-Tender. The Equity Self-Tender is expected to commence on May 4,
1998, and to expire on June 1, 1998, unless extended. The Equity
Self-Tender will not expire prior to the Expiration Date for the Exchange
Offer.
- SPIN-OFF DISTRIBUTIONS. The Company will distribute to its stockholders
the shares of four separate companies: Aztec Technology Partners, Inc.,
Workflow Management, Inc., School Specialty, Inc., and Navigant
International, Inc. (collectively, the "Spin-Off Companies"). The
distributions of the shares of the Spin-Off Companies are referred to in
this Offering Circular/Prospectus as the "Distributions." The Spin-Off
Companies will conduct the Company's former technology solutions, print
management, educational supplies and corporate travel services businesses,
respectively. Each of the Spin-Off Companies plans to issue additional
shares of its common stock in a public offering substantially concurrent
with the Distributions. Holders who exchange their Notes for Common Stock
in the Exchange Offer will receive stock of the Spin-Off Companies in the
Distributions to the extent shares of Common Stock are not tendered and
accepted in the Equity Self-Tender and are held on the record date for the
Distributions. The record date for the Distributions will be after the
expiration date for the Equity Self-Tender.
- EQUITY INVESTMENT. Pursuant to an investment agreement (the "Investment
Agreement"), an affiliate ("Investor") of an investment fund managed by
Clayton, Dubilier & Rice, Inc. ("CD&R"), a private investment firm, will
acquire for $270.0 million Common Stock representing 24.9% of the
outstanding equity of the Company (after giving effect to the Equity
Self-Tender and such investment) and warrants to purchase additional
Common Stock (the "Equity Investment").
The Strategic Restructuring Plan was adopted in light of the Company's
movement into a new stage of development, less reliant on acquisitions and more
focused on growth through improvements in and expansion of existing operations.
The Company believes that the Strategic Restructuring Plan will benefit the
Company by focusing U.S. Office Products' business on a complementary group of
businesses and permitting management to implement operational improvements in
its core business. It will also bring to the Company's core business the
managerial assistance and support of CD&R. For a more detailed description of
the Strategic Restructuring Plan, see "The Strategic Restructuring Plan."
In connection with the Strategic Restructuring Plan and subject to
stockholder approval, the Company plans to undertake a one-for-four reverse
stock split to be effective upon completion of all other elements of the
Strategic Restructuring Plan.
2
<PAGE>
In conjunction with the Strategic Restructuring Plan, the Company plans to
undertake the following financing transactions (together with the Exchange
Offer, the "Financing Transactions") in addition to the Exchange Offer:
- NEW CREDIT FACILITY. Pursuant to a commitment letter from a group of
lenders, the Company plans to enter into a new $1.225 billion senior
credit facility (the "Credit Facility").
- SUBORDINATED DEBT OFFERING. The Company plans to issue and sell at least
$400.0 million in Senior Subordinated Notes in a private placement (the
"Subordinated Debt Offering" and, together with borrowings under the
Credit Facility, the "New Borrowings").
- 2003 NOTES TENDER OFFER. The Company plans to offer to purchase any and
all of its $230.0 million outstanding 5 1/2% Convertible Subordinated
Notes Due 2003 (the "2003 Notes") for a purchase price of 94.5% of the
principal amount, plus accrued interest (the "2003 Note Tender").
The Company intends to use the proceeds of the Equity Investment and the New
Borrowings to refinance the Company's existing credit facility, to pay the
purchase price of the Equity Self-Tender and the 2003 Note Tender, and to pay
fees and expenses incurred in connection with the Strategic Restructuring Plan
and the Financing Transactions. For a more detailed discussion of the Financing
Transactions, see "The Strategic Restructuring Plan--Financing Transactions."
3
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities subject to the Exchange
Offer.................................. U.S. Office Products Company 5 1/2% Convertible
Subordinated Notes due 2001.
Exchange Ratio........................... 61.843 shares of Common Stock per $1,000
principal amount of the Notes.
Reduced Conversion Price................. The Exchange Ratio effectively reduces the
Conversion Price for Holders tendering their
Notes pursuant to the Exchange Offer to $16.17
principal amount of the Notes per share of
Common Stock for the Exchange Period.
Purpose.................................. To induce the exchange of the Notes prior to
their maturity, and thereby (i) reduce the
amount of cash the Company otherwise could be
required to pay to retire the Notes in 2001 and
(ii) minimize the dilutive effect of the
issuance of Common Stock upon conversion of the
Notes if they were converted after the
completion of the Strategic Restructuring Plan.
Exchange Period.......................... From May 1, 1998 through 12:00 midnight, New
York City time, on May 29, 1998, unless extended
by the Company, in its sole discretion (the
latest date and time to which extended, the
"Expiration Date"). The Exchange Offer will
expire on the Expiration Date. See "The Terms of
the Exchange Offer--Expiration Date; Extension;
Amendment; Termination."
Withdrawal Rights........................ Tenders of Notes may be withdrawn at any time on
or prior to the Expiration Date and, unless
accepted for exchange by the Company, may be
withdrawn at any time after 40 business days
after the date of this Offering
Circular/Prospectus. Withdrawal can be effected
by delivering a written notice of such
withdrawal to the Exchange Agent in conformity
with certain procedures set forth below under
"The Terms of the Exchange Offer--Withdrawal
Rights."
Extension; Amendment; Termination........ The Company expressly reserves the right to (i)
extend, amend or modify the terms of the
Exchange Offer in any manner, and (ii) withdraw
or terminate the Exchange Offer and not accept
for exchange any Notes, at any time for any
reason. See "The Terms of the Terms of the
Exchange Offer--Expiration Date; Extension;
Amendment; Termination."
Conditions to the Exchange Offer......... The Exchange Offer is conditioned upon
Investor's obligation to make the Equity
Investment not having been terminated, the
commitment with respect to the Credit Facility
not having been terminated, as well as certain
other conditions. See "The Terms of the Exchange
Offer--Conditions of the Exchange Offer."
Fractional Shares........................ No fractional shares will be issued upon
exchange of Notes pursuant to the Exchange
Offer. If any fractional share of stock
otherwise would be issuable upon the exchange of
any Note, the Company will pay the
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
exchanging Holder an amount equal to such
fractional share times the Current Market Price
(as defined in this Offering
Circular/Prospectus) on the last trading day
prior to the date of exchange. See "The Terms of
the Exchange Offer--Terms of the Offer."
Accrued Interest......................... The Company will pay in cash unpaid interest
accrued on the Notes through the Expiration Date
with respect to all Notes exchanged pursuant to
the Exchange Offer. See "The Terms of the
Exchange Offer--Terms of the Offer."
Dealer Manager........................... BancAmerica Robertson Stephens.
Exchange Agent........................... State Street Bank & Trust Company.
Information Agent........................ MacKenzie Partners, Inc.
How to Exchange Notes.................... Any holder of Notes wishing to exchange Notes in
the Exchange Offer should: (A)(i) complete and
sign the Letter of Transmittal attached to this
Offering Circular/ Prospectus (the "Letter of
Transmittal"), and (ii) tender the original Note
and the Letter of Transmittal to the Exchange
Agent or (B) follow the procedures for book-
entry delivery set forth in "The Terms of the
Exchange Offer--Procedures for Tender of Notes
for Exchange." Note that there is no provision
for notice of guaranteed delivery with respect
to the Exchange Offer.
Acceptance of Notes and Delivery of
Securities............................. Upon the terms and subject to the conditions of
the Exchange Offer, the Exchange Agent will
deliver the registered certificates for the
shares of Common Stock (or appropriate credit to
the account of such Holder at the Depository
Trust Company ("DTC") with respect to such
shares of Common Stock) issuable upon exchange
of the Notes as soon as practicable after the
Expiration Date. See "The Terms of the Exchange
Offer-- Exchange of Notes."
Special Procedures for Beneficial
Owners................................. Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial
bank, trust company, or other nominee and who
wishes to exchange should contact such
registered Holder promptly and instruct such
registered Holder to tender the Notes on such
beneficial owner's behalf. If such beneficial
owner wishes to exchange on its own behalf, such
owner must, prior to completing and executing a
Letter of Transmittal and delivering its Notes,
make appropriate arrangements to register the
ownership of such Notes in such owner's name.
The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See "The
Terms of the Exchange Offer--Procedures for
Tender of Notes for Exchange."
Notes not Tendered or Accepted for
Exchange............................... Holders who do not exchange their Notes in the
</TABLE>
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<TABLE>
<S> <C>
Exchange Offer or whose Notes are not accepted
for exchange will continue to hold such Notes
and will be entitled to all the rights, and will
be subject to all of the limitations, applicable
thereto. See "The Terms of the Exchange
Offer--Market and Trading Information" and
"Description of the Notes." To the extent that a
significant amount of Notes are exchanged in the
Exchange Offer, a Holder's ability to sell Notes
not tendered for exchange could be adversely
affected. See "Risk Factors--Limited Trading
Market." The Conversion Price will be $19.00 per
share, adjusted to take account for the Equity
Self-Tender, the Distributions, and the reverse
stock split. See "Effect of the Strategic
Restructuring Plan on the Conversion Price for
the Notes."
Risk Factors............................. A decision to exchange Notes for Common Stock
pursuant to the Exchange Offer involves certain
risks, including, among others, the following:
risks arising from the significant additional
indebtedness that the Company will incur in
completing the Strategic Restructuring Plan,
risks associated with changing the Company's
strategic focus, and risks related to the
Company's acquisition program. See "Risk
Factors."
Tax Considerations of Exchange........... Wilmer, Cutler & Pickering has opined that for
U.S. federal income tax purposes, the exchange
of Notes for Common Stock will be a
recapitalization that is tax-free to holders of
Notes (except with respect to cash received in
lieu of fractional shares and in respect of
unpaid interest accrued on the Notes through the
Expiration Date not previously included in
income). See "U.S. Federal Income Tax
Considerations." This opinion is based in part
on the fact that the Company will not complete
the Distributions unless Wilmer, Cutler &
Pickering delivers an opinion at the time of the
Distributions stating that the Distributions
will qualify as tax-free spin-offs under Section
355 of the Internal Revenue Code of 1986, as
amended (the "Code"). See "The Strategic
Restructuring Plan--U.S. Federal Income Tax
Consequences of the Distributions."
</TABLE>
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RISK FACTORS
HOLDERS WHO ARE CONSIDERING EXCHANGING THEIR NOTES PURSUANT TO THE EXCHANGE
OFFER SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER
INFORMATION INCLUDED IN THIS OFFERING CIRCULAR/PROSPECTUS OR INCORPORATED HEREIN
BY REFERENCE, IN EVALUATING WHETHER TO EXCHANGE THEIR NOTES FOR SHARES OF COMMON
STOCK.
SUBSTANTIAL INDEBTEDNESS OF THE COMPANY; ABILITY TO SERVICE DEBT
The Company will incur substantial indebtedness in connection with the
Strategic Restructuring Plan and the Financing Transactions and will thereby
become highly leveraged. At January 24, 1998, the Company had outstanding
approximately $714.5 million in indebtedness consisting of bank loans,
convertible subordinated notes, and capital leases. As a result of the Strategic
Restructuring Plan and the Financing Transactions, the Company's total
indebtedness will increase by approximately $441.0 million to approximately
$1,155.5 million, assuming that all Notes are exchanged and all 2003 Notes are
tendered and accepted for purchase in the 2003 Note Tender. Any Notes that
remain outstanding will increase the amount of outstanding debt. Any Notes that
are not exchanged will be subordinated to all of the additional indebtedness
incurred in connection with the Financing Transactions, except the $400.0
million of Senior Subordinated Notes the Company plans to issue in the
Subordinated Debt Offering and any of the 2003 Notes that remain outstanding
after the 2003 Note Tender, each of which will rank PARI PASSU with the Notes.
See "Description of the Notes--Subordination."
The Company's high leverage could have material consequences to the Company,
including, but not limited to, the following: (i) the Company's ability to
obtain additional financing in the future for acquisitions, working capital,
capital expenditures, and general corporate or other purposes may be impaired or
any such financing may not be available on terms favorable to the Company; (ii)
a substantial portion of the Company's cash flow will be required for debt
service and, as a result, will not be available for its operations and other
purposes; (iii) a substantial decrease in net operating cash flows or an
increase in expenses could make it difficult for the Company to meet its debt
service requirements or force it to modify its operations or sell assets; (iv)
the Company's ability to withstand competitive pressures may be limited; and (v)
the Company's level of indebtedness could make it more vulnerable to economic
downturns, and reduce its flexibility in responding to changing business and
economic conditions. In addition, the Company's borrowings under the Credit
Facility are and will continue to be at variable rates of interest, which
exposes the Company to the risk of increased interest rates. If the Company is
unable to service its indebtedness, it may be forced to pursue one or more
alternative strategies, such as selling assets, restructuring or refinancing its
indebtedness, or seeking additional equity capital. The Company's management
does not have experience to date operating a business with a substantial amount
of leverage.
Historically, the Company has funded its capital requirements by debt
financings and the sale of Common Stock. Future sales of Common Stock may be
subject to limitations on the number of shares the Company can issue without
jeopardizing the tax-free treatment for the Distributions. See "--Potential
Limitations on Stock Issuances" and "--Potential Liability for Taxes Related to
the Distributions." In addition, the Credit Facility and the indenture governing
the Senior Subordinated Notes are expected to contain restrictions on the
incurrence of additional indebtedness. See "--Risks Arising from Restrictions in
Agreements Relating to Indebtedness."
The ability of the Company to meet its debt service and other obligations
(including compliance with financial covenants) will be dependent upon the
future performance of the Company and its cash flow from operations, which will
be subject to prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control. These factors could
include general economic conditions, operating difficulties, increased operating
costs, product pricing pressures, potential revenue instability arising from
cost savings initiatives or other factors, labor relations, the response of
competitors or customers to the Company's business strategy or projects and
delays in implementation of the Company's business strategy.
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LIMITED TRADING MARKET
The Notes were issued in February 1996, and there currently is a limited
trading market for the Notes. Quotations for securities that are not widely
traded, such as the Notes, may differ from actual trading prices and should be
viewed as approximations. Holders are urged to contact their brokers to obtain
the best available information as to current market prices.
To the extent that Notes are tendered and accepted for exchange in the
Exchange Offer, the trading market for Notes that remain outstanding may be
significantly more limited, which might adversely affect the liquidity of the
Notes. The extent of the public market and the availability of price quotations
would depend upon a number of factors, including the number of holders of Notes
remaining at such time. An issue of securities with a smaller outstanding market
value available for trading (the "float") may command a lower price than would a
comparable issue of securities with a greater float. Therefore, the market price
for Notes that are not tendered for exchange in the Exchange Offer may be
affected adversely to the extent that the amount of Notes exchanged pursuant to
the Exchange Offer reduces the float. The reduced float also may tend to make
the trading prices of the Notes that are not exchanged more volatile.
RISKS ARISING FROM RESTRICTIONS IN AGREEMENTS RELATING TO INDEBTEDNESS
The Credit Facility and the indenture governing the Senior Subordinated
Notes are expected to impose significant operating and financial restrictions on
the Company. Such restrictions will affect, and in many respects significantly
limit or prohibit, among other things, the ability of the Company to incur
additional indebtedness and certain types of indebtedness, create liens, engage
in transactions with stockholders and affiliates, sell assets, issue capital
stock of subsidiaries or engage in mergers or acquisitions. In addition, the
Credit Facility is expected to require that the Company maintain certain
financial ratios. These restrictions could also limit the ability of the Company
to effect future financings, make needed capital expenditures, withstand a
future downturn in the Company's business or the economy in general, or
otherwise conduct necessary corporate activities.
RISKS RELATED TO CHANGE IN STRATEGIC FOCUS AND BUSINESS AND GROWTH STRATEGIES
The Company was founded in October 1994 and conducted no operations prior to
the acquisition of its founding companies in February 1995. Since that time, the
Company has grown primarily through an aggressive acquisition strategy. The
Company is now transitioning into a new stage of development, less reliant on
acquisitions and more focused on operational efficiencies, organic growth and
improved profit margins. The Company's ability to achieve these objectives will
depend on a number of factors, including its ability to generate increased
revenues and margins in existing businesses, its ability to continue to
integrate existing operations and new acquisitions without substantial delays or
other problems, and achievement of operating improvements and cost reductions.
In particular, the Company's ability to achieve operating improvements will
depend on successful implementation of its plans to establish DFCs in the United
States. There can be no assurance that these efforts to achieve operating
improvements will be successful or will result in anticipated levels of cost
savings and efficiencies or growth in revenues and margins. See
"Business--Business Strategies."
CHALLENGES OF BUSINESS INTEGRATION; RISKS RELATED TO ACQUISITIONS
Historically, the Company has grown substantially through acquisitions. The
Company's aggressive acquisition program has produced a significant increase in
revenues, 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 require
additional expenditures to expand operational and financial systems and
corporate management administration. Because of the various costs and possible
cost-saving strategies, historical operating results may not be indicative of
future performance. There also
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can be no assurance that the pace of the Company's acquisitions will not
adversely affect efforts to implement cost-saving and integration strategies and
to manage operations and acquisitions profitably. Additionally, attempts to
achieve economies of scale through cost cutting and lay-offs of existing
personnel may, at least in the short term, have an adverse impact upon the
Company. Delays in implementing planned integration and consolidation
strategies, or the failure of such strategies to achieve anticipated cost
savings, also could have an adverse effect on the Company's results of
operations and financial condition. In addition, there can be no assurance that
the Company's management and financial controls, personnel, computer systems and
other corporate support systems will be adequate to manage the increasing size
and scope of the Company's operations and its continuing acquisition activity.
The Company intends to pursue selected acquisition opportunities; however,
no assurance can be given that the Company will identify, finance and complete
additional suitable acquisitions on acceptable terms, or that future
acquisitions, if completed, will be successful. Moreover, the amount of capital
stock the Company can issue as consideration for future acquisitions without
jeopardizing the tax-free treatment of the Distributions will be limited in the
near-term. See "--Potential Liability for Taxes Related to the Distributions".
The Company will likely incur additional debt to finance any additional
acquisitions. In addition, acquired companies may not achieve future revenues
and profitability levels that justify the prices that the Company paid to
acquire them. Acquisitions also may involve a number of risks that could have a
material adverse effect on future operations and financial performance,
including diversion of management's attention; unanticipated declines in
revenues or profitability following acquisitions; difficulties with the
retention, hiring and training of key personnel; risks associated with
unanticipated business problems or legal liabilities; and the amortization of
acquired intangible assets, such as goodwill.
RISKS RELATING TO INABILITY TO USE POOLING-OF-INTEREST ACCOUNTING TREATMENT FOR
FUTURE ACQUISITIONS
As a result of the Equity Self-Tender and the Distributions, the Company
will be precluded from completing business combinations under the
pooling-of-interests accounting method for a period up to 6-9 months. Any
business combinations that the Company completes during this period will have to
be accounted for under the purchase method. Under the purchase method of
accounting, the Company will have to record goodwill for each such acquisition,
in an amount equal to any excess of the purchase price paid for the acquired
company over the fair market value of the acquired company's net assets. Under
the pooling-of-interests method, no goodwill is recorded in connection with the
acquisition of a pooled company, and there is no corresponding expense
associated with the amortization of such goodwill.
HIGHLY COMPETITIVE MARKETS
The Company operates in a highly competitive environment. It generally
competes with a large number of smaller, independent companies, many of which
are well-established in their markets. In addition, in the United States, the
NAOPG competes with five large office products companies, each of which may have
greater financial resources than the Company. Several of the Company's large
competitors operate in many of its geographic and product markets, and other
competitors may choose to enter its 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 in the pricing of products, the Company's revenues or margins may
decline. The highly leveraged nature of the Company after the Strategic
Restructuring Plan and the Financing Transactions could limit the Company's
ability to continue to make necessary or desirable investments or capital
expenditures, to compete effectively and to respond to market conditions.
The Company faces significant competition to acquire additional businesses
as the office products industry undergoes continuing consolidation. Competition
is expected to increase in the domestic and international markets that the
Company serves or is planning to enter as consolidation occurs (or
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<PAGE>
accelerates) in those markets. A number of the Company's major competitors are
actively pursuing acquisitions on a global basis.
FOREIGN OPERATIONS; EXCHANGE RATE FLUCTUATIONS
Management intends to continue to focus significant attention and resources
on international operations and expects foreign revenues to continue to
represent a significant portion of the Company's total revenues. The factors
described in this section that apply to the Company's domestic operations
generally may also affect the Company's foreign operations. In addition, the
Company's foreign operations are subject to a number of other risks, including
fluctuations in currency exchange rates; new and different legal and regulatory
requirements in local jurisdictions; tariffs and trade barriers; potential
difficulties in staffing and managing local operations; credit risk of local
customers and distributors; potential difficulties in protecting intellectual
property; potential imposition of restrictions on investments; potentially
adverse tax consequences, including imposition or increase of withholding and
other taxes on remittances and other payments by subsidiaries; and local
economic, political and social conditions, including the possibility of
hyper-inflationary conditions, in certain countries. There can be no assurance
that one or a combination of these factors will not have a material adverse
impact on the Company's ability to maintain or increase its foreign sales or on
its business, financial condition or results of operations.
Over 34% of the Company's consolidated revenues for the nine months ended
January 24, 1998 were generated from the Company's international operations and
are denominated in currencies other than United States dollars. The Company's
results of operations have been and may continue to be impacted by the exchange
rate of the international operations' currencies into United States dollars.
Devaluation has adversely affected the return on the Company's investment in its
New Zealand and Australian operations. If the exchange rates stabilize at
current rates or continue to decline, the Company's return on assets and equity
from its New Zealand and Australian operations will continue to be depressed.
The Company expects that it will incur additional costs with respect to
accessing cash flows from international operations, including such items as New
Zealand and Australian withholding taxes and other taxes and foreign currency
hedging costs. In addition, the Company's results of operations could be further
impacted by fluctuations in the New Zealand and Australian exchange rates as a
result of the structure of certain financing alternatives currently being
evaluated by the Company.
Substantially all of the Company's indebtedness is denominated in U.S.
dollars. As a result, declines relative to the U.S. dollar in the value of the
currencies in which the Company's revenues are generated may materially
adversely affect the Company's business, financial condition and results of
operations and the ability of the Company to meet its obligations under
agreements relating to its indebtedness.
RISKS RELATING TO DEPENDENCE OF MAIL BOXES ETC. ON BUSINESS OF UPS AND FRANCHISE
RELATIONSHIPS
Various factors may affect the Company's Mail Boxes Etc. ("MBE") business.
The Company estimates that a significant percentage of the gross sales of a
typical MBE retail center in the United States are attributable to services
provided by United Parcel Service ("UPS"). In addition, the Company estimates
that the vast majority of general ground shipping from MBE retail centers in the
United States is done through UPS. As such, UPS is a key vendor for MBE. If UPS
were to raise its prices to MBE or otherwise materially adversely change the
terms on which it provides shipping services for MBE retail centers or if UPS
cannot provide service or provides limited services, as it did during a 1997
strike by UPS employees, the revenues of MBE could be materially and adversely
affected. MBE conducts its business principally through franchisees or
licensees, with the result that MBE has limited control over franchisee
operations and is subject to significant government regulation of its legal
relationships with franchisees that limits the control that MBE has over its
franchisees. MBE also faces growing competition from the United States Postal
Service as it establishes postal service centers located in shopping centers and
other locations to compete against MBE and other similar retail service centers.
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RELIANCE ON KEY PERSONNEL
The Company's operations will depend on the continued efforts of its senior
executive officers, including Thomas Morgan, President and Chief Executive
Officer, and the senior management of certain of its subsidiaries. If any of
these individuals becomes unable to continue in his or her present role, or if
the Company is unable to attract and retain other skilled employees, its
business could be adversely affected. The Company intends to obtain key person
life insurance covering Thomas Morgan, but does not intend to obtain key person
life insurance covering any other members of senior management.
INTANGIBLE ASSETS
As of January 24, 1998, approximately $917.0 million, or 45.4% of the
Company's total assets on a pro forma basis to reflect the Equity Self-Tender,
the Distributions, the Equity Investment, the Financing Transactions and
purchase acquisitions completed subsequent to January 24, 1998 as if such
transactions had occurred on January 24, 1998, represented intangible assets,
the substantial majority of which was goodwill. As a result, a substantial
portion of the value of the Company's assets may not be available to repay
creditors in the event of a bankruptcy or dissolution of the Company.
INCREASE IN OUTSTANDING SHARES AND INABILITY TO DETERMINE CONVERSION PRICE
To the extent that Notes are exchanged for Common Stock, the number of
shares of Common Stock outstanding will increase. At March 26, 1998, there were
approximately 133.2 million shares of Common Stock outstanding. If all Notes are
exchanged, the total shares outstanding will increase by approximately 8.9
million to 142.1 million. If those shares are tendered in the Equity
Self-Tender, that in turn will decrease the percentage of all outstanding shares
that will be accepted in the Equity Self-Tender. The increase in number of
shares outstanding resulting from the exchange will also increase the number of
shares of each Spin-Off Company that will be issued in the Distributions, which
could result in a reduction in the trading prices of the shares of the Spin-Off
Companies as compared to the trading prices that might have been realized if no
exchanges had occurred before the Distributions. On the other hand, to the
extent Notes are not exchanged prior to the Equity Self-Tender and the
Distributions, then the number of shares into which they can be converted will
be increased as a result of the anti-dilution provisions in the Indenture. See
"Effect of the Strategic Restructuring Plan on the Conversion Price for the
Notes." The number of shares of Common Stock issuable upon conversion of the
2003 Notes outstanding after the 2003 Note Tender will similarly be adjusted.
Accordingly, the number of shares represented by convertible notes after
completion of the Strategic Restructuring Plan and the Financing Transactions
cannot be determined at this time and will not be determined prior to the
Expiration Date.
Even if the Strategic Restructuring Plan is not completed, the exchange of
Notes pursuant to the Exchange Offer will result in a dilution of earnings per
share and a potential adverse impact on the trading price of the Common Stock.
This dilution will be greater than would otherwise result if the Notes were
converted at the Existing Conversion Price. See "--Failure to Complete Strategic
Restructuring Plan."
As a result of the Strategic Restructuring Plan, the number and exercise
price of existing stock options held by the Company's employees will be adjusted
pursuant to a formula based on the market prices of the Common Stock around the
time of the Distributions and cannot be determined at this time. Nevertheless,
the Company expects that the adjustment will increase the percentage interests
represented by such options. See "The Strategic Restructuring Plan--Adjustment
to Employee Stock Options." However, the Company's employees are eligible to
tender shares underlying options (both vested and unvested) in the Equity
Self-Tender and, to the extent shares underlying tendered options are purchased,
the percentage interest represented by options outstanding after the Strategic
Restructuring Plan will be less than it otherwise would have been.
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IMPACT OF THE STRATEGIC RESTRUCTURING PLAN ON TRADING PRICES OF COMMON STOCK
There can be no assurance as to the prices at which the Common Stock will
trade after the Strategic Restructuring Plan is completed. The plan consists of
a number of elements that involve major changes to the assets and capital
structure of the Company. Upon completion of these transactions, the trading
price of the Common Stock is likely to be substantially lower to reflect the
cash distributions that will occur in the Equity Self-Tender and the
distribution of assets in the Distributions. The actual adjustment that will be
made by the market based on its valuation of the parts of the Strategic
Restructuring Plan cannot be predicted. The Company expects that an active
market for its Common Stock will continue on the Nasdaq National Market System,
but the trading prices may be affected in the short or long run by a number of
factors in addition to those that typically affect the trading prices of stocks.
These special factors may include: reduced public float, trades by investors
seeking to change their relative ownership positions in the stock of the Company
and each Spin-Off Company, uncertainty in the marketplace about the impact of
the Strategic Restructuring Plan on the Company's future operating results,
possible trading strategies by investors seeking to arbitrage disparities in
pricing between the Common Stock and the stock of each Spin-Off Company, and
increased market volatility resulting from market uncertainty or confusion about
the transactions or their impact on the Company.
EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices for
shares of Common Stock. Investor will hold shares of Common Stock representing
24.9% of shares outstanding after the issuance of such shares to Investor, and
warrants to purchase an equal number of shares (plus additional shares in
certain circumstances). The Investment Agreement restricts Investor's ability to
sell these shares or warrants, but when these restrictions expire (or if they
are waived) Investor may sell these shares or warrants. Additional shares may be
issued either in connection with acquisitions by the Company or upon exercise of
outstanding options, options that may be issued in the future, and warrants. The
sale of shares upon exercise of options or by Investor, or the perception that
such sales could occur, may have an adverse effect on the trading price of the
Common Stock if a significant number of shares become available over a limited
period of time.
ABILITY OF INVESTOR TO INFLUENCE MANAGEMENT
As part of the Strategic Restructuring Plan, Investor will acquire shares of
Common Stock amounting to 24.9% of the outstanding shares of the Common Stock
after giving effect to the Equity Self-Tender and to the issuance of such
shares. Investor will also purchase various warrants that give it the right to
acquire additional shares of Common Stock in the future. Such warrants will
include warrants that will give it the right to buy one share of Common Stock of
the Company for each share purchased by Investor in the Equity Investment. If no
currently outstanding stock options are exercised, exercise of these warrants
would give Investor ownership of approximately 39.9% of the Common Stock of the
Company after implementation of the Strategic Restructuring Plan (assuming that
all of the Notes are exchanged in the Exchange Offer and all of the 2003 Notes
are tendered and accepted for purchase in the 2003 Note Tender). Investor will
have, among other things, the right (subject to certain conditions) to nominate
three of the nine members of the Company's Board of Directors (the "Board"),
including the Chairman of the Board. Investor will retain the right to nominate
three members of the Board and to designate the Chairman of the Board until
Investor's level of ownership of Common Stock declines by more than one-third.
In addition, certain Board decisions will be subject to super-majority voting
provisions that, in certain circumstances, may require the concurrence of at
least one director nominated by Investor. The super-majority voting provisions
require the affirmative vote of three-fourths of the Board for certain decisions
such as sale of certain equity securities; any merger, tender offer involving
the Company's equity securities or sale, lease or disposition of all or
substantially all of the Company's assets or other business
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combination involving the Company; any dissolution or partial liquidation of the
Company; and certain changes to the Company's charter and by-laws. These
super-majority Board voting requirements may give Investor the ability to block
the approval of certain actions requiring the super-majority vote of the Board.
In addition, Investor's significant ownership of the Common Stock may permit
Investor to influence significantly matters requiring the approval of the
Company's stockholders. See "The Strategic Restructuring Plan---Equity
Investment."
POTENTIAL LIABILITY FOR CERTAIN LIABILITIES OF THE SPIN-OFF COMPANIES
As part of the Strategic Restructuring Plan, the Spin-Off Companies are
expected to indemnify the Company for certain liabilities that the Company could
incur relating to the Distributions, the operations of the Spin-Off Companies
and other matters. There can be no assurance that the Spin-Off Companies will be
able to satisfy any such indemnities, and the Company may therefore incur such
liabilities even if they arose out of the activities of the Spin-Off Companies.
The Company could be adversely affected if in the future the Spin-Off Companies
are unable to satisfy these obligations. See "The Strategic Restructuring
Plan--Distributions--Distribution Agreement." In addition, the Company has
agreed to indemnify Investor and its affiliates against losses resulting from
any of the Spin-Off Companies failing to satisfy their indemnity obligations to
the Company.
POTENTIAL LIABILITY FOR TAXES RELATED TO THE DISTRIBUTIONS
Wilmer, Cutler & Pickering expects to deliver an opinion (the "Spin-Off
Opinion") at the time of the Distributions stating that for U.S. federal income
tax purposes, the Distributions will qualify as tax-free spin-offs under Section
355 of the Internal Revenue Code of 1986, as amended (the "Code"), and will not
be taxable under Section 355(e). The Company will not complete the Distributions
unless it receives the Spin-Off Opinion. The Spin-Off Opinion will be based on
the accuracy as of the time of the Distributions of factual representations made
by the Company, the Spin-Off Companies and Investor, and certain other
information, data, documentation and other materials that Wilmer, Cutler &
Pickering has deemed necessary. See "The Strategic Restructuring Plan--U.S.
Federal Income Tax Consequences of the Distributions."
The Spin-Off Opinion will represent Wilmer, Cutler & Pickering's best
judgment of how a court would rule. However, the Spin-Off Opinion is not binding
upon either the Internal Revenue Service ("IRS") or any court. A ruling has not
been, and will not be, sought from the IRS with respect to the U.S. federal
income tax consequences of the Distributions. Accordingly, the IRS and/or a
court could reach a conclusion that differs from the conclusions in the Spin-Off
Opinion.
If a Distribution fails to qualify as a tax-free spin-off under Section 355
of the Code, the Company will recognize gain equal to the difference between the
fair market value of the Spin-Off Company's common stock on the effective date
of the Distribution (the "Distribution Date") and the Company's adjusted tax
basis in the Spin-Off Company's common stock on the Distribution Date. In
addition, each stockholder of the Company will be treated as having received a
taxable corporate distribution in an amount equal to the fair market value (on
the Distribution Date) of the Spin-Off Company's common stock distributed to
such stockholder. If the Company were to recognize gain on one or more
Distributions, such gain would likely be substantial.
If a Distribution is taxable under Section 355(e), but otherwise satisfies
the requirements for a tax-free spin-off, the Company will recognize gain equal
to the difference between the fair market value of the Spin-Off Company's common
stock on the Distribution Date and the Company's adjusted tax basis in the
Spin-Off Company's common stock on the Distribution Date. However, no gain or
loss will be recognized by holders of Common Stock (except with respect to cash
received in lieu of fractional shares). If the Company were to recognize gain on
one or more Distributions, such gain would likely be substantial.
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POTENTIAL LIMITATIONS ON STOCK ISSUANCES
Certain limitations under Section 355 of the Code may restrict the Company's
ability to issue capital stock after the Distributions. As described below under
"The Strategic Restructuring Plan -- U.S. Federal Income Tax Consequences of the
Distributions," these limitations will generally prevent the Company from
issuing capital stock to the extent the issuance is part of a plan or series of
related transactions that includes one or more of the Distributions and pursuant
to which one or more persons acquires capital stock of the Company that
represents 50% or more of the voting power or 50% or more of the value of the
Company's capital stock. These limitations may restrict the Company's ability to
undertake transactions involving issuances of capital stock of the Company that
management otherwise believes would be beneficial.
FAILURE TO COMPLETE STRATEGIC RESTRUCTURING PLAN
The Exchange Offer is not subject to all of the same conditions as the
Equity Self-Tender and the other elements of the Strategic Restructuring Plan.
Accordingly, it is possible that a Holder could exchange its Notes under
circumstances where all or part of the Strategic Restructuring Plan is not
completed. Such an exchanging Holder would then hold Common Stock without the
opportunity to sell shares in the Equity Self-Tender or to receive shares of the
Spin-Off Companies in the Distributions. Moreover, failure to complete the
Strategic Restructuring Plan, or parts of it, could have a material adverse
effect on the Company and its stockholders. The Company would have to continue
to operate the businesses of the Spin-Off Companies or otherwise dispose of
them. As a result of the announcement of the Strategic Restructuring Plan, the
Company's reported earnings will be reduced by the loss of pooling-of-interests
accounting treatment for many transactions. In addition, in certain
circumstances the Company could be obligated to pay a termination fee of $25.0
million to CD&R if the Equity Investment is not completed. The Strategic
Restructuring Plan is subject to numerous conditions, and there can be no
assurance that any or all of its elements will be completed or that the
agreements among the Company and the Spin-Off Companies, which are in the
process of being negotiated, will contain the terms described in "The Strategic
Restructuring Plan--Distributions."
YEAR 2000 COMPLIANCE
The Company is currently reviewing the year 2000 compliance of software that
it uses in its business. The Company's Trinity System, which it is currently
installing throughout its North American Office Products Group operations as the
core operations system, is year 2000 compliant. However, the Company's operating
subsidiaries are, in some cases, using billing or other software that is not
year 2000 compliant. Based upon information that the Company has collected from
its operating subsidiaries, it expects to be able to achieve year 2000
compliance in 1999 and does not expect that the cost of making necessary
adaptations will be material to the Company. If the Company cannot make the
necessary adaptations on a timely basis, or if the costs are greater than
expected, the Company's business could be adversely affected.
RISKS RELATED TO AN INVESTMENT IN THE SPIN-OFF COMPANIES
Holders who exchange Notes for Common Stock in the Exchange Offer will
receive common stock of the Spin-Off Companies in the Distributions to the
extent shares are not tendered and accepted in the Equity Self-Tender and are
held on the record date for the Distributions. An investment in the common stock
of the Spin-Off Companies involves significant risks. For a discussion of these
risks, see "Risk Factors" in each of the information statements filed in
connection with the Distributions, copies of which will be distributed to
Holders no less than ten (10) days prior to the expiration date of the Equity
Self-Tender.
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<PAGE>
THE TERMS OF THE EXCHANGE OFFER
GENERAL
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Neither the Board of Directors nor the
Company makes any recommendation to Holders as to whether to tender or refrain
from tendering in the Exchange Offer. Holders are urged to consult their
financial and tax advisors in making their own decisions on what action to take
in light of their own particular circumstances.
PURPOSE OF THE OFFER
The Company has effectively reduced the conversion price of the Notes during
the Exchange Period through the Exchange Offer in order to induce Holders to
exchange their Notes for Common Stock prior to maturity and thereby (i) reduce
the amount of cash the Company otherwise could be required to pay to retire the
Notes in 2001 and (ii) minimize the dilutive effect of the issuance of Common
Stock upon conversion of the Notes if they were converted after completion of
the Strategic Restructuring Plan.
TERMS OF THE OFFER
Subject to the terms and conditions of the Exchange Offer, U.S. Office
Products is offering to exchange shares of Common Stock for Notes at an Exchange
Ratio of 61.843 shares per $1,000 principal amount of the Notes. For Holders
tendering their Notes for exchange pursuant to the Exchange Offer, the Exchange
Offer effectively reduces the aggregate principal amount of the Notes that must
be surrendered to receive one share of Common Stock from $19.00 per share to
$16.17 per share.
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange the Notes at the Exchange Ratio for any and all Notes that
are properly tendered and not withdrawn during the Exchange Period. As of the
date of this Offering Circular/Prospectus, the total principal amount of the
Notes outstanding was $143,750,000. If all Notes are exchanged during the
Exchange Period, approximately 8,890,000 shares of Common Stock will be issued
upon exchange of the Notes. If the Exchange Offer were not in effect,
approximately 7,565,800 shares of Common Stock would be issuable upon conversion
of the Notes (assuming all of such Notes were converted prior to completion of
the Strategic Restructuring Plan).
The Company shall be deemed to have accepted validly tendered Notes (or
defectively tendered Notes with respect to which the Company has waived such
defect) when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders for the purpose of receiving the Common Stock from the Company and
remitting such Common Stock to tendering Holders. Upon the terms and subject to
the conditions of the Exchange Offer, delivery of Common Stock in exchange for
Notes will be made as promptly as practicable after the Expiration Date.
No fractional shares will be issued upon exchange of Notes pursuant to the
Exchange Offer. If any fractional share of stock otherwise would be issuable
upon the exchange of any Note, the Company shall pay the exchanging Holder an
amount equal to such fractional share multiplied by the Current Market Price on
the last trading day prior to the date of exchange. "Current Market Price" is
defined in the Indenture, and generally means the average of the daily closing
prices per share of Common Stock for the ten consecutive trading days
immediately prior to the last trading day prior to the date of conversion.
The Company will pay to all Holders who tender Notes for exchange pursuant
to the Exchange Offer unpaid interest accrued on the Notes through the
Expiration Date, irrespective of the date on which Notes are tendered for
exchange. The unpaid interest will be paid in cash promptly after the exchange
pursuant to the Exchange Offer.
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<PAGE>
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and in addition
to (and not in limitation of) the Company's rights to extend and amend the
Exchange Offer at any time in its sole discretion, the Company will not be
required to accept for exchange, and may delay the acceptance for exchange of,
any tendered Notes, and may terminate the Exchange Offer if (i) the obligation
to make the Equity Investment has been terminated; (ii) the commitment with
respect to the Credit Facility has been terminated, or (iii) any of the General
Conditions (as defined below) shall not have been satisfied.
The obligation to make the Equity Investment will be deemed to have been
terminated for purposes of the Exchange Offer if, prior to the Expiration Date,
the Investment Agreement is terminated in accordance with its terms, or there
has occurred any event that would give Investor the right to terminate the
Investment Agreement in accordance with its terms, and Investor has not waived
that right in writing.
The commitment with respect to the Credit Facility will be deemed to have
been terminated for purposes of the Exchange Offer if the closing of the Credit
Facility shall not have occurred on or before June 30, 1998 (or such other date
as the Company and lenders may agree).
All General Conditions will be deemed to have been satisfied for purposes of
the Exchange Offer unless any of the following conditions occur prior to the
Expiration Date:
(i) there shall have been instituted or threatened or be pending any
action or proceeding before or by any court or governmental, regulatory or
administrative agency or instrumentality, or by any other person, in
connection with the Exchange Offer, the Equity Investment, the Equity
Self-Tender or the Distributions; or that has, or is reasonably likely to
have, in the sole judgment of the Company, a material adverse effect on the
business, operations, properties, condition (financial or otherwise),
assets, liabilities or prospects of the Company and its subsidiaries taken
as a whole;
(ii) any order, statute, rule, regulation, executive order, stay,
decree, judgment or injunction shall have been proposed, enacted, entered,
issued, promulgated, enforced or deemed applicable by any court or
governmental, regulatory or administrative agency or instrumentality that,
in the sole judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offer, the Equity Investment,
the Equity Self-Tender or the Distributions or that has, or is reasonably
likely to have, in the sole judgment of the Company, a material adverse
effect on the business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of the Company and its
subsidiaries taken as a whole;
(iii) there shall have occurred or be likely to occur any event that, in
the sole judgment of the Company, would or might prohibit, prevent, restrict
or delay consummation of the Exchange Offer, the Equity Investment, the
Equity Self-Tender or the Distributions or that will, or is reasonably
likely to, materially impair the contemplated benefits to the Company of the
Exchange Offer, the Equity Investment, the Equity Self-Tender or the
Distributions, or otherwise result in the consummation of the Exchange
Offer, the Equity Investment, the Equity Self-Tender or the Distributions
not being, or not being reasonably likely to be, in the best interests of
the Company and its subsidiaries taken as a whole;
(iv) the Trustee under the Indenture (each as defined below) shall have
objected in any respect to, or taken any action that could, in the sole
judgment of the Company, materially adversely affect the consummation of the
Exchange Offer, or shall have taken any action that challenges the validity
or effectiveness of the procedures used by the Company in (a) making the
Exchange Offer or (b) issuing Common Stock in exchange for any of the Notes;
(v) a tender or exchange offer for some or all of the Common Stock
(other than the Equity Self-Tender) or a proposal with respect to a merger,
consolidation or other business combination with or
16
<PAGE>
involving the Company or any subsidiary shall have been proposed to be made
or shall have been made by another person;
(vi) (1) any entity, "group" (as that term is used in Section 13(d)(3)
of the Exchange Act) or person (other than Investor and entities, groups or
persons, if any, who have filed with the Commission, on or before January
12, 1998, a Schedule 13G or Schedule 13D with respect to the Common Stock)
shall have acquired or proposed to acquire beneficial ownership of more than
5% of the outstanding shares; or
(2) such entity, group or person that has publicly disclosed any such
beneficial ownership of more than 5% of the Common Stock prior to such date
shall have acquired, or proposed to acquire, beneficial ownership of
additional shares of Common Stock constituting more than 2% of the
outstanding shares of Common Stock or shall have been granted any option or
right to acquire beneficial ownership of more than 2% of the outstanding
shares of Common Stock (other than the Equity Investment); or
(3) any entity, person or group shall have filed a Notification and
Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
reflecting an intent to acquire the Company or any of its shares of Common
Stock; or
(vii) there shall have occurred (a) any general suspension of trading in,
or limitation on prices for, securities in the United States national
securities exchanges or over-the-counter markets, (b) any significant
adverse change in the trading prices for the Common Stock or in the
Company's other securities, or in any financial markets, (c) a material
impairment in the trading market for securities that could, in the sole
judgment of the Company, affect the Exchange Offer, the Equity Investment,
the Equity Self-Tender, the Distributions or the Financing Transactions, (d)
a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (e) any limitation (whether or not
mandatory) by any government or governmental, administrative or regulatory
authority or agency, domestic or foreign, on (or other event that, in the
reasonable judgment of the Company, might affect) the extension of credit by
banks or other lending institutions, (f) a commencement of a war or armed
hostilities or other national or international calamity directly or
indirectly involving the United States, or (g) in the case of any of the
foregoing existing on the date hereof, a material acceleration or worsening
thereof.
The conditions to the Exchange Offer are for the sole benefit of the Company
and may be asserted by the Company in its sole discretion regardless of the
circumstances giving rise to such conditions (including any action or inaction
by the Company) or may be waived by the Company, in whole or in part, at any
time and from time to time, in its sole discretion, whether or not any other
condition of the Exchange Offer is also waived. The Company's failure at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such rights; the waiver of any such rights with respect to particular facts and
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by the Company
concerning the events described in this section shall be final and binding upon
all persons.
EXPIRATION DATE; EXTENSION; AMENDMENT; TERMINATION
Upon the terms of the Exchange Offer, the Company will accept for exchange
all Notes validly tendered for exchange and not withdrawn prior to 12:00
midnight, New York City time, on May 29, 1998, or if extended by the Company, in
its sole discretion, the latest date and time to which extended (the "Expiration
Date"). The Company expressly reserves the right to extend the Exchange Offer on
a daily basis or for such period or periods as it may determine in its sole
discretion from time to time by giving written or oral notice to the Exchange
Agent and by making a public announcement by press release (which shall include
disclosure of the approximate principal amount of Notes tendered for exchange
during the Exchange Period) to the Dow Jones News Service no later than 9:00
a.m., New York City time,
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<PAGE>
the next business day following the previously scheduled Expiration Date;
however, the Exchange Offer will not be extended beyond the expiration date for
the Equity Self-Tender. During any extension of the Exchange Offer, all Notes
previously tendered and not withdrawn will remain subject to the Exchange Offer.
The Company also expressly reserves the right, in its sole discretion,
subject to applicable law to (i) terminate the Exchange Offer, and not accept
for exchange any Notes and promptly return all Notes at any time for any reason,
including (without limitation) upon failure of any of the conditions specified
in "The Terms of the Exchange Offer--Conditions of the Exchange Offer," (ii)
waive any condition to the Exchange Offer and accept all Notes previously
tendered pursuant to the Exchange Offer, or (iii) amend or modify the terms of
the Exchange Offer in any manner. Any amendment applicable to the Exchange Offer
will apply to all Notes tendered pursuant to the Exchange Offer. The minimum
period during which the Exchange Offer must remain open following a material
change in the terms of the Exchange Offer or a waiver by the Company of a
material condition of the Exchange Offer will depend upon the facts and
circumstances, including the relative materiality of the change or waiver. Any
withdrawal or termination of the Exchange Offer will be followed as promptly as
practicable by public announcement thereof. In the event the Company withdraws
or terminates the Exchange Offer, it will give immediate notice to the Exchange
Agent, and all Notes theretofore tendered pursuant to the Exchange Offer will be
returned promptly to the tendering Holders thereof.
If the Company makes a material change in the terms of the Exchange Offer,
the Company will disseminate additional Exchange Offer materials and will extend
the Exchange Offer, in each case to the extent required by applicable law. For
purposes of the Exchange Offer, the term "business day" means any day other than
a Saturday, Sunday or federal holiday and consists of the time period from 12:01
a.m. through 12:00 midnight, New York City time.
EXCHANGE OF NOTES
Upon the terms of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment) and applicable law, the Company will issue shares of Common Stock
with respect to all Notes validly tendered and not withdrawn for exchange
pursuant to the Exchange Offer promptly after the Expiration Date. Such exchange
will be made by the issuance of a certificate for the appropriate number of
shares of Common Stock or appropriate credit to the account of such Holder at
the Depository Trust Company ("DTC") with respect to such shares of Common Stock
in the name of, or pursuant to the instructions of, the Holder of the Note
tendered for exchange and the delivery of such certificate or certificates (or
credit to the account of such Holder at DTC) to or pursuant to the instructions
of the Holder.
In all cases, delivery of certificates or appropriate credit to the account
of such Holder at DTC with respect to such shares of Common Stock will be made
only after timely receipt by the Exchange Agent of (i) certificates representing
such Notes or timely confirmation of a book-entry transfer of such Notes into
the Exchange Agent's account at DTC pursuant to the procedures set forth herein,
(ii) a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) or a properly transmitted Agent's Message (as defined
below), and (iii) any other documents required by the Letter of Transmittal.
If any Notes tendered are not accepted for exchange pursuant to the Exchange
Offer for any reason, such Notes not accepted for exchange will be returned
promptly, without expense, to the exchanging holder (or, in the case of Notes
tendered by book-entry transfer, such Notes will be credited to the account
maintained at DTC from which such Notes were delivered) after the expiration or
termination of the Exchange Offer.
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<PAGE>
Holders who tender their Notes for exchange will not be obligated to pay
brokerage fees or commissions or, except as set forth in the instructions to the
Letter of Transmittal, transfer taxes on the exchange of Notes pursuant to the
Exchange Offer.
PROCEDURES FOR TENDER OF NOTES FOR EXCHANGE
Only Holders of record are authorized to tender their Notes for exchange.
The procedures by which the Notes may be tendered for exchange by beneficial
owners that are not Holders of record will depend upon the manner in which the
Notes are held.
The tender of Notes by a Holder thereof pursuant to one of the procedures
set forth below will constitute an agreement between such Holder and the Company
in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
TENDER OF NOTES HELD IN PHYSICAL FORM. To effectively tender Notes held in
physical form pursuant to the Exchange Offer, a properly completed Letter of
Transmittal (or a facsimile thereof) duly executed by the holder thereof, and
any other documents required by the Letter of Transmittal, must be received by
the Exchange Agent at its address set forth on the back cover of this Offering
Circular/Prospectus (or delivery of Notes may be effected through the deposit of
Notes with DTC and making book-entry delivery as set forth below) on or prior to
the Expiration Date. LETTERS OF TRANSMITTAL AND NOTES SHOULD BE SENT ONLY TO THE
EXCHANGE AGENT AND SHOULD NOT BE SENT TO U.S. OFFICE PRODUCTS, THE INFORMATION
AGENT OR THE DEALER MANAGER.
TENDER OF NOTES HELD THROUGH A CUSTODIAN. To effectively tender Notes that
are held of record by a custodian bank, depositary, broker, dealer, commercial
bank, trust company or other nominee, the beneficial owner thereof must instruct
such Holder to tender the Notes on the beneficial owner's behalf. A Letter of
Instructions is included with this Offering Circular/Prospectus and may be used
by a beneficial owner in this process to give such instructions. Any beneficial
owner of Notes held of record by DTC or its nominee, through authority granted
by DTC, may direct the DTC participant through which such beneficial owner's
Notes are held in DTC to tender on such beneficial owner's behalf.
TENDER OF NOTES HELD THROUGH DTC. To effectively tender Notes that are held
through DTC, DTC participants should transmit their acceptance through DTC's
Automated Tender Offer Program ("ATOP"), and DTC will then edit and verify the
acceptance and send an Agent's Message to the Exchange Agent for its acceptance.
Delivery of tendered Notes must be made to the Exchange Agent pursuant to the
book-entry delivery procedures set forth below.
The method of delivery of Notes and Letter of Transmittal, any required
signature guarantees and all other required documents, including delivery
through DTC and any acceptance of an Agent's Message transmitted through the
ATOP Program, is at the election and risk of the person tendering Notes and
delivering the Letter of Transmittal and, except as otherwise provided in the
Letter of Transmittal, delivery will be deemed made only when actually received
by the Exchange Agent. If delivery is by mail, it is suggested that the holder
use properly insured, registered mail with return receipt requested, and that
the mailing be made sufficiently in advance of the Expiration Date to permit
delivery to the Exchange Agent prior to such date.
Except as provided below, unless the Notes being tendered for exchange are
deposited with the Exchange Agent on or prior to the Expiration Date
(accompanied by a properly completed and duly executed Letter of Transmittal or
a properly transmitted Agent's Message), the Company may, at its option, treat
such surrender as defective for purposes of the right to exchange pursuant to
the Exchange Offer. Exchange of the Notes will be made only against deposit of
the tendered Notes and delivery of all other required documents.
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<PAGE>
BOOK-ENTRY DELIVERY PROCEDURES. The Exchange Agent will establish accounts
with respect to the Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Offering Circular/Prospectus, and any
financial institution that is a participant in DTC may make book-entry delivery
of the Notes by causing DTC to transfer such Notes into the Exchange Agent's
account in accordance with DTC's procedures for such transfer. However, although
delivery of Notes may be effected through book-entry transfer into the Exchange
Agent's account at DTC, the Letter of Transmittal (or facsimile thereof), with
any required signature guarantees or an Agent's Message in connection with a
book-entry transfer, and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at one or more of its
addresses set forth on the back cover of this Offering Circular/ Prospectus on
or prior to the Expiration Date, as applicable. Delivery of documents to DTC
does not constitute delivery to the Exchange Agent. The confirmation of a
book-entry transfer into the Exchange Agent's account at DTC as described above
is referred to herein as a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgment from
the participants in DTC described in such Agent's Message stating the aggregate
principal amount of Notes which have been tendered by such participants pursuant
to the Exchange Offer and that such participants have received this Offering
Circular/Prospectus and the Letter of Transmittal and agree to be bound by the
terms of this Offering Circular/Prospectus and the Letter of Transmittal, and
U.S. Office Products may enforce such agreement against such participants.
SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Program or
the Stock Exchange Medallion Program (a "Medallion Signature Guarantor"), unless
the Notes tendered thereby are tendered (i) by a registered Holder (or by a
participant in DTC whose name appears on a security position listing as the
owner of such Notes) who has not completed either the box entitled "Special
Delivery Instructions" or "Special Exchange Instructions" on the Letter of
Transmittal, or (ii) for the account of a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc. ("NASD") or a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being referred to as
an "Eligible Institution"). See Instruction 1 of the Letter of Transmittal. If
the Notes are registered in the name of a person other than the signer of the
Letter of Transmittal or if Notes not accepted for exchange or not tendered are
to be returned or payment of cash in lieu of fractional shares is to be made to
a person other than the registered Holder, then the signatures on the Letter of
Transmittal accompanying the tendered Notes must be guaranteed by a Medallion
Signature Guarantor as described above. See Instructions 1 and 4 of the Letter
of Transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tendered Notes
pursuant to any of the procedures described above will be determined by the
Company in its sole discretion (whose determination shall be final and binding).
The Company reserves the absolute right to reject any or all tenders of any
Notes determined by it not to be in proper form. The Company also reserves the
absolute right, in its sole discretion, to waive any defect or irregularity in
any tender for exchange with respect to the Notes of any particular Holder,
whether or not similar defects or irregularities are waived in the case of other
Holders. The Company's interpretation of the terms and conditions of the
Exchange Offer (including the Letter of Transmittal and the instructions
thereto) will be final and binding. No tender of Notes will be deemed to have
been validly made until all defects or irregularities have been cured or
expressly waived. None of U.S. Office Products, the Exchange Agent, the Dealer
Manager, the Information Agent, the Trustee or any other person will be under
any duty to give notification of any defects or irregularities in surrenders or
will incur any liability for failure to give any such notification. If U.S.
Office Products waives its right to reject a defective tender of Notes, the
Holder will be entitled to exchange pursuant to the terms of the Exchange Offer.
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<PAGE>
WITHDRAWAL RIGHTS
Tenders of Notes may be withdrawn at any time on or prior to the Expiration
Date and, unless accepted for exchange by the Company, may be withdrawn at any
time after 5:00 p.m., New York City time, on the 40th business day after the
date of this Offering Circular/Prospectus.
In order for a withdrawal to be effective, a written, telegraphic, or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at its addresses set forth on the back cover of this Offering
Circular/Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Notes to be
withdrawn, that such person is withdrawing his election to have such Notes
exchanged, the aggregate principal amount of Notes to be withdrawn, and the name
of the registered Holder of the Notes as set forth on the Notes, if different
from that of the person who tendered such Notes. If Notes have been delivered or
otherwise identified to the Exchange Agent, then prior to the physical release
of such Notes, the tendering Holder must submit the serial numbers shown on the
particular Notes to be withdrawn and the signature on the notice of withdrawal
must be guaranteed by a Medallion Signature Guarantor, except in the case of
Notes tendered for the account of any Eligible Institution. If Notes have been
tendered pursuant to the procedures for book-entry transfer set forth in
"--Procedures for Tender of Notes for Exchange," the notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawal of Notes, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written, telegraphic, or facsimile
transmission. Withdrawals of tenders of Notes may not be rescinded. Notes
properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be re-tendered at any subsequent time on or prior to the
Expiration Date by following the procedures described above under "--Procedures
for Tender of Notes for Exchange." All questions as to the validity of notice of
withdrawal, including time of receipt, will be determined by the Company, and
such determination shall be final and binding
PROCEDURE FOR TENDERING SHARES RECEIVED UPON EXCHANGE IN THE EQUITY SELF-TENDER
Holders who exchange Notes pursuant to the Exchange Offer may tender the
shares of Common Stock they are entitled to receive upon exchange in the Equity
Self-Tender by following the instructions included with the Tender Offer
Statement for the Equity Self-Tender. A Holder whose Notes are in certificated
form rather than book-entry form at the Expiration Date may not receive
certificates for shares of Common Stock in exchange for Notes in time to deliver
such shares prior to the expiration date of the Equity Self-Tender or the
expiration of the period for guaranteed delivery following the expiration date
of the Equity Self-Tender. A Holder whose Notes are in book-entry form at the
Expiration Date will receive shares of Common Stock in book-entry form and it is
expected that such holders will have adequate time to deliver such shares in the
Equity Self-Tender prior to the expiration date of the Equity Self-Tender or the
period for guaranteed delivery following the expiration date of the Equity
Self-Tender. If a Holder tenders shares in the Equity Self-Tender, certificates
for shares of Common Stock will be retained by the Depositary for the Equity
Self-Tender until the tender of shares in the Equity Self-Tender is validly
withdrawn or until the Depositary returns shares that are not accepted in the
Equity Self-Tender. Shares tendered in the Equity Self-Tender will be subject to
all of the terms and conditions of the Equity Self-Tender as set forth in the
Tender Offer Statement relating to the Equity Self-Tender. Holders who are
considering tendering shares into the Equity Self-Tender should read the Tender
Offer Statement carefully before deciding whether to tender shares. Copies of
the Tender Offer Statement and related materials will be delivered to Holders
upon commencement of the Equity Self-Tender.
MARKET AND TRADING INFORMATION
THE NOTES. The Notes were issued in February 1996, and there currently is a
limited trading market for the Notes. Quotations for securities that are not
widely traded, such as the Notes, may differ from
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actual trading prices and should be viewed as approximations. Holders are urged
to contact their brokers to obtain the best available information as to current
market prices.
To the extent that Notes are tendered and accepted for exchange in the
Exchange Offer, the trading market for Notes that remain outstanding may be
significantly more limited, which might adversely affect the liquidity of the
Notes. The extent of the public market and the availability of price quotations
would depend upon a number of factors, including the number of Holders of Notes
remaining at such time. An issue of securities with a smaller outstanding market
value available for trading (the "float") may command a lower price than would a
comparable issue of securities with a greater float. Therefore, the market price
for Notes that are not tendered for exchange in the Exchange Offer may be
affected adversely to the extent that the amount of Notes exchanged pursuant to
the Exchange Offer reduces the float. The reduced float also may tend to make
the trading prices of the Notes that are not exchanged more volatile.
THE COMMON STOCK. The Common Stock is traded on the Nasdaq National Market
System under the symbol "OFIS." On April 29, 1998, the closing sale price of the
Common Stock was $17.81 per share. The following table sets forth, for the
fiscal periods indicated, the range of high bid and low ask prices for the
Common Stock on the Nasdaq National Market. On November 6, 1997, the Company
effected a three-for-two split of the Common Stock. The prices given below are
adjusted retroactively to reflect this stock split.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED APRIL 30, 1996
First fiscal Quarter......................................................................... $ 10.58 $ 7.00
Second fiscal Quarter........................................................................ $ 12.08 $ 9.00
Third fiscal Quarter......................................................................... $ 17.58 $ 10.83
Fourth fiscal Quarter........................................................................ $ 26.67 $ 14.67
FISCAL YEAR ENDED APRIL 26, 1997
First fiscal Quarter......................................................................... $ 30.33 $ 16.33
Second fiscal Quarter........................................................................ $ 25.33 $ 16.50
Third fiscal Quarter......................................................................... $ 24.83 $ 17.50
Fourth fiscal Quarter........................................................................ $ 23.17 $ 13.33
FISCAL YEAR ENDED APRIL 25, 1998
First fiscal Quarter......................................................................... $ 20.58 $ 14.67
Second fiscal Quarter........................................................................ $ 25.92 $ 17.21
Third fiscal Quarter......................................................................... $ 24.83 $ 14.69
Fourth fiscal Quarter........................................................................ $ 19.81 $ 16.88
FISCAL YEAR ENDING APRIL 24, 1999
First fiscal Quarter (through April 29, 1998)................................................ $ 17.81 $ 16.69
</TABLE>
The value realized by Holders on exchange of the Notes will depend on the
market price of the Common Stock, which is subject to fluctuation. Holders are
urged to obtain current market quotations for the Common Stock. The market price
of the Common Stock will also be affected by the completion of the Strategic
Restructuring Plan, including the completion of the Equity Self-Tender and the
Distributions. See "Risk Factors--Impact of the Strategic Restructuring Plan on
Trading Prices of the Common Stock." The market price of the Common Stock also
may be affected by any failure to complete all or any elements of the Strategic
Restructuring Plan. See "Risk Factors--Failure to Complete Strategic
Restructuring Plan."
DEALER MANAGER
The Company has retained BancAmerica Robertson Stephens to act as Dealer
Manager in connection with the Exchange Offer. In its capacity as Dealer
Manager, BancAmerica Robertson Stephens may contact Holders regarding the
Exchange Offer and may request brokers, dealers, commercial banks, trust
companies and other nominees to forward this Offering Circular/Prospectus and
related materials to
22
<PAGE>
beneficial owners of Notes. BancAmerica Robertson Stephens will receive a fee
for its services as Dealer Manager in connection with the Exchange Offer that
will depend on the percentage of the aggregate principal amount of the Notes
that is tendered for exchange.
No fee will be paid on the first 60% of the aggregate principal amount of
the Notes tendered. Thereafter, a fee will be paid for each $1,000 principal
amount of Notes tendered. The fee is based on a sliding scale, with the higher
fee only paid on the incremental Notes tendered above specified thresholds. The
fees range from $3.75 per $1,000 principal amount up to a maximum of $30.00 per
$1,000 principal amount if more than 95% of the aggregate principal amount of
the Notes are tendered. Based on the foregoing fee structure, if all outstanding
Notes are tendered in the Exchange Offer, BancAmerica Robertson Stephens will
receive an aggregate fee of $619,507.
BancAmerica Robertson Stephens will also be reimbursed for its reasonable
out-of-pocket expenses incurred in connection with the Exchange Offer (including
the reasonable fees and disbursements of counsel). The Company has also agreed
to indemnify BancAmerica Robertson Stephens and its affiliates against certain
liabilities, including liabilities under the federal securities laws, caused by,
relating to or arising out of the Exchange Offer.
BancAmerica Robertson Stephens and BA Robertson Stephens International
Limited have also been selected by the Company to act as Dealer Managers with
respect to the 2003 Note Tender. BancAmerica Robertson Stephens has also been
selected as the managing underwriter for the public offering of common stock of
two of the Spin-Off Companies. BancAmerica Robertson Stephens has in the past
provided certain investment banking services to the Company, for which services
BancAmerica Robertson Stephens has received customary compensation, including
acting as lead manager for U.S. Office Products' public offering of the Notes
and placement agent for the private placement of the 2003 Notes.
The Dealer Manager does not assume any responsibility for the accuracy or
completeness of the information concerning the Company or its affiliates
contained herein or for any failure by the Company to disclose events which may
have occurred and may affect the significance or accuracy of such information.
Unless otherwise indicated, all information contained in this Offering
Circular/Prospectus has been supplied by the Company. The Company assumes full
responsibility for the accuracy or completeness of such information.
EXCHANGE AGENT AND INFORMATION AGENT
State Street Bank and Trust Company has been appointed Exchange Agent for
the Exchange Offer. All deliveries and correspondence sent to the Exchange Agent
should be directed to its address set forth on the back cover of this Offering
Circular/Prospectus. MacKenzie Partners, Inc. has been appointed Information
Agent for the Exchange Offer. Requests for assistance or additional copies of
this Offering Circular/Prospectus and the Letter of Transmittal should be
directed to the Information Agent at its address set forth on the back cover of
this Offering Circular/Prospectus. Holders of the Notes may also contact their
broker, dealer, commercial bank or trust company for assistance concerning the
Exchange Offer.
FEES AND EXPENSES
In addition to the fees and expenses payable to the Dealer Manager, the
Company will pay the Exchange Agent and the Information Agent reasonable and
customary fees for their services (and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith), and will pay brokerage houses
and other custodians, nominees and fiduciaries the reasonable out-of-pocket
expenses incurred by them in forwarding copies of this Offering
Circular/Prospectus and related documents to the beneficial owners of the Notes
and in handling or forwarding tenders for purchase. In addition, the Company has
agreed to indemnify the Exchange Agent against certain liabilities in connection
with their services, including liabilities arising under the federal securities
laws.
23
<PAGE>
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates for
shares of Common Stock issued upon exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Notes, or if tendered Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the conversion of the Notes pursuant to the
Exchange Offer, then the amount of any such transfer tax (whether imposed on the
registered holder or any other person) will be payable by the surrendering
Holder.
ACCOUNTING TREATMENT OF THE EXCHANGE OFFER
As a result of the Exchange Offer, the Company will issue up to 1,324,000
shares of Common Stock in addition to the number of shares that would otherwise
be issuable if all of the Notes were converted at the Existing Conversion Price.
Based on the closing price of the Common Stock on April 29, 1998, such 1,324,000
shares have a market value of approximately $23.6 million. The actual market
value of the Common Stock at the date of the exchange will be recorded as
expense in the Company's consolidated financial statements at the time of the
exchange. The expense will not be deductible for income tax purposes.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE
For a discussion of the federal income tax consequences of the Exchange
Offer see "U.S. Federal Income Tax Considerations."
MISCELLANEOUS
In connection with the Exchange Offer, directors, officers and employees of
the Company (who will not be specifically compensated for such services) may
solicit tenders and consents by use of the mails, personally or by telephone,
telegram or facsimile transmissions.
None of the officers, directors or affiliates of the Company hold any of the
Notes.
DIVIDEND POLICY
The Company does not anticipate declaring and paying cash dividends on
Common Stock in the foreseeable future. The decision whether to apply any
legally available funds to the payment of cash dividends on the Common Stock
will be made by the Company's Board of Directors from time to time in the
exercise of its business judgment, taking into account the Company's financial
condition, results of operations, existing and proposed commitments for use of
the Company's funds and other relevant factors. U.S. Office Products' ability to
pay dividends may be restricted from time to time by financial covenants in its
credit agreements.
24
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at January
24, 1998: (i) on an actual basis; and (ii) on a pro forma basis to reflect (a)
the Equity Self-Tender, (b) the Distributions, (c) the Equity Investment, (d)
the purchase acquisitions completed subsequent to January 24, 1998, (e) the
Exchange Offer, (f) the 2003 Note Tender (assuming that all of the Notes are
exchanged in the Exchange Offer and all of the 2003 Notes are tendered and
accepted for purchase in the 2003 Note Tender) and (g) the Subordinated Debt
Offering and borrowings under the Credit Facility in connection with these
transactions ("New Borrowings") as if such transactions had occurred on January
24, 1998. The number of shares outstanding set forth below does not include
shares issuable upon exercise of approximately 22.0 million and 14.2 million
outstanding options on an actual and pro forma basis, respectively. See "The
Strategic Restructuring Plan--Adjustment to Employee Stock Options." This 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 unaudited pro forma combined financial statements
of the Company, and the related notes to each thereof, all of which are included
in or incorporated by reference into this Offering Circular/Prospectus.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
------------- -------------
<S> <C> <C>
JANUARY 24, 1998
----------------------------
(IN THOUSANDS)
Short-term debt.................................................................... $ 332,636 $ --
------------- -------------
------------- -------------
Long-term debt..................................................................... $ 381,844 $ 1,155,509
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, 133,041,979, and
146,931,899 shares issued, 133,041,979, and 146,331,374 shares outstanding,
none, and 600,525 shares held in treasury, respectively........................ 133 146
Additional paid-in capital....................................................... 1,463,523 707,905
Cumulative translation adjustment................................................ (113,022) (113,022)
Retained earnings (deficit)...................................................... 122,288 (4,237)
------------- -------------
Total stockholders' equity..................................................... 1,472,922 590,792
------------- -------------
Total capitalization......................................................... $ 1,854,766 $ 1,746,301
------------- -------------
------------- -------------
</TABLE>
25
<PAGE>
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
------------------------------------------------------------------------ -----------
PRO FORMA
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 26, APRIL 26, JANUARY 25,
1993 1994 1995 1996 1997 1997 (2) 1997
----------- ----------- ----------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.......................... $ 486,763 $ 523,755 $ 658,494 $1,061,528 $2,115,954 $2,794,009 $1,498,320
Cost of revenues.................. 350,647 377,494 485,955 789,436 1,518,287 1,988,315 1,077,408
----------- ----------- ----------- --------- --------- ----------- -----------
Gross profit.................. 136,116 146,261 172,539 272,092 597,667 805,694 420,912
Selling, general and
administrative expenses......... 124,065 132,320 152,176 231,569 488,215 646,867 344,474
Amortization expense.............. 601 733 801 2,711 12,416 25,138 8,072
Non-recurring acquisition costs... 8,057 8,001 8,001 7,316
Restructuring costs............... 682 4,201 4,201
----------- ----------- ----------- --------- --------- ----------- -----------
Operating income.............. 11,450 13,208 19,562 29,073 84,834 121,487 61,050
Interest expense.................. 2,914 2,519 3,401 8,132 36,047 103,996 27,540
Interest income................... (327) (411) (675) (3,506) (6,857) (6,048)
Other income...................... (1,463) (1,315) (1,456) (684) (4,233) (7,150) (4,073)
----------- ----------- ----------- --------- --------- ----------- -----------
Income from continuing operations
before provision for income
taxes and extraordinary items... 10,326 12,415 18,292 25,131 59,877 24,641 43,631
Provision for income taxes........ 1,594 1,727 2,800 6,032 27,939 18,481 18,238
----------- ----------- ----------- --------- --------- ----------- -----------
Income from continuing operations
before extraordinary items...... 8,732 10,688 15,492 19,099 31,938 $ 6,160 25,393
-----------
-----------
Income from discontinued
operations, net of income taxes
(3)............................. 2,824 10,953 15,675 15,778 26,800 20,411
----------- ----------- ----------- --------- --------- -----------
Income before extraordinary
items........................... 11,556 21,641 31,167 34,877 58,738 45,804
Extraordinary items, net of income
taxes (4)....................... 701 1,450 612
----------- ----------- ----------- --------- --------- -----------
Net income........................ $ 11,556 $ 21,641 $ 31,167 $ 34,176 $ 57,288 $ 45,192
----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- --------- --------- -----------
Weighted average common shares
outstanding
Basic......................... 44,260 44,260 45,562 67,545 90,026 146,331(5) 85,978
Diluted....................... 44,260 44,260 45,704 68,374 91,761 148,066(5) 87,824
Per share amounts:
Basic:
Income from continuing
operations before
extraordinary items......... $ 0.20 $ 0.24 $ 0.34 $ 0.28 $ 0.35 $ 0.04 $ 0.30
-----------
-----------
Income from discontinued
operations.................. 0.06 0.25 0.34 0.24 0.31 0.24
Extraordinary items........... (0.01) (0.02) (0.01)
----------- ----------- ----------- --------- --------- -----------
Net income.................... $ 0.26 $ 0.49 $ 0.68 $ 0.51 $ 0.64 $ 0.53
----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- --------- --------- -----------
Diluted:
Income from continuing
operations before
extraordinary items......... $ 0.20 $ 0.24 $ 0.34 $ 0.28 $ 0.35 $ 0.04 $ 0.29
-----------
-----------
Income from discontinued
operations.................. 0.06 0.25 0.34 0.23 0.29 0.23
Extraordinary items........... (0.01) (0.02) (0.01)
----------- ----------- ----------- --------- --------- -----------
Net income.................... $ 0.26 $ 0.49 $ 0.68 $ 0.50 $ 0.62 $ 0.51
----------- ----------- ----------- --------- --------- -----------
----------- ----------- ----------- --------- --------- -----------
Ratio of earnings to fixed charges
(6) 2.1x 2.3x 2.5x 1.9x 2.0x 1.2x 2.0x
<CAPTION>
PRO FORMA PRO FORMA
JANUARY 24, JANUARY 25, JANUARY 24,
1998 1997 (2) 1998 (2)
----------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.......................... $1,930,113 $2,087,861 $2,070,655
Cost of revenues.................. 1,390,855 1,487,711 1,481,421
----------- ----------- -----------
Gross profit.................. 539,258 600,150 589,234
Selling, general and
administrative expenses......... 436,037 483,908 467,356
Amortization expense.............. 13,830 18,415 18,433
Non-recurring acquisition costs... 7,316
Restructuring costs...............
----------- ----------- -----------
Operating income.............. 89,391 90,511 103,445
Interest expense.................. 27,534 77,997 77,997
Interest income................... (1,545)
Other income...................... (6,369) (6,730) (6,711)
----------- ----------- -----------
Income from continuing operations
before provision for income
taxes and extraordinary items... 69,771 19,244 32,159
Provision for income taxes........ 32,535 14,433 20,903
----------- ----------- -----------
Income from continuing operations
before extraordinary items...... 37,236 $ 4,811 $ 11,256
----------- -----------
----------- -----------
Income from discontinued
operations, net of income taxes
(3)............................. 25,464
-----------
Income before extraordinary
items........................... 62,700
Extraordinary items, net of income
taxes (4).......................
-----------
Net income........................ $ 62,700
-----------
-----------
Weighted average common shares
outstanding
Basic......................... 114,758 146,331(5) 146,331(5)
Diluted....................... 117,185 148,177(5) 148,757(5)
Per share amounts:
Basic:
Income from continuing
operations before
extraordinary items......... $ 0.32 $ 0.03 $ 0.08
----------- -----------
----------- -----------
Income from discontinued
operations.................. 0.23
Extraordinary items...........
-----------
Net income.................... $ 0.55
-----------
-----------
Diluted:
Income from continuing
operations before
extraordinary items......... $ 0.32 $ 0.03 $ 0.08
----------- -----------
----------- -----------
Income from discontinued
operations.................. 0.22
Extraordinary items...........
-----------
Net income.................... $ 0.54
-----------
-----------
Ratio of earnings to fixed charges
(6) 2.5x 1.2x 1.4x
</TABLE>
<TABLE>
<CAPTION>
JANUARY
APRIL 30, 24, 1998
------------------------------------------ APRIL 26, ---------
1993 1994 1995 1996 1997 ACTUAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 13,609 $ 51,344 $ 70,153 $ 274,124 $ 233,986 $ 107,210
Net assets of discontinued operations........................ 19,199 26,879 33,514 33,674 171,122 461,042
Total assets................................................. 130,666 172,656 259,904 805,978 1,706,991 2,469,442
Long-term debt, less current portion......................... 2,414 15,112 18,841 176,230 380,209 381,844
Stockholders' equity......................................... 27,986 77,735 128,512 394,746 921,148 1,472,922
<CAPTION>
PRO FORMA (7)
-------------
<S> <C>
BALANCE SHEET DATA:
Working capital.............................................. $ 396,609
Net assets of discontinued operations........................
Total assets................................................. 2,006,085
Long-term debt, less current portion......................... 1,155,509
Stockholders' equity......................................... 590,792
</TABLE>
26
<PAGE>
- ------------------------------
(1) The historical financial information of the businesses that were acquired 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 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") have been included from the dates of
their respective acquisitions. The pro forma financial data reflect purchase
acquisitions completed by the Company through March 20, 1998.
(2) Gives effect to the Strategic Restructuring Plan, the Exchange Offer, the
2003 Note Tender (assuming that all of the Notes are exchanged in the
Exchange Offer and all of the 2003 Notes are tendered and accepted for
purchase in the 2003 Note Tender), the New Borrowings and the purchase
acquisitions completed by the Company since May 1, 1996 as if such
transactions had been made on May 1, 1996. The pro forma statement of income
data are not necessarily indicative of the operating results that would have
been achieved had these events actually then occurred and should not be
construed as representative of the Company's future operating results.
(3) The results of the companies included in the Distributions are reflected as
discontinued operations for all periods presented in the Company's
consolidated statement of income.
(4) Extraordinary items represent the losses associated with the early
terminations of credit facilities, net of the related income tax benefits.
(5) For calculation of the pro forma weighted average shares outstanding for the
fiscal year ended April 26, 1997 and for the nine months ended January 25,
1997 and January 24, 1998, see Notes to Pro Forma Combined Financial
Statements incorporated by reference into this Offering Circular/
Prospectus.
(6) In computing the ratio of earnings to fixed charges: (i) earnings are based
on income from continuing operations before provision for income taxes and
extraordinary items and fixed charges; and (ii) fixed charges consist of
interest expense from continuing and discontinued operations, amortization
of deferred financing costs and the estimated interest component of rent
expense.
(7) Gives effect to the Strategic Restructuring Plan, the Exchange Offer, the
2003 Note Tender (assuming that all of the Notes are exchanged in the
Exchange Offer and all of the 2003 Notes are tendered and accepted for
purchase in the 2003 Note Tender), the New Borrowings and the purchase
acquisitions completed by the Company subsequent to January 24, 1998 as if
such transactions had been made on January 24, 1998. The pro forma balance
sheet data are not necessarily indicative of the financial position that
would have been achieved had these events actually then occurred and should
not be construed as representative of the Company's future financial
position.
27
<PAGE>
THE STRATEGIC RESTRUCTURING PLAN
The elements of the Strategic Restructuring Plan, and related transactions,
are summarized below.
EQUITY SELF-TENDER
The Company will offer to purchase 37,037,037 shares of Common Stock
(including shares that may be issued on exercise of vested and unvested stock
options with an exercise price of less than $27.00) at a price of $27.00 per
share (or, in the case of shares underlying stock options, at $27.00 minus the
exercise price of the options). The Company expects the Equity Self-Tender to
commence on May 4, 1998 and to expire on June 1, 1998, unless the Company
extends the expiration date.
The Board approved the Equity Self-Tender--and borrowing by the Company to
finance a substantial portion of the purchase price--to give stockholders the
opportunity to receive cash for a portion of their investment in the Company.
The Equity Self-Tender price of $27.00 per share represents a substantial
premium over the trading price of the Common Stock immediately prior to the
announcement of the Strategic Restructuring Plan. The Board subsequently decided
to allow employees to tender shares underlying options to reduce potential
dilution to stockholders of the Company and the Spin-Off Companies as well as to
permit employees to participate in the Equity Self-Tender without incurring the
cost (and potential tax liability) of exercising their options before they knew
whether their options would be accepted in the Equity Self-Tender. Because
shares underlying options can be tendered, the Company will not make any
adjustment to the exercise price or number of options that will be outstanding
after the Equity Self-Tender to take account of the effects of the Equity
Self-Tender. Based on information received from management and recommendations
of outside advisers, the Board concluded that after the Company is restructured,
it would be able to generate adequate cash flow to service the additional debt.
The Company will not be required to purchase shares of Common Stock in the
Equity Self-Tender unless the following conditions, and other standard
conditions, are satisfied:
- a minimum of 37,037,037 shares of Common Stock (including shares
underlying stock options) are validly tendered and not withdrawn;
- the Company has obtained enough financing to pay for the shares (including
shares issuable upon exercise of outstanding employee stock options) it
will purchase in the Equity Self-Tender;
- all conditions to the completion of Investor's purchase of the equity
securities have been satisfied or waived, except completion of the Equity
Self-Tender and Distributions; and
- registration statements covering the shares of the Spin-Off Companies to
be distributed to the Company stockholders in the Distributions have
become effective and all other conditions to the completion of the
Distributions have been satisfied, except completion of the Equity
Self-Tender.
The Company expects to pay for the shares with a combination of the money it
receives from the Equity Investment described below and money it obtains in the
Financing Transactions.
In the Equity Self-Tender, employees of the Company may tender shares
underlying vested (but unexercised) or unvested stock options with an exercise
price of less than $27.00 per share. The Company will allow employees to
conditionally exercise unvested options to the extent it purchases shares
underlying such unvested options in the Equity Self-Tender as long as the
employee also tenders all of his or her vested options. In the Equity
Self-Tender, tendered options will be prorated in the same proportion as
tendered shares. Unvested options that are not accepted for purchase in the
Equity Self-Tender will remain unvested after the Equity Self-Tender. The
Company will accept for purchase in the Equity Self-Tender shares underlying an
employee's vested options before accepting any shares underlying an employee's
unvested options. Up to approximately 22 million shares are issuable upon
exercise of outstanding options. U.S. Office Products will record a non-cash
compensation expense to reflect the difference between the tender
28
<PAGE>
offer price of $27.00 per share and the exercise price for options that are
purchased in the Equity Self-Tender. The amount of the compensation expense will
depend on the number of shares underlying options that are accepted in the
Equity Self-Tender and the exercise price of the associated options. If all
outstanding shares, plus all shares received for exchange for Notes (and
assuming all Notes are exchanged for shares in the Exchange Offer) and all
shares underlying all outstanding options are tendered, the Company currently
estimates that the non-cash expense will be approximately $65.0 million
On April 14, 1998, a stockholder purporting to represent a class composed of
all U.S. Office Products stockholders filed an action in the Delaware Chancery
Court. The action claims that the directors breached their fiduciary duty to the
stockholders of U.S. Office Products by changing the terms of the Equity
Self-Tender to include employee stock options. The complaint seeks injunctive
relief, damages and attorneys fees. U.S. Office Products believes that this
lawsuit is without merit and intends to vigorously
contest it.
DISTRIBUTIONS
GENERAL. After acceptance of shares of Common Stock in the Equity
Self-Tender, the Company will distribute the common stock of the Spin-Off
Companies. These companies will hold substantially all of the businesses and
assets of, and will be responsible for substantially all of the liabilities
associated with, the Company's technology solutions (Aztec Technology Partners,
Inc.), print management (Workflow Management, Inc.), educational supplies
(School Specialty, Inc.) and corporate travel services (Navigant International,
Inc.) businesses. Each of the Spin-Off Companies intends to issue additional
common stock in an underwritten public offering that is expected to occur at
approximately the same time as the Distributions. The Distributions are intended
to qualify for tax-free treatment under Section 355 and will not be completed
unless the Company receives an opinion from Wilmer, Cutler & Pickering that the
Distributions will receive tax-free treatment. See "--U.S. Federal Income Tax
Consequences of the Distributions." No less than ten calendar days prior to the
expiration date of the Equity Self-Tender, the Company will distribute to each
Holder of record on such date a copy of the information statements of each
Spin-Off Company contained in the Spin-Off Company registration statements.
The Board determined that the separation of the businesses of the Spin-Off
Companies and the continuing business of the Company as part of the Strategic
Restructuring Plan would benefit the stockholders because it would have
advantages for the Spin-Off Companies and the Company. The advantages that the
Board considered included the following:
- The Distributions will allow each of the Company and the Spin-Off
Companies to adopt strategies and pursue objectives that are more
appropriate to their respective industries, geographic territories and
stages of growth.
- Each will be able to pursue an independent acquisition program that allows
for a more focused use of resources and, where stock is used as
consideration, provide stock of a public company that is in the same
industry as the businesses being acquired.
- Each can be recognized by the financial community as a distinct business
that can be evaluated more readily and compared more easily to industry
peers.
- Each can implement more focused incentive compensation packages that
respond to specific industry and market conditions and enhance employee
retention objectives.
- After the Distributions, the Company will be focused on a more narrow,
complementary group of businesses. Each of the Spin-Off Companies will be
focused primarily on their individual businesses.
In considering the Distributions, the Board also took into account that all
the Company's stockholders remaining after the Equity Self-Tender will receive
stock of the Spin-Off Companies. Accordingly, these stockholders will benefit
from any appreciation in value of the stocks of the Spin-Off Companies after the
29
<PAGE>
Distributions. The Board also considered the diversification opportunities the
Distributions would provide stockholders. Stockholders will be able to retain an
interest in those Spin-Off Companies they want to retain and to dispose of their
interests in the others.
The Company will distribute shares of the Spin-Off Companies to its
stockholders remaining after completion of the Exchange Offer and the Equity
Self-Tender. The Company has not yet determined the number of shares of each of
the Spin-Off Companies that will be distributed for each share of Common Stock,
but the Company will distribute all shares of the Spin-Off Companies it holds.
The number of shares of the Spin-Off Companies that a Company stockholder
receives in the Distributions will be based on the number of shares of Common
Stock that the stockholder holds after the Equity Self-Tender but prior to the
one-for-four reverse stock split.
Investor will not receive shares of the Spin-Off Companies in the
Distributions. At the same time, the Investment Agreement specifies certain
terms of the Distributions, and Investor has the right to reasonably approve
certain other terms of the Distributions. Investor may require terms of the
Distributions (such as responsibility for pre-distribution liabilities) that are
less favorable to the Spin-Off Companies than would be the case if Investor also
had an interest in the Spin-Off Companies. In addition, the Company has agreed
to indemnify Investor and its affiliates against losses resulting from any of
the Spin-Off Companies failing to satisfy their obligations to the Company under
certain agreements related to the Distributions.
In connection with the Distributions, the Company will enter into a series
of agreements with each Spin-Off Company to provide mechanisms for an orderly
transition and to define certain relationships among the Company and the
Spin-Off Companies after the Distributions. These agreements are: a distribution
agreement (the "Distribution Agreement") among the Company and the Spin-Off
Companies; a tax allocation agreement (the "Tax Allocation Agreement") among the
Company and the Spin-Off Companies; an employee benefits agreement (the
"Employee Benefits Agreement") among the Company and the Spin-Off Companies; and
a tax indemnification agreement (the "Tax Indemnification Agreement") among the
Spin-Off Companies. Each of these agreements is in the process of being
negotiated, and is subject to Investor's reasonable approval. There can be no
assurance that the terms of these agreements will contain the terms described
below.
DISTRIBUTION AGREEMENT. The Distribution Agreement will provide for the
transfer from the Company to the Spin-Off Companies of substantially all of the
equity interests in the Company's subsidiaries that are engaged in the business
of technology solutions, print management, educational supplies and corporate
travel services businesses as well as the transfer, in certain instances, of
other assets related to these businesses. The Distribution Agreement will also
allocate and provide for the assumption of financial responsibility for certain
liabilities (other than taxes and employee benefit matters which will be
governed by separate agreements) among the Company and the Spin-Off Companies.
It is expected that each Spin-Off Company may be responsible for (i) any
liabilities arising out of or in connection with its respective businesses as
they were formerly conducted by the Company and/or its subsidiaries, (ii) its
liabilities under the Distribution Agreement, the Tax Allocation Agreement and
the Employee Benefits Agreement and related agreements, (iii) its liabilities
for its portion of an aggregate of $130.0 million of debt allocated to the
Spin-Off Companies plus expenditures by such entities for acquisitions after the
date of the Investment Agreement, (iv) certain liabilities under the securities
laws and (v) any liabilities of the Spin-Off Company or its subsidiaries. In
addition, the Distribution Agreement is expected to provide that each of the
Company and the Spin-Off Companies will bear a portion of (i) any liabilities of
the Company under the securities laws arising from events prior to the
Distributions (other than claims relating solely to a specific Spin-Off Company
or relating specifically to the continuing businesses of the Company), (ii) the
Company's general corporate liabilities (other than debt, except for that
specifically allocated to the Spin-Off Companies) incurred prior to the
Distributions (i.e., liabilities not related to the management or conduct of a
particular distributed or retained subsidiary's business) and (iii) a portion of
transaction costs (including legal, accounting, investment banking and financial
advisory) and other fees incurred by the
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<PAGE>
Company in connection with the Strategic Restructuring Plan equal to $1.0
million in the case of each Spin-Off Company.
TAX ALLOCATION AGREEMENT AND TAX INDEMNIFICATION AGREEMENT. The Tax
Allocation Agreement will provide that each Spin-Off Company is responsible for
its respective share of the Company's consolidated tax liability for the years
that each such corporation was included in the Company's consolidated U.S.
federal income tax return. The Tax Allocation Agreement will also provide for
sharing, where appropriate, of state, local and foreign taxes attributable to
periods prior to the Distributions. Under the Tax Allocation Agreement, the
Spin-Off Companies will jointly and severally indemnify the Company for any
losses associated with taxes ("Distribution Taxes") assessed against the Company
that are related to the Distributions if an action or omission (an "Adverse Tax
Act") of any of the Spin-Off Companies materially contributes to a final
determination that any or all of the Distributions are taxable. Further, the
Spin-Off Companies, but not the Company, will enter into the Tax Indemnification
Agreement which will require the Spin-Off Company that is responsible for the
Adverse Tax Act to indemnify the other Spin-Off Companies for any liability to
the Company under the Tax Allocation Agreement. If there is a final
determination that any or all of the Distributions are taxable and it is
determined that there has not been an Adverse Tax Act by either the Company or
any of the Spin-Off Companies, each of the Company and the Spin-Off Companies
will be liable for its pro rata portion of such Distribution Taxes based on the
value of each company's common stock after the Distributions. However, the
Company and the Spin-Off Companies have not agreed to indemnify the Company's
stockholders for any taxes resulting from the Distributions failing to qualify
for tax-free treatment.
EMPLOYEE BENEFITS AGREEMENT. In connection with the Distributions, the
Company will enter into the Employee Benefits Agreement with the Spin-Off
Companies to provide for an orderly transition of benefits coverage between the
Company and the Spin-Off Companies. Pursuant to this agreement, the respective
Spin-Off Companies will retain or assume liability for employment-related claims
and severance for persons currently or previously employed by the respective
Spin-Off Companies and their subsidiaries, while the Company and the businesses
which remain part of the Company after the Distributions will retain or assume
responsibility for their current and previous employees.
EQUITY INVESTMENT
Pursuant to the Investment Agreement, the Company will, following the Equity
Self-Tender and Distributions, issue and sell Common Stock and warrants to
purchase Common Stock to Investor for a purchase price of $270.0 million. As a
result of the Equity Investment, Investor will acquire: (a) shares of Common
Stock representing 24.9% of the outstanding shares of Common Stock after giving
effect to the issuance of such shares; (b) rights ("Special Warrants") to
receive for nominal consideration additional shares of Common Stock equal to
24.9% (after giving effect to issuance of such additional shares upon exercise
of the Special Warrants) of the additional shares that are issuable upon
conversion of any Notes that remain outstanding after the Strategic
Restructuring Plan is completed and certain shares of Common Stock that are
actually issued pursuant to certain contingent rights under existing acquisition
agreements, including the one referred to in the next sentence; and (c) warrants
representing the right to purchase one share of Common Stock for (i) each share
of Common Stock purchased by Investor at the date of closing under the
Investment Agreement (the "Equity Investment Closing Date") and (ii) each share
of Common Stock into which the Special Warrants become exercisable. The Special
Warrants will permit Investor to buy additional shares of Common Stock to
maintain its 24.9% ownership position in the event that the Company issues
additional shares of Common Stock to a former owner of Blue Star under the terms
of the agreement by which the Company acquired Blue Star. The former owner is
entitled to receive up to 3.0 million more shares (prior to any adjustment that
may be appropriate to take account of the effect of the Strategic Restructuring
Plan) depending on a number of future events, including the future trading price
of the Common Stock and the consolidated pre-tax earnings of Blue Star and its
New Zealand subsidiaries for the fiscal year ending April 1999. In view of the
uncertainty of these future events, the Company cannot
31
<PAGE>
reasonably estimate what portion, if any, of these additional shares may be
issued. The Special Warrants are exercisable from and after the Equity
Investment Closing Date until the twelfth anniversary thereof, subject to
certain limitations, and the warrants described in clause (c) above are
exercisable from and after the second anniversary of the Equity Investment
Closing Date until such twelfth anniversary thereof. If Investor exercises all
of the warrants described in clause (c) above, it will be required to pay the
Company an aggregate of $405.0 million. If no currently outstanding stock
options are exercised, exercise of these warrants would give Investor ownership
of approximately 39.9% of the Common Stock of the Company after implementation
of the Strategic Restructuring Plan (assuming that all of the Notes are
exchanged in the Exchange Offer and all of the 2003 Notes are tendered and
accepted for purchase in the 2003 Note Tender).
In accordance with the Investment Agreement, the Company's Board of
Directors will consist of nine directors, including the Chief Executive Officer
of the Company, three designees of Investor and five persons initially selected
by the Company's current Board of Directors. Investor's obligation to consummate
the Equity Investment is conditioned on two of the designees to the Company's
Board of Directors initially selected by the Company's current Board of
Directors being satisfactory to Investor. After closing, for so long as Investor
maintains certain levels of ownership of Common Stock, Investor will have the
right to nominate three members of the Company's Board of Directors and to
designate the Chairman of the Board. Certain Company Board of Directors'
decisions will be subject to super-majority voting provisions that, under
certain circumstances, may require the concurrence of at least one director
nominated by Investor. Investor will be subject to certain restrictions and
limitations with respect to transactions in Common Stock. See "--Information
About the Board of Directors After the Equity Investment."
Investor's obligation to consummate the Equity Investment is subject to the
satisfaction or waiver of various conditions. These include, among others: (i)
accuracy of the Company's representations and warranties and compliance by the
Company with its obligations under the Investment Agreement; (ii) receipt of
necessary antitrust and other regulatory clearance; (iii) absence of material
litigation; (iv) Company stockholder approval of the issuance of shares in the
Equity Investment; (v) consummation of the Distributions in accordance with the
Distribution Agreement containing certain terms specified in the Investment
Agreement and otherwise as reasonably approved by Investor; (vi) execution and
delivery of the Tax Allocation Agreement containing certain terms specified in
the Investment Agreement and otherwise as reasonably approved by Investor; (vii)
execution of documents relating to financing for the Equity Self-Tender
satisfactory in form and substance to Investor; (viii) consummation of the
Equity Self-Tender; (ix) execution of a consulting agreement with CD&R providing
for payment of an annual consulting fee of $500,000; (x) execution of a
registration rights agreement with Investor; (xi) absence of any development
since October 25, 1997 that would have a material adverse effect on the Company
(after giving effect to the Distributions); (xii) no person or group (other than
Investor) acquiring beneficial ownership of 15% or more of the Common Stock and
no person or group (other than Investor or its affiliates) having entered into
an agreement with the Company with respect to a tender or exchange offer for any
shares of Common Stock, or a merger, consolidation or other business combination
with or involving the Company; and (xiii) the Company's debt existing
immediately following completion of the transactions contemplated by the
Strategic Restructuring Plan shall not exceed $1.4 billion (assuming exchange of
all of the Notes) and the outstanding debt of the Spin-Off Companies shall be at
least $130.0 million plus expenditures by such entities for acquisitions after
the date of the Investment Agreement. If the Company does not proceed with the
Distributions, or if the Equity Investment does not occur for certain other
reasons, Investor can terminate the Investment Agreement and CD&R would receive
a termination fee of $25.0 million plus Investor's reasonable fees and expenses.
Upon completion of the Equity Investment, CD&R will receive a transaction fee of
$15.0 million and Investor will receive reimbursement for expenses it incurs in
connection with the transaction.
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<PAGE>
Investor or the Company can terminate the Investment Agreement at any time
if they both agree in writing. Either one can terminate the agreement if
Investor has not purchased the equity securities by September 30, 1998 (if such
failure to close is not the result of a breach by the party seeking
termination), if the Company's stockholders do not approve the transaction, or
if any law or order prohibits the transaction.
In addition, Investor can terminate the Investment Agreement if (i) the
Company materially breaches or makes a material misrepresentation which is not
cured within 30 days after notice from Investor; (ii) the Company's Board of
Directors withdraws, modifies, or publicly announces the intention to withdraw
or modify, its approval of the Investment Agreement or related transactions or
recommends an alternative transaction proposal; (iii) the Board of Directors
publicly announces that it has decided not to complete the Distributions; (iv)
certain conditions--including the accuracy at closing of statements made by the
Company in the Investment Agreement--become impossible to fulfill and Investor
does not waive the conditions; (v) the Company makes substantive amendments to
the agreement setting out the terms of the Distributions or the Equity
Self-Tender; or (vi) Investor decides in its good faith reasonable judgment not
to proceed with the transaction based on its review of the agreements relating
to the Distributions or the Equity Self-Tender.
The Company can terminate the Investment Agreement if (i) Investor
materially breaches or makes a material misrepresentation which is not cured
within 30 days after notice from the Company; (ii) certain conditions--including
the accuracy at closing of statements made by Investor in the Investment
Agreement--become impossible to fulfill and the Company does not waive the
conditions; or (iii) the Company receives an unsolicited proposal for an
investment in the Company or purchase of assets of the Company that meet certain
criteria including that the proposal provides consideration that the Board of
Directors of the Company determines in good faith contains terms that are
financially superior to the Equity Investment.
The foregoing summary of the Investment Agreement does not purport to be
complete and is qualified in its entirety by reference to the Investment
Agreement, which is hereby incorporated by reference herein.
REVERSE STOCK SPLIT
In connection with the Strategic Restructuring Plan and subject to
stockholder approval, the Company plans to effect a one-for-four reverse stock
split to be effective upon completion of all other elements of the Strategic
Restructuring Plan.
THE FINANCING TRANSACTIONS
In connection with the Strategic Restructuring Plan, the Company expects to
refinance its existing senior bank debt and to borrow additional funds to
finance the cost of purchasing shares of Common Stock in the Equity Self-Tender,
purchasing 2003 Notes in the 2003 Note Tender, and paying fees and expenses
incurred in connection with the Strategic Restructuring Plan.
NEW CREDIT FACILITY. The Company has agreed to and accepted a commitment
letter from The Chase Manhattan Bank, Bankers Trust Company, and Merrill Lynch
Capital Corporation, as agents, and Chase Securities Inc., BT Alex. Brown
Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as
co-arrangers, for a new bank loan facility (the "Credit Facility") that will
provide for an aggregate principal amount of $1.225 billion, consisting of (i)
seven-year term loan facilities totalling $300.0 million, (ii) an eight-year
term loan in the principal amount of $675.0 million, and (iii) a revolving
credit facility in the principal amount of $250.0 million. The Company and the
banks may agree to alter the allocated principal amount of two or more of the
loan facilities before signing definitive documents depending on market
conditions. The Credit Facility will be guaranteed by the Company's material
domestic subsidiaries and secured by substantially all assets of the Company and
its material domestic subsidiaries. Each loan will bear interest, at the
Company's option, at a short-term Eurodollar rate plus a margin of 2.25% or
2.50%
33
<PAGE>
(in the case of the eight-year term loan) or a floating alternate base rate plus
a margin of 1.25% or 1.50% (in the case of the eight-year term loan). The
applicable margins will be subject to agreed upon reductions in the future based
on the Company's financial performance. The Company will be required to enter
into arrangements to insure that the effective interest rate paid by the Company
on at least 50% of its outstanding bank and subordinated debt will not exceed a
certain rate. The loan documents likely will include financial and other
covenants. These will include, among others, restrictions on the Company's
ability to incur additional indebtedness, sell assets, pay dividends or engage
in certain other transactions, and requirements that the Company maintain
certain financial ratios, and other provisions customary for loans to highly
leveraged companies, including representations by the Company, conditions to
funding, cost and yield protections, restricted payment provisions, transfer
provisions, amendment provisions and indemnification provisions. The Credit
Facility will be subject to mandatory prepayment in a variety of circumstances,
including upon certain asset sales and financing transactions. The commitment
will terminate unless definitive loan documents are entered into, and the
Strategic Restructuring Plan and Financing Transactions completed, by June 30,
1998. No assurance can be given that the Credit Facility will be completed as
contemplated.
SENIOR SUBORDINATED NOTES. The Company also expects to issue Senior
Subordinated Notes in a principal amount of at least $400.0 million. These
Senior Subordinated Notes will be subordinated in right of payment to the Credit
Facility. U.S. Office Products expects to offer these in a private placement.
The Senior Subordinated Notes will not be registered under the Securities Act of
1933 and may not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. The availability of
subordinated debt financing will depend on a number of factors, including market
conditions and interest rates.
2003 NOTE TENDER. U.S. Office Products will make an offer to purchase any
and all of the 2003 Notes for a purchase price of 94.5% of the principal amount,
plus accrued interest. U.S. Office Products will not complete the 2003 Note
Tender unless (i) it obtains satisfactory financing for the 2003 Note Tender and
the Equity Self-Tender, (ii) obtains any necessary lender consents, and (iii)
satisfies relevant conditions to the Equity Investment and the Distributions.
The 2003 Note Tender will also be subject to other conditions that are customary
in such offers.
THE EXCHANGE OFFER. The Company is making the Exchange Offer hereby.
The Exchange Offer and the 2003 Note Tender will reduce debt that will
become due before the expected due dates for the Credit Facility and the Senior
Subordinated Notes. These transactions are also intended to reduce the number of
shares of Common Stock that might be issued after completion of the Strategic
Restructuring Plan. Each of the Notes and the 2003 Notes are convertible into
Common Stock. If these notes are purchased or exchanged before completion of the
Strategic Restructuring Plan, the number of shares of Common Stock that might be
issued after the Strategic Restructuring Plan will be less.
The indebtedness of the Company after the Strategic Restructuring Plan will
also include (i) any Notes that are not exchanged for Common Stock in the
Exchange Offer and (ii) any 2003 Notes that are not purchased in the 2003 Note
Tender.
AGREEMENTS WITH JONATHAN LEDECKY
Jonathan J. Ledecky, the founder, Chairman of the Board and former Chief
Executive Officer of the Company, will resign as Chairman of the Company when
the Distributions are completed. The Company's Board of Directors and Mr.
Ledecky concluded that it will be important for the Spin-Off Companies to have
greater access to Mr. Ledecky's skills and experience. Accordingly, the Company
entered into an agreement with Mr. Ledecky. This agreement will go into effect
only if the Distributions are completed. It will replace Mr. Ledecky's existing
employment agreement with the Company. As a result of this agreement, Mr.
Ledecky will remain employed with the Company but his role with the Company
after the Distributions will be substantially reduced. The principal terms of
this agreement, as it is expected to be amended prior to completion of the
Distributions, are summarized below.
34
<PAGE>
The new agreement with Mr. Ledecky governs his continuing obligations to the
Company. Under that agreement, Mr. Ledecky will report to the Company's Board of
Directors and will provide high-level acquisition negotiation services and
business strategic advice. Under the agreement, Mr. Ledecky will receive an
annual salary of $48,000 through June 30, 2001. Mr. Ledecky will also retain his
existing Company options; the number of shares subject to these options, and
their exercise price, will be adjusted to take account of the Distributions. See
"--Adjustment to Employee Stock Options." As a continuing employee, Mr. Ledecky
is entitled to retain his options despite his reduction in services to the
Company. The Company can terminate Mr. Ledecky's employment only for "cause."
Cause consists of (i) his conviction of or guilty or nolo contendere plea to a
felony, (ii) his engaging, despite notice, in conduct demonstrably and
materially injurious to the Company, or (iii) his violation of the
noncompetition agreement as it relates to the Company. If Mr. Ledecky resigns or
is terminated, he will cease to vest in his Company options and will have 90
days to exercise any vested options (as under his existing options).
It is expected that each Spin-Off Company will enter into an employment
agreement with Mr. Ledecky to implement its assigned portion of the agreement.
Under each employment agreement, Mr. Ledecky will report to the respective
boards of directors and senior management of the Spin-Off Companies. Mr. Ledecky
will provide high-level acquisition negotiation services and strategic business
advice to each of the Spin-Off Companies. Each Spin-Off Company can require his
performance of such services, consistent with his other contractual employment
obligations to Consolidation Capital Corporation (of which Mr. Ledecky is the
founder, chairman and chief executive officer), U.S. Office Products and the
other Spin-Off Companies. As an employee, Mr. Ledecky will also be subject to
the generally applicable personnel policies of each company and will be eligible
for each Spin-Off Company's benefit plans in accordance with their terms. Each
Spin-Off Company is expected to pay Mr. Ledecky an annual salary of up to
$48,000 for up to two years. Each Spin-Off Company may terminate Mr. Ledecky's
employment with or without "cause," where cause has the same definition as in
the agreement with U.S. Office Products, as modified to refer to the Spin-Off
Company. If without cause, the termination would entitle Mr. Ledecky to a
severance payment equal to his salary for the lesser of 12 months or the
remainder of the contract.
The agreement with the Company provides for non-competition and
non-solicitation restrictions that continue for four years after the
Distributions have been completed. These provisions generally restrict Mr.
Ledecky from, among other things, investing in or working for or on behalf of
any business that sells products or services in direct competition with the
Company or the Spin-Off Companies, within 100 miles of any location where the
Company or the Spin-Off Companies conduct business. (For this purpose, "products
or services" are those that U.S. Office Products offered on January 13, 1998.)
The agreement prohibits Mr. Ledecky from trying to hire away managerial
employees of the Company or the Spin-Off Companies, or calling upon customers of
the Company or the Spin-off Companies to solicit or sell products or services in
direct competition with the Company or the Spin-Off Companies. Mr. Ledecky also
may not hire away for Consolidation Capital Corporation (of which Mr. Ledecky is
the founder, chairman and chief executive officer) any person then or in the
preceding year employed by the Company or the Spin-Off Companies. The Company is
permitted to (and will) assign to the Spin-Off Companies the ability to enforce
the non-competition provisions described above as they apply to the Spin-Off
Companies' respective businesses, which will then constitute part of his
employment agreements with the Spin-Off Companies.
Mr. Ledecky will receive options from each Spin-Off Company for each of the
Spin-Off Companies' common stock on the date of the Distributions. The options
are intended to compensate Mr. Ledecky for his services to each of the Spin-Off
Companies as an employee. The options will cover up to 7.5% of each of the
Spin-Off Companies' outstanding common stock, determined as of the date of the
Distributions without regard to any concurrent public offerings. For each
Spin-Off Company, the options will have a per-share exercise price equal to the
initial public offering price for the Spin-Off Company. The estimated value of
these options depends on the initial public offering prices of the Spin-Off
Companies and the trading volatility of the Spin-Off Companies. U.S. Office
Products cannot make a reliable estimate of the
35
<PAGE>
value of these options until it obtains an estimate of the initial public
offering prices for the Spin-Off Companies. U.S. Office Products believes that
the value of these options will be substantially greater than the annual cash
compensation paid to officers of the Spin-Off Companies, but moderate in
relation to the total annual expenses of the Spin-Off Companies. An estimate of
the dollar value of the options will be included in the information statements
relating to each Distribution, which U.S. Office Products will send to each
Holder of record no less than ten calendar days prior to the Expiration Date.
It is expected that, for each Spin-Off Company, Mr. Ledecky's options will
be fully vested when granted but will not be exercisable until 12 months after
the Distributions are completed. Mr. Ledecky's options from the Spin-Off
Companies will all become exercisable immediately if he dies before the option
expires or, in the case of a particular Spin-Off Company, if that company
accelerates the exercise schedule of options for substantially all management
option holders. (In this latter case, Mr. Ledecky's option will become
exercisable on the same accelerated schedule as the other management option
holders.) All unexercised portions of the option will expire ten years after the
date of grant of the option or, if applicable, as of the date Mr. Ledecky
violates his non-competition agreement with a Spin-Off Company.
ADJUSTMENT TO EMPLOYEE STOCK OPTIONS
The Company has previously granted stock options to management and
employees. The Company expects that the number and exercise price of these
options will be adjusted following completion of the Strategic Restructuring
Plan to take account of the effects of the Distributions on the underlying value
of the Common Stock. Options held after the Equity Self-Tender and Distributions
by employees who remain with U.S. Office Products will remain exercisable for
shares of Common Stock. Options held after the Equity Self-Tender and
Distributions by employees who will become employees of a Spin-Off Company will
be converted into options exercisable for shares of that particular Spin-Off
Company. The adjustments will be made by a formula that takes account of the
difference between the price of the Company's Common Stock before and after the
Distributions have been completed (and, in the case of options for Spin-Off
Company shares, the price of Spin-Off Company shares in the public offerings
expected to be completed by the Spin-Off Companies (the "Spin-Off Company
Offering Price")). The formula will not affect when the options vest or when
employees can exercise the options. The respective option exercise prices will
be adjusted by this formula:
<TABLE>
<S> <C> <C>
Trading Price
Post-Distributions
Exercise Price (New) = Exercise Price X ---------------------------
(Old) Trading Price
Pre-Distributions
</TABLE>
The respective numbers of shares subject to option will be adjusted by this
formula:
<TABLE>
<S> <C> <C>
Trading Price
Pre-Distributions
Option Shares (New) = Option Shares (Old) X ---------------------------
Trading Price
Post-Distributions
</TABLE>
For all optionees, the "Trading Price Pre-Distributions" will be the average
closing price of the Common Stock for the lesser of ten business days preceding
the Distributions or the business days falling between the expiration of the
Equity Self-Tender and the completion of the Distributions. For continuing
employees of the Company, the "Trading Price Post-Distributions" will be the
average closing price of the Common Stock for the ten business days after and
including the date on which the Distributions are completed. For employees of a
Spin-Off Company, the "Spin-Off Company Offering Price" will be substituted for
"Trading Price Post-Distributions" in this formula. The exercise price and
number of options will not be adjusted as a result of the Equity Self-Tender,
but instead are adjusted solely for the Distributions and the reverse stock
split.
36
<PAGE>
The number of shares underlying options for continuing employees will also
be adjusted to take account of the reverse stock split; that is, the new number
of shares underlying options will be divided by four and the new exercise price
will be multiplied by four. The number of shares underlying options for
employees of a Spin-Off Company will also be adjusted for the distribution ratio
applied in the Spin-Off Company Distributions; that is, the new number of shares
underlying options in the Spin-Off Company will be divided by the distribution
ratio and the exercise price will be multiplied by the distribution ratio. The
intrinsic value of the adjusted options will be no greater than the intrinsic
value of the options immediately before the Distributions and the reverse stock
split, and the ratio of exercise price to market price will be no less than the
ratio immediately before the Distributions and the reverse stock split.
As a result of the adjustments, employee stock options will likely represent
a greater percentage interest in the Company after these transactions than they
did before. See "Risk Factors -- Increase in Outstanding Shares." At April 20,
l998, the Company's management and employees held options to purchase a total of
approximately 22.0 million shares, of which approximately 3.7 million were held
by employees that are expected to be employees of a Spin-Off Company. The number
of options that will be outstanding after the Strategic Restructuring Plan will
depend on the number of shares subject to options that are accepted in the
Equity Self-Tender and also on the trading prices of the Common Stock around the
time of the Distributions and the offering prices of the Spin-Off Companies'
shares. As a result, the ultimate number of such options cannot be determined at
this time. The fair value of the options may also change as a result of these
adjustments, but the fair value as measured by standard models will depend on
the adjusted exercise price, the adjusted number of shares, and the trading
prices and volatility of the Common Stock after completion of the Strategic
Restructuring Plan. Because the adjustments are designed to compensate for the
effects of the transactions in the Strategic Restructuring Plan, the Company
does not currently expect that the adjustments will have a significant effect on
the fair value of the options, but cannot assure stockholders that the change
will not be significant.
INFORMATION ABOUT THE BOARD OF DIRECTORS AFTER THE EQUITY INVESTMENT
Investor has the right to designate three members of the Board of Directors
of the Company who will serve from the Equity Investment Closing Date until the
next annual meeting of stockholders. In addition, the Chief Executive Officer of
the Company, Thomas Morgan, will be a director. Two of the remaining directors
at closing must be satisfactory to Investor. The existing members of the Board
will select the new directors who will serve on the Board after closing until
the next Annual Meeting of Stockholders. Investor has informed the Company that
it intends to designate Charles P. Pieper, Kevin J. Conway and Brian D. Finn as
the three directors it is entitled to designate. Investor has the right to
designate the Chairman of the Board as long as it retains a specified percentage
of the shares it acquires in the Equity Investment. Mr. Pieper will serve as
Chairman of the Board after closing. In addition, Michael Dooling, Timothy J.
Flynn, Jonathan J. Ledecky, Clifton B. Phillips and John A. Quelch have advised
the Board that they intend to resign as Directors of the Company effective as of
the Equity Investment Closing Date. The Board intends to appoint Frank P. Doyle
and L. Dennis Kozlowski as two new independent directors, and Investor has
advised the Company that it approves of them. Milton H. Kuyers, Allon H.
Lefever, Edward J. Mathias and Thomas Morgan will remain as directors of the
Company after closing of the Equity Investment.
Set forth below is information about the directors of the Company after
consummation of the Strategic Restructuring Plan:
<TABLE>
<CAPTION>
NAME TITLE AGE BUSINESS EXPERIENCE
- ----------------------- -------------------------- --------- --------------------------------------------------------
<S> <C> <C> <C>
Kevin J. Conway Director 39 Mr. Conway will be named a director of the Company
effective upon completion of the Strategic Restructuring
Plan. Mr. Conway has been a principal and a director of
Clayton, Dubilier & Rice since 1994 and March 1998,
respectively. Prior to
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE AGE BUSINESS EXPERIENCE
- ----------------------- -------------------------- --------- --------------------------------------------------------
joining Clayton, Dubilier & Rice in 1994, Mr. Conway
worked for 10 years at Goldman, Sachs & Co., an
investment banking firm. He also serves as a director of
Riverwood International Corporation and North American
Van Lines, Inc., companies in which CD&R Fund V has an
investment. Mr. Conway is a graduate of Amherst College,
Columbia University School of Business and Columbia Law
School.
<S> <C> <C> <C>
Frank P. Doyle Director 66 Mr. Doyle will be named a director of the Company
effective upon completion of the Strategic Restructuring
Plan. Mr. Doyle is a private consultant who retired from
his position as Executive Vice President of General
Electric Company on January 1, 1996. As Executive Vice
President, he was one of a three member Corporate
Executive Office to which all of GE's operating
businesses and staff reported. Mr. Doyle served as
Executive Vice President of GE from 1991, and prior to
that time he was Senior Vice President at GE with
responsibility for Corporate Marketing and Advertising
from 1981. Mr. Doyle is a director of Digital Equipment
Corporation, Paine Webber Group, Roadway Express and
Educational Testing Services.
Brian D. Finn Director 37 Mr. Finn will be named a director of the Company
effective upon completion of the Strategic Restructuring
Plan. Mr. Finn has been a principal and a director of
Clayton, Dubilier & Rice since June 1997 and March 1998,
respectively. Prior to joining Clayton, Dubilier & Rice
in 1997, Mr. Finn worked for 15 years at Credit Suisse
First Boston, an investment banking firm, most recently
as co-head of the Mergers and Acquisitions division. He
holds a B.S. in Economics from the University of
Pennsylvania's Wharton School.
L. Dennis Kozlowski Director 51 Mr. Kozlowski will be named a director of the Company
effective upon completion of the Strategic Restructuring
Plan. Mr. Kozlowski is Chairman and Chief Executive
Officer of Tyco International Ltd., a multinational
company involved in manufacturing, distribution and
servicing of fire protection and security systems,
disposable medical products, flow control and electronic
products worldwide. He has served as Chief Executive
Officer of Tyco since July 1, 1992 and as Chairman since
January 1, 1993. Prior to July 1992, he was President
and Chief Operating Officer of Tyco since 1989 and a
director of Tyco since 1987. Mr. Kozlowski is a direcor
of RJR Nabisco, Applied Power and Raytheon Corp.
Milton H. Kuyers Director 60 Mr. Kuyers has been a director of the Company since
April 1995. He is a part owner and executive
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE AGE BUSINESS EXPERIENCE
- ----------------------- -------------------------- --------- --------------------------------------------------------
officer of a number of privately held companies
including: Zero Zone, Inc., 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; Digicorp 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. Mr. Kuyers
previously served on the board of Medical Advances,
Inc., a manufacturer of parts for medical diagnostic
applications, until its sale in March 1997. Prior to its
acquisition by the Company, Mr. Kuyers also served as a
director of the The H.H. West Company, a wholly owned
subsidiary of the Company. Mr. Kuyers holds an
undergraduate degree in business administration and an
M.B.A. from the University of Michigan.
<S> <C> <C> <C>
Allon H. Lefever Director 50 Mr. Lefever has served as a director of the Company
since February 1995. He has been 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.,
and he currently serves on the boards of directors of
several private companies. In addition, he is a director
of Red Rose SuperNet and Goodville Insurance Co. 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 Director 55 Mr. Mathias has been a director of the Company since
February 1995. Currently, Mr. Mathias is a Managing
Director of The Carlyle Group, a merchant bank based in
Washington, D.C. From 1971 through 1993, Mr. Mathias was
employed by
T. Rowe Price Associates, Inc., a major investment
management organization, most recently as a Managing
Director. Mr. Mathias presently serves on the boards of
directors of Sirrom Capital Corporation, Pathogenesis
and The Fortress Group, Inc. as well as on the boards of
directors of several private companies. Mr. Mathias
holds an undergraduate degree from The University of
Pennsylvania and an M.B.A. from Harvard Business School.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE AGE BUSINESS EXPERIENCE
- ----------------------- -------------------------- --------- --------------------------------------------------------
<S> <C> <C> <C>
Thomas Morgan President, Chief Executive 44 Mr. Morgan joined U.S. Office Products in February 1997
Officer and Director as President of U.S. Office Products' North American
Office Products Group. He was promoted to Chief
Operating Officer in June 1997 and to Chief Executive
Officer in November 1997. Before joining U.S. Office
Products, he spent more than 20 years with Genuine Parts
Company where he was most recently Executive Vice
President of S.P. Richards Company.
Charles P. Pieper Chairman of the Board of 51 Mr. Pieper will be named Chairman of the Company
Directors effective upon completion of the Strategic Restructuring
Plan. Mr. Pieper has been a principal and a director of
CD&R since March 1997 and March 1998, respectively.
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 Medical
Systems and GE Trading Co. Mr. Pieper is Chairman of
North American Van Lines, Inc., a corporation in which
CD&R Fund V has an investment, and a director of Alliant
Foodservice, Inc. and its parent CDRF Holding, Inc., a
corporation in which a CD&R-managed investment fund has
an investment.
</TABLE>
Three-fourths of the directors must approve certain transactions. These are:
(i) the sale by the Company of equity securities, other than (A) a specified
amount made available under employee benefit plans, such as option plans, or (B)
a specified amount issued to acquire companies or issued in public offerings;
(ii) any merger, tender offer involving the Company's equity securities or sale,
lease, or disposition of all or substantially all of the Company's assets, or
other business combination involving the Company, unless the consideration for
such sale is all cash or is freely tradable common stock of a public company
with a specified level of market capitalization; (iii) any major
recapitalization; (iv) certain amendments to shareholder rights plans; (v) any
dissolution or partial liquidation of the Company; or (vi) any modification to
the Company's charter or by-laws that is inconsistent with Investor's rights
under the Investment Agreement or other agreements described in this Offering
Circular/Prospectus. The effect of this provision is that so long as Investor
can nominate three directors, at least one of them must vote in favor of any of
these actions in order for it to be approved.
This table shows Investor's rights with respect to the nomination of
directors and how they will change if Investor disposes of equity securities.
This table also shows when the three-fourths majority requirement will apply.
40
<PAGE>
SUMMARY OF CORPORATE GOVERNANCE PROVISIONS
<TABLE>
<CAPTION>
NUMBER OF
DIRECTORS INVESTOR THREE-FOURTHS
IS BOARD
PORTION OF SHARES ACQUIRED ENTITLED TO RIGHT TO APPROVAL FOR
AT CLOSING RETAINED BY NOMINATE DESIGNATE CERTAIN
INVESTOR (1) (OUT OF NINE) CHAIRMAN TRANSACTIONS
- ------------------------------------------------------------------- ------------------- ------------- -----------------
<S> <C> <C> <C>
66 2/3% to 100%.................................................... Three Yes Yes
33 1/3% to 66 2/3%................................................. Two Yes Yes
Less than 33 1/3% but Investor holds at least 5% of the then-
outstanding voting stock......................................... One No No
Less than 5% of the then-outstanding voting stock.................. None No No
</TABLE>
- ------------------------
(1) This includes shares Investor can acquire by exercising Special Warrants.
Investor can approve one additional nominee to the Board if the Chief
Executive Officer of the Company is not a member of the Board or is not a Board
nominee. The Company can increase the size of the Board of Directors to as many
as 12 persons, but the number of persons Investor can nominate will increase at
least proportionally. For example, if there are 12 members, Investor could
nominate four directors (assuming it still held all of its shares). Investor
also will be entitled to at least proportionate representation on all Board
committees, unless it is precluded from such membership by law or stock exchange
rules.
All of Investor's corporate governance rights will expire on the earlier of
the fifth anniversary of closing or if Investor ever acquires more than 50% of
the voting power represented by the Company's then-outstanding voting
securities.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTIONS
EFFECT ON THE COMPANY AND THE STOCKHOLDERS OF THE COMPANY. Wilmer, Cutler &
Pickering expects to deliver an opinion (the "Spin-Off Opinion") at the time of
the Distributions stating that for U.S. federal income tax purposes the
Distributions will qualify as tax-free spin-offs under Section 355 of the Code
and will not be taxable under Section 355(e) of the Code. The Company will not
complete the Distributions unless it receives the Spin-Off Opinion. The Spin-Off
Opinion will be based on the accuracy as of the time of the Distributions of
factual representations made by the Company, the Spin-Off Companies and
Investor, and certain other information, data, documentation and other materials
that Wilmer, Cutler & Pickering has deemed necessary.
The Spin-Off Opinion will represent Wilmer, Cutler & Pickering's best
judgment of how a court would rule. However, the Spin-Off Opinion is not binding
upon either the IRS or any court. A ruling has not been, and will not be, sought
from the IRS with respect to the U.S. federal income tax consequences of the
Distributions.
Assuming the Distributions qualify as tax-free spin-offs under Section 355
and are not taxable under Section 355(e), no gain or loss will be recognized by
the Company or the stockholders of the Company (except with respect to cash
received in lieu of fractional shares) as a result of the Distributions.
CONSEQUENCES OF FAILURE TO QUALIFY AS A TAX-FREE DISTRIBUTION. As noted
above, the Spin-Off Opinion is not binding on the IRS or the courts. Holders
should be aware that the requirements of Section 355 pertaining to business
purpose, active trade or business, and absence of a device for distribution of
earnings and profits, as well as the requirements of Section 355(e) pertaining
to a plan or series of related transactions to acquire 50% or more by vote or
value of a company, are highly dependent on factual interpretations, are to a
significant extent subjective in nature, and have a relative absence of
authority addressing their application to the particular facts presented by the
Distributions. Accordingly, the IRS and/or a court could reach a conclusion that
differs from the conclusions in the Spin-Off Opinion.
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<PAGE>
BUSINESS PURPOSE. In order for a Distribution to qualify as a tax-free
spin-off under Section 355, it must be motivated, in whole or substantial part,
by one or more corporate business purposes. The Company will represent that the
Distributions were motivated, in whole or substantial part, to allow the Company
and the Spin-Off Companies to adopt strategies and pursue objectives that are
more appropriate to their respective industries and stages of growth; to allow
the Spin-Off Companies to pursue independent acquisition programs with a more
focused use of resources and, where stock is used as consideration, to allow the
Spin-Off Companies to provide stock of a public company that is in the same
industry as the business being acquired; to allow the Company and the Spin-Off
Companies to offer their respective employees more focused compensation
packages; and to make possible the Equity Investment which the Board of
Directors of the Company concluded would contribute to the Company's
development, based on the skills and experience of CD&R. Based on these
representations and certain other information, data, documentation and other
materials, Wilmer, Cutler & Pickering expects to deliver an opinion at the time
of the Distributions that each Distribution satisfies the business purpose
requirement of Section 355. However, although similar rationales have been
accepted by the IRS in other circumstances as sufficient to meet the business
purpose requirement of Section 355, there can be no assurance that the IRS will
not assert that the business purpose requirement is not satisfied.
ACTIVE TRADE OR BUSINESS. In order for the distribution of the stock of a
Spin-Off Company (other than Navigant International, Inc. ("Navigant")) to
qualify as a tax-free spin-off under Section 355, both the Spin-Off Company and
the Company must be engaged in an active trade or business that has been
actively conducted for the five-year period preceding the Distribution, taking
into account only businesses that have been acquired in transactions in which no
gain or loss was recognized. In order for the distribution of the stock of
Navigant to qualify as a tax-free spin-off under Section 355, substantially all
of the assets of Navigant must consist of the stock of Professional Travel
Corporation ("Professional Travel"), and Professional Travel and the Company
must meet the requirements described in the preceding sentence. Whether current
and historical business activity constitutes an active trade or business, and
whether any gain or loss should have been recognized in an acquisition
structured and reported as a nontaxable transaction, turn in some instances on
the application of subjective legal standards and on factual determinations,
such as intentions of the parties involved. Based on the representations of the
Company and the Spin-Off Companies, Wilmer, Cutler & Pickering expects to
deliver an opinion at the time of the Distributions that each Distribution will
satisfy the active trade or business requirement. However, because of the
inherently subjective nature of important elements of the active trade or
business requirement, and because the IRS may challenge the representations upon
which Wilmer, Cutler & Pickering relies, there can be no assurance that the IRS
will not assert that the active trade or business requirement is not satisfied.
ABSENCE OF A DEVICE FOR DISTRIBUTION OF EARNINGS AND PROFITS. A
Distribution will not qualify as a tax-free spin-off under Section 355 if the
Distribution was used principally as a device for the distribution of the
earnings and profits of the Company or the Spin-Off Company. Treasury
regulations provide that this test is applied based on all the facts and
circumstances, including the presence or absence of factors described in the
Regulations as "device factors" and "nondevice factors." Application of this
test is uncertain in part because of its subjective nature. Based on the
representations of the Company and the Spin-Off Companies, Wilmer, Cutler &
Pickering expects to deliver an opinion at the time of the Distributions that
none of the Distributions is a transaction used principally as a device for the
distribution of earnings and profits of either the Company or any of the
Spin-Off Companies. However, because of the inherently subjective nature of the
device test (including the subjectivity involved in assigning weight to various
factors), and because the IRS may challenge the representations upon which
Wilmer, Cutler & Pickering relies, there can be no assurance that the IRS will
not assert that any or all of the Distributions are transactions used
principally as a device for the distribution of earnings and profits.
If a Distribution fails to qualify under Section 355 as a tax-free spin-off,
each holder of Common Stock on the record date of the Distributions will be
treated as having received a taxable corporate distribution in
42
<PAGE>
an amount equal to the fair market value (on the Distribution Date) of the
Spin-Off Companies' common stock distributed to such holder of Common Stock,
including fractional shares. In addition, the Company will recognize gain equal
to the difference between the fair market value of the Common Stock of the
Spin-Off Company and the Company's adjusted tax basis in the Common Stock of the
Spin-Off Company (on the Distribution Date). If the Company were to recognize
gain on one or more Distributions, such gain would likely be substantial.
EFFECT OF POST-DISTRIBUTION TRANSACTIONS. Section 355(e), which was added
in 1997, generally provides that a company that distributes shares of a
subsidiary in a spin-off that is otherwise tax-free will incur U.S. federal
income tax liability if 50% or more, by vote or value, of the capital stock of
either the company making the distribution or the subsidiary is acquired by one
or more persons acting pursuant to a plan or a series of related transactions
that includes the spin-off. Stock acquired by certain related persons is
aggregated in determining whether this 50% test is met. There is a presumption
that any acquisition of 50% or more, by vote or value, of the capital stock of
the company or the subsidiary occurring two years before or after the spin-off
is pursuant to a plan that includes the spin-off. However, the presumption may
be rebutted by establishing that the spin-off and the acquisition are not part
of a plan or a series of related transactions. Based on the representations of
the Company, the Spin-Off Companies and the Investor, and the assumption that no
Distribution is part of a plan that is outside the knowledge of U.S. Office
Products and the Spin-Off Companies pursuant to which one or more persons will
acquire directly or indirectly 50% or more by vote or value of the capital stock
of the Company or of any Spin-Off Company, Wilmer, Cutler & Pickering expects to
deliver an opinion at the time of the Distributions that the Distributions will
not be taxable under Section 355(e). However, there can be no assurance that the
IRS will not assert that any or all of the Distributions are taxable under
Section 355(e).
If a Distribution is taxable under Section 355(e), the Company will
recognize gain equal to the difference between the fair market value of the
Common Stock of the Spin-Off Company and the Company's adjusted tax basis in the
Common Stock of the Spin-Off Company (on the Distribution Date). However, no
gain or loss will be attributable to holders of Common Stock (except with
respect to cash received in lieu of fractional shares). If the Company were to
recognize gain on one or more Distributions, such gain would likely be
substantial.
The Company, but not the holders of the Common Stock, will be indemnified by
the Spin-Off Companies if the actions or omissions of the Spin-Off Companies
materially contribute to a determination that the Company is subject to a tax
liability in connection with the Distributions. See "The Strategic Restructuring
Plan--Distributions--Tax Allocation Agreement and Tax Indemnification
Agreement". However, there can be no assurance that the Company will be
successful in recovering the full amount of such tax liability under the
indemnification arrangements with the Spin-Off Companies.
FOR A DESCRIPTION OF THE TAX CONSEQUENCES OF EXCHANGING THE NOTES FOR COMMON
STOCK, SEE "U.S. FEDERAL INCOME TAX CONSIDERATIONS."
43
<PAGE>
EFFECT OF THE STRATEGIC RESTRUCTURING PLAN ON THE
CONVERSION PRICE FOR THE NOTES
The Indenture provides for three adjustments to the Existing Conversion
Price as a result of the Equity Self-Tender, Distributions and the one-for-four
reverse stock split of the Common Stock, respectively. These adjustments will
apply to any Notes that remain outstanding after completion of the Exchange
Offer. The adjustments are summarized below. This summary is qualified by
reference to the terms of the Indenture in its entirety.
EQUITY SELF-TENDER ADJUSTMENT
Under the Indenture, the Existing Conversion Price will be adjusted to
account for the purchase by the Company of its shares in the Equity Self-Tender
by multiplying the Existing Conversion Price by a fraction (the "Equity
Self-Tender Adjustment Factor"). The numerator of the fraction will be the
number of shares of Common Stock outstanding (including any tendered shares)
upon expiration of the Equity Self-Tender (the "Expiration Time") multiplied by
the Current Market Price (as defined in the last sentence of this paragraph) of
the Common Stock after the Expiration Time. The denominator will be the sum of
(x) the fair market value of the aggregate consideration payable to stockholders
based on the acceptance (up to the maximum specified in the terms of the Equity
Self-Tender) of all shares validly tendered and not withdrawn as of the
Expiration Time (the shares so accepted, up to any such maximum, being referred
to as the "Purchased Shares") plus (y) the product of the number of shares of
Common Stock outstanding (less any Purchased Shares) on the Expiration Time and
the Current Market Price of the Common Stock. For purposes of the Equity
Self-Tender Adjustment Factor, the "Current Market Price" is the average of the
daily closing prices per share of Common Stock for three trading days following
the Expiration Time. Shares underlying stock options that are accepted in the
Equity Self-Tender will be outstanding for purposes of calculating the Equity
Self-Tender Adjustment Factor.
SPIN-OFF ADJUSTMENT
Under the Indenture, the Existing Conversion Price will also be adjusted to
account for the Distributions by multiplying the Existing Conversion Price (as
adjusted by the Equity Self-Tender Adjustment Factor) by a separate fraction
(the "Spin-Off Adjustment Factor"). The numerator of the fraction will be the
Current Market Price (as defined in the next sentence) on the record date for
the Distributions less the fair market value (as determined by the Board of
Directors) on the record date of the portion of the shares of the Spin-Off
Companies so distributed applicable to one share of Common Stock and the
denominator will be the Current Market Price. For purposes of the Spin-Off
Adjustment Factor, "Current Market Price" is defined as the average of the daily
closing prices per share of Common Stock for the ten consecutive trading days
immediately prior to the record date for the Distributions, except that the
closing price for each trading day prior to or including the Expiration Time for
the Equity Self-Tender will be adjusted by multiplying it by the Equity
Self-Tender Adjustment Factor. Further, for purposes of the Spin-Off Adjustment
Factor, the Board of Directors has determined that the "fair market value" of
each Spin-Off Company will be equal to the price at which the shares of common
stock of the Spin-Off Companies are offered to the public (without reduction for
underwriting discounts or commissions) in underwritten primary offerings on or
about the record date for the Distributions.
Because the Equity Self-Tender Adjustment Factor and the Spin-Off Adjustment
Factor are calculated by reference to closing prices of the Common Stock and the
offering price of the Spin-Off Companies' stock, the actual adjustments cannot
be calculated in advance. It is likely that the Equity Self-Tender Adjustment
Factor and the Spin-Off Adjustment Factor could result in an Existing Conversion
Price (as adjusted) that is less than the Reduced Conversion Price.
ADJUSTMENT FOR REVERSE STOCK SPLIT
Concurrently with the Distributions, the Company will, subject to
stockholder approval, effect a one-for-four reverse stock split. Under the
Indenture, the Existing Conversion Price (as adjusted by the Equity Self-Tender
Adjustment Factor and the Spin-Off Adjustment Factor) will be proportionately
adjusted to account for the reverse stock split.
44
<PAGE>
U.S. FEDERAL INCOME TAX CONSIDERATIONS
Wilmer, Cutler & Pickering has opined (the "Tax Opinion") on the material
U.S. federal income tax considerations relating to the exchange of Notes for
Common Stock pursuant to the Exchange Offer. The Tax Opinion is based on the
Code and regulations, rulings, and judicial decisions as of the date hereof, all
of which may be repealed, revoked, or modified so as to result in U.S. federal
income tax consequences different from those described below. Such changes could
be applied retroactively in a manner that could adversely affect a Holder. In
addition, the authorities on which the Tax Opinion is based are subject to
various interpretations. It is therefore possible that the U.S. federal income
tax treatment of the exchange of Notes for Common Stock may differ from the
treatment described below.
The Tax Opinion does not address all aspects of U.S. federal income taxation
that may be relevant to Holders in light of their particular circumstances, nor
does it address any tax consequences arising under the laws of any state, local,
or foreign tax jurisdiction. The Tax Opinion applies only to Holders who are
U.S. persons and hold Notes as a capital asset (generally, property held for
investment) within the meaning of Section 1221 of the Code. A U.S. person is the
beneficial owner of a Note that is (i) for U.S. federal income tax purposes a
citizen or resident of the United States (including certain former citizens and
former long-term residents), (ii) a corporation, partnership or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, (iii) an estate the income of which is subject to
U.S. federal income taxation regardless of its source or (iv) a trust with
respect to the administration of which a court within the United States is able
to exercise primary supervision and one or more U.S. fiduciaries have the
authority to control all substantial decisions of the trust. The Tax Opinion
does not address tax considerations applicable to a Holder's particular
circumstances or to a Holder that may be subject to special tax rules (such as
Holders subject to the alternative minimum tax) or other special situations,
such as those of dealers in securities or currencies, financial institutions,
insurance companies, persons holding Common Stock as part of a hedging or
conversion transaction or a straddle, and persons whose "functional currency" is
not the U.S. dollar. The Tax Opinion takes into account the Equity Self-Tender
(the tax consequences of which are described in the Tender Offer Statement) and
the fact that the Company will not complete the Distributions unless Wilmer,
Cutler & Pickering delivers the Spin-Off Opinion, as described in "The Strategic
Restructuring Plan -- U.S. Federal Income Tax Consequences of the Distribution,"
that the Distributions will qualify as tax-free spin-offs under Section 355 of
the Code and will not be taxable under Section 355(e) of the Code.
Subject to the foregoing, the Tax Opinion states Wilmer, Cutler &
Pickering's opinion that for U.S. federal income tax purposes the exchange of
Notes for Common Stock pursuant to the Exchange Offer is an exchange of
securities for common stock that will constitute a recapitalization under
Section 368(a)(1)(E) of the Code and that will therefore be tax-free to the
Holders (except with respect to cash received in lieu of fractional shares and
in respect of unpaid interest accrued on the Notes through the Expiration Date
not previously included in income). The Tax Opinion is based on certain
assumptions and the accuracy of factual representations made by U.S. Office
Products. A ruling has not been, and will not be, sought from the IRS with
respect to the U.S. federal income tax consequences of the exchange of Notes for
Common Stock pursuant to the Exchange Offer. Thus, no assurances can be given
that a position taken in reliance on the Tax Opinion will not be challenged by
the IRS or rejected by a court. Assuming the exchange of Notes for Common Stock
pursuant to the Exchange Offer is a tax-free recapitalization, the following
U.S. federal income tax consequences apply:
(1) A Holder will not recognize any gain or loss (except with respect to
cash received in lieu of fractional share and in respect of unpaid interest
accrued on the Notes through the Expiration Date and not previously included in
income) by reason of the exchange of Notes for Common Stock.
(2) The Common Stock received by a Holder upon the exchange of Notes will
have an aggregate basis equal to the aggregate basis of the Notes that are
exchanged for Common Stock (reduced by any basis allocable to a fractional
share).
45
<PAGE>
(3) A Holder's holding period in the Common Stock issued upon the exchange
of Notes will include the period during which the Holder held the Notes prior to
the exchange.
(4) A Holder who receives cash in lieu of a fractional share of Common Stock
upon exchange of Notes will be taxable as if the fractional share had been
issued and then redeemed for cash. The receipt of cash for a fractional share
will result in capital gain or loss measured by the difference between the basis
of such fractional share interest and the cash received.
(5) Cash received by a Holder in respect of unpaid interest accrued on the
Notes through the Expiration Date that has not previously been included in
income of the Holder will be taxable as ordinary income to the Holder.
(6) A Holder that does not exchange its Notes for Common Stock will not
recognize gain or loss by reason of the Exchange Offer.
THE FOREGOING DESCRIPTION OF WILMER, CUTLER & PICKERING'S TAX OPINION DOES
NOT PURPORT TO COVER ALL U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MIGHT APPLY
TO EVERY HOLDER. ALL HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE
PARTICULAR U.S. FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES TO THEM OF
THE EXCHANGE.
FOR INFORMATION CONCERNING THE TAX CONSIDERATIONS TO EXCHANGING HOLDERS OF
THE DISTRIBUTIONS AND PARTICIPATION IN THE EQUITY SELF-TENDER, SEE "THE
STRATEGIC RESTRUCTURING PLAN -- U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE
DISTRIBUTIONS" AND THE INFORMATION STATEMENT/PROSPECTUSES RELATING TO THE
DISTRIBUTIONS AND THE TENDER OFFER STATEMENT DISTRIBUTED WITH THIS OFFERING
CIRCULAR/PROSPECTUS.
46
<PAGE>
DESCRIPTION OF THE NOTES
The Notes were issued under an indenture dated as of February 7, 1996 (the
"Indenture"), between U.S. Office Products and State Street Bank and Trust
Company, as trustee (the "Trustee"). The terms of the Notes include those stated
in the Indenture and those made a part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of
the Indenture. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the TIA for a statement of such terms. The following is a
summary of important terms of the Notes and does not purport to be complete.
Reference should be made to all provisions of the Indenture, including the
definitions therein of certain terms and all terms made a part of the Indenture
by reference to the TIA. As used in this "Description of the Notes," the
"Company" refers only to U.S. Office Products Company and does not, unless the
context otherwise indicates, include any of its subsidiaries.
GENERAL
The Notes are general unsecured obligations of U.S. Office Products
subordinate in right of payment to certain other obligations of U.S. Office
Products as described under "-- Subordination," and convertible into Common
Stock as described under "-- Conversion." The aggregate principal amount of the
Notes issued and outstanding is $143,750,000. The notes were issued in fully
registered form only in denominations of $1,000 and integral multiple thereof
and will mature on February 1, 2001, unless earlier redeemed at the option of
U.S. Office Products or repurchased by U.S. Office Products at the option of the
Holder upon a Designated Event (as defined below).
The Notes bear interest from February 7, 1996 at an annual rate of 5 1/2%,
payable semi-annually on February 1 and August 1, to holders of record at the
close of business on the preceding January 15 and July 15, respectively, other
than with respect to a Note or portion thereof called for redemption on a
redemption date, or repurchased in connection with a Designated Event on a
repurchase date, during the period from a record date to (but excluding) the
next succeeding interest payment date (in which case accrued interest shall be
payable (unless such Note or portion thereof is converted) to the Holder of the
Note or portion thereof redeemed or repurchased). Interest is computed on the
basis of a 360-day year comprised of 12 30-day months.
Principal of and premium, if any, and interest on the Notes are payable, and
the transfer of Notes is registrable, and the Notes may be presented for
conversion, at the office or agency of U.S. Office Products maintained for such
purposes, which is currently the Corporate Trust Office of the Trustee. In
addition, payment of interest may, at the option of U.S. Office Products, be
made by check mailed to the address of the person entitled thereto as it appears
in the Note register, PROVIDED that the Holder with an aggregate principal
amount in excess of $5,000,000 shall, at the election of such Holder, be paid by
wire transfer in immediately available funds.
No service charge will be made for a registration or transfer or exchange of
Notes, but U.S. Office Products may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. U.S.
Office Products is not required to exchange or register the transfer of (i) any
Note for a period of 15 days next preceding any selection of Notes to be
redeemed, (ii) any Note or portion thereof selected for redemption, (iii) any
Note or portion thereof surrendered for conversion, or (iv) any Note or portion
thereof surrendered for repurchase in connection with a Designated Event.
The Indenture does not contain any restrictions on the payment of dividends
or the repurchase of securities of U.S. Office Products or any financial
covenants. The Indenture contains no covenants or other provisions to afford
protection to Holders in the event of a highly leveraged transaction or a change
in control of U.S. Office Products except to the extent described under "--
Repurchase at Option of Holders Upon a Designated Event" below.
47
<PAGE>
CONVERSION
Holders are entitled at any time before the close of business on the last
trading day prior to the final maturity date of the Notes, subject to prior
redemption or repurchase, to convert any Notes or portions thereof (in
denominations of $1,000 or multiples thereof) into Common Stock of U.S. Office
Products, at the conversion price of $19.00 per share, subject to adjustment as
described below. Except as described below, no adjustment will be made on
conversion of any Notes for interest accrued thereon or for dividends on any
Common Stock issued. If Notes are converted after a record date for the payment
of interest and prior to the next succeeding interest payment date, such Notes,
other than Notes called for redemption during such period, when submitted for
conversion by the Holder, must be accompanied by funds equal to the interest
payable on such succeeding interest payment date on the principal amount so
converted. U.S. Office Products is not required to issue fractional shares of
Common Stock upon conversion of Notes and, in lieu thereof, will pay a cash
adjustment based upon the market price of the Common Stock during the last 10
trading days prior to the date of conversion. In the case of Notes called for
redemption, conversion rights will expire at the close of business on the
trading day preceding the date fixed for redemption, unless U.S. Office Products
defaults in payment of the redemption price in which the conversion right will
terminate at the close of business on the date such default is cured. In the
event any Holder exercises its repurchase right upon a Designated Event, such
holder's conversion right will terminate upon submission of written notice of
exercise of such repurchase right together with the Notes as to which such right
is being exercised. See "-- Repurchase at Option of Holders Upon a Designated
Event."
The conversion price of $19.00 per share of Common Stock is subject to
adjustment (under formulas set forth in the Indenture) in certain events,
including: (i) the issuance of Common Stock as a dividend or distribution on
Common Stock of U.S. Office Products; (ii) certain subdivisions and combinations
of the Common Stock; (iii) the issuance to all holders of Common Stock of
certain rights or warrants to purchase Common Stock at less than the current
market price of the Common Stock; (iv) the dividend or other distribution to all
holders of Common Stock of shares of capital stock of U.S. Office Products
(other than Common Stock) or evidences of indebtedness of U.S. Office Products
or assets (including securities, but excluding those rights, warrants, dividends
and distributions referred to in clauses (i) and (iii) above and dividends and
distributions paid exclusively in cash); (v) dividends or other distributions
consisting exclusively of cash (excluding any cash portion of distributions
referred to in clause (iv)) to all holders of Common Stock in an aggregate
amount that, combined together with (A) all other such all-cash distributions
made within the preceding 12 months in respect of which no adjustment has been
made plus (B) any cash and the fair market value of other consideration payable
in respect of any tender offers by U.S. Office Products or any of its
subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then current market price of the
Common Stock times the number of shares of Common Stock then outstanding) on the
record date for such distribution; (vi) the purchase of Common Stock pursuant to
a tender offer made by U.S. Office Products or any of its subsidiaries which
involves an aggregate consideration that, together with (X) any cash and the
fair market value of any other consideration payable in any other tender offer
by U.S. Office Products or any of its subsidiaries for Common Stock expiring
within the 12 months preceding such tender offer in respect of which no
adjustment has been made plus (Y) the aggregate amount of any such all-cash
distributions referred to in clause (v) above to all holders of Common Stock
within the 12 months preceding the expiration of such tender offer in respect of
which no adjustments have been made, exceeds 10% of the Company's market
capitalization on the expiration of such tender offer; and (vii) payment in
respect of a tender offer or exchange offer by a person other than U.S. Office
Products or any subsidiary of U.S. Office Products in which, as of the closing
of the offer, the Board of Directors is not recommending rejection of the offer.
U.S. Office Products is entitled, in lieu of making certain adjustments under
clause (v) above, to provide that, subject to satisfying certain conditions,
upon conversion of the Notes, the Holders will receive, in addition to the
Common Stock issuable upon conversion of such Notes, the amount of such
distribution
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referred to in clause (v). The adjustment referred to in clause (vii) above will
only be made if the tender offer or exchange offer is for an amount which
increases that person's ownership of Common Stock to more than 25% of the total
shares of Common Stock outstanding and, if the cash and value of any other
consideration included in such payment per share of Common Stock exceeds the
current market price per share of Common Stock on the trading day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange. The adjustment referred to in clause (vii) above will
not be made, however, if, as of the closing of the offer, the offering documents
with respect to such offer disclose a plan or an intention to cause U.S. Office
Products to engage in any transaction of the type described in "Consolidation,
Merger or Assumption."
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; PROVIDED that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
The Strategic Restructuring Plan will result in an adjustment to the
conversion price as set forth in "Effect of the Strategic Restructuring Plan on
Conversion of the Notes." The Strategic Restructuring Plan will not, however,
affect the Reduced Conversion Price because the Exchange Period will end before
any element of the Strategic Restructuring Plan that would result in an
adjustment.
Subject to the rights of Holders described below under "-- Repurchase at
Option of Holders upon a Designated Event," in the case of (i) any
reclassification or change of the outstanding Common Stock (other than changes
in par value or resulting from a subdivision or combination of Common Stock) or
(ii) a consolidation, merger, or combination involving U.S. Office Products or a
sale or conveyance to another corporation of the property and assets of U.S.
Office Products as an entirety or substantially as an entirety, in each case as
a result of which holders of Common Stock shall be entitled to receive stock,
other securities, other property or assets (including cash) with respect to or
in exchange for such Common Stock, the Holders then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or been
entitled to receive upon such reclassification, change, consolidation, merger,
combination, sale or conveyance had such Notes been converted into Common Stock
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance (assuming, in a case in which the Company's
stockholders may exercise rights of election, that a Holder would not have
exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith and received per share the
kind and amount received per share by a plurality of non-electing shares). If
the provisions of this paragraph apply to any reclassification, change of Common
Stock, consolidation, merger, combination, sale or conveyance, then the
adjustments to the conversion price described above will not be made with
respect to such reclassification, change of Common Stock, consolidation, merger,
combination, sale or conveyance.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
Holders may, in certain circumstances, be deemed to have received a distribution
subject to United States income tax as a dividend. In certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock.
U.S. Office Products from time to time may, to the extent permitted by law,
reduce the conversion price of the Notes by any amount for any period of at
least 20 days, in which case U.S. Office Products shall give at least 15 days'
notice of such reduction, if the Board of Directors has made a determination
that such decrease would be in the best interests of U.S. Office Products, which
determination shall be conclusive. U.S. Office Products also may, at its option,
make such reductions in the conversion price, in addition to those set forth
above, as the Board of Directors deems advisable to avoid or diminish any
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income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes.
OPTIONAL REDEMPTION BY U.S. OFFICE PRODUCTS
The Notes are redeemable at the option of the Company on at least 20 but not
more than 60 days' notice, as a whole or, from time to time in part, at the
following prices (expressed in percentages of the principal amount), together
with accrued interest to, but excluding, the date fixed for redemption;
PROVIDED, HOWEVER, that U.S. Office Products may not redeem the Notes prior to
February 2, 1999 unless the closing price of the Common Stock on the principal
stock exchange or market on which the Common Stock is then quoted or admitted to
trading equals or exceeds 150% of the conversion price for at least 20 trading
days within a period of 30 consecutive trading days ending on the fifth trading
day prior to the date the notice of redemption is first mailed to the Holders,
PROVIDED FURTHER that if a redemption date is an interest payment date, the
semi-annual payment of interest becoming due on such date shall be payable to
the holder of record as of the relevant record date. As of April 3, 1998, the
closing price of the Common Stock had not satisfied the conditions in the
foregoing sentence.
If redeemed during the 12-month period beginning February 1:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---------------------------------------------------------------------------- ----------------
<S> <C>
1998........................................................................ 103.3%
1999........................................................................ 102.2%
2000........................................................................ 101.1%
</TABLE>
and 100% at February 1, 2001.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot
or, in its sole discretion, on a pro rata basis. If any Note is to be redeemed
in part only, a new Note or Notes in principal amount equal to the unredeemed
principal portion thereof will be issued. If a portion of a Holder's Notes is
selected for partial redemption and such Holder converts a portion of such
Notes, such converted portion shall be deemed to be taken from the portion
selected for redemption.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDERS UPON A DESIGNATED EVENT
The Indenture provides that if a Designated Event (as defined) occurs, each
Holder shall have the right, at the Holder's option, to require U.S. Office
Products to repurchase all of such holder's Notes, or any portion thereof that
is a multiple of $1,000, on the date (the "repurchase date") that is 40 days
after the date of the Company Notice (as defined below), for cash at a price
equal to 100% of the principal amount of the Notes, together with accrued
interest, if any, to the repurchase date (the "repurchase price"), PROVIDED,
HOWEVER, that if a repurchase date is an interest payment date, the semi-annual
payment of interest becoming due on such date shall be payable to the Holder of
record as of the relevant record date.
Within 15 days after the occurrence of a Designated Event, U.S. Office
Products is obligated to mail to all holders of record of the Notes a notice
(the "Company Notice") of the occurrence of such Designated Event and of the
repurchase right arising as a result thereof. U.S. Office Products must deliver
a copy of the Company Notice to the Trustee and cause a copy or a summary or
such notice to be published in a newspaper of general circulation in the city of
New York. To exercise the repurchase right, a Holder must deliver, on or before
the 30th day after the date of the Company Notice, irrevocable written notice to
U.S. Office Products (or an agent designated by U.S. Office Products for such
purpose) and the Trustee of
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the holder's exercise of such right, together with the Notes with respect to
which the right is being exercised, duly endorsed for transfer. The submission
of such notice together with such Notes pursuant to the exercise of a repurchase
right will be irrevocable on the part of the Holder (unless U.S. Office Products
fails to repurchase the Notes on the repurchase date) and the right to convert
such Notes will expire upon such submission. The Strategic Restructuring Plan
does not constitute a Designated Event.
"Designated Event" means a Change in Control (as defined below) or
Termination of Trading (as defined below).
"Change in Control" means an event or series of events as a result of which
(i) any "person" or "group" (as such terms are used in Sections 13(d)(3) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act) of shares representing more than
50% of the combined voting power of the then outstanding securities entitled to
vote generally in elections of directors of U.S. Office Products ("Voting
Stock"); (ii) the stockholders of U.S. Office Products approve any plan or
proposal for the liquidation, dissolution or winding up of U.S. Office Products;
(iii) U.S. Office Products consolidates with or merges into any other
corporation, or conveys, transfers or leases all or substantially all of its
assets to any person, or any other corporation merges into U.S. Office Products,
and, in the case of any such transaction, the outstanding common stock of U.S.
Office Products is changed or exchanged as a result, unless the stockholders of
U.S. Office Products immediately before such transaction own, directly or
indirectly immediately following such transaction, at least 51% of the combined
voting power of the outstanding voting securities of the corporation resulting
from such transaction in substantially the same proportion as their ownership of
the Voting Stock immediately before such transaction; or (iv) the Continuing
Directors (as defined below) do not constitute a majority of the Board of
Directors of U.S. Office Products (or, if applicable, a successor corporation to
U.S. Office Products); PROVIDED that a Change in Control shall not be deemed to
have occurred if either (x) the last sale price of the Common Stock for any five
trading days during the 10 trading days immediately preceding the Change in
Control is at least equal to 105% of the conversion price in effect on such day,
(y) at least 90% of the consideration (excluding cash payments for fractional
shares) in the transaction or transactions constituting the Change in Control
consists of common stock or securities convertible into common stock that are,
or upon issuance will be, traded on a United States national securities exchange
or approved for trading on an established automated over-the-counter trading
market in the United States. A Change of Control also shall not be deemed to
have occurred if Jonathan J. Ledecky or a group that includes Jonathan J.
Ledecky (a "Permitted Investor") becomes the beneficial owner of more than 50%
of the Voting Stock, PROVIDED that, if as a consequence of any transaction
involving a Permitted Investor, or in which a Permitted Investor has an
interest, less than 30% of the shares of Common Stock outstanding upon the
issuance of the Notes are neither listed for trading upon a national securities
exchange nor approved for trading or on an established over-the-counter trading
market in the United States, then a Change of Control shall be deemed to have
occurred upon the consummation of such transaction.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board on February 12, 1996 or (ii) who
was nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Company's Board of Directors was recommended or endorsed by at
least a majority of the directors who were Continuing Directors at the time of
such nomination or election. (Under this definition, if the current Board of
Directors of U.S. Office Products were to approve a new director or directors
and then resign, no Change in Control would occur even though the current Board
of Directors would thereafter cease to be in office.)
A "Termination of Trading" shall have occurred if the Common Stock (or other
common stock into which the Notes are then convertible) is neither listed for
trading on a United States national securities exchange nor approved for trading
on an established automated over-the-counter trading market in the United
States.
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No quantitative or other established meaning has been given to the phrase
"all or substantially all" (which appears in the definition of Change in
Control) by courts which have interpreted this phrase in various contexts. In
interpreting this phrase, courts, among other things, make a subjective
determination as to the portion of assets conveyed, considering such factors as
the value of assets conveyed, the proportion of an entity's income derived from
the assets conveyed and the significance of those assets to the ongoing business
of the entity. To the extent the meaning of such phrase is uncertain,
uncertainty will exist as to whether or not a Change in Control may have
occurred (and, accordingly, as to whether or not the Holders will have the right
to require U.S. Office Products to repurchase their Notes).
In the event of a Designated Event, any repurchase of the Notes could be
prevented by the subordination provisions of the Indenture. See
"--Subordination" below. The Company's repurchase of Notes as a result of the
occurrence of a Designated Event currently is prohibited, absent a waiver, under
the terms of the Company's existing credit facility and the expected terms of
the Credit Facility (in either case, the "Line of Credit"). As a result, U.S.
Office Products will be precluded from making payment of the repurchase price
unless such provisions are waived by the lender or unless the Line of Credit has
been repaid in full and terminated. Repurchase may also be prohibited or limited
by the subordination provisions applicable to the Notes or be prohibited or
limited by, or create an event of default under, the terms of other agreements
relating to borrowings which constitute Senior Indebtedness which may be entered
into, amended, supplemented or replaced from time to time. Failure of U.S.
Office Products to repurchase Notes at the option of the Holder upon a
Designated Event would result in an Event of Default with respect to the Notes
whether or not such repurchase is prohibited by the subordination provisions or
the terms of Senior Indebtedness. No Notes may be repurchased by U.S. Office
Products at the option of holders upon a Designated Event if there has occurred
and is continuing an Event of Default described under "Events of Default and
Remedies" below (other than a default in the payment of the repurchase price
with respect to such Notes on the repurchase date).
Certain leveraged transactions (as defined by the Indenture) that are
sponsored by the Company's management or an affiliate of U.S. Office Products
could constitute a Change in Control that would give rise to the repurchase
right. The Indenture does not provide the Company's Board of Directors with the
right to limit or waive the repurchase right in the event of any such leveraged
transaction. Conversely, U.S. Office Products could, in the future, enter into
certain transactions, including certain recapitalizations of U.S. Office
Products, that would not constitute a Change in Control (such as the Strategic
Restructuring Plan) but that would increase the amount of Senior Indebtedness
(or other indebtedness) outstanding at such time. There are no restrictions in
the Indenture or the Notes on the creation of additional Senior Indebtedness (or
any other indebtedness) of U.S. Office Products or any of its subsidiaries and
the incurrence of significant amounts of additional indebtedness could have an
adverse impact on the Company's ability to service its debt, including the
Notes. The Notes are subordinate in right of payment to all existing and future
Senior Indebtedness as described under "Subordination" below.
The right to require U.S. Office Products to repurchase Notes as a result of
a Designated Event could have the effect of delaying, deferring or preventing a
Change of Control or other attempts to acquire control of U.S. Office Products
unless arrangements have been made to enable U.S. Office Products to repurchase
all of the Notes at the repurchase date. Consequently, the right may render more
difficult or discourage a merger, consolidation or tender offer (even if such
transaction is supported by the Company's Board of Directors or is favorable to
the stockholders), the assumption of control by a holder of a large block of the
Company's shares and the removal of incumbent management.
No modification of the Indenture regarding the provisions on repurchase at
the option of any Holder is permissible without the consent of the Holder so
affected.
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the
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repurchase option becomes available to Holders. The Company will comply with
this rule to the extent applicable at that time.
SUBORDINATION
The indebtedness evidenced by the Notes is, to the extent provided in the
Indenture, subordinate to the prior payment in full of all Senior Indebtedness
(as defined below). Upon any distribution of assets of U.S. Office Products upon
any dissolution, winding up, liquidation or reorganization of U.S. Office
Products, the payment of the principal of, or premium, if any, and interest on
the Notes is to be subordinated to the extent provided in the Indenture in right
of payment to the prior payment in full of all Senior Indebtedness. Moreover, in
the event of any acceleration of the Notes because of an Event of Default, the
holders of any Senior Indebtedness then outstanding would be entitled to payment
in full of all obligations in respect of such Senior Indebtedness before the
Holders are entitled to receive any payment or distribution in respect thereof.
U.S. Office Products also may not make any payment upon or in respect of the
Notes if (i) a default in the payment of principal of, premium, if any,
interest, or other payment due on Senior Indebtedness occurs and is continuing
beyond any applicable period of grace or (ii) any other default occurs and is
continuing with respect to Designated Senior Indebtedness (as defined below)
that permits holders of the Designated Senior Indebtedness as to which such
default related to accelerate its maturity and the Trustee and U.S. Office
Products receive a notice of such default (a "Payment Blockage Notice") under
the Line of Credit or from a holder of at least $5 million in outstanding
principal amount of Designated Senior Indebtedness. Payments on the Notes may
and shall be resumed (a) in case of payment default, on the date on which such
default is cured or waived and (b) in case of a nonpayment default, on the
earlier of the date on which such nonpayment default is cured or waived or 179
days after the date on which the applicable Payment Blockage Notice is received.
No new period of payment blockage may be commenced pursuant to a Payment
Blockage Notice unless (i) 365 days have elapsed since the effectiveness of the
immediately prior Payment Blockage Notice and (ii) all scheduled payments of
principal, premium, if any, and interest on the Notes that have become due have
been paid in full in cash or the Trustee or the Holders shall not have
instituted proceedings to enforce the Holders' right to receive such payments.
No nonpayment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice shall be, or be made, the basis for a subsequent
Payment Blockage Notice.
By reason of the subordination, in the event of the Company's bankruptcy,
dissolution, liquidation or reorganization, holders of Senior Indebtedness may
receive more, ratably, and Holders may receive less, ratably, than the other
creditors of U.S. Office Products. Such subordination will not prevent the
occurrence of an Event of Default under the Indenture.
Subject to the qualifications described below, the term "Senior
Indebtedness" means the principal of, premium, if any, interest on, and any
other payment due pursuant to, any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created:
(a) All secured indebtedness of U.S. Office Products for money borrowed
(including (A) any indebtedness secured by a security interest, mortgage,
conditional sales contract or other lien on the assets of U.S. Office
Products which is (i) given to secure all or part of the purchase price of
property subject thereto, whether given to the vendor of such property or to
another, or (ii) existing on property at the time of acquisition thereof and
(B) secured indebtedness for borrowed money from banks, insurance companies
and other financial institutions);
(b) All secured indebtedness of U.S. Office Products evidenced by notes,
debentures, bonds or other securities (including, but not limited to, those
which are convertible or exchangeable for securities of U.S. Office
Products);
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(c) All secured indebtedness of U.S. Office Products due and owing with
respect to letters of credit and bank guarantees (including, but not limited
to, reimbursement obligations with respect thereto);
(d) All secured indebtedness or other secured obligations of U.S. Office
Products due and owing with respect to interest rate and currency swap
agreements, cap, floor and collar agreements, currency spot and forward
contracts and other similar agreements and arrangements;
(e) All secured indebtedness consisting of commitment or standby fees
due and payable to lending institutions with respect to credit facilities or
letters of credit available to U.S. Office Products;
(f) All secured indebtedness of others of the kinds described in any of
the preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed in
any manner by U.S. Office Products or in effect guaranteed by U.S. Office
Products through an agreement to purchase, contingent or otherwise; and
(g) All secured renewals, extensions, refundings, deferrals, amendments
or modifications of secured indebtedness of the kinds described in any of
the preceding clauses (a), (b), (c), (d), (e) or (f);
unless in the case of any particular indebtedness, obligation, renewal,
extension, refunding, amendment or modification the instrument or other document
creating or evidencing the same or the assumption or guarantee of the same
expressly provides that such indebtedness, obligation, renewal, extension,
refunding, amendment or modification is subordinate to, is PARI PASSU with, or
is not superior to, the Notes. Notwithstanding the foregoing, Senior
Indebtedness shall not include (i) any indebtedness of any kind of U.S. Office
Products to any subsidiary of U.S. Office Products, a majority of the voting
stock of which is owned, directly or indirectly, by U.S. Office Products, (ii)
indebtedness of U.S. Office Products for trade payables or constituting the
deferred purchase price of assets or services incurred in the ordinary course of
business and (iii) conditional obligations of U.S. Office Products based on
future performance (including, without limitation, earn out agreements or
similar arrangements) entered into in connection with acquisitions.
The term "Designated Senior Indebtedness" means U.S. Office Products' Line
of Credit and any other Senior Indebtedness if the instrument creating or
evidencing the same or the assumption or guarantee thereof (or related
agreements or documents to which U.S. Office Products is a party) expressly
provides that such Indebtedness shall be "Designated Senior Indebtedness" for
purposes of the Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of holders of such
Senior Indebtedness to exercise the rights of Designated Senior Indebtedness).
It is expected that as a result of the financing associated with the Strategic
Restructuring Plan, a total of approximately $774.9 million of indebtedness will
constitute Designated Senior Indebtedness.
In the event that, notwithstanding the foregoing, the Trustee or any Holder
receives any payment or distribution of assets of U.S. Office Products of any
kind in contravention of any of the terms of the Indenture, whether in cash,
property or securities, including, without limitation, by way of set-off or
otherwise, in respect of the Notes before all Senior Indebtedness is paid in
full, then such payment or distribution will be held by the recipient in trust
for the benefit of the holders of Senior Indebtedness of U.S. Office Products,
and will be immediately paid over or delivered to the holders of Senior
Indebtedness of U.S. Office Products or their representative or representatives
to the extent necessary to make payment in full of all Senior Indebtedness of
U.S. Office Products remaining unpaid, after giving effect to any concurrent
payment or distribution, or provision therefor, to or for the holder of Senior
Indebtedness of U.S. Office Products.
The Notes are obligations exclusively of U.S. Office Products. As certain of
the Company's operations are conducted through subsidiaries, the cash flow and
the consequent ability to service debt of U.S. Office Products, including the
Notes, may be dependent upon the earnings of its subsidiaries and the
distribution of those earnings to, or upon loans, royalties, license fees, or
other payments of funds by those subsidiaries
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to, U.S. Office Products. The subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Notes or to make any funds available therefor, whether by
dividends, loans or other payments. In addition, the payment of dividends and
the making of loans and advances to U.S. Office Products by its subsidiaries may
be subject to statutory or contractual restrictions, are dependent upon the
earnings of those subsidiaries and are subject to various business
considerations.
Any right of U.S. Office Products to receive assets of any of its
subsidiaries upon their liquidation or reorganization (and the consequent right
of the Holders to participate in these assets) will be effectively subordinated
to the claims of that subsidiary's creditors (including trade creditors), except
to the extent that U.S. Office Products is itself recognized as a creditor of
such subsidiary, in which case the claims of U.S. Office Products would still be
subordinate to any security interests in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by U.S. Office Products.
As of February 21, 1998, U.S. Office Products had approximately $361.8
million of indebtedness outstanding (excluding accrued interest) that
constituted Senior Indebtedness. As of February 21, 1998, there was also
outstanding approximately $24.8 million of indebtedness and other obligations of
subsidiaries of U.S. Office Products (excluding intercompany liabilities and
liabilities of a type not required to be reflected as a liability on the balance
sheet of such subsidiaries in accordance with GAAP) as to which the Notes were
effectively structurally subordinated. The amount of Senior Indebtedness may
change in the future and indebtedness of subsidiaries may change in the future.
The amount of Senior Indebtedness will increase substantially if the Strategic
Restructuring Plan is completed. On a pro forma basis, assuming completion of
all elements of the Strategic Restructuring Plan (including the purchase of 100%
of the 2003 Notes in the 2003 Note Tender and the incurrence of additional
indebtedness in connection with the Strategic Restructuring Plan), Senior
Indebtedness would have been approximately $774.9 million as of January 24,
1998. The indenture does not limit the amount of additional indebtedness,
including Senior Indebtedness, which U.S. Office Products can create, incur,
assume or guarantee, nor does the Indenture limit the amount of indebtedness
which any subsidiary of U.S. Office Products can create, incur, assume or
guarantee.
U.S. Office Products is obligated to pay reasonable compensation to the
Trustee and to indemnify the Trustee against any losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will be senior to those of Holders in respect
of all funds collected or held by the Trustee.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default is defined in the Indenture as being default in payment
of the principal of, or premium, if any, on the Notes whether or not such
payment is prohibited by the subordination provisions of the Indenture; default
for 30 days in payment of any installment of interest on the Notes whether or
not such payment is prohibited by the subordination provisions of the Indenture;
default in the payment of the repurchase price in respect of any Note on the
repurchase date therefor whether or not such payment is prohibited by the
subordination provisions of the Indenture; failure by U.S. Office Products to
comply with any of its other agreements in the Notes or the Indenture upon the
receipt by U.S. Office Products of notice of such default by the Trustee or by
Holders of not less than 25% in aggregate principal amount of the Notes then
outstanding and the Company's failure to cure such default within 45 days after
receipt by U.S. Office Products of such notice (which period may be extended for
an additional 45 days if U.S. Office Products is contesting in good faith the
existence of such default); default by U.S. Office Products under and
acceleration of the maturity of, or failure to pay at maturity, certain other
indebtedness of U.S. Office Products for money borrowed aggregating in excess of
$5 million and continuance of such default for 30 days after notice; or certain
events involving bankruptcy, insolvency or reorganization of U.S. Office
Products or any Significant Subsidiary (as defined).
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<PAGE>
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered Holders notice of all defaults
known to it unless such defaults have been cured or waived before the giving of
such notice, but the Trustee shall be protected in withholding such notice if it
in good faith determines that the withholding of such notice is in the best
interest of such registered Holders, except in the case of a default in the
payment of the principal of, or premium, if any, or interest on, any of the
Notes.
The Indenture provides that if any Event of Default shall have occurred and
be continuing, the Trustee or the Holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and premium,
if any, and accrued interest on the Notes to be due and payable immediately, but
if U.S. Office Products shall cure all defaults (except the nonpayment of
interest on, premium, if any, and principal of any Notes which shall have become
due by acceleration) and certain other conditions are met, such declaration may
be canceled and past defaults may be waived by the holders of a majority in
principal amount of Notes then outstanding. If an Event of Default resulting
from certain events of bankruptcy, insolvency or reorganization were to occur,
all unpaid principal of, premium, if any, and accrued interest on the
outstanding Notes will become due and payable immediately without any
declaration or other act on the part of the Trustee or any Holders, subject to
certain limitations.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, subject to certain limitations specified in the
Indenture. Before proceeding to exercise any right or power under the Indenture
at the direction of such Holders, the Trustee shall be entitled to receive from
such holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
The right of a Holder to institute a proceeding with respect to the Indenture is
subject to certain conditions precedent, including the written notice by such
Holder of a Event of Default and an offer to indemnify to the Trustee, along
with the written request by the holders of not less than 25% in principal amount
of the outstanding Notes that such a proceeding be instituted, but the Holder
has an absolute right to institute suit (i) for the enforcement of payment of
the principal of, and premium, if any, and interest on, such Holder's Notes when
due and (ii) to enforce such Holder's right to convert such Notes.
The Holders of not less than a majority in principal amount of the
outstanding Notes may on behalf of the Holders of all Notes waive any past
defaults, except (i) a default in payment of the principal of, or premium, if
any, or interest on, any Note when due, (ii) a failure by U.S. Office Products
to convert any Notes into Common Stock or (iii) in respect of certain provisions
of the Indenture which cannot be modified or amended without the consent of the
holders of all Notes then outstanding.
U.S. Office Products is required to furnish to the Trustee annually a
statement of certain officers of U.S. Office Products stating whether or not to
the best of their knowledge U.S. Office Products is in default in the
performance and observation of certain terms of the Indenture and, if they have
knowledge that U.S. Office Products is in default, describing such default and
its status.
CONSOLIDATION, MERGER OR ASSUMPTION
U.S. Office Products may, without the consent of the Holders, consolidate
with, merge into, or transfer all or substantially all of its properties to any
other corporation organized under the laws of the United States or any political
subdivision thereof or therein, PROVIDED that the successor corporation assumes
all obligations of U.S. Office Products under the Indenture and the Notes and
that certain other conditions are met.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting U.S. Office Products and the
Trustee, with the consent of the Holders of not less than a majority in
principal amount of the Notes at the time outstanding, to
56
<PAGE>
modify the Indenture or any supplemental indenture or the rights of the Holders,
except that no such modification shall (i) extend the fixed maturity of any
Note, reduce the rate or extend the time of payment of interest thereon, reduce
the principal amount thereof or premium, if any, thereon, reduce any amount
payable upon redemption or repurchase thereof, change or impair the obligation
of U.S. Office Products to make repurchase of any Note upon the happening of a
Designated Event, impair or affect the right of a Holder to institute suit for
the payment thereof, change the currency in which the Notes are payable, or
change or impair the right to convert the Notes into Common Stock subject to the
terms set forth in the Indenture or modify the provisions of the Indenture with
respect to the subordination of the Notes in a manner adverse to the Holders,
without the consent of the Holder of each Note so affected, or (ii) reduce the
aforesaid percentage of Notes, without the consent of the Holders of all of the
Notes then outstanding.
SATISFACTION AND DISCHARGE
U.S. Office Products may discharge its obligations under the Indenture while
Notes remain outstanding if (i) all outstanding Notes will become due and
payable at their scheduled maturity within one year or (ii) all outstanding
Notes are scheduled for redemption within one year, and, in either case, U.S.
Office Products has deposited with the Trustee an amount sufficient to pay and
discharge all outstanding Notes on the date of their scheduled maturity or the
scheduled date of redemption.
GOVERNING LAW
The Indenture and Notes are governed by and construed in accordance with the
laws of the State of New York.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed by U.S. Office Products as the paying agent, conversion agent and
registrar with regard to the Notes. U.S. Office Products and its subsidiaries
may maintain deposit accounts and conduct other banking transactions with the
Trustee or its affiliates in the ordinary course of business, and the Trustee
and its affiliates may from time to time in the future provide banking and other
services to U.S. Office Products in the ordinary course of their business.
During the existence of an Event of Default, the Trustee will be required to
exercise such rights and powers vested in it under the Indenture and use the
same degree and care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to such provisions, the Trustee is under no obligation to exercise any
of its rights or powers under the Indenture at the request of any of the
Holders, unless they shall have offered to the Trustee security and indemnity
satisfactory to it.
The Indenture and the TIA contain certain limitations on the rights of the
Trustee, should it become a creditor of U.S. Office Products, to obtain payment
of claims in certain cases or to realize on certain property received in respect
of any such claim as security or otherwise. Subject to the TIA, the Trustee will
be permitted to engage in other transactions, PROVIDED, HOWEVER, that if it
acquires any conflicting interest (as described in the TIA), it must eliminate
such conflict or resign.
57
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DESCRIPTION OF THE COMMON STOCK
GENERAL
As of March 26, 1998, the Company's authorized capital stock consisted of
500,000,000 shares of Common Stock, par value $.001 per share, and 500,000
shares of preferred stock, par value $.001 per share (the "Preferred Stock"). As
of March 26, 1998, the Company had outstanding approximately 133,225,298 shares
of Common Stock and no shares of Preferred Stock. In connection with the
Strategic Restructuring Plan and subject to stockholder approval, the Company
intends to effect a one-for-four reverse stock split. Assuming completion of all
elements of the Strategic Restructuring Plan, including the one-for-four reverse
stock split, and exchange of all of the Notes pursuant to the Exchange Offer,
the Company will have outstanding approximately 36,600,000 shares of Common
Stock and no shares of Preferred Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred Stock, the
holders of the Common Stock are entitled to such dividends as may be declared in
the discretion of the Board of Directors out of funds legally available
therefor. See "Dividend Policy." The holders of Common Stock are entitled to
share ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
Preferred Stock then outstanding. The holders of Common Stock generally have no
preemptive rights to purchase shares of stock of the Company, although Investor
will have certain contractual preemptive rights pursuant to the Investment
Agreement. Shares of Common Stock are not subject to any redemption provisions
and are not convertible into any other securities of the Company. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
issued by the Company upon exchange of the Notes will be, fully paid and
non-assessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Amended and Restated Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series, and to provide for or change the
voting powers, designations, preferences and relative, participating, optional
or other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences of the shares constituting
any class or series of the Preferred Stock, in each case without any further
action or vote by the stockholders. The Company has no current plans to issue
any shares of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
58
<PAGE>
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Section 203 provides, with certain
exceptions, that a Delaware corporation may not engage in any of a broad range
of business combinations with a person or an affiliate or associate of such
person who is an "interested stockholder" for a period of three years from the
date that such person became an interested stockholder unless: (i) the
transaction resulting in a person becoming an interested stockholder, or the
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquired 85% or more of the outstanding voting stock of the
corporation in the same transaction that makes such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. Under Section 203, an "interested stockholder" is
defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation; or (ii) an affiliate or associate of the
corporation if such affiliate or associate was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the three-year
period immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or bylaws, by action of
its stockholders, to exempt itself from coverage, provided that such bylaws or
certificate of incorporation amendment shall not become effective until 12
months after the date it is adopted. The Company has not adopted such an
amendment to its Amended and Restated Certificate of Incorporation or Amended
and Restated Bylaws.
LIMITATION ON DIRECTORS' LIABILITIES
Pursuant to the Company's Amended and Restated Certificate of Incorporation
and under Delaware law, directors of the Company are not liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases illegal under
Delaware law or any transaction in which a director has derived an improper
personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.
LEGAL MATTERS
The validity of the issuance of the Common Stock to be issued upon exchange
of the Notes has been passed on for the Company by Wilmer, Cutler & Pickering,
Washington, D.C. Wilmer, Cutler & Pickering has also given its opinion as to
certain tax matters described herein. Certain legal matters will be passed upon
for the Dealer Manager by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California, and Winston & Strawn, Chicago, Illinois.
EXPERTS
The historical financial statements incorporated in this Offering
Circular/Prospectus by reference to the Company's definitive Proxy Statement
filed on Schedule 14A on April 30, 1998 (except as they relate to the unaudited
interim periods) have been audited by various independent accountants. The
companies and periods covered by these audits are indicated in the individual
accountants' reports. Such financial statements have been so incorporated in
reliance on the reports of the various independent accountants given on the
authority of such firms as experts in auditing and accounting.
59
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-4 under the Securities Act with respect to the
securities offered hereby and a statement on Schedule 13E-4 with respect to the
Equity Self-Tender. This Offering Circular/Prospectus, which constitutes part of
the Registration Statement and is an exhibit to the statement on Schedule 13E-4,
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 Offering Circular/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 Exchange Act and, in accordance therewith,
files reports, proxy statements, and other information with the Commission. In
addition, in connection with the Distributions, each Spin-Off Company has filed
a Registration Statement on Form S-1. 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, no less than ten calendar days prior to the Expiration Date,
the Company will distribute to each Holder on such date, a copy of the
information statements of each Spin-Off Company contained in the Spin-Off
Company Registration Statements.
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Facsimile copies of the Letter of Transmittal, properly completed and validly
executed, will be accepted. Letters of Transmittal, certificates for Notes and
any other required documents should be sent or delivered by each Holder of Notes
or such Holder's broker, dealer, commercial bank or trust company to the
Exchange Agent at one of its addresses set forth below:
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STATE STREET BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place, Two International Place, Two International Place,
4th Floor 4th Floor 4th Floor
Boston, MA 02110 Boston, MA 02110 Boston, MA 02110
Attention: Kellie Mullen Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
BY FACSIMILE:
(617) 664-5290
Attention: Kellie Mullen
FACSIMILE CONFIRMATION ONLY:
(617) 664-5587
Attention: Kellie Mullen
Requests for assistance or additional copies of this Offering
Circular/Prospectus, the Letter of Transmittal, and other related documents
should be directed to the Information Agent at its telephone number and location
set forth below. You may also contact your broker, dealer, commercial bank,
trust company or nominee for assistance concerning the Exchange Offer.
THE INFORMATION AGENT FOR THE EXCHANGE OFFER IS:
abcdef
156 Fifth Avenue
New York, New York 10010
(212) 929-5500
or
Call Toll Free (800) 322-2885
THE DEALER MANAGER FOR THE EXCHANGE OFFER IS:
BANCAMERICA ROBERTSON STEPHENS
555 California Street
Suite 2600
San Francisco, CA 94104
(415) 693-3215
or
Call Toll Free (800) 234-2663
Attn: Dan White
or
Jeff Wineker
The date of this Offering Circular/Prospectus is May 1, 1998
<PAGE>
PART II
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
U.S. Office Products' Amended and Restated By-laws provide that U.S. Office
Products shall, to the fullest extent permitted by Section 145 of the General
Corporation Law of the State of Delaware, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
Section 145 of the General Corporation Law of the State of Delaware permits
a corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability. Article Eight of U.S. Office Products' Amended and
Restated Certificate of Incorporation provides that U.S. Office Products
directors will not be personally liable to U.S. Office Products or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors except (a) for any breach of the duty of loyalty to U.S.
Office Products or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of the State of Delaware, which makes
directors liable for unlawful dividends or unlawful stock repurchases or
redemptions or (d) for transactions from which directors derive improper
personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Exhibit Index for list of exhibits.
(b) Not applicable.
(c) Not applicable.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20, 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.
II-1
<PAGE>
The undersigned Registrant hereby undertakes:
(1) 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.
(2) To deliver or cause to be delivered with the Offering
Circular/Prospectus, to each person to whom the Offering Circular/Prospectus is
sent or given, the latest annual report to security holders that is incorporated
by reference in the Offering Circular/Prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the Offering
Circular/Prospectus, to deliver, or caused to be delivered to each person to
whom the Offering Circular/Prospectus is sent or given, the latest quarterly
report that is specifically incorporated by reference in the Offering
Circular/Prospectus to provide such interim financial information.
(3) To respond to requests for information that is incorporated by reference
into the Offering Circular/Prospectus pursuant to Items 4, 10(b), 11, or 13 of
this Form, within one (1) business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.
(4) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired therein, that was not
the subject of and included in the registration statement when it became
effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, District of
Columbia, on April 30, 1998.
<TABLE>
<S> <C> <C>
U.S. OFFICE PRODUCTS COMPANY
By: /s/ THOMAS I. MORGAN
-----------------------------------------
Name: Thomas I. Morgan
Title: Chief Executive Officer
</TABLE>
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.
/s/ THOMAS I. MORGAN
--------------------------------------
Thomas I. Morgan
Title: Chief Executive Officer
(Principal Executive Officer)
and Director
Date: April 30, 1998
*
--------------------------------------
Donald H. Platt
Title: Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
Date: April 30, 1998
*
--------------------------------------
Jonathan J. Ledecky
Title: Chairman of the Board of
Directors
Date: April 30, 1998
II-3
<PAGE>
*
--------------------------------------
Michael Dooling
Title: Director
Date: April 30, 1998
*
--------------------------------------
Allon H. Lefever
Title: Director
Date: April 30, 1998
*
--------------------------------------
John A. Quelch
Title: Director
Date: April 30, 1998
<TABLE>
<S> <C> <C>
*By: /s/ MARK D. DIRECTOR
-----------------------------------------
Mark D. Director
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- ----------------------------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Wilmer, Cutler & Pickering regarding legality
8.1 Opinion of Wilmer, Cutler & Pickering regarding tax matters
12.1 Statement regarding computation of ratio of earnings to fixed charges
23.1 Consent of Charles P. Pieper to be named as a director
23.2 Consent of L. Dennis Kozlowski to be named as a director
23.3 Consent of Kevin J. Conway to be named as a director
23.4 Consent of Brian D. Finn to be named as a director
23.5 Consent of Price Waterhouse LLP
23.6 Consent of Ernst & Young LLP
23.7 Consent of Hertz, Herson & Company, LLP
23.8 Consent of KPMG Peat Marwick LLP
23.9 Consent of BDO Seidman, LLP
23.10 Consent of Rubin, Koehmstedt & Nadler, PLC
23.11 Consent of Deloitte & Touche LLP
23.12 Consent of Ernst & Young LLP
23.13 Consent of Wilmer, Cutler & Pickering (contained in Exhibits 5.1 and 8.1)
23.14 Consent of Frank P. Doyle
24.1 Power of Attorney (included on signature page)
99.1 Form of Letter of Transmittal
99.2 Form of Letters to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees
99.3 Form of Letter to Clients
</TABLE>
- ------------------------
II-5
<PAGE>
EXHIBIT 5.1
WILMER, CUTLER & PICKERING
2445 M STREET, N.W.
WASHINGTON, D.C. 20037-1420
TELEPHONE: (202) 668-6000
FACSIMILE: (202) 663-6363
April 30, 1998
U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
Re: U.S. Office Products Company Exchange Offer Registration Statement on
Form S-4
Dear Ladies and Gentlemen:
We have acted as counsel to U.S. Office Products Company, a Delaware
corporation (the "Company"), in connection with the preparation and filing of a
Registration Statement on Form S-4 (as amended, the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended. The Registration Statement relates to an
exchange offer (the "Exchange Offer") pursuant to which the Company is offering
to exchange up to $143,750,000 principal amount of its outstanding 5 1/2%
Convertible Subordinated Notes due 2001 (the "Notes") for up to 8,889,920 shares
of Common Stock of the Company, par value $0.001 per share (the "Shares").
For the purposes of this opinion, we have examined copies of the following
documents:
1. The Registration Statement;
2. The Certificate of Incorporation of the Company;
3. The Bylaws of the Company; and
4. The Resolutions of the Board of Directors of the Company adopted March
24, 1998.
In our examination of the aforesaid documents, we have assumed the legal
capacity of all natural persons, the genuineness of all signatures, the
completeness and authenticity of all documents submitted to us as originals, and
the conformity to original documents of all documents submitted to us as
certified, telecopied, photostatic or reproduced copies.
This opinion is limited to the laws of the United States and the Delaware
General Corporation Law. We are members of the Bar of the State of Maryland and
the District of Columbia and do not hold ourselves out as being experts in the
laws of any other jurisdiction. Although we do not hold ourselves out as being
experts in the laws of Delaware, we have made an investigation of such laws to
the extent necessary to render our opinion. Our opinion is rendered only with
respect to the laws and the rules, regulations and orders thereunder that are
currently in effect.
Based upon, subject to, and limited by the foregoing, we are of the opinion
that (i) the Shares have been lawfully and duly authorized, and (ii) the Shares
to be issued by the Company, when issued and
<PAGE>
U.S. Office Products Company
April 30, 1998
Page 2
delivered in accordance with the terms of the Exchange Offer, will be validly
issued, fully paid and nonassessable.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion. This opinion has been prepared
solely for your use in connection with the filing of the Registration Statement
on April 30, 1998, and should not be quoted in whole or in part or otherwise be
referred to, nor otherwise be filed with or furnished to any governmental agency
or other person or entity, without our express prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein under the caption
"Legal Matters."
Sincerely,
WILMER, CUTLER & PICKERING
By: /s/ THOMAS W. WHITE
------------------------------------------
Thomas W. White, partner
<PAGE>
EXHIBIT 8.1
WILMER, CUTLER & PICKERING
2445 M STREET, N.W.
WASHINGTON, D.C. 20037-1420
TELEPHONE: (202) 663-6000
FACSIMILE: (202) 663-6363
April 30, 1998
U.S. Office Products Company
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
Ladies and Gentlemen:
We have represented U.S. Office Products Company ("U.S. Office Products") in
connection with the filing of a Registration Statement on Form S-4 (the
"Registration Statement") with respect to the exchange of shares of its common
stock, par value $.001 per share (the "Common Stock"), for its outstanding
5 1/2% Convertible Subordinated Notes due 2001 (the "Notes") pursuant to the
terms set forth in the Offering Circular/Prospectus (the "Offering
Circular/Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal," which together with the Offering Circular/Prospectus, constitutes
the "Exchange Offer"). We have taken into account the Equity Self-Tender (the
tax consequences of which are described in the Tender Offer Statement) and the
Distributions (the tax consequences of which are described in the Offering
Circular/Prospectus under "U.S. Federal Income Tax Consequences of the
Distributions"). Terms not otherwise defined in this letter have the same
definition as in the Offering Circular/Prospectus.
For purposes of rendering this opinion, we have reviewed the initial
Offering Circular/Prospectus, the Indenture, and such other documents as we have
deemed relevant for purposes of this opinion. We have assumed that all parties
to agreements that we have examined have acted, and will act, in accordance with
the terms of such agreements. We have assumed the genuineness of all signatures,
the proper execution of all documents, the authenticity of all documents
submitted to us as originals, the conformity to originals of all documents
submitted to us as copies, and the authenticity of the originals of any such
copies. We have also taken into account that U.S. Office Products will not
complete the Distributions unless we deliver the Spin-Off Opinion that is
described in the Offering Circular/Prospectus under "U.S. Federal Income Tax
Consequences of the Distributions," stating our opinion that the Distributions
will qualify as tax-free spin-offs under Section 355 of the Internal Revenue
Code of 1986, as amended (the "Code"), and will not be taxable under Section
355(e) of the Code. The Spin-Off Opinion will be based on the accuracy of
certain factual representations as of the time of the Distributions made to us
by U.S. Office Products, the Spin-Off Companies, and Investor, and certain other
information, data, documentation, and other materials that we deem necessary.
U.S. Office Products has made the following representations in a letter
dated April 30, 1998:
1. The payment of cash in lieu of fractional shares of Common Stock is solely
for the purpose of avoiding the expense and inconvenience to U.S. Office
Products of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid
in the transaction to the Holders of Notes instead of issuing fractional
shares of Common Stock is not expected to exceed one percent of the total
consideration that will be issued in the transaction to the Holders of Notes
in exchange for their Notes. The fractional share interests of each Holder
of Notes will be aggregated, and no Holder of Notes will receive cash in an
amount greater than the value of one full share of Common Stock.
1
<PAGE>
2. U.S. Office Products intended the Notes to be five year obligations, and the
selection of the maturity date was for marketing convenience.
This opinion does not address all aspects of U.S. federal income taxation
that may be relevant to particular holders of the Notes and applies only to
Holders who are U.S. persons and hold Notes as a capital asset within the
meaning of Section 1221 of the Code. A U.S. person is the beneficial owner of a
Note that is (i) for U.S. federal income tax purposes a citizen or resident of
the United States (including certain former citizens and former long-term
residents), (ii) a corporation, partnership or other entity created or organized
in or under the laws of the United States or of any political subdivision
thereof, (iii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or (iv) a trust with respect to the
administration of which a court within the United States is able to exercise
primary supervision and one or more U.S. persons have the authority to control
all substantial decisions of the trust. This opinion does not address tax
considerations applicable to a Holder's particular circumstances or to a Holder
that may be subject to special tax rules (such as Holders subject to the
alternative minimum tax) or other special situations. This opinion may not apply
to certain classes of taxpayers, including, without limitation, insurance
companies, tax-exempt organizations, financial institutions, dealers in
securities, or persons who hold their Notes in a hedging transaction or as a
part of a straddle or conversion transaction.
This opinion represents our best judgment of how a court would rule if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinions will not be challenged by the IRS or rejected by a
court.
On the basis of the foregoing, and our consideration of such other matters
of fact and law as we have deemed necessary or appropriate, it is our opinion,
under presently applicable U.S. federal income tax law, that the exchange of
Notes for Common Stock pursuant to the Exchange Offer is an exchange of
securities for stock, which constitutes a tax-free recapitalization described in
Section 368(a)(1)(E) of the Code, and that the following U.S. federal income tax
consequences therefore apply:
1. A Holder will not recognize any gain or loss (except with respect to cash
received in lieu of fractional shares and in respect of unpaid interest
accrued on the Notes through the Expiration Date and not previously included
in income) by reason of the exchange of Notes for Common Stock.
2. The Common Stock received by a Holder upon the exchange of Notes will have
an aggregate basis equal to the aggregate basis of the Notes that are
exchanged for Common Stock (reduced by any basis allocable to a fractional
share).
3. A Holder's holding period in the Common Stock issued upon the exchange of
Notes will include the period during which the Holder held the Notes prior
to the exchange.
4. A Holder who receives cash in lieu of a fractional share of Common Stock
upon exchange of Notes will be taxable as if the fractional share had been
issued and then redeemed for cash. The receipt of cash for a fractional
share will result in capital gain or loss measured by the difference between
the basis of such fractional share interest and the cash received.
5. Cash received by a Holder in respect of unpaid interest accrued on the Notes
through the Expiration Date that has not previously been included in income
of the Holder will be taxed as ordinary income to the Holder.
6. A Holder that does not exchange its Notes for Common Stock will not
recognize gain or loss by reason of the Exchange Offer.
This opinion is based on relevant provisions of the Code, the Treasury
Regulations promulgated thereunder, and interpretations of the foregoing as
expressed in court decisions and administrative determinations, as currently in
effect. We undertake no obligation to update or supplement this opinion to
reflect any changes in laws that may occur.
2
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this opinion in the Registration
Statement. In giving this consent, we do not hereby admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
WILMER, CUTLER & PICKERING
By: /s/_WILLIAM J. WILKINS__
William J. Wilkins
A Partner
3
<PAGE>
EXHIBIT 12.1
U.S. OFFICE PRODUCTS COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(AMOUNTS IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------------------- ------------------------
PRO FORMA
APRIL 30, APRIL 30, APRIL 30, APRIL 30, APRIL 26, APRIL 26, JANUARY 25, JANUARY 24,
1993 1994 1995 1996 1997 1997 1997 1998
--------- --------- --------- --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before provision
for income taxes and
extraordinary items.......... $ 10,326 $ 12,415 $ 18,292 $ 25,131 $ 59,877 $ 24,641 $ 43,631 $ 69,771
Fixed charges:
Interest expense and
amortization of debt issue
costs...................... 6,015 6,067 8,319 20,123 45,901 103,996 35,450 34,247
Rentals...................... 3,083 3,317 4,196 6,341 13,394 17,695 9,489 12,224
--------- --------- --------- --------- ---------- ----------- ----------- -----------
Total fixed charges............ 9,098 9,384 12,515 26,464 59,295 121,691 44,939 46,471
--------- --------- --------- --------- ---------- ----------- ----------- -----------
Income from continuing
operation before provision
for income taxes,
extraordinary items and fixed
charges...................... $ 19,424 $ 21,799 $ 30,807 $ 51,595 $ 119,172 $ 146,332 $ 88,570 $ 116,242
--------- --------- --------- --------- ---------- ----------- ----------- -----------
--------- --------- --------- --------- ---------- ----------- ----------- -----------
Ratio of earnings to fixed
charges...................... 2.1x 2.3x 2.5x 1.9x 2.0x 1.2x 2.0x 2.5x
--------- --------- --------- --------- ---------- ----------- ----------- -----------
--------- --------- --------- --------- ---------- ----------- ----------- -----------
<CAPTION>
PRO FORMA PRO FORMA
JANUARY 26, JANUARY 24,
1997 1998
----------- -----------
<S> <C> <C>
Income from continuing
operations before provision
for income taxes and
extraordinary items.......... $ 19,244 $ 32,159
Fixed charges:
Interest expense and
amortization of debt issue
costs...................... 77,997 77,997
Rentals...................... 13,223 13,114
----------- -----------
Total fixed charges............ 91,220 91,111
----------- -----------
Income from continuing
operation before provision
for income taxes,
extraordinary items and fixed
charges...................... $ 110,464 $ 123,270
----------- -----------
----------- -----------
Ratio of earnings to fixed
charges...................... 1.2x 1.4x
----------- -----------
----------- -----------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT TO BE NAMED AS A DIRECTOR
I hereby consent to be named as a person who will become a director of U.S.
Office Products Company (the "Company") in the registration statement on Form
S-4 to be filed by the Company with the Securities and Exchange Commission
relating to the offer by the Company to exchange Common Stock for its 5 1/2%
Convertible Subordinated Notes due 2001 at a temporarily reduced conversion
price.
/s/ Charles P. Pieper
Charles P. Pieper
Dated: April 30, 1998
<PAGE>
EXHIBIT 23.2
CONSENT TO BE NAMED AS A DIRECTOR
I hereby consent to be named as a person who will become a director of U.S.
Office Products Company (the "Company") in the registration statement on Form
S-4 to be filed by the Company with the Securities and Exchange Commission
relating to the offer by the Company to exchange Common Stock for its 5 1/2%
Convertible Subordinated Notes due 2001 at a temporarily reduced conversion
price.
/s/ L. Dennis Kozlowski
L. Dennis Kozlowski
Dated: April 30, 1998
<PAGE>
EXHIBIT 23.3
CONSENT TO BE NAMED AS A DIRECTOR
I hereby consent to be named as a person who will become a director of U.S.
Office Products Company (the "Company") in the registration statement on Form
S-4 to be filed by the Company with the Securities and Exchange Commission
relating to the offer by the Company to exchange Common Stock for its 5 1/2%
Convertible Subordinated Notes due 2001 at a temporarily reduced conversion
price.
/s/ Kevin J. Conway
Kevin J. Conway
Dated: April 30, 1998
<PAGE>
EXHIBIT 23.4
CONSENT TO BE NAMED AS A DIRECTOR
I hereby consent to be named as a person who will become a director of U.S.
Office Products Company (the "Company") in the registration statement on Form
S-4 to be filed by the Company with the Securities and Exchange Commission
relating to the offer by the Company to exchange Common Stock for its 5 1/2%
Convertible Subordinated Notes due 2001 at a temporarily reduced conversion
price.
/s/ Brian D. Finn
Brian D. Finn
Dated: April 30, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Offering
Circular/Prospectus constituting part of this Registration Statement on Form S-4
of U.S. Office Products Company of our report dated June 6, 1997, except as to
the second paragraph of the Common Stock section of Note 15, which is as of
November 6, 1997, and Note 4, which is as of January 13, 1998 appearing in the
Proxy Statement filed on April 30, 1998 of U.S. Office Products Company. We also
consent to the reference to us under the heading "Experts."
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
April 30, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Offering
Circular/Prospectus constituting part of this Registration Statement on Form S-4
of U.S. Office Products Company of our report dated February 2, 1996, with
respect to the financial statements of School Specialty, Inc. for the years
ended December 31, 1995 and 1994 included in the Proxy Statement filed on April
30, 1998 of U.S. Office Products Company. We also consent to the reference to us
under the heading "Experts."
ERNST & YOUNG LLP
Milwaukee, Wisconsin
April 30, 1998
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Offering
Circular/Prospectus constituting part of this Registration Statement on Form S-4
of U.S. Office Products Company of our report dated March 6, 1996, relating to
the combined financial statements of United Envelope Co., Inc. and its
affiliate, Rex Envelope Co., Inc., and our report dated March 4, 1996, relating
to the financial statements of Huxley Envelope Corporation, which reports appear
in the Proxy Statement dated filed on April 30, 1998 of U.S. Office Products
Company. We also consent to the reference to us under the heading "Experts."
HERTZ, HERSON & COMPANY, LLP
New York, New York
April 30, 1998
<PAGE>
EXHIBIT 23.8
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
SFI Corp. and Hano Document Printers, Inc.:
We consent to the incorporation by reference in this Registration Statement
on Form S-4 (333-49531) of our report dated August 28, 1996, with respect to the
combined balance sheet of SFI Corp. and Hano Document Printers, Inc. as of
December 31, 1994 and the related combined statements of income, stockholders'
equity and cash flows for each of the years in the two-year period then ended,
which report appears in the Proxy Statement filed on April 30, 1998 of U.S.
Office Products Company and to the reference to our firm under the heading
"Experts" included herein.
KPMG Peat Marwick LLP
Norfolk, Virginia
April 30, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Offering
Circular/Prospectus constituting part of this Registration Statement on Form S-4
of U.S. Office Products Company of our report dated February 8, 1996, relating
to the financial statements of The Re-Print Corporation, which report appears in
the Proxy Statement filed on April 30, 1998 of U.S. Office Products Company. We
also consent to the reference to us under the heading "Experts."
BDO Seidman, LLP
Atlanta, Georgia
May 1, 1998
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Offering
Circular/Prospectus constituting part of this Registration Statement on Form S-4
of U.S. Office Products Company of our report dated June 7, 1996, except as to
Note 9, which is as of October 24, 1996, relating to the financial statements of
Fortran Corp., which report appears in the Proxy Statement filed on April 30,
1998 of U.S. Office Products Company. We also consent to the reference to us
under the heading "Experts."
RUBIN, KOEHMSTEDT & NADLER, PLC
Springfield, Virginia
April 30, 1998
<PAGE>
EXHIBIT 23.11
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of Office Products Company of our report dated September 23, 1996
relating to the financial statements of MTA, Inc. (not presented separately
therein) as of December 31, 1995, and for the period from January 25, 1995 (date
of incorporation) to December 31, 1995, appearing in the Proxy Statement of U.S.
Office Products Company filed on April 30, 1998.
DELOITTE & TOUCHE LLP
Seattle, Washington
April 30, 1998
<PAGE>
EXHIBIT 23.12
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Offering
Circular/Prospectus constituting part of this Registration Statement on Form S-4
of Office Products Company of our report dated June 6, 1997, with respect to the
consolidated financial statements of Mail Boxes, Etc. included in the Proxy
Statement filed on April 30, 1998 of U.S. Office Products Company. We also
consent to the reference to our firm under the caption "Experts".
ERNST & YOUNG LLP
San Diego, California
April 29, 1998
<PAGE>
EXHIBIT 23.14
CONSENT TO BE NAMED AS A DIRECTOR
I hereby consent to be named as a person who will become a director of U.S.
Office Products Company (the "Company") in the registration statement on Form
S-4 to be filed by the Company with the Securities and Exchange Commission
relating to the offer by the Company to exchange Common Stock for its 5 1/2%
Convertible Subordinated Notes due 2001 at a temporarily reduced conversion
price.
/s/ Frank P. Doyle
---------------------------------------------------------
Frank P. Doyle
Dated: April 30, 1998
<PAGE>
CUSIP 912 325 AA5
LETTER OF TRANSMITTAL
WITH RESPECT TO THE
OFFER TO EXCHANGE COMMON
STOCK FOR
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2001
OF
U.S. OFFICE PRODUCTS COMPANY
PURSUANT TO THE OFFERING CIRCULAR/PROSPECTUS DATED MAY 1, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MAY 29, 1998, UNLESS EXTENDED
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STATE STREET BANK & TRUST COMPANY
<TABLE>
<S> <C> <C>
BY MAIL: BY OVERNIGHT COURIER: BY HAND:
Corporate Trust Department Corporate Trust Department Corporate Trust Department
Two International Place, Two International Place, Two International Place,
4th Floor 4th Floor 4th Floor
Boston, MA 02110 Boston, MA 02110 Boston, MA 02110
Attention: Kellie Mullen Attention: Kellie Mullen Attention: Kellie Mullen
</TABLE>
BY FACSIMILE:
(617) 664-5290
Attention: Kellie Mullen
FACSIMILE CONFIRMATION ONLY:
(617) 664-5587
Attention: Kellie Mullen
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD
BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal should be used only to tender the 5 1/2%
Convertible Subordinated Notes due 2001 (the "Notes") for exchange pursuant to
the Exchange Offer as described in the Offering Circular/ Prospectus of U.S.
Office Products Company, dated May 1, 1998 (as the same may be amended or
supplemented from time to time, the "Offering Circular/Prospectus"). Holders
that wish to tender in the Equity Self-Tender (as defined in the Offering
Circular/Prospectus) shares received upon exchange of Notes should complete the
Letter of Transmittal included with the Tender Offer Statement for the Equity
Self-Tender.
This Letter of Transmittal is to be used (i) if Notes are to be physically
delivered to the Exchange Agent, or (ii) if, subject to the provisions of the
following paragraph, delivery of Notes is to be made by book-entry transfer to
the account maintained by the Exchange Agent at the Depository Trust Company
("DTC") pursuant to the procedures set forth in the Offering Circular/Prospectus
under the caption "The Terms of the Exchange Offer--Procedures for Tender of
Notes for Exchange--Book-Entry Delivery Procedures."
Holders that are tendering Notes by book-entry transfer to the Exchange
Agent's account at DTC can execute the tender for exchange through the DTC
Automated Tender Offer Program (the "ATOP"), for
<PAGE>
which the transaction will be eligible. DTC participants that are accepting the
Exchange Offer should transmit their acceptance to DTC, which will edit and
verify the acceptance and execute a book-entry delivery to the Exchange Agent's
account at DTC. DTC will then send an Agent's Message to the Exchange Agent for
its acceptance. Delivery of the Agent's Message by DTC will satisfy the terms of
the Exchange Offer as to execution and delivery of a Letter of Transmittal by
the participant identified in the Agent's Message and there shall be no
requirement for such Holder to deliver a Letter of Transmittal to DTC or the
Exchange Agent. DTC participants may also accept the Exchange Offer by
submitting a notice of guaranteed delivery through ATOP.
DELIVERY OF DOCUMENTS TO DTC, THE COMPANY OR THE DEALER MANAGER DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL NOTES BEING TENDERED
PURSUANT TO THE EXCHANGE OFFER BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS IN ANY
JURISDICTION IN WHICH THE MAKING OR ACCEPTING OF THE EXCHANGE OFFER WOULD NOT BE
IN COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION.
Holders who wish to tender their Notes pursuant to the Exchange Offer must
complete the box below entitled "Method of Delivery" and complete columns (1)
through (3) in the box herein entitled "Description of Notes Being Tendered for
Exchange" and sign in the appropriate box below.
Only registered Holders of Notes may validly tender their Notes pursuant to
the Exchange Offer.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Offering Circular/Prospectus.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE OFFERING
CIRCULAR/PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ANY ADDITIONAL COPIES OF THE
OFFERING CIRCULAR/PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO
THE EXCHANGE AGENT.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
METHOD OF DELIVERY
/ / CHECK HERE IF NOTES TENDERED FOR EXCHANGE ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF NOTES TENDERED FOR EXCHANGE ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT
WITH A BOOK-ENTRY TRANSFER FACILITY SPECIFIED ABOVE AND COMPLETE THE FOLLOWING:
/ / NAME OF INSTITUTION TENDERING FOR EXCHANGE:
NAME OF BOOK-ENTRY TRANSFER FACILITY:
/ / THE DEPOSITORY TRUST COMPANY
ACCOUNT NUMBER: VOI NUMBER:
- ------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF NOTES BEING TENDERED FOR EXCHANGE
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NAME(S) AND ADDRESS(ES) OF HOLDER(S)
(PLEASE FILL IN, IF BLANK, NOTES BEING TENDERED FOR EXCHANGE
EXACTLY AS NAME(S) APPEAR(S) ON NOTES) (ATTACH ADDITIONAL SCHEDULE, IF NECESSARY)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
(1) (2) (3)
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNT OF NOTES
SECURITY NUMBER(S)* TENDERED FOR EXCHANGE**
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
* Need not be completed by Holders tendering for exchange by book-entry
transfer.
** Unless otherwise specified, the entire aggregate principal amount
represented by the Notes described above will be deemed to be tendered for
exchange.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By execution hereof, the undersigned hereby acknowledges receipt of the
Offering Circular/Prospectus dated May 1, 1998 (as the same may be amended or
supplemented from time to time, the "Offering Circular/Prospectus") of U.S.
Office Products Company (the "Company") and this Letter of Transmittal and
instructions hereto (the "Letter of Transmittal," which with the Offering
Circular/Prospectus constitutes the "Exchange Offer" ) relating to the Company's
offer to exchange shares of its common stock, par value $.001 per share (the
"Common Stock") for its outstanding 5 1/2% Convertible Subordinated Notes due
February 1, 2001 (the "Notes") at a temporarily reduced conversion price upon
the terms and subject to the conditions set forth in the Exchange Offer.
Upon the terms and subject to the conditions of the Exchange Offer as set
forth in the Offering Circular/Prospectus, the undersigned hereby tenders to the
Company the Notes for exchange. Subject to, and effective upon, the acceptance
for exchange of the Notes tendered herewith, the undersigned hereby exchanges,
assigns and transfers to, or upon the order of the Company, all right, title and
interest in and to such Notes.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that the Exchange Agent also acts as the agent of the Company)
with respect to such Notes, with full power of substitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
deliver such Notes for exchange pursuant to the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender for exchange the Notes tendered hereby and that,
when such Notes are accepted for exchange, the Company will acquire good title
to such Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim or right. The undersigned,
upon request, will execute and deliver all additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
tender of the Notes for exchange pursuant to the terms and conditions of the
Exchange Offer.
The undersigned understands that tendering of Notes pursuant to any of the
procedures described in the Offering Circular/Prospectus under the caption "The
Terms of the Exchange Offer--Procedures for Tender of Notes for Exchange" and in
the instructions hereto will constitute the undersigned's acceptance of the
terms and conditions of the Exchange Offer. The Company's acceptance of such
Notes for exchange will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Exchange
Offer.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death or incapacity of the undersigned and every
obligation of the undersigned under this Letter of Transmittal shall be binding
upon the undersigned's heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives.
The undersigned understands that the delivery and tender of any Notes is not
effective, and the risk of loss of the Notes does not pass to the Exchange
Agent, until receipt by the Exchange Agent of this Letter of Transmittal (or a
manually signed facsimile hereof), properly completed and duly executed,
together with all accompanying evidences of authority and any other required
documents in form satisfactory to the Company. All questions as to the form of
all documents and the validity (including the time of receipt) and exchange of
Notes will be determined by the Company, in its sole discretion, which
determination shall be final and binding.
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions," the undersigned hereby requests that the Exchange Agent issue the
shares of Common Stock issuable upon exchange of the tendered Notes and return
any certificates for Notes not tendered for exchange and any payment for cash in
lieu of fractional shares or of accrued interest in the name of the registered
holder(s) appearing above under "Description of Notes Being Tendered for
Exchange." Similarly, unless otherwise indicated herein in the box entitled
"Special Delivery Instructions," the undersigned hereby requests that the
Exchange Agent mail the shares of Common Stock, together with any certificates
for Notes not tendered for exchange and any payment for cash in lieu of
fractional shares or of accrued interest (and any accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Notes Being Tendered for Exchange." If both the "Special
Exchange Instructions" box and the "Special Delivery Instructions" box are
completed, the undersigned hereby requests that the Exchange Agent issue the
Notes and return any certificates for Notes not tendered for exchange and any
payment for cash in lieu of fractional shares or of accrued interest in the
name(s) of, and mail any such certificates to, the person(s) at the address(es)
so indicated. The undersigned recognizes that shares of the Spin-Off Companies
distributed in the Distributions will be distributed to the person designated in
the "Special Exchange Instructions."
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL EXCHANGE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 2, 4, 5 AND 6)
To be completed ONLY if certificates for Notes in a principal amount not
tendered for exchange and/ or certificates for Common Stock issuable upon
exchange and/or payment of cash in lieu of fractional shares or of accrued
interest are to be issued in the name of someone other than the undersigned,
or if Notes are to be returned by credit to an account maintained by DTC.
Issue certificates for Common Stock and/or Notes to:
Name: ______________________________________________________________________
(Please print)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Zip Code
____________________________________________________________________________
(Taxpayer Identification or Social Security Number)
(see accompanying Substitute Form W-9)
REQUIRES SIGNATURE GUARANTEE
Credit Notes or Common Stock with respect to Notes surrendered by book-entry
transfer to:
/ / The Depository Trust Company account set forth below:
____________________________________________________________________________
(account number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 2, 4, 5 AND 6)
To be completed ONLY if certificates for Notes in a principal amount not
tendered for exchange and/ or the certificates for Common Stock issuable
upon exchange and/or payment of cash in lieu of fractional shares or of
accrued interest are to be sent to someone other than the undersigned at an
address other than that shown above.
Deliver certificates for Common Stock and/or Notes to:
Name: ______________________________________________________________________
(Please print)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Zip Code
____________________________________________________________________________
(Taxpayer Identification or Social Security Number)
(See accompanying Substitute Form W-9)
REQUIRES SIGNATURE GUARANTEE
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
SIGN HERE
(TO BE COMPLETED BY ALL HOLDERS OF NOTES
TENDERING FOR EXCHANGE REGARDLESS OF WHETHER
NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
SEE ACCOMPANYING SUBSTITUTE FORM W-9
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S) OR AUTHORIZED SIGNATORY)
Dated: __________________, 1998
Must be signed by the registered Holder(s) of Notes exactly as their
name(s) appear(s) on certificate(s) for the Notes or by person(s) authorized
to become registered holder(s) by endorsement and documents transmitted with
this Letter of Transmittal or, if the Notes are held of record by DTC, the
person in whose name such Notes are registered on the books of DTC. If
signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation, agent or other person acting in
a fiduciary or representative capacity, please provide the following
information and see Instruction 4 herein.
Name(s): ___________________________________________________________________
____________________________________________________________________________
(PLEASE PRINT)
__________________________________________________________________________
Capacity (full title): _____________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone No.: _______________________________________________
Tax Identification or Social Security No.: _________________________________
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SIGNATURE GUARANTEE (SEE INSTRUCTIONS 1 AND 4 BELOW)
____________________________________________________________________________
(NAME OF MEDALLION SIGNATURE GUARANTOR GUARANTEEING SIGNATURE(S))
__________________________________________________________________________
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NO. (INCLUDING AREA CODE) OF
FIRM)
__________________________________________________________________________
(AUTHORIZED SIGNATURE)
__________________________________________________________________________
(PRINTED NAME)
__________________________________________________________________________
(TITLE)
Dated: __________________, 1998
----------------------------------------------
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal
must be guaranteed by a Medallion Signature Guarantor (as defined in the
Offering Circular/Prospectus) unless (i) this Letter of Transmittal is signed by
the registered Holder(s) (which term, for purposes of this Letter of
Transmittal, shall include DTC) of the Notes tendered herewith and neither the
"Special Exchange Instructions" box nor the "Special Delivery Instructions" box
of this Letter of Transmittal has been completed or (ii) such Notes are tendered
for the account of an Eligible Institution (as defined in the Offering Circular/
Prospectus). See Instruction 4 herein.
2. DELIVERY OF LETTER OF TRANSMITTAL AND NOTES. This Letter of Transmittal
is to be completed by Holders if (i) certificates representing Notes are to be
physically delivered to the Exchange Agent herewith by such Holders; or (ii)
tender of Notes for exchange is to be made by book-entry transfer to the
Exchange Agent's account at DTC pursuant to the procedures set forth under the
caption "The Terms of the Exchange Offer--Procedures for Tender of Notes--Tender
of Notes Held Through DTC" in the Offering Circular/Prospectus. A confirmation
of a book-entry transfer into the Exchange Agent's account at DTC of all Notes
delivered electronically, or physical delivery of Notes together with a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at its address set forth herein prior to 12:00
midnight, New York City time, on the Expiration Date, as applicable. Delivery of
documents to DTC does not constitute delivery to the Exchange Agent.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE NOTES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THROUGH DTC AND ANY
ACCEPTANCE OR AGENTS MESSAGE DELIVERED THROUGH ATOP, IS AT THE OPTION AND RISK
OF THE TENDERING HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. In all cases,
sufficient time should be allowed for such documents to reach the Exchange
Agent. Except as otherwise provided in this Instruction 2, delivery will be
deemed made only when actually received by the Exchange Agent.
No alternative, conditional or contingent tenders of Notes for exchange will
be accepted. All tendering Holders, by execution of this Letter of Transmittal
(or a facsimile thereof), waive any right to receive any notice of the
acceptance of their Notes for exchange.
If Holders wish to exchange less than the entire principal amount evidenced
by any Note submitted, such Holders must fill in the principal amount that is to
be exchanged in the column entitled "Principal Amount of Notes Tendered for
Exchange," but only in integral multiples of $1,000. In the case of a partial
exchange of Notes, as soon as practicable after the exchange, new certificates
for the remainder of the Notes that were evidenced by such Holder's old
certificates will be sent to such Holder, unless otherwise provided in the
appropriate box on this Letter of Transmittal. The entire amount that is
represented by Notes delivered to the Exchange Agent will be deemed to have been
surrendered for exchange, unless otherwise indicated. (This paragraph does not
apply to Notes tendered by book-entry transfer.)
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Notes will be resolved by the Company, whose
determination will be final and binding. The Company reserves the absolute right
to reject any or all tenders of Notes for exchange that are not in proper form
or the acceptance of which would, in the opinion of the Company or counsel for
the Company, be unlawful. The Company also reserves the right to waive any
irregularities of a tender for exchange as to particular Notes. The Company's
interpretation of the terms of the Exchange Offer (including the instructions in
this Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Tenders of Notes for exchange will not be
deemed to have been made until such irregularities have been cured or waived.
Any Notes received by the Exchange Agent that are not properly tendered or
delivered and to which the irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holder unless otherwise provided
in this Letter of Transmittal as soon as practicable following the Expiration
Date.
None of the Company, the Exchange Agent, the Information Agent, the Dealer
Manager, the Trustee or any other person shall be obligated to give notification
of defects or irregularities in any tender or delivery or shall incur any
liability for failure to give any such notification.
<PAGE>
3. INADEQUATE SPACE. If the space provided herein under "Description of
Notes Being Tendered for Exchange" is inadequate, the certificate numbers of the
Notes and the principal amount of Notes surrendered should be listed on a
separate schedule and attached hereto.
4. SIGNATURES ON LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered Holder(s) of the Notes
tendered hereby, the signature(s) must correspond to the name(s) as written on
the face of the Notes without alteration, enlargement or any other change
whatsoever. If this Letter of Transmittal is signed by a participant in DTC
whose name is shown as the owner of the Notes tendered hereby, the signature
must correspond with the name shown on the security position listing as the
owner of the Notes.
If any Notes tendered hereby are owned of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any Notes tendered hereby are registered in the names of different
Holders, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal, and any necessary accompanying documents, as there are
different registrations of such Notes.
If this Letter of Transmittal is signed by the registered Holder of Notes
tendered for exchange hereby, no endorsements of such Notes or separate bond
powers are required, unless Common Stock or Notes not tendered for exchange are
to be issued in the name of a person other than the registered Holder(s), in
which case the Notes tendered for exchange hereby must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name(s) of the registered Holder(s) appear(s) on such Notes. Signatures on such
Notes and bond powers must be guaranteed by a Medallion Signature Guarantor. See
Instruction 1 herein.
If this Letter of Transmittal or any Notes or bond powers are signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of such person's authority so to act must be submitted with this
Letter of Transmittal.
5. TRANSFER TAXES. Except as set forth in this Instruction 5, the Company
will pay all transfer taxes, if any, applicable to the exchange of Notes
pursuant to the Exchange Offer. If, however, Notes for principal amounts not
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder(s) of the Notes, or
if tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of Notes pursuant to the Exchange Offer, then the
amount of any such transfer tax (whether imposed on the registered Holder(s) or
any other person) will be payable by the tendering Holder(s). The Company shall
not be required to issue or deliver any certificates for Common Stock unless and
until the person or persons requesting the issue thereof shall have paid to the
Company the amount of such tax or shall have established to the satisfaction of
the Company that such tax has been paid.
6. SPECIAL EXCHANGE AND DELIVERY INSTRUCTIONS. If Common Stock issued upon
exchange of any Notes is to be issued, or if Notes not tendered or not accepted
for exchange are to be issued, or if payment of cash in lieu of fractional
shares or of accrued interest is to be made in the name of a person other than
the person(s) signing this Letter of Transmittal, or if certificates for such
Common Stock or any such Note or payment of cash in lieu of fractional shares or
of accrued interest are to be sent to someone other than the person(s) signing
this Letter of Transmittal or to the person(s) signing this Letter of
Transmittal but at an address other than that shown in the box entitled
"Description of Notes Being Tendered for Exchange," the appropriate boxes in
this Letter of Transmittal must be completed. If no such instruction is given,
the certificates for the Common Stock and/or Notes not tendered, will be sent to
the person signing this Letter of Transmittal. Common Stock with respect to
Notes tendered by book-entry transfer and Notes not tendered for exchange will
be delivered by crediting the account at DTC designated above as the account
from which such Notes were delivered.
7. CONFLICTS. In the event of any conflict between the terms of the Offering
Circular/Prospectus and the terms of this Letter of Transmittal, the terms of
the Offering Circular/Prospectus will control.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. If a Holder desires to tender
Notes for exchange pursuant to the Exchange Offer, but any such Note has been
mutilated, lost, stolen or destroyed, such Holder should write to or telephone
the Trustee, at the address listed below, concerning the procedures for
<PAGE>
obtaining replacement certificates for such Note, arranging for indemnification
or any other matter that requires handling by the Trustee:
State Street Bank and Trust Company
Two International Place
Fourth Floor
Boston, MA 02110
Attn: Corporate Trust Department--Kellie Mullen
(800) 531-0368
9. WITHDRAWAL OF TENDERS. Tenders of Notes (or any portion of such Notes in
integral multiples of $1,000) may be withdrawn at any time on or prior to the
Expiration Date and, unless accepted by the Company, may be withdrawn at any
time after 40 business days after the date of this Exchange Offer.
For a withdrawal of a tender of Notes to be effective, a written,
telegraphic, or facsimile transmission notice of withdrawal must be received by
the Exchange Agent on or prior to the Expiration Date (or such later date as may
be permitted by the preceding paragraph) at its address set forth on the back
cover of the Offering Circular/Prospectus. Any such notice of withdrawal must
specify the name of the person who tendered the Notes to be withdrawn, that such
person is withdrawing his or her election to tender such Notes, the aggregate
principal amount of the Notes to be withdrawn, and the name of the registered
Holder of the Notes as set forth on the Notes, if different from that of the
person who tendered such Notes. If Notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
Notes, the tendering Holder must submit the serial numbers shown on the
particular Notes to be withdrawn and the signature on the notice of withdrawal
must be guaranteed by an Eligible Institution, except in the case of Notes
tendered for the account of any Eligible Institution. If Notes have been
tendered pursuant to the procedures for book-entry transfer set forth in
"Procedures for Tender of Notes for Exchange--Book-Entry Delivery Procedures,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with such withdrawal of Notes and must otherwise comply with such
book-entry transfer facility's procedures, in which case a notice of withdrawal
will be effective if delivered to the Exchange Agent by written, telegraphic, or
facsimile transmission. Withdrawals of tenders of Notes may not be rescinded.
Notes properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"Procedures for Tender of Notes for Exchange."
All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by the Company, in the Company's sole discretion
(whose determination shall be final and binding). No withdrawal of Notes will be
deemed to have been properly made until all defects or irregularities have been
cured or expressly waived. None of the Company, the Exchange Agent, the Dealer
Manager, the Information Agent, the Trustee or any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal, or incur any liability for failure to give any such notification.
Withdrawal of Notes can only be accomplished in accordance with the
foregoing procedures.
10. TAXPAYER IDENTIFICATION NUMBER. Each Holder tendering Notes for exchange
is required to provide the Depository with the Holder's correct taxpayer
identification number ("TIN"), generally, the Holder's Social Security or
Federal Employer Identification number, on Substitute Form W-9, which is
provided under "Important Tax Information" below, and to certify whether such
person is subject to backup withholding of federal income tax.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Offering Circular/Prospectus and the related Letter of Transmittal, may be
directed to the Information Agent, MacKenzie Partners, Inc., 156 Fifth Avenue,
New York, New York 10010, (800) 322-2885, or collect (212) 929-5500. A Holder
may also contact the Dealer Manager at its telephone number set forth on the
back cover page of this Letter of Transmittal or such Holder's broker, dealer,
commercial bank or trust company or nominee for assistance concerning the
Exchange Offer.
<PAGE>
IMPORTANT TAX INFORMATION
To prevent backup withholding on any consideration paid to an owner or other
payee in for accrued but unpaid interest or lieu of fractional shares, the owner
is required to notify the Exchange Agent of the owner's current TIN (or the TIN
of any other payee) by completing the form below, certifying that the TIN
provided on Substitute Form W-9 is correct (or that such owner is awaiting a
TIN), and that either (i) the owner has not been notified by the Internal
Revenue Service that the owner is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue Service
has notified the owner that the owner is no longer subject to backup
withholding. If such owner is an individual, the TIN is his or her social
security number. If the Exchange Agent is not provided with the correct TIN, the
owner or other payee may be subject to a $50 penalty imposed by the Internal
Revenue Service. In addition, any consideration paid to such owner or other
payee in lieu of fractional shares may be subject to 31% backup withholding tax.
Certain owners of Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. If backup withholding applies, the Exchange Agent is
required to withhold 31% of any consideration paid to the owner or other payee
in lieu of fractional shares. Backup withholding is not an additional tax.
Rather, the U.S. federal income tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service provided the required information is furnished.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the owner of the Notes. If
the Notes are registered in more than one name or are not registered in the name
of the actual owner, consult the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional guidance
on which number to report.
THE FOREGOING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATION
DOES NOT CONSIDER THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY HOLDER'S
SITUATION OR STATUS. THE SUMMARY IS BASED ON THE PROVISIONS OF THE CODE,
REGULATIONS, PROPOSED REGULATIONS, RULINGS AND JUDICIAL DECISIONS NOW IN EFFECT,
ALL OF WHICH ARE SUBJECT TO CHANGE, POSSIBLY ON A RETROACTIVE BASIS. HOLDERS OF
NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER LAWS, OF THE EXCHANGE OF THE NOTES INTO COMMON STOCK PURSUANT TO THE
EXCHANGE OFFER. FOR ADDITIONAL INFORMATION, SEE "U.S. FEDERAL INCOME TAX
CONSIDERATIONS" IN THE OFFERING CIRCULAR/PROSPECTUS.
<PAGE>
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------
PAYER'S NAME: [ ]
- ----------------------------------------------------------------------------------------
SUBSTITUTE Part 1 -- PLEASE PROVIDE YOUR Social Security Number or
FORM W-9 TIN IN THE BOX AT RIGHT AND Employer Identification
DEPARTMENT OF THE TREASURY CERTIFY BY SIGNING AND DATING Number
INTERNAL REVENUE SERVICE BELOW
-------------------------------------------------------------
Part 2 -- Certification-Under penalties of perjury, I certify
that:
(1) The number shown on this form is my correct taxpayer
identification number (or I am waiting for a number to be
issued to me) and
(2) I am not subject to backup withholding because: (a) I am
exempt from backup withholding, or (b) I have not been
PAYER'S REQUEST FOR notified by the Internal Revenue Service (IRS) that I am
TAXPAYER IDENTIFICATION
NUMBER "TIN"
subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS -- You must cross out Item (2)
above if you have been notified by the IRS that you are
currently subject to backup withholding because of under
reporting interest or dividends on your tax return.
-------------------------------------------------------------
SIGNATURE: Part 3
Awaiting TIN / /
DATE:
- -----------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31
PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of payment, 31% of all reportable cash payments made to me thereafter
will be withheld until I provide a taxpayer identification number.
Signature
--------------------------------------------------------------
Date
-----------------------------------------------------------------
<PAGE>
THE INFORMATION AGENT FOR THE EXCHANGE OFFER IS:
[LOGO]
156 Fifth Avenue
New York, New York 10010
(212) 929-5000
or
(800) 322-2885
THE DEALER MANAGER FOR THE EXCHANGE OFFER IS:
BANCAMERICA ROBERTSON STEPHENS
555 California Street
Suite 2600
San Francisco, CA 94104
(415) 693-3215
(800) 234-2663
Attn: Dan White
or Jeff Wineker
<PAGE>
CUSIP 912 325 AA5
U.S. OFFICE PRODUCTS COMPANY
OFFER TO EXCHANGE UP TO 8,889,920 SHARES OF COMMON STOCK FOR
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2001
AT A TEMPORARILY REDUCED NOTE CONVERSION PRICE
DATED MAY 1, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, MAY 29, 1998, UNLESS EXTENDED
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
Enclosed for your consideration is an Offering Circular/Prospectus dated May
1, 1998 (the "Offering Circular/Prospectus") and a form of Letter of Transmittal
(the "Letter of Transmittal" which, together with the Offering
Circular/Prospectus constitutes the "Exchange Offer"), relating to the offer by
U.S. Office Products Company (the "Company") to exchange shares of its Common
Stock for its outstanding 5 1/2% Convertible Subordinated Notes due 2001 (the
"Notes") at a temporarily reduced conversion price. Capitalized terms used
herein but not defined herein shall have the meanings ascribed to such terms in
the Offering Circular/Prospectus.
The Notes are currently convertible into shares of Common Stock at a rate of
one share for each $19.00 principal amount of the Notes (the "Existing
Conversion Price"). During the Exchange Period, holders of the Notes (the
"Holders") will be able to exchange the Notes for Common Stock at an exchange
rate of 61.843 shares per $1,000 principal amount of the Notes pursuant to the
Exchange Offer, which effectively reduces the conversion price to $16.17 per
share (the "Reduced Conversion Price"). The Company will pay in cash unpaid
interest accrued on the Notes through the Expiration Date (as defined below)
with respect to all Notes tendered pursuant to the Exchange Offer.
We are asking you to contact your clients for whom you hold Notes registered
in your name or in the name of your nominee. In addition, we ask you to contact
your clients who, to your knowledge, hold Notes registered in their own names.
The Company will pay all transfer taxes, if any, applicable to the tender for
exchange of Notes, except as otherwise provided in the Offering
Circular/Prospectus and the Letter of Transmittal.
Enclosed herewith are copies of the following documents:
1. An Offering Circular/Prospectus dated May 1, 1998 relating to the
Exchange Offer;
2. A Letter of Transmittal for your use and for the information of your
clients in connection with the Exchange Offer; and
3. A form of a letter which may be sent to your clients for whose account
you hold the Notes in your name or in the name of a nominee, with space provided
for obtaining such clients' instructions with regard to the Exchange Offer and
the Equity Self-Tender referred to in the Offering Circular/Prospectus.
DTC participants will be able to tender Notes through the DTC Automated
Tender Offer Program ("ATOP").
PLEASE NOTE THAT THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 29, 1998, UNLESS EXTENDED (THE
"EXPIRATION DATE"). WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE
IN ORDER TO OBTAIN THEIR INSTRUCTIONS.
The Company will not pay any fees or commissions to any broker or dealer or
other person for soliciting exchange of the Notes pursuant to the Exchange
Offer. You will be reimbursed for customary
<PAGE>
mailing and handling expenses incurred by you in forwarding the enclosed
materials to your clients as described in the Offering Circular/Prospectus under
the caption "The Terms of the Exchange Offer--Fees and Expenses."
Additional copies of the enclosed materials may be obtained from the
Information Agent, at its address and telephone number set forth on the back
cover of the enclosed Offering Circular/Prospectus.
Very truly yours,
BancAmerica Robertson Stephens
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON AS THE AGENT OF THE COMPANY, THE EXCHANGE AGENT, THE
INFORMATION AGENT, THE TRUSTEE OR THE DEALER MANAGER OR AUTHORIZE YOU OR ANY
OTHER PERSON TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY
OF THEM WITH RESPECT TO THE EXCHANGE OFFER WHICH IS NOT CONTAINED IN THE
OFFERING CIRCULAR/PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE>
CUSIP 912 325 AA5
U.S. OFFICE PRODUCTS COMPANY
OFFER TO EXCHANGE SHARES OF COMMON STOCK FOR
ALL OUTSTANDING 5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE
2001 AT A TEMPORARILY REDUCED CONVERSION PRICE
DATED MAY 1, 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, MAY 29, 1998, UNLESS EXTENDED
To Our Clients:
Enclosed for your consideration is the Offering Circular/Prospectus dated
May 1, 1998 (as the same may be amended or supplemented from time to time, the
"Offering Circular/Prospectus") and related Letter of Transmittal and
instructions thereto (the "Letter of Transmittal" which, together with the
Offering Circular/Prospectus constitutes the "Exchange Offer") relating to the
offer by U.S. Office Products Company (the "Company") to exchange shares of
Common Stock for its outstanding 5 1/2% Subordinated Convertible Notes due
2001(the "Notes") at a temporarily reduced conversion price pursuant to the
Exchange Offer. You will also receive separately a Tender Offer Statement
relating to the Company's offer to purchase 37,037,037 shares of Common Stock
(the "Equity Self-Tender"), which is expected to commence May 4, 1998.
The Notes are currently convertible into shares of Common Stock at a rate of
one share for each $19.00 principal amount of the Notes (the "Existing
Conversion Price"). During the Exchange Period, holders of the Notes (the
"Holders") will be able to exchange the Notes for Common Stock at an exchange
rate of 61.843 shares per $1,000 principal amount of the Notes pursuant to the
Exchange Offer, which effectively reduces the conversion price to $16.17 per
share (the "Reduced Conversion Price"). The Company will pay in cash unpaid
interest accrued on the Notes through the Expiration Date (as defined below)
with respect to all Notes tendered pursuant to the Exchange Offer.
Capitalized terms used herein and not defined herein shall have the meanings
ascribed to them in the Offering Circular/Prospectus.
THIS MATERIAL RELATING TO THE EXCHANGE OFFER AND THE EQUITY SELF-TENDER IS
BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF NOTES CARRIED BY US FOR YOUR
ACCOUNT OR BENEFIT BUT NOT REGISTERED IN YOUR NAME. A TENDER FOR EXCHANGE OF ANY
SUCH NOTES CAN BE MADE ONLY BY US AS THE REGISTERED HOLDER AND PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO SURRENDER NOTES HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender for
exchange any or all such Notes held by us for your account pursuant to the terms
and conditions set forth in the Offering Circular/ Prospectus and the Letter of
Transmittal. We urge you to read the Offering Circular/Prospectus and the Letter
of Transmittal carefully before instructing us to tender your Notes for
exchange.
Shares of Common Stock that you are entitled to receive upon exchange of
Notes in the Exchange Offer can be tendered into the Equity Self-Tender. You
should read carefully the information in the separate statement relating to the
Equity Self-Tender for shares of Common Stock. If you wish to tender all or a
portion of the shares of Common Stock you would receive upon exchange of the
Notes, please indicate on the attached instructions.
Your instructions to us should be forwarded as promptly as possible in order
to permit us to tender Notes on your behalf in accordance with the provisions of
the Exchange Offer. The Exchange Offer will expire at 12:00 midnight, New York
City time, on May 29, 1998, unless extended (the "Expiration Date").
<PAGE>
Your attention is directed to the following:
1. The Exchange Offer applies to all outstanding Notes.
2. Holders must tender their Notes on or prior to 12:00 midnight, New York
City time, May 29, 1998 in order to have their Notes exchanged at the exchange
rate of 61.843 shares per $1,000 principal amount of Notes.
3. Any transfer taxes incident to the exchange of Notes will be paid by the
Company, except as provided in the Offering Circular/Prospectus and the
instructions to the Letter of Transmittal.
4. The Exchange Offer is not being made to (nor will the tender of Notes for
exchange be accepted from or on behalf of) Holders in any jurisdiction in which
the making or acceptance of the Exchange Offer would not be in compliance with
the laws of such jurisdiction.
5. The exchange of such Notes for shares of Common Stock will be made as
promptly as practicable after the Expiration Date of the Exchange Offer.
If you wish to have us tender any or all of the Notes held by us for your
account please so instruct us by completing, executing and returning to us the
instruction form that follows.
<PAGE>
INSTRUCTIONS REGARDING THE EXCHANGE OFFER WITH RESPECT TO THE
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2001
OF
U.S. OFFICE PRODUCTS COMPANY
The undersigned acknowledge(s) receipt of your letter and the enclosed
documents referred to therein relating to the Exchange Offer of U.S. Office
Products Company.
This will instruct you whether to tender for exchange the principal amount
of Notes indicated below held by you for the account of the undersigned pursuant
to the terms of and conditions set forth in the Offering Circular/Prospectus and
the Letter of Transmittal.
Box 1 / / Please tender for exchange the indicated Notes held by you
for my account.
Box 2 / / Please do not tender for exchange any Notes held by you for
my account.
Box 3 / / Please tender shares issuable upon exchange of Notes in the
Company's self-tender for shares, as follows:
Box 3.a / / Tender all shares issuable upon exchange of Notes
Box 3.b / / Tender only the following number of shares: ____________
Box 3.c / / Do not tender shares issuable upon exchange unless at
least the following number of shares will be
purchased: _____________________________________________
Date: ______ , 1998
____________________________________
Signature(s)
____________________________________
____________________________________
Please print name(s) here
Principal amount of Notes to Be Tendered for Exchange:
________________________________
________________________________________________________________________________
$ ________________ *
(must be in principal amounts equal to $1,000 or
________________________________________________________________________________
integral multiples thereof)
Please type or print address
________________________________
Area Code and Telephone Number
________________________________________________________________________________
Taxpayer Identification or
Social Security Number
________________________________________________________________________________
My Account Number with You
- ------------------------
* UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S) SHALL
CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO TENDER ALL NOTES OF SUCH
BENEFICIAL OWNER(S).
<PAGE>
INSTRUCTIONS REGARDING THE EXCHANGE OFFER WITH RESPECT TO THE
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2001
OF
U.S. OFFICE PRODUCTS COMPANY
The undersigned acknowledge(s) receipt of your letter and the enclosed
documents referred to therein relating to the Exchange Offer of U.S. Office
Products Company.
This will instruct you whether to tender for exchange the principal amount
of Notes indicated below held by you for the account of the undersigned pursuant
to the terms of and conditions set forth in the Offering Circular/Prospectus and
the Letter of Transmittal.
Box 1 / / Please tender for exchange the indicated Notes held by you
for my account.
Box 2 / / Please do not tender for exchange any Notes held by you for
my account.
Box 3 / / Please tender shares issuable upon exchange of Notes in the
Company's self-tender for shares, as follows:
Box 3.a / / Tender all shares issuable upon exchange of Notes
Box 3.b / / Tender only the following number of shares: ____________
Box 3.c / / Do not tender shares issuable upon exchange unless at
least the following number of shares will be
purchased: _____________________________________________
Date: ______ , 1998
____________________________________
Signature(s)
____________________________________
____________________________________
Please print name(s) here
Principal amount of Notes to Be Tendered for Exchange:
________________________________
________________________________________________________________________________
$ ________________ *
(must be in principal amounts equal to $1,000 or
________________________________________________________________________________
integral multiples thereof)
Please type or print address
________________________________
Area Code and Telephone Number
________________________________________________________________________________
Taxpayer Identification or
Social Security Number
________________________________________________________________________________
My Account Number with You
- ------------------------
* UNLESS OTHERWISE INDICATED, SIGNATURE(S) HEREON BY BENEFICIAL OWNER(S) SHALL
CONSTITUTE AN INSTRUCTION TO THE NOMINEE TO TENDER ALL NOTES OF SUCH
BENEFICIAL OWNER(S).
