<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
<TABLE>
<S> <C>
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section240.14a-12
</TABLE>
U.S. OFFICE PRODUCTS COMPANY
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement)
<TABLE>
<S> <C> <C>
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how
it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0- 11(a)(2)
and
identify the filing for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
</TABLE>
<PAGE>
[LOGO]
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
(202) 339-6700
August 14, 1998
Dear Stockholder:
On behalf of the Board of Directors and employees of U.S. Office
Products Company, I cordially invite you to attend the 1998 Annual Meeting of
U.S. Office Products' stockholders. We will be holding the Annual Meeting on
Wednesday, September 16, 1998 at 10:00 a.m. eastern time at The Omni Shoreham
Hotel, located at 2500 Calvert Street, N.W., Washington, D.C., 20008.
Enclosed with this letter is a Notice of the Annual Meeting, a Proxy
Statement, a proxy card, and a return envelope. Both the Notice of Annual
Meeting and the Proxy Statement provide details of the business that we will
conduct at the Annual Meeting and other information about U.S. Office Products.
Whether or not you plan to attend the Annual Meeting, please sign, date
and promptly return the proxy card in the enclosed prepaid return envelope. Your
shares will be voted at the Annual Meeting in accordance with your proxy
instructions. Of course, if you attend the Annual Meeting you may vote in
person. If you plan to attend the meeting, please mark the appropriate box on
the enclosed proxy card.
Sincerely,
[SIGNATURE]
Charles P. Pieper
Chairman of the Board of
Directors
YOUR VOTE IS IMPORTANT
Please Sign, Date and Return Your Proxy Card Before the Annual Meeting
If you have any questions about voting your shares, please contact our proxy
solicitor,
D.F. King & Co., Inc., toll-free at (800) 431-9643.
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C>
DATE: WEDNESDAY, SEPTEMBER 16, 1998
TIME: 10:00 A.M.
PLACE: THE OMNI SHOREHAM HOTEL
2500 CALVERT STREET, N.W.
WASHINGTON, D.C. 20008
</TABLE>
Dear Stockholders:
At the 1998 Annual Meeting, we will ask you to:
- Elect nine directors;
- Ratify the selection of PricewaterhouseCoopers LLP as independent
accountants for the fiscal year ending April 24, 1999; and
- Transact any other business that is properly presented at the
Annual Meeting.
You will be able to vote your shares at the Annual Meeting if you were a
stockholder of record at the close of business on August 5, 1998.
By order of the Board of
Directors:
[SIGNATURE]
Mark D. Director
Secretary
August 14, 1998
YOUR VOTE AT THE ANNUAL MEETING IS IMPORTANT.
PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY CARD AND RETURN IT IN
THE ENCLOSED ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE
MEETING.
IF YOU HAVE QUESTIONS ABOUT VOTING YOUR SHARES, PLEASE CONTACT OUR PROXY
SOLICITOR,
D. F. KING & CO., INC., TOLL-FREE AT (800) 431-9643.
IF YOU ATTEND THE MEETING, YOU WILL BE ABLE TO REVOKE YOUR PROXY AND
VOTE IN PERSON.
<PAGE>
[LOGO]
1025 Thomas Jefferson Street, N.W.
Suite 600 East
Washington, D.C. 20007
August 14, 1998
PROXY STATEMENT FOR ANNUAL MEETING
This Proxy Statement provides information that you should read before
you vote on the proposals that will be presented to you at the 1998 Annual
Meeting of the stockholders of U.S. Office Products Company ("U.S. Office
Products"). The 1998 Annual Meeting will be held on Wednesday, September 16,
1998 at 10:00 a.m. eastern time at The Omni Shoreham Hotel, located at 2500
Calvert Street, N.W., Washington, D.C., 20008.
This Proxy Statement provides detailed information about the Annual
Meeting, the proposals on which you will be asked to vote at the Annual Meeting,
and other relevant information.
On August 14, 1998, we began mailing information to people who,
according to our records, owned shares of U.S. Office Products' common stock at
the close of business on August 5, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
INFORMATION ABOUT THE 1998 ANNUAL MEETING AND VOTING................................ 1
PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING..................................... 3
1. ELECTION OF DIRECTORS.................................................... 3
2. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS.... 3
STOCK OWNERSHIP..................................................................... 4
THE BOARD OF DIRECTORS.............................................................. 6
EXECUTIVE OFFICERS AND COMPENSATION................................................. 12
OTHER INFORMATION................................................................... 21
</TABLE>
i
<PAGE>
INFORMATION ABOUT THE 1998 ANNUAL MEETING AND VOTING
THE ANNUAL MEETING
The Annual Meeting will be held on Wednesday, September 16, 1998 at
10:00 a.m. eastern time at The Omni Shoreham Hotel, located at 2500 Calvert
Street, N.W., Washington, D.C., 20008.
THIS PROXY SOLICITATION
We are sending you this Proxy Statement because U.S. Office Products'
Board of Directors is seeking a proxy to vote your shares at the Annual Meeting.
This Proxy Statement is intended to assist you in deciding how to vote your
shares. On August 14, 1998, we began mailing this Proxy Statement to all people
who, according to our stockholder records, owned shares at the close of business
on August 5, 1998.
U.S. Office Products is paying the cost of requesting these proxies.
U.S. Office Products' directors, officers and employees may request proxies in
person or by telephone, mail, telecopy or letter. U.S. Office Products also has
retained D.F. King & Co., Inc. to assist in distributing proxy solicitation
materials and seeking proxies. U.S. Office Products will pay D.F. King & Co.,
Inc. a fee of approximately $5,500 plus reasonable out-of-pocket expenses for
this assistance. U.S. Office Products will reimburse brokers and other nominees
their reasonable out-of-pocket expenses for forwarding proxy materials to
beneficial owners of U.S. Office Products' common stock.
VOTING YOUR SHARES
You have one vote for each share of U.S. Office Products' common stock
that you owned of record at the close of business on August 5, 1998. The number
of shares you own (and may vote at the Annual Meeting) is listed on the enclosed
proxy card.
You may vote your shares at the Annual Meeting either in person or by
proxy. To vote in person, you must attend the Annual Meeting and obtain and
submit a ballot. Ballots for voting in person will be available at the Annual
Meeting. To vote by proxy, you must complete and return the enclosed proxy card.
By completing and returning the proxy card, you will be directing the persons
designated on the proxy card to vote your shares at the Annual Meeting in
accordance with the instructions you give on the proxy card.
If you decide to vote by proxy, your proxy card will be valid only if
you sign, date and return it before the Annual Meeting. IF YOU COMPLETE THE
PROXY CARD EXCEPT FOR THE VOTING INSTRUCTIONS, THEN YOUR SHARES WILL BE VOTED
FOR THE PROPOSED ELECTION OF DIRECTORS AND FOR RATIFICATION OF THE SELECTION OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT ACCOUNTANTS OF U.S. OFFICE
PRODUCTS FOR THE 1999 FISCAL YEAR.
REVOKING YOUR PROXY
If you decide to change your vote, you may revoke your proxy at any time
before it is voted. You may revoke your proxy in any one of three ways:
- You may notify the Secretary of U.S. Office Products in writing
that you wish to revoke your proxy.
- You may submit a proxy dated later than your original proxy.
1
<PAGE>
- You may attend the Annual Meeting and vote. Merely attending the
Annual Meeting will not by itself revoke a proxy; you must obtain a
ballot and vote your shares to revoke the proxy.
VOTE REQUIRED FOR APPROVAL
<TABLE>
<S> <C>
PROPOSAL 1: ELECTION OF NINE The nine nominees for director who receive the most votes
DIRECTORS will be elected. If you indicate "withhold authority to
vote" for a particular nominee on your proxy card, your
vote will not count either for or against the nominee.
PROPOSAL 2: RATIFICATION OF The affirmative vote of a majority of the votes cast at
SELECTION OF INDEPENDENT the Annual Meeting is required to ratify the selection of
ACCOUNTANTS independent accountants. If you abstain from voting, it
has the same effect as if you voted against this proposal.
</TABLE>
If you hold your shares with a broker and you do not tell your broker
how to vote, your broker has the authority to vote on both of the proposals
scheduled to be presented at the Annual Meeting.
QUORUM. On the record date for the Annual Meeting (August 5, 1998),
36,463,254 shares were issued and outstanding. A "quorum" must be present at the
Annual Meeting in order to transact business. A quorum will be present if
18,231,628 shares are represented at the Annual Meeting, either in person (by
the stockholders) or by proxy. If a quorum is not present, a vote cannot occur.
In deciding whether a quorum is present, abstentions will be counted as shares
that are represented at the Annual Meeting.
ADDITIONAL INFORMATION ABOUT U.S. OFFICE PRODUCTS
The U.S. Office Products Annual Report to Stockholders for the fiscal
year ended April 25, 1998, including consolidated financial statements, is being
mailed to all stockholders entitled to vote at the Annual Meeting together with
this Proxy Statement. The Annual Report does not constitute a part of the proxy
solicitation material. The Annual Report tells you how to get additional
information about U.S. Office Products.
2
<PAGE>
PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING
We will present the following two proposals at the Annual Meeting. We do
not expect anyone to present any other proposals, and our bylaws do not allow
anyone to submit other proposals unless all stockholders are present in person
or by proxy. If anyone validly presents any other proposal, we will use your
proxy to vote on those proposals as we believe is appropriate.
1. ELECTION OF DIRECTORS
Nominees for election to the Board of Directors are:
Charles P. Pieper
Thomas Morgan
Kevin J. Conway
Frank P. Doyle
Brian D. Finn
L. Dennis Kozlowski
Milton H. Kuyers
Allon H. Lefever
Edward J. Mathias
Each director will be elected to serve for a one-year term, or
thereafter until his replacement is elected and qualified or until his earlier
resignation or removal. Each of the nine nominees is presently a member of the
Board of Directors and has consented to serve as a director if re-elected. More
detailed information about each of the nominees is available in the section of
this booklet titled "The Board of Directors," which begins on page 6.
CDR-PC Acquisition L.L.C., an affiliate of an investment fund managed by
Clayton, Dubilier & Rice, Inc., nominated Messrs. Pieper, Conway and Finn.
CDR-PC Acquisition has the right to nominate three directors under the agreement
with U.S. Office Products pursuant to which CDR-PC Acquisition acquired its
interest in U.S. Office Products. For more information about the relationship
between CDR-PC Acquisition and U.S. Office Products, see the section of this
booklet titled "Certain Relationships and Related Transactions," which begins on
page 20.
If any of the nominees cannot serve for any reason (which is not
anticipated), the Board of Directors may designate a substitute nominee or
nominees. CDR-PC Acquisition has the right to nominate any substitute for
Messrs. Pieper, Conway or Finn. If a substitute is nominated, we will vote all
valid proxies for the election of the substitute nominee or nominees. The Board
of Directors may also decide to leave the Board seat or seats open until a
suitable candidate or candidates are located, or it may decide to reduce the
size of the Board. Pursuant to the Board's authority to adjust the number of
directors, the number of directors on the Board was reduced from ten to nine
effective June 10, 1998. Proxies for the Annual Meeting may not be voted for
more than nine nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THESE DIRECTORS.
2. RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers has been our independent accountant since U.S.
Office Products' inception in 1994. The Audit Committee and the Board believe
that PricewaterhouseCoopers' long-term knowledge of U.S. Office Products is
invaluable. We would like to continue this successful relationship.
Representatives from PricewaterhouseCoopers will be available at the Annual
Meeting to answer your questions and make a statement if they desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
3
<PAGE>
STOCK OWNERSHIP
There were 36,463,254 shares of U.S. Office Products' common stock
issued and outstanding on August 5, 1998. The following table shows how many
shares were owned by each person who owned more than 5% of the issued and
outstanding shares on that date.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES SHARES
----------- -------------
<S> <C> <C>
CDR-PC Acquisition, L.L.C. 9,079,350 24.9%
c/o Clayton, Dubilier & Rice Fund V
Limited Partnership
1403 Foulk Road
Suite 106
Wilmington, DE 19803
FMR Corp. (1) 2,861,627 7.8%
82 Devonshire Street
Boston, MA 02109
</TABLE>
(1) Number of shares owned is based on a report on Schedule 13G filed with the
Securities and Exchange Commission on August 10, 1998.
The following table shows how many shares were owned on August 5, 1998 by each
of (1) the directors of U.S. Office Products, (2) the Chief Executive Officer of
U.S. Office Products, and (3) the other persons named in the Summary
Compensation Table on page 14. (In the remainder of this Proxy Statement, we
collectively will refer to the Chief Executive Officer and the other persons
listed in the Summary Compensation Table as the "named officers.") The table
also shows how many shares were owned by all of the directors and executive
officers of U.S. Office Products together.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME OF BENEFICIAL OWNER SHARES SHARES
----------- ---------------
<S> <C> <C>
Charles P. Pieper -- --
Thomas Morgan 91,858(1) *
Donald H. Platt 91,312(2) *
Mark D. Director 52,771(3) *
Kevin J. Conway -- --
Frank P. Doyle -- --
Brian D. Finn -- --
L. Dennis Kozlowski 30,000 *
Allon H. Lefever 24,799(4) *
Milton H. Kuyers 31,720(5) *
Edward J. Mathias 72,407(6) *
Jonathan J. Ledecky 758,953(7) 2.0%
Timothy J. Flynn 271,464(8) *
All current executive officers and directors as a group 1,525,765(9) 4.1%
</TABLE>
[FOOTNOTES ON FOLLOWING PAGE]
4
<PAGE>
- ------------------------
* Less than 1%.
(1) Includes 50 shares owned by Mr. Morgan's wife and 86,858 shares subject to
options that are exercisable currently or exercisable within 60 days.
(2) Includes 90,268 shares subject to options that are exercisable currently or
exercisable within 60 days.
(3) Includes 52,093 shares subject to options that are exercisable currently or
exercisable within 60 days.
(4) Includes 20,232 shares subject to options that are exercisable currently or
exercisable within 60 days.
(5) Includes 11,036 shares subject to options that are exercisable currently or
exercisable within 60 days.
(6) Includes 20,232 shares subject to options that are exercisable currently or
exercisable within 60 days.
(7) Includes 292,350 shares subject to options that are exercisable currently or
exercisable within 60 days.
(8) Includes 114,103 shares subject to options that are exercisable currently or
exercisable within 60 days.
(9) Includes 696,547 shares subject to options that are exercisable currently or
exercisable within 60 days.
5
<PAGE>
THE BOARD OF DIRECTORS
MEMBERSHIP
We have set forth below certain information regarding the members of
U.S. Office Products' Board of Directors. Each of the directors has been
nominated for re-election at the Annual Meeting.
<TABLE>
<S> <C>
CHARLES P. PIEPER
AGE: 51
DIRECTOR SINCE: June 1998
PRINCIPAL OCCUPATION: Principal and Director of Clayton, Dubilier & Rice, Inc.
RECENT BUSINESS Mr. Pieper has been the Chairman of the Board U.S. Office Products
EXPERIENCE: since June 1998. Mr. Pieper has been a principal and a director of
Clayton, Dubilier & Rice, Inc. 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.
OTHER DIRECTORSHIPS: Dynatech Corporation
THOMAS MORGAN
AGE: 44
DIRECTOR SINCE: February 1997
PRINCIPAL OCCUPATION: President, Chief Executive Officer and Director of U.S. Office
Products
RECENT BUSINESS Mr. Morgan joined U.S. Office Products in 1997 as the President of
EXPERIENCE: the 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, a
national office products wholesaler.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
KEVIN J. CONWAY
AGE: 39
DIRECTOR SINCE: June 1998
PRINCIPAL OCCUPATION: Principal and Director of Clayton, Dubilier & Rice, Inc.
RECENT BUSINESS Mr. Conway has been a principal of Clayton, Dubilier & Rice, Inc.
EXPERIENCE: since 1994 and a director since March 1998. Prior to joining
Clayton, Dubilier & Rice, Inc., Mr. Conway worked for ten years at
Goldman, Sachs & Co., an investment banking firm.
OTHER DIRECTORSHIPS: Riverwood International Corporation
FRANK P. DOYLE
AGE: 66
DIRECTOR SINCE: June 1998
PRINCIPAL OCCUPATION: Private Consultant
RECENT BUSINESS Mr. Doyle became a private consultant after retiring as Executive
EXPERIENCE: Vice President of General Electric Company in 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,
Employee, Government and Public Relations from 1981.
OTHER DIRECTORSHIPS: Compaq Computer Corporation; Paine Webber Group, Inc.; Roadway
Express, Inc.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
BRIAN D. FINN
AGE: 37
DIRECTOR SINCE: June 1998
PRINCIPAL OCCUPATION: Principal and Director of Clayton, Dubilier & Rice, Inc.
RECENT BUSINESS Mr. Finn has been a principal and a director of Clayton, Dubilier
EXPERIENCE: & Rice, Inc. since June 1997 and March 1998, respectively. Prior
to joining Clayton, Dubilier & Rice, Inc. 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.
OTHER DIRECTORSHIPS: Dynatech Corporation
L. DENNIS KOZLOWSKI
AGE: 51
DIRECTOR SINCE: June 1998
PRINCIPAL OCCUPATION: Chairman and Chief Executive Officer of Tyco International Ltd.
RECENT BUSINESS Mr. Kozlowski has served as Chairman and Chief Executive Officer
EXPERIENCE: of Tyco International Ltd., a multinational company involved in
manufacturing, distribution, and servicing fire protection and
security systems, disposable medical products, flow control and
electronic products worldwide, since 1993 and 1992, respectively.
Prior to that, he was President and Chief Operating Officer. He
has been with Tyco since 1989 and has been a director of Tyco
since 1987.
OTHER DIRECTORSHIPS: Applied Power Inc.; Raytheon Company
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
MILTON H. KUYERS
AGE: 60
DIRECTOR SINCE: April 1995
PRINCIPAL OCCUPATION: Chairman and Chief Executive Officer of GMK Companies
RECENT BUSINESS Mr. Kuyers is a part owner and executive officer of a number of
EXPERIENCE: privately held companies, including: Zero Zone, Inc., a
manufacturer of commercial refrigeration units; Desert Aire 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; Faustel, a manufacturer of custom coating
equipment; and Digicorp Inc., a distributor of business telephone
systems and cellular telephones. Prior to 1993, Mr. Kuyers served
as the President of Star Sprinkler Corp., a manufacturer of
sprinkler heads for fire protection systems. Before its
acquisition by U.S. Office Products, Mr. Kuyers was a director of
H.H. West Company, a wholly-owned subsidiary of U.S. Office
Products. 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.
ALLON H. LEFEVER
AGE: 51
DIRECTOR SINCE: February 1995
PRINCIPAL OCCUPATION: Senior Vice President of the Affiliated Companies for High
Industries, Inc.
RECENT BUSINESS Mr. Lefever has been Senior Vice President of the Affiliated
EXPERIENCE: Companies for High Industries, Inc., since April 1988. From 1988
until its acquisition by U.S. Office Products, 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
several private companies.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
EDWARD J. MATHIAS
AGE: 56
DIRECTOR SINCE: February 1995
PRINCIPAL OCCUPATION: Managing Director of The Carlyle Group
RECENT BUSINESS Mr. Mathias has been a Managing Director of The Carlyle Group, a
EXPERIENCE: merchant bank based in Washington D.C., since 1994. From 1971 to
1993, Mr. Mathias was employed at T. Rowe Price, most recently as
a Managing Director.
OTHER DIRECTORSHIPS: Sirrom Capital Corp.; The Fortress Group, Inc.; USA Floral, Inc.;
Condor Technology Solutions, Inc.
</TABLE>
BOARD ORGANIZATION AND MEETINGS
During the fiscal year ended April 25, 1998, U.S. Office Products' Board
of Directors met 18 times and took action by unanimous written consent twice.
Except as noted, every member of the Board attended at least 75% of the total
Board meetings and at least 75% of the meetings of committees on which the
member served. John A. Quelch, who is not a nominee for election to the Board,
attended fewer than 75% of the meetings of the Board.
The Board of Directors has the following committees:
EXECUTIVE COMMITTEE. The Executive Committee has the authority to
exercise all the powers of the Board between meetings of the Board, except that
the Executive Committee cannot: amend the certificate of incorporation or
bylaws; approve or recommend a merger, consolidation or disposition of all or
substantially all of U.S. Office Products' assets; recommend or revoke a
dissolution of U.S. Office Products; or take any other action that requires not
less than a three-quarter affirmative vote of the directors. In addition, the
Executive Committee cannot declare a dividend or authorize the issuance of stock
unless specifically authorized by the Board of Directors. The members of the
Executive Committee are:
Charles P. Pieper
L. Dennis Kozlowski
Thomas Morgan
The Executive Committee did not meet but did act eight times by
unanimous written consent in U.S. Office Products' 1998 fiscal year.
AUDIT COMMITTEE. The Audit Committee (i) makes recommendations to the
Board of Directors with respect to the independent accountants who conduct the
annual examination of the Company's accounts; (ii) reviews the scope of the
annual audit and meets periodically with the Company's independent accountants
to review their findings and recommendations; (iii) approves major accounting
policies or changes thereto; and (iv) periodically reviews principal internal
controls to assure that U.S. Office Products is maintaining a sound and modern
system of financial controls. The members of the Audit Committee are:
Milton H. Kuyers (Chairman)
Kevin J. Conway
Allon H. Lefever
10
<PAGE>
The Audit Committee met three times and acted once by unanimous written
consent in U.S. Office Products' 1998 fiscal year.
COMPENSATION COMMITTEE. The Compensation Committee periodically
determines the amount and form of compensation and benefits payable to all
executive officers and certain other management personnel. This committee also
administers the U.S. Office Products Company Amended and Restated 1994 Long-Term
Incentive Plan (the "Incentive Plan") and the U.S. Office Products Company
Executive Deferred Compensation Plan (the "Executive Deferred Compensation
Plan"). The Board of Directors has also authorized Messrs. Doyle and Mathias,
acting as a subcommittee of the Compensation Committee whose members qualify as
outside, non-employee directors under applicable tax and securities laws, to
approve any awards of stock or options to U.S. Office Products' directors (other
than non-employee directors) and officers under the Incentive Plan and to
administer elements of the Section 162(m) Bonus Plan (the "Bonus Plan"). The
members of the Compensation Committee are:
Frank P. Doyle (Chairman)
Edward J. Mathias
Brian D. Finn
The Compensation Committee met twice and acted more than 50 times by
unanimous written consent in U.S. Office Products' 1998 fiscal year.
COMPENSATION OF DIRECTORS
FEES AND EXPENSES. U.S. Office Products pays each director who is not a
U.S. Office Products employee an annual fee of $35,000, or $50,000 for members
of the Executive Committee. In fiscal 1998, U.S. Office Products paid a total of
$155,000 in directors' fees. Under the terms of a consulting agreement described
on page 20 of this Proxy Statement, Messrs. Pieper, Conway and Finn have agreed
to waive these fees. All directors are reimbursed for out-of-pocket expenses
related to attending Board meetings. The total amount paid for expenses to
directors in fiscal 1998 was $24,500.
1996 NON-EMPLOYEE DIRECTORS' STOCK PLAN. In connection with this plan,
U.S. Office Products awards non-employee directors options to acquire 7,875
shares of common stock upon their initial election as a member of the Board of
Directors. U.S. Office Products also awards each director options to acquire
2,250 shares in each year they are re-elected. Options awarded to directors
under the 1996 Non-employee Directors' Stock Plan vest in two equal installments
at the six-month and one-year anniversaries of the date the options are awarded.
U.S. Office Products will also pay directors' fees in the form of shares of
common stock or "deferred" shares of common stock for each director who elects
to receive fees this way. Two directors elected to defer their compensation
under this plan during U.S. Office Products' 1998 fiscal year. Messrs. Pieper,
Conway and Finn will not receive compensation under the 1996 Non-employee
Directors' Stock Plan while they are members of the U.S. Office Products' Board.
For more information about the relationship between U.S. Office Products and
Messrs. Pieper, Conway and Finn, see the section of this booklet titled "Certain
Relationships and Related Transactions," which begins on page 20.
DIRECTORS WHO ARE ALSO EMPLOYEES. U.S. Office Products does not pay
directors who are also employees any additional compensation for serving on the
Board.
11
<PAGE>
EXECUTIVE OFFICERS AND COMPENSATION
We set forth below certain information regarding the executive officers
of U.S. Office Products (other than Mr. Morgan, whose information is set forth
on page 6).
<TABLE>
<S> <C>
MICHAEL J. BARNELL PRESIDENT, NORTH AMERICAN OFFICE PRODUCTS GROUP
AGE: 42
OFFICER SINCE: 1997
POSITION(S) HELD AT Mr. Barnell has served as President of the North American Office
COMPANY: Products Group since September 1, 1997. From March 1, 1997 until
September 1997, he was Executive Vice President of the North American
Office Products Group. He joined U.S. Office Products in August 1996 as
a Group Executive Vice President, when U.S. Office Products purchased
St. Louis-based American Loose Leaf/ Business Products, Inc.
PREVIOUS BUSINESS From 1984 until joining U.S. Office Products, Mr. Barnell served as
EXPERIENCE: President of American Loose Leaf/Business Products, Inc.
MARK D. DIRECTOR EXECUTIVE VICE PRESIDENT - ADMINISTRATION, GENERAL COUNSEL AND
SECRETARY
AGE: 40
OFFICER SINCE: 1996
POSITION(S) HELD AT Mr. Director has served as Executive Vice President-Administration
COMPANY: since February 1998, and as General Counsel and Secretary since
February 1996 and August 1996, respectively. From June 1997 until
February 1998, he served as Chief Administrative Officer. From February
1996 until June 1997, Mr. Director served as Executive Vice President.
PREVIOUS BUSINESS Before coming to U.S. Office Products, Mr. Director served as Executive
EXPERIENCE: Vice President, General Counsel and Assistant Secretary of Radio Movil
Digital Americas from February 1995 until September 1995. Prior to
that, Mr. Director was a principal of Fields & Director, P.C. a law
firm located in Washington, D.C. from 1990 until 1995.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
JOSEPH T. DOYLE EXECUTIVE VICE PRESIDENT - FINANCE, CHIEF FINANCIAL OFFICER AND
TREASURER
AGE: 51
OFFICER SINCE: 1998
POSITION(S) HELD AT Mr. Doyle has served as Executive Vice President-Finance, Chief
COMPANY: Financial Officer and Treasurer since August 12, 1998, when he joined
U.S. Office Products.
PREVIOUS BUSINESS From April 1996 to June 1998 Mr. Doyle was Senior Vice
EXPERIENCE: President-Finance, Westinghouse Electric Corporation. From January 1994
to March 1996 he was Executive Vice President-Finance, Chief Financial
Officer, Secretary and Director of Allison Engine Company. Prior to
that, Mr. Doyle held various positions in General Dynamics Corporation
from 1986 to 1993.
OTHER MVE, Inc.
DIRECTORSHIPS:
DONALD H. PLATT EXECUTIVE VICE PRESIDENT - STRATEGIC PLANNING
AGE: 51
OFFICER SINCE: 1995
POSITION(S) HELD AT Mr. Platt has served as Executive Vice President-Strategic Planning
COMPANY: since August 1998. Prior to that time, he served as Executive Vice
President-Finance from February 1998 to August 1998, as Chief Financial
Officer from August 1995 to August 1998, and as Treasurer since August
1996. From August 1995 until February 1998, he served as Senior Vice
President. From April 1995 until August 1995, Mr. Platt served as
Senior Vice President-Corporate Development.
PREVIOUS BUSINESS From 1990 through 1993, Mr. Platt served as Dealer Business Consultant
EXPERIENCE: and, from January 1994 through April 1995, as Vice President of Dealer
Financing, for Steelecase Financial Services, Inc. a finance subsidiary
of Steelecase, Inc.
</TABLE>
13
<PAGE>
SUMMARY COMPENSATION TABLE
We have set forth below, for the periods indicated, certain summary
information concerning the cash and non-cash compensation earned by or awarded
to (i) U.S. Office Products' Chief Executive Officer, and (ii) each of the four
most highly compensated persons who were serving as executive officers of U.S.
Office Products at the end of our fiscal year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
--------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL FISCAL ANNUAL OPTIONS/ ALL OTHER
POSITION (1) YEAR SALARY (2) BONUS (3) COMPENSATION SARS(#)(4) COMPENSATION
- ---------------------- ----------- ----------- ----------- ------------- --------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas Morgan (5) 1998 $ 519,000 $ 252,500 $ 57,527 65,625 $ 6,524
Chief Executive 1997 101,000 37,500 36,500 93,750 --
Officer
Donald H. Platt (6) 1998 300,000 175,000 -- 65,625 5,047
Executive Vice 1997 200,000 100,000 -- 28,125 3,394
President-Strategic 1996 150,000 125,000 45,300 93,750 --
Planning
Mark D. Director (7) 1998 300,000 150,000 -- 65,625 3,012
Executive Vice 1997 200,000 100,000 -- 28,125 --
President- 1996 38,061 75,000 -- 37,500 --
Administration,
General Counsel and
Secretary
Jonathan J. Ledecky 1998 636,000 -- -- 281,250 16,766
(8) 1997 950,000 -- -- 187,500 10,256
1996 250,000 -- -- 187,500 --
Timothy J. Flynn (9) 1998 300,000 -- -- 103,125 18,777
1997 300,000 -- -- 28,125 18,409
1996 250,000 75,000 -- 116,250 15,256
</TABLE>
- ----------
(1) The positions of Messrs. Morgan, Platt, Ledecky and Flynn changed during and
after the end of U.S. Office Products' 1998 fiscal year. Mr. Morgan was
Chief Operating Officer of U.S. Office Products from June 1997 until
November 1997, when he became Chief Executive Officer. Mr. Platt served as
Executive Vice President--Finance, Chief Financial Officer and Treasurer
until August 12, 1998, when he became Executive Vice President--Strategic
Planning. Mr. Ledecky served as Chief Executive Officer and Chairman of the
Board until November 1997 and June 1998, respectively; after June 1998 Mr.
Ledecky was no longer an executive officer of U.S. Office Products. Mr.
Flynn served as President and Chief Operating Officer of U.S. Office
Products until June 1997; thereafter he served as Vice Chairman of the Board
until June 1998. After June 1998, Mr. Flynn was no longer an executive
officer of U.S. Office Products.
(2) The salary for Mr. Morgan for fiscal 1997 represents less than one full
year's compensation, as he commenced employment with U.S. Office Products
during fiscal 1997. The salary for Mr. Director for fiscal 1996 represents
less than one full year's compensation, as he commenced employment with U.S.
Office Products during fiscal 1996.
(3) In addition to the cash bonuses paid related to fiscal 1996, U.S. Office
Products granted options in fiscal 1997 as bonuses for fiscal 1996 to
Messrs. Flynn, Platt, and Director to purchase 28,125, 28,125, and 28,125
shares of common stock, respectively, at an exercise price of $101.33 per
share. The amount of $37,500 for Mr. Morgan in fiscal 1997 reflects an
accrual of the pro rata portion of a bonus payable to Mr. Morgan no later
than twelve months after the date of his employment.
[FOOTNOTES CONTINUED ON FOLLOWING PAGE]
14
<PAGE>
(4) Represents options granted during fiscal years 1998, 1997 and 1996 with
respect to the stated number of shares of common stock. All options were
granted under U.S. Office Products' Incentive Plan. All share amounts and
exercise prices reflect a three-for-two stock split in November 1997 and a
one-for-four reverse stock split effective June 10, 1998. As a result of the
spin-off by U.S. Office Products in June 1998 of four of its divisions, U.S.
Office Products adjusted the number and the exercise price of options
pursuant to anti-dilution provisions of the Incentive Plan to increase the
number and reduce the exercise price of the options. These adjustments are
described in note 14 on pages 65 and 66 of the accompanying Annual Report.
The amounts and exercise prices set forth in the table do not reflect these
adjustments. The amounts also do not reflect any exercises and sales of
options that may have been made in connection with the equity self-tender
U.S. Office Products completed in June 1998. The spin-offs and equity
self-tender were part of U.S. Office Products' strategic restructuring.
(5) Mr. Morgan's other annual compensation includes $36,500 and $50,027 of
moving-related expenses in fiscal 1997 and fiscal 1998, respectively. Mr.
Morgan's other compensation amount represents matching contributions under
U.S. Office Products' 401(k) Retirement Plan of $2,284 and the payment of
executive disability insurance premiums in the amount of $4,240.
(6) Mr. Platt's other annual compensation includes $45,300 in moving expenses
for fiscal 1996. Mr. Platt's other compensation amounts represent matching
contributions under U.S. Office Products' 401(k) Retirement Plan in the
amounts of $3,203 and $1,740 in fiscal 1998 and 1997, respectively, and the
payment of executive disability insurance premiums in the amounts of $1,844
and $1,654 in fiscal 1998 and 1997, respectively.
(7) Mr. Director's other compensation amount represents matching contributions
under U.S. Office Products' 401(k) Retirement plan in the amount of $3,012.
(8) In accordance with the services agreement entered into by Mr. Ledecky in
connection with U.S. Office Products' strategic restructuring, his annual
salary was reduced to $48,000 as of June 10, 1998. For more information
about Mr. Ledecky's employment arrangements with U.S. Office Products after
the Strategic Restructuring, see "Employment Arrangements" beginning on page
16. Mr. Ledecky's other compensation amounts represent matching
contributions under U.S. Office Products' 401(k) Retirement Plan in the
amounts of $1,046 and $2,170 in fiscal 1998 and 1997, respectively, and the
payment of executive disability insurance premiums in the amounts of $15,720
and $8,086 in fiscal 1998 and 1997, respectively.
(9) Mr. Flynn's other compensation amounts represent matching contributions
under U.S. Office Products' 401(k) Retirement Plan in the amounts of $1,063
and $1,001 in fiscal 1998 and 1997, respectively, the payment of executive
disability insurance premiums in the amounts of $2,754 and $2,295 in fiscal
1998 and 1997, respectively, and the payment of split-dollar life insurance
premiums in the amounts of $14,960, $15,113 and $15,256 in fiscal 1998, 1997
and 1996, respectively.
INFORMATION REGARDING OPTIONS GRANTED TO AND HELD BY THE NAMED OFFICERS
We have set forth below certain information concerning the grant and
exercise of options to purchase U.S. Office Products' common stock during the
last completed fiscal year to each of the named officers. All options were
granted under U.S. Office Products' Incentive Plan. All share amounts and
exercise prices reflect a three-for-two stock split in November 1997 and a
one-for-four reverse stock split effective June 10, 1998. As a result of the
spin-off by U.S. Office Products in June 1998 of four of its divisions, U.S.
Office Products adjusted the number and the exercise price of options pursuant
to anti-dilution provisions of the Incentive Plan to increase the number and
reduce the exercise price of the options. These adjustments are described in
note 14 on pages 65 and 66 of the accompanying Annual Report. The amounts and
exercise prices set forth below do not reflect these adjustments. The amounts
also do not reflect any exercises and sales of options that may have been made
in connection with the equity self-tender U.S. Office Products completed in June
1998. The spin-offs and equity self-tender were part of U.S. Office Products'
strategic restructuring.
15
<PAGE>
OPTIONS GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF
UNDERLYING TOTAL OPTIONS POTENTIAL REALIZABLE VALUE
OPTIONS GRANTED TO AT ASSUMED ANNUAL RATES OF
GRANTED EMPLOYEES IN EXERCISE EXPIRATION STOCK PRICE
NAME (1)(2) FISCAL YEAR PRICE (1) DATE APPRECIATION FOR OPTION TERM
- ---------------------------- ------------- ----------------- ----------- ----------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
--------------- ------------
Thomas Morgan 65,625 2.0% $ 60.68 4/28/2007 $ 2,504,337 $ 6,346,482
Donald H. Platt 65,625 2.0% 60.68 4/28/2007 2,504,337 6,346,482
Mark D. Director 65,625 2.0% 60.68 4/28/2007 2,504,337 6,346,482
Jonathan J. Ledecky 75,000 2.3% 80.00 4/28/2007 3,773,368 9,562,455
75,000 2.3% 69.32 4/28/2007 3,269,623 8,285,867
131,250 4.0% 60.68 4/28/2007 5,008,674 12,692,963
Timothy Flynn 103,125 3.2% 60.68 4/28/2007 3,935,387 9,973,043
</TABLE>
(1) The options granted are non-qualified stock options, which are exercisable
at or above the market price on the date of grant beginning one year from
the date of grant in cumulative yearly amounts of 25% of the shares and
expire ten years from the date of grant. The options become fully
exercisable upon a change in control, as defined in the Incentive Plan.
(2) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock appreciation of five percent (5%) and ten
percent (10%) from the market price at the time of grant. These assumed
rates of growth were selected by the Securities and Exchange Commission for
illustration purposes only. They are not intended to forecast possible
future appreciation of U.S. Office Products' stock price. No gain to the
optionees is possible without an increase in stock prices, which will
benefit all stockholders. A zero percent (0%) gain in stock price will
result in a zero percent (0%) benefit to optionees.
OPTION EXERCISES IN FISCAL 1998 AND VALUE OF OPTIONS AT APRIL 25, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON REALIZED OPTIONS HELD IN-THE-MONEY (3) OPTIONS
NAME EXERCISE (#)(1) ($)(2) AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(4)
- ------------------------ --------------- -------------- -------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------ -------------
Thomas Morgan 23,437 135,938 $ 447,563
Donald H. Platt 1,650 $ 83,313 51,637 133,594 $ 1,035,228 1,560,125
Mark D. Director 25,781 105,469 450,000 897,563
Jonathan J. Ledecky 168,750 525,000 2,964,063 2,993,563
Timothy Flynn 72,187 184,688 1,534,922 2,021,828
</TABLE>
- ------------------------
(1) Represents the number of shares with respect to which options were
exercised.
(2) The value of exercised options represents the difference between the
exercise price of such options and the closing market price of the U.S.
Office Products' common stock on the date of exercise.
(3) Options are "in-the-money" if the closing market price of the U.S. Office
Products' common stock on April 25, 1998 exceeded the exercise price of the
options.
(4) The value of unexercised options represents the difference between the
exercise price of such options and $67.50, which was the closing market
price (as adjusted for the one-for-four reverse stock split) of the U.S.
Office Products' common stock on April 25, 1998.
EMPLOYMENT ARRANGEMENTS
Each of the named officers is party to an employment agreement with U.S.
Office Products.
16
<PAGE>
Pursuant to their employment agreements, Messrs. Morgan, Flynn, Platt
and Director are paid an annual base salary that is reviewed and can be
increased by the Compensation Committee of the Board of Directors every year.
The base salaries of Messrs. Morgan, Flynn, Platt and Director for the last
three fiscal years are set forth in the "Summary Compensation Table" on page 14.
As of July 31, 1998, the base salary of Messrs. Morgan, Flynn, Platt and
Director were $600,000, $300,000, $350,000 and $350,000, respectively.
Messrs. Flynn, Platt and Director are eligible to receive a year-end
bonus of up to 100% of their base salary. These bonuses are paid out of a bonus
pool determined by the Compensation Committee. The Compensation Committee
determines the size of an officer's bonus by measuring the officer's performance
and U.S. Office Products' overall performance against certain performance
criteria, which have generally included the following: (i) the officer's overall
performance and contribution to U.S. Office Products' growth and profitability;
(ii) U.S. Office Products' overall profit; (iii) U.S. Office Products' internal
revenue growth; and (iv) U.S. Office Products' revenue growth due to
acquisitions. Messrs. Flynn, Platt and Director's employment agreements are each
for an initial term of four years commencing on February 23, 1995, April 17,
1995 and December 6, 1995 respectively, and are automatically renewable at the
end of the second year and every year afterwards for an additional year unless
terminated or not renewed by U.S. Office Products or the employee.
If U.S. Office Products were to terminate them without cause, Messrs.
Flynn, Platt and Director would be entitled to receive their current salary for
whatever period is remaining under the term of their employment agreement. If a
change in control of U.S. Office Products were to occur (involving a change in
the ownership of a majority of the voting stock of U.S. Office Products; a
change in the majority of the Board of Directors without approval of the current
Board; a merger, consolidation, recapitalization, reorganization or reverse
stock split in which the stockholders of U.S. Office Products prior to such
transaction do not continue to own at least 75% of the stock of U.S. Office
Products following such transaction; or the approval by the stockholders of a
plan of complete liquidation or disposition of more than 50% of U.S. Office
Products' assets), Messrs. Flynn, Platt and Director would be able to elect to
terminate their employment and receive their base salary at the rate then in
effect for the remaining term of the agreement or two years, whichever is
greater.
Each employment agreement contains a covenant not to compete with U.S.
Office Products for a period equal to the longer of: (i) two years immediately
following the termination of employment; or (ii) in the case of a termination
without cause pursuant to which such employee is entitled to continue to receive
his base salary, for so long as U.S. Office Products continues to pay such
salary. Applicable law may reduce the scope of the covenant not to compete. If
applicable law requires U.S. Office Products to reduce the term of any such
covenant, U.S. Office Products will be required to pay the employee only for the
reduced period of time that the employee is prohibited from competing.
Mr. Morgan is entitled to a bonus on the same terms as Messrs. Flynn,
Platt and Director, except that his employment agreement (as amended in November
1997) guaranteed the payment of an incentive bonus in an amount equal to no less
than $150,000 per year through the end of U.S. Office Products' 1999 fiscal year
and in an amount no less than $75,000 for the 2000 fiscal year. Mr. Morgan's
employment agreement is for a term ending October 31, 2000 and is automatically
renewable for additional, successive one-year terms, unless U.S. Office Products
notifies Mr. Morgan no less than six months before the end of the term that the
agreement will not be renewed. In the event of a termination of employment by
U.S. Office Products without cause, Mr. Morgan is entitled to receive his base
salary for the longer of one year from the date of termination or whatever
period is remaining under the employment agreement. Pursuant to his employment
agreement, Mr. Morgan is subject to the same covenant not to compete as is
included in the other employment agreements.
In connection with U.S. Office Products' strategic restructuring that
was completed on June 10, 1998, Jonathan J. Ledecky, the founder, Chairman of
the Board and Chief Executive Officer of U.S. Office
17
<PAGE>
Products, resigned as Chairman of U.S. Office Products. Mr. Ledecky and U.S.
Office Products entered into a Services Agreement in connection with its
strategic restructuring, which replaces Mr. Ledecky's prior employment agreement
with U.S. Office Products. As a result of this agreement, Mr. Ledecky remains
employed with U.S. Office Products, but his role with U.S. Office Products is
substantially reduced. Under the agreement, Mr. Ledecky reports to the U.S.
Office Products Board of Directors and provides high-level acquisition
negotiation services and business strategic advice. Mr. Ledecky receives an
annual salary of $48,000 through June 30, 2001. Mr. Ledecky also retains his
existing U.S. Office Products' options; the number of shares subject to these
options, and their exercise price, have been adjusted to take account of the
transactions under the strategic restructuring. As a continuing employee, Mr.
Ledecky is entitled to retain his options despite his reduction in services to
U.S. Office Products. U.S. Office Products 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 U.S. Office Products, or (iii)
his violation of the noncompetition agreement as it relates to U.S. Office
Products. If Mr. Ledecky resigns or is terminated, he will cease to vest in his
U.S. Office Products options and will have 90 days to exercise any vested
options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL. The Compensation Committee of U.S. Office Products' Board of
Directors (the "Committee") is responsible for approving and reviewing with the
Board of Directors the compensation of U.S. Office Products' executive officers
and certain other management personnel. The Committee administers U.S. Office
Products' stock benefit plans, including the Incentive Plan and the Executive
Deferred Compensation Plan. The Committee also administers the Bonus Plan.
Messrs. Finn and Doyle joined the Board and the Compensation Committee after the
close of U.S. Office Products' 1998 fiscal year and therefore did not
participate in the preparation of this report. Mr. Lefever has signed this
report because he served on the Compensation Committee during U.S. Office
Products' 1998 fiscal year.
The Committee believes that compensation must be competitive, as well as
directly and materially linked to U.S. Office Products' performance. In
administering U.S. Office Products' compensation program, the Committee's
objectives include the following: attracting and retaining executive talent,
motivating executives to maximize operating performance, measuring performance
on both an individual and a Company-wide basis, reflecting U.S. Office Products'
success in meeting growth and profitability targets, and linking executive and
stockholder interests through the grant of stock options and other equity-based
compensation.
The key components of U.S. Office Products' executive compensation
program have historically consisted of salary, annual incentive bonuses and
stock options. The long-term compensation of U.S. Office Products' executive
officers has consisted primarily of stock options. The short-term compensation
has consisted principally of base salary and a cash bonus. The Committee's
policy with respect to each of these elements is discussed below.
Since U.S. Office Products' inception, the Committee has striven to
balance the cash compensation needed to attract, motivate and retain executive
talent with long-term incentives through the grant of stock options with
multi-year vesting schedules. In the Committee's judgment, this approach tends
to align the interests of management most closely with those of U.S. Office
Products' stockholders.
BASE SALARY. The Committee significantly adjusted the base salary
levels of U.S. Office Products' executives for the 1998 fiscal year. These
adjustments were based upon numerous factors, including the findings and
recommendations of an independent compensation consultant, the significant
growth and then-current size of U.S. Office Products and the need to provide
base salary levels comparable to those being offered by U.S. Office Products'
major competitors (including the peer group reflected in the Stock Performance
Graph on page 21 of this booklet). In setting base salaries for new executive
officers, the Committee took into account the background and qualifications of
the new executives, the base salary levels of U.S. Office Products' other
executive officers and the salaries that U.S. Office Products'
18
<PAGE>
competitors were paying to executives employed in comparable positions. The
Committee also increased the base salary levels of certain executive officers
during the 1998 fiscal year. The Committee made these additional adjustments
taking into account the changing and expanded responsibilities of certain of the
executive officers as well as its continued desire to reward certain executives
for their significant contributions to U.S. Office Products' continued growth
and to respond to competitive pay practices.
ANNUAL INCENTIVE BONUS. At the end of each fiscal year, the Committee
decides whether to award incentive bonuses to executive officers, based on U.S.
Office Products' success in achieving its growth and profitability targets and
recommendations made by U.S. Office Products' Chief Executive Officer. In making
decisions about incentive bonuses for other management personnel, the Committee
considers the recommendations of the executive officers. Bonuses are determined
by measuring an officer's performance and U.S. Office Products' overall
performance against certain performance criteria, which have generally included
the following: (i) the officer's overall performance and contribution to U.S.
Office Products' growth and profitability; (ii) U.S. Office Products' overall
profit; (iii) U.S. Office Products' internal revenue growth; and (iv) U.S.
Office Products' revenue growth due to acquisitions.
LONG-TERM INCENTIVE PLAN. Under the Incentive Plan, the Committee
(acting through a subcommittee of independent, non-employee directors) can award
(i) stock options, including incentive stock options, non-qualified stock
options or both, which options may contain automatic reload features; (ii) stock
appreciation rights ("SARs"), whether in conjunction with the grant of stock
options or independent of such grants, or SARs that are only exercisable in the
event of a change in control of U.S. Office Products or upon other events; (iii)
performance awards, consisting of a right to receive cash in an amount
determined with reference to the value of the Common Stock, a fixed dollar
amount payable in cash, or a combination of both; (iv) dividend equivalents,
consisting of a right to receive cash, other awards, or other property equal in
value to dividends paid with respect to a specified number of shares of Common
Stock, or other periodic payments; or (v) other awards not otherwise provided
for, the value of which are based in whole or in part upon the value of the
Common Stock. Thus far, the Committee has granted only non-qualified stock
options under the Incentive Plan.
The Committee believes that aligning management's interests with those
of U.S. Office Products' stockholders is an important element of U.S. Office
Products' approach to executive compensation. Stock options align the interests
of employees and stockholders by providing value to the executive through stock
price appreciation only. The stock options granted during the 1998 fiscal year
have ten-year terms and are exercisable at the fair market value of U.S. Office
Products' stock on the date of grant beginning one year from the date of grant
in cumulative yearly amounts of 25% of the shares granted. The Committee granted
options to purchase 581,250 shares of Common Stock to executive officers for the
1998 fiscal year.
Stock options have been awarded periodically at the discretion of the
Compensation Committee (acting through a subcommittee of independent,
non-employee directors), based upon recommendations of U.S. Office Products'
Chief Executive Officer. The size of such grants, in general, have been
evaluated by regularly assessing competitive market practices, the recipient's
position and level of responsibility within U.S. Office Products and U.S. Office
Products' overall performance. Grants have also taken into account the
differential between the levels of cash compensation paid by U.S. Office
Products as compared to those of U.S. Office Products' competitors.
The Committee intends and expects to grant options under the Incentive
Plan in accordance with Section 162(m) of the Internal Revenue Code and
therefore expects that U.S. Office Products will receive a deduction with
respect to the exercise of the stock options.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Compensation Committee
considered several factors in establishing the CEO's compensation package,
including competitive pay practices, the CEO's level of stock ownership and
options, his contributions toward achievement of strategic goals and U.S. Office
Products' overall financial and operating success and motivational factors. From
those principles,
19
<PAGE>
the Committee developed compensation programs for the two individuals who served
as Chief Executive Officers during the fiscal year. In the early part of the
1998 fiscal year, the Committee made substantial option grants to Jonathan J.
Ledecky, then serving as Chief Executive Officer. In November 1997, Mr. Ledecky
ceased serving as Chief Executive Officer of U.S. Office Products, while
remaining an employee. At that time, his salary level declined from $950,000 per
year to $250,000 per year. Given the incentives from the beginning of the year
and Mr. Ledecky's less direct role going forward, the Committee did not provide
additional incentives or other bonuses during the year. In November 1997, Thomas
Morgan was promoted from his position as Chief Operating Officer (which he had
assumed in June 1997) to be Chief Executive Officer. At that time, the Committee
increased Mr. Morgan's base salary from $450,000 to $600,000. In addition the
Committee continued in effect a guaranteed bonus of $150,000 per year (over and
above his base salary). Mr. Morgan had also received a significant option grant
near the beginning of the fiscal year, and so the Committee did not provide
additional option grants during the year. However, the Committee concluded that
he should receive a bonus of $102,500 in addition to the guaranteed amount.
Allon H. Lefever
Edward J. Mathias
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an investment agreement, on June 10, 1998 U.S. Office
Products issued to CDR-PC Acquisition L.L.C. (an affiliate of an investment fund
managed by Clayton, Dubilier & Rice, Inc.) common stock representing 24.9% of
the outstanding U.S. Office Products' common stock after giving effect to the
issuance of such shares. In the same transaction, U.S. Office Products also
issued warrants to purchase additional shares of common stock. CDR-PC
Acquisition paid $270.0 million for the common stock and warrants. As a
condition of the investment agreement, U.S. Office Products entered into an
indemnification agreement and a registration rights agreement. The
indemnification agreement requires U.S. Office Products to indemnify CDR-PC
Acquisition and related parties from certain claims and liabilities arising
under the securities laws, or otherwise, relating to the investment by CDR-PC
Acquisition in U.S. Office Products, U.S. Office Products' strategic
restructuring, and the provision of advisory services to U.S. Office Products.
The registration rights agreement requires U.S. Office Products to register
shares of U.S. Office Products' common stock held by CDR-PC Acquisition under
certain circumstances.
In accordance with the investment agreement, Messrs. Conway, Finn, and
Pieper, principals and directors of Clayton, Dubilier & Rice, Inc., were
appointed to the Board of Directors of U.S. Office Products. Additionally, in
connection with the investment agreement, U.S. Office Products entered into a
consulting agreement with Clayton, Dubilier & Rice, Inc. Under the consulting
agreement, Clayton, Dubilier & Rice receives an annual fee of $500,000 for
providing management and financial consulting services to U.S. Office Products.
Messrs. Conway, Finn, and Pieper have waived their right to receive Directors'
fees and to participate in the 1996 Non-employee Director Stock Plan. See "The
Board of Directors--Compensation of Directors" on page 11.
U.S. Office Products leases office, warehouse and retail store space
from two partnerships, a principal partner of which is Mr. Kuyers, a director of
U.S. Office Products. Based on our experience in such transactions, we believe
that such leases are on terms not less favorable than would be obtainable in an
arm's-length transaction from an unaffiliated third party. The amounts paid to
these partnerships by The H. H. West Company, a wholly-owned subsidiary of U.S.
Office Products, for fiscal year 1998 was approximately $468,130, and, pursuant
to the terms of the lease agreement, will increase by five percent (5%) for
fiscal 1999.
20
<PAGE>
OTHER INFORMATION
STOCK PERFORMANCE
We set forth below a comparison of changes in the price of U.S. Office
Products' common stock with changes in the cumulative total returns of the
NASDAQ Market Index and the Industry Comparables Index. The Industry Comparables
Index is an index derived from the trading price of the following office
products companies: Boise Cascade Office Products Corp., BT Office Products
International, Inc., Corporate Express Inc., Office Depot Inc., and Staples Inc.
The graph plots the growth in value of an initial $100 investment over the
indicated time period, assuming the reinvestment of dividends. The graph covers
a period from February 15, 1995, the date that U.S. Office Products' common
stock began trading on the Nasdaq National Stock Market following its initial
public offering, through the end of U.S. Office Products' 1998 fiscal year.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
U.S. OFFICE PRODUCTS PEER GROUP INDEX NASDAQ MARKET INDEX
<S> <C> <C> <C>
2/15/95 $100.00 $100.00 $100.00
4/30/95 $120.24 $94.06 $108.61
4/30/96 $342.86 $145.74 $151.80
4/26/97 $215.48 $93.02 $161.60
4/25/98 $240.95 $168.72 $240.01
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on our records and other information, we believe that our
directors and officers reported all transactions in U.S. Office Products' common
stock and options on a timely basis during the fiscal year ended April 25, 1998,
except as follows: 1) Michael J. Barnell did not file an October 1997 Form 4 to
report several sales by his wife until May 26, 1998; and 2) a Form 3 submitted
by Michael Dooling (formerly a director of U.S. Office Products) was amended in
May 1998 to reflect options that were inadvertently omitted from the original
Form 3.
21
<PAGE>
PROPOSALS FOR THE 1999 ANNUAL MEETING
If you want to include a proposal in the proxy statement for U.S. Office
Products' 1999 Annual Meeting, send the proposal to U. S. Office Products
Company, Attn: Mark D. Director, Executive Vice President-Administration,
General Counsel and Secretary, at 1025 Thomas Jefferson Street, N.W., Suite 600
East, Washington, D.C. 20007. Proposals must be received on or before April 16,
1999 to be included in next year's proxy statement. Please note that proposals
must comply with all of the requirements of Rule 14a-8 under the Securities
Exchange Act of 1934, as well as the requirements of U.S. Office Products'
certificate of incorporation and bylaws. U.S. Office Products will be able to
use proxies given to it for next year's meeting to vote for or against any such
proposal at U.S. Office Products' discretion unless the proposal is submitted to
U.S. Office Products on or before June 30, 1999.
22
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
U.S. OFFICE PRODUCTS COMPANY
The undersigned hereby appoints Thomas Morgan and Mark D. Director as attorneys
and proxies, each with power to act without the other and with power of
substitution, and hereby authorizes them to represent and vote, as designated on
the other side, all the shares of common stock of U.S. Office Products Company
standing in the name of the undersigned with all powers the undersigned would
possess if present at the 1998 Annual Meeting of U.S. Office Products'
Stockholders to be held September 16, 1998 and at any and all continuations and
adjournments thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
<PAGE>
THIS PROXY, WHEN PROPERLY
EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE
UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY Please mark your
WILL BE VOTED FOR PROPOSALS 1 votes as indicated
AND 2. in this example. [X]
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY
(EXCEPT AS MARKED TO THE CONTRARY) / / TO VOTE FOR ALL NOMINEES LISTED
BELOW / /
</TABLE>
NOMINEES: Kevin J. Conway, Frank P. Doyle, Brian D. Finn, L. Dennis Kozlowski,
Milton H. Kuyers, Allon H. Lefever, Edward J. Mathias, Thomas Morgan, and
Charles P. Pieper
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
each such nominee's name in the space provided below)
- --------------------------------------------------------------------------------
2. Ratification of PricewaterhouseCoopers LLP as the independent accountants of
U.S. Office Products Company.
FOR / / AGAINST / / ABSTAIN / /
<TABLE>
<S> <C>
Please sign exactly as name appears hereon. When shares are
held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, or guardian,
please give full title as such. If a corporation, please
give full corporate name and have a duly authorized officer
sign, stating title. If a partnership, please sign in
partnership name by authorized person.
Dated ----------------------------------, 1998
-----------------------------------------------------------
(Signature)
-----------------------------------------------------------
Signature if held jointly
Please mark this box if you plan to attend the Annual
Meeting / /
PLEASE VOTE, SIGN, DATE, AND PROMPTLY RETURN THE PROXY CARD
USING THE ENCLOSED ENVELOPE.
</TABLE>
