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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 6, 2000
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U.S. OFFICE PRODUCTS COMPANY
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-25372 52-1906050
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(STATE OR OTHER JURISDICTION (COMMISSION (I.R.S. EMPLOYER
OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
1025 THOMAS JEFFERSON ST., N.W., SUITE 600E, WASHINGTON, D.C. 20007
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (202) 339-6700
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NOT APPLICABLE
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(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
SALE OF BLUE STAR BUSINESS SUPPLIES
On October 6, 2000, US Office Products Company (the "Company") closed
the sale of its Blue Star Business Supplies unit to Boise Cascade Office
Products for cash proceeds of approximately $114 million ($213 million
Australian dollars). The operations sold included Blue Star's office products
distribution and education supplies businesses in Australia and New Zealand.
Revenues from these operations were approximately $332 million in fiscal
year 2000, which ended April 29, 2000. Approximately $5 million of the
proceeds is being held in escrow for up to six months to secure potential
claims, if any, under the terms of the sale agreements. As part of the
transaction, the Company also sold its remaining 40% equity interest in the
technology businesses formerly owned by the Blue Star Group ("Blue Star
Business Solutions") to companies controlled by Eric Watson, the former CEO
of the Blue Star Group. In consideration for the Company's interest in the
technology business, Mr. Watson has agreed to relinquish potential claims
against the Company that could have delayed or blocked the Blue Star Business
Supplies transaction and agreed to limitations on his contractual rights to
participate in any future divestitures by the Blue Star Group. The Company
expects to record a loss of approximately $151 million related to the
transaction. The loss includes (1) the realization of approximately $70
million in currency translation losses related to the significant declines in
the New Zealand and Australian dollars from the dates the Blue Star Business
Supplies businesses were acquired to April 24, 1999 (effective April 25,
1999, the Company changed its accounting treatment on its intercompany loans
with the Blue Star Group); (2) a loss of approximately $62 million on the
net assets of Blue Star Business Supplies, substantially all of which is
attributed to goodwill; and (3) a loss of approximately $19 million on the
Company's remaining interest in Blue Star Business Solutions. (For additional
information, see the Pro Forma Financial Statements in Exhibit 99.1,
including the notes thereto.)
ITEM 5. OTHER EVENTS.
FOURTH AMENDMENT TO THE BANK CREDIT AGREEMENT
The Company and its bank lenders have amended the Company's current senior
secured bank credit agreement. This fourth amendment is dated as of September
29, 2000. The amendment provides the Company with additional liquidity for its
core North American operations and its other businesses and changes the
financial covenants and certain other terms of the credit agreement. The Company
originally entered into the credit agreement on June 9, 1998. The Company and
its banks previously amended the credit agreement on August 21, 1998, April 15,
1999 and April 28, 2000.
The amendment increases the amount of permitted asset disposition proceeds
that the Company may retain for investment in the business by $35 million. As a
result of the credit facility amendment and taking into account amounts it was
permitted to retain under the agreement prior to this amendment, the Company has
retained approximately $45 million of the proceeds from the sale of Blue Star
Business Supplies. This retained amount was applied to reduce the outstanding
balance under the Company's revolving credit facility and will be used for
reinvestment in the Company's business. Approximately $64 million of the sale
proceeds was used to reduce outstanding term loans under the senior bank credit
facility.
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The remaining portion of the sale proceeds (approximately $5 million) is
being held in escrow for six months under the terms of the sale agreements. When
released from escrow, these funds (less any portion paid to satisfy claims) also
will be used to reduce the outstanding amount of the Company's senior term
loans.
The Company's revised bank agreement amends the financial covenants through
the end of April 2001. As part of this amendment, the Company is required to
reduce the amount of its outstanding term loans through the sale of additional
assets by $50 million before December 8, 2000 and by an additional $150 million
before January 29, 2001. These amounts are in addition to the loan repayments
made from the proceeds of the Blue Star Business Supplies sale.
Under the third amendment, if the Company does not reduce the aggregate
loan amounts outstanding under the credit agreement by at least $100 million by
October 31, 2000, the applicable interest rate margins will increase by an
additional 0.5%. The third amendment provided that such additional interest
could be accrued and would not be payable until the end of the fiscal year (or
the date on which the bank debt has been reduced by $100 million, whichever is
earlier). Under the fourth amendment, this additional interest will no longer be
subject to a right of accrual and will be payable currently
The fourth amendment also adds a new covenant regarding accounts payable.
The Company and its domestic subsidiaries, as of the last day of any fiscal
month, cannot have aggregate accounts payable of less than $70 million. This
minimum will be proportionately decreased if there is a disposition of a
domestic subsidiary, product line, or business unit. At July 29, 2000, these
payables were approximately $113 million.
ALLEGED DEFAULT UNDER 2001 CONVERTIBLE NOTES
The Company has outstanding approximately $12.8 million in principal
amount of its 5 1/2% Convertible Subordinated Notes Due 2001 (the "Notes").
These Notes mature on February 1, 2001. On October 11, 2000, two investment
funds purporting to be the beneficial owners of approximately $7.9 million in
principal amount of the Notes delivered a notice alleging that the Company
was in default of a covenant in the indenture governing the Notes. The funds
assert that the Company was required to give notice to noteholders of a right
to have the Notes repurchased by the Company at their face amount, plus
accrued interest, as a result of the transfer of the listing of the Company's
common stock to the NASD over-the-counter bulletin board.
The Company has advised these funds that the notice is defective, and
that, in any event, it does not believe the transfer of the common stock
listing triggered any repurchase right under the terms of the indenture.
Therefore, in the Company's view, there is no default under the indenture. The
Company intends to vigorously contest any attempt by these funds or any other
holders of the Notes to exercise any remedies based on the purported default.
The Company has also rejected a proposal by the funds that the Company
repurchase the Notes at a 10% discount from their face amount. The Company
determined that while it presently has funds available for such a repurchase,
the use of available funds to repurchase the Notes at this time -- even at the
offered discount -- would not serve the best interests of the Company's
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business and all of its stakeholders. The Company intends to repay the Notes
upon maturity in February 2001.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
This Current Report on Form 8-K includes "forward-looking statements,"
within the meaning of the federal securities laws, that involve uncertainties
and risks. These include statements regarding events or developments that the
Company expects or anticipates will occur in the future, such as statements
about the timing or successfulness of efforts to sell non-core businesses and
reduce debt or the Company's ability to remain in compliance with the amended
financial covenants in the credit agreement.
A number of risks and uncertainties could cause actual results, events, and
developments to differ from expectations. These include: (1) foreign currency
exchange rates and other economic conditions may continue to fluctuate or
decline, which could adversely affect the Company's business or results; (2) the
Company's operating strategies may not produce anticipated revenue growth,
margin improvement, or cost savings, or may produce such benefits less quickly
than expected; (3) the Company may not succeed in selling assets or operations
or engaging in other transactions with respect to its businesses at reasonable
prices or within the timeframes specified in the credit agreement; (4) if the
matter were litigated, the Company cannot predict whether a court would uphold
the Company's contention that there is no default under the Notes; and (5) the
Company's ability to repay the Notes upon maturity will depend on whether it is
in compliance with its bank covenants at that time.
Please refer to the Company's Quarterly Report on Form 10-Q for the quarter
ended July 29, 2000, as well as the Company's 2000 Annual Report on Form 10-K,
as amended, and its other filings with the SEC for a complete discussion of
these and other important factors that could cause actual results to differ
materially from those projected by these forward-looking statements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) PRO FORMA FINANCIAL INFORMATION.
See Exhibit 99.1 for pro forma financial information reflecting the
disposition of Blue Star Business Supplies.
(c) EXHIBITS.
2.1 Master Sale and Purchase Agreement by and between US Office Products
Company and Boise Cascade Office Products Corporation, dated September
30, 2000.
2.2 Agreement for Sale and Purchase of Business Assets by and between Blue
Star Group Pty Limited, Blue Star Corporate Pty Limited, Bookland Pty
Limited, Australian Toner Cartridge Co Pty Limited and National Office
Products Limited, dated September 30, 2000.
2.3 Agreement for Sale and Purchase of Shares in Filing Efficiency Pty
Limited by and between Blue Star Group Pty Limited and National Office
Products Limited, dated September 30, 2000.
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2.4 Agreement for Sale and Purchase of Shares in New Zealand Office
Products Limited and Croxley Stationery Limited by and between Blue
Star Group Limited and Boise Cascade Office Products NZ Limited, dated
September 30, 2000.
99.1 Pro Forma Financial Information
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
US OFFICE PRODUCTS COMPANY
OCTOBER 20, 2000 By: /s/ Warren D. Feldberg
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Date Warren D. Feldberg
President and Chief Executive Officer
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INDEX TO EXHIBITS
NUMBER DESCRIPTION
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2.1 Master Sale and Purchase Agreement by and between US Office Products
Company and Boise Cascade Office Products Corporation, dated September
30, 2000.
2.2 Agreement for Sale and Purchase of Business Assets by and between Blue
Star Group Pty Limited, Blue Star Corporate Pty Limited, Bookland Pty
Limited, Australian Toner Cartridge Co Pty Limited and National Office
Products Limited, dated September 30, 2000.
2.3 Agreement for Sale and Purchase of Shares in Filing Efficiency Pty
Limited by and between Blue Star Group Pty Limited and National Office
Products Limited, dated September 30, 2000.
2.4 Agreement for Sale and Purchase of Shares in New Zealand Office
Products Limited and Croxley Stationery Limited by and between Blue
Star Group Limited and Boise Cascade Office Products NZ Limited, dated
September 30, 2000.
99.1 Pro Forma Financial Information
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