<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
BT OFFICE PRODUCTS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of filing fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(a)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
10,104,770 shares of Common Stock
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
$13.75
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
$27,788.00 ( 1/50 of 1% of $138,940,580)
------------------------------------------------------------------------
[X] 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:
------------------------------------------------------------------------
<PAGE> 2
BT OFFICE PRODUCTS INTERNATIONAL, INC.
SIX PARKWAY NORTH
DEERFIELD, ILLINOIS 60015
September 2, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders (the
"Special Meeting") of BT Office Products International, Inc. (the "Company"),
which will be held on Tuesday, September 29, 1998 at 11:00 a.m. at the offices
of Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, 34th Floor, New
York, New York 10004.
At the Special Meeting, you will be asked to approve and adopt an Agreement
and Plan of Merger dated as of June 2, 1998 (the "Merger Agreement") by and
among the Company, Buhrmann NV (formerly NV Koninklijke KNP BT), a Netherlands
corporation ("Parent"), Buhrmann International B.V. (formerly KNP BT
International B.V.), a Netherlands corporation and wholly-owned subsidiary of
Parent ("International"), and BT OPI Acquisition Corp., a Delaware corporation
wholly-owned by Parent and International (the "Purchaser"), which provides for
the merger (the "Merger") of the Purchaser with and into the Company, with the
Company as the surviving corporation. Pursuant to the Merger Agreement, each
share of common stock, par value $.01 per share, of the Company ("Common Stock")
which is issued and outstanding immediately prior to the effective time of the
Merger (other than shares of Common Stock as to which dissenters' rights of
appraisal have been duly asserted and perfected under Delaware law and other
than shares of Common Stock held by Parent, International or the Company or any
wholly-owned subsidiary of the Company) will be converted into the right to
receive $13.75 in cash, without interest.
The Board of Directors of the Company, upon the recommendation of an
Independent Committee of the Board and after careful consideration of the terms
of the proposed Merger, has unanimously approved the Merger and recommends that
you vote FOR the Merger. The accompanying Proxy Statement provides a description
of the proposal to be presented at the Special Meeting and information
concerning the Merger. Please give this information your careful attention.
Your vote is important regardless of the number of shares you own. Please
be sure you are represented at the Special Meeting, whether or not you plan to
attend, by signing, dating and mailing the enclosed proxy promptly. A
postage-paid return envelope is enclosed for your convenience.
If you have any questions prior to the Special Meeting, or need further
assistance, please call Thomas F. Cullen, Vice President, General Counsel and
Secretary of the Company at (847) 444-4000.
Sincerely yours,
/s/ Frans H.J. Koffrie
FRANS H.J. KOFFRIE
Chairman of the Board
<PAGE> 3
BT OFFICE PRODUCTS INTERNATIONAL, INC.
SIX PARKWAY NORTH
DEERFIELD, IL 60015
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 29, 1998
To the Stockholders:
NOTICE IS HEREBY GIVEN that a special meeting (together with any
adjournment(s) or postponement(s) thereof, the "Special Meeting") of the
Stockholders (the "Stockholders") of BT Office Products International, Inc., a
Delaware corporation (the "Company"), will be held on Tuesday, September 29,
1998 at 11:00 a.m. at the offices of Winthrop, Stimson, Putnam & Roberts, One
Battery Park Plaza, 34th Floor, New York, New York 10004.
The Special Meeting is being held for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated as of June 2, 1998 (the "Merger
Agreement") by and among the Company, Buhrmann NV (formerly NV Koninklijke
KNP BT), a Netherlands corporation ("Parent"), Buhrmann International B.V.
(formerly KNP BT International B.V.), a Netherlands corporation and
wholly-owned subsidiary of Parent ("International"), and BT OPI Acquisition
Corp., a Delaware corporation wholly-owned by Parent and International (the
"Purchaser"), which provides for the merger (the "Merger") of the Purchaser
with and into the Company, with the Company as the surviving corporation.
Pursuant to the Merger Agreement, each share of common stock, par value
$.01 per share, of the Company ("Common Stock") which is outstanding
immediately prior to the effective time of the Merger (other than shares of
Common Stock as to which dissenters' rights of appraisal have been duly
asserted and perfected under Delaware law and other than shares of Common
Stock held by Parent, International or the Company or any wholly-owned
subsidiary of the Company) will be converted into the right to receive
$13.75 in cash, without interest.
2. To transact such other business as may properly come before the
Special Meeting.
THE BOARD OF DIRECTORS OF THE COMPANY, BASED UPON THE UNANIMOUS
RECOMMENDATION OF AN INDEPENDENT COMMITTEE OF DISINTERESTED MEMBERS OF THE
BOARD, HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT STOCKHOLDERS VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The accompanying Proxy Statement sets forth in more detail information
concerning the Merger Agreement, the Merger and the actions to be taken in
connection with the Merger.
The Board of Directors has fixed the close of business on September 3, 1998
as the record date for determining the Stockholders entitled to notice of and to
vote at the Special Meeting or any adjournment or postponement thereof. Only
Stockholders of record at the close of business on September 3, 1998 will be
entitled to vote.
Stockholders of the Company who do not vote in favor of approval and
adoption of the Merger Agreement and who otherwise comply with the provisions of
Section 262 of the Delaware General Corporation Law will have the right if the
Merger is consummated to dissent and to seek appraisal of the fair market value
of their shares. See "The Merger -- Appraisal Rights" in the accompanying Proxy
Statement, and Annex III thereto, for a description of the procedures required
to be followed in order to exercise properly dissenters' rights.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Thomas F. Cullen
THOMAS F. CULLEN
Secretary
Deerfield, Illinois
September 2, 1998
It is important that your shares be represented at the Special Meeting
regardless of the number of shares you hold. Please complete, date, sign and
return the enclosed Proxy in the accompanying envelope even if you intend to be
present at the Special Meeting. Returning the Proxy will not limit your right to
vote in person or to attend the Special Meeting, but will ensure your
representation if you cannot attend. If you hold shares in more than one name,
or if your stock is registered in more than one way, you may receive more than
one copy of the proxy material. If so, please sign and return each of the proxy
cards that you receive so that all of your shares may be voted.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
INTRODUCTION................................................ 1
AVAILABLE INFORMATION....................................... 2
SUMMARY..................................................... 3
SELECTED FINANCIAL DATA..................................... 8
THE SPECIAL MEETING......................................... 10
General................................................... 10
Matters to be Considered at the Special Meeting........... 10
Required Votes............................................ 10
Voting and Revocation of Proxies.......................... 10
Record Date; Stock Entitled to Vote; Quorum............... 10
Appraisal Rights.......................................... 11
Solicitation of Proxies................................... 11
SPECIAL FACTORS............................................. 12
Background of the Merger.................................. 12
Determinations of the Independent Committee and the Board;
Fairness of the Merger................................. 14
Opinion of Financial Advisor.............................. 16
Position of Parent, International and Purchaser........... 21
Purpose and Structure of the Merger....................... 21
Certain Consequences of the Merger........................ 21
Plans for the Company After the Merger.................... 22
Accounting Treatment...................................... 22
Federal Income Tax Consequences........................... 23
Interests of Certain Persons in the Merger................ 24
Security Ownership of Certain Beneficial Owners and
Management............................................. 24
FINANCING THE MERGER........................................ 25
FEES AND EXPENSES........................................... 26
REGULATORY APPROVALS........................................ 26
APPRAISAL RIGHTS............................................ 26
THE MERGER AGREEMENT........................................ 28
The Merger................................................ 29
Representations and Warranties............................ 31
Certain Covenants......................................... 31
Conditions to the Merger.................................. 33
Termination of the Merger Agreement....................... 34
Fees & Expenses........................................... 35
Amendment; Waiver......................................... 35
CERTAIN INFORMATION CONCERNING THE COMPANY.................. 35
Directors................................................. 35
Executive Officers........................................ 36
CERTAIN INFORMATION CONCERNING PARENT, INTERNATIONAL AND
THE PURCHASER............................................. 37
Parent.................................................... 37
International............................................. 38
Purchaser................................................. 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 38
Relationship with Parent.................................. 38
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Credit Facilities......................................... 39
Registration Rights....................................... 40
Tax Matters............................................... 40
Intellectual Property..................................... 40
Services.................................................. 40
Guaranties................................................ 41
Sales to and Purchases from Affiliates.................... 41
Leases.................................................... 41
Article 403 Statement..................................... 42
Business Acquisition...................................... 42
STOCKHOLDER LITIGATION...................................... 42
MARKET PRICE AND DIVIDEND INFORMATION....................... 43
INDEPENDENT AUDITORS........................................ 43
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 44
Annex I Agreement and Plan of Merger....................... I-1
Annex II Opinion of BT Wolfensohn........................... II-1
Annex III Section 262 of the Delaware General Corporation
Law............................................... III-1
Annex IV Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1997............................ IV-1
Annex V Quarterly Report on Form 10-Q for the period ended
June 30, 1998....................................... V-1
</TABLE>
ii
<PAGE> 6
BT OFFICE PRODUCTS INTERNATIONAL, INC.
SIX PARKWAY NORTH
DEERFIELD, ILLINOIS 60015
PROXY STATEMENT FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 29, 1998
INTRODUCTION
This Proxy Statement (the "Proxy Statement") is being furnished on behalf
of BT Office Products International, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use at a special meeting (together with any
adjournment(s) or postponement(s) thereof, the "Special Meeting") of the
Stockholders of the Company (the "Stockholders") to be held on Tuesday,
September 29, 1998 at 11:00 a.m. at the offices of Winthrop, Stimson, Putnam &
Roberts, One Battery Park Plaza, 34th Floor, New York, New York 10004. This
Proxy Statement and the Proxy are first being mailed to Stockholders on or about
September 3, 1998.
The Board of Directors of the Company (the "Board") is soliciting the
proxies of the Stockholders who were shown on the Company's records as holders
of issued and outstanding shares of common stock, par value $.01 per share
("Common Stock"), of the Company as of the close of business on September 3,
1998 (the "Record Date") to consider and vote upon a proposal to adopt and
approve an Agreement and Plan of Merger dated as of June 2, 1998 (the "Merger
Agreement") by and among the Company, Buhrmann NV (formerly NV Koninklijke KNP
BT), a Netherlands corporation (the "Parent"), Buhrmann International B.V.
(formerly KNP BT International B.V.), a Netherlands corporation and wholly-owned
subsidiary of Parent ("International"), and BT OPI Acquisition Corp., a Delaware
corporation wholly-owned by Parent and International (the "Purchaser"). A copy
of the Merger Agreement is attached hereto as Annex I. Pursuant to the Merger
Agreement, the Purchaser will be merged with and into the Company, and the
Company will be the surviving corporation in the Merger (the "Surviving
Corporation"). The effect of the Merger will be to convert the Company from a
publicly held corporation to a privately held corporation wholly-owned by
Parent.
Pursuant to the Merger Agreement, each share of Common Stock which is
outstanding immediately prior to the effective time (the "Effective Time") of
the Merger (other than shares of Common Stock as to which dissenters' rights of
appraisal have been duly asserted and perfected under Delaware law and other
than shares of Common Stock held by Parent, International or the Company or any
wholly-owned subsidiary of the Company) will be converted into the right to
receive $13.75 in cash, without interest (the "Merger Consideration").
At the Effective Time, each option to purchase shares of Common Stock (an
"Option") granted under the Company's 1995 Stock Option Plan or the Company's
Amended and Restated Non-Qualified Stock Option Agreement dated as of June 25,
1996, whether or not vested, will be terminated and, in exchange for such
option, the holder will be entitled to receive from the Company, for each share
of Common Stock subject to such option, a cash payment equal to the excess, if
any, of the Merger Consideration over the applicable exercise price.
An Independent Committee (the "Independent Committee") consisting of
disinterested members of the Board, was appointed by the Board to review the
terms of the Merger Agreement and to report to the Board regarding the fairness
of the Merger to the Stockholders (other than Parent, International and their
affiliates) (the "Public Stockholders"). The Board, upon the recommendation of
its Independent Committee, has determined that the Merger is fair to and in the
best interest of the Public Stockholders and unanimously recommends that the
Public Stockholders vote FOR approval of the Merger. In making its
recommendation, the Independent Committee relied upon, among other things, the
opinion of BT Wolfensohn (the "Financial Advisor"), to the effect that, as of
June 2, 1998, the date of such opinion and based upon and subject to certain
limitations, qualifications and assumptions stated therein, the Merger
Consideration of $13.75 per share of Common Stock is fair to the Public
Stockholders from a financial point of view. See "Special
Factors -- Determination of the Independent Committee and the Board; Fairness of
the Merger" and "Special Factors -- Opinion of Financial Advisor."
Consummation of the Merger is subject to certain conditions, including the
affirmative vote of a majority of the outstanding shares of Common Stock held by
Public Stockholders of record on the Record Date that are voted at the Special
Meeting. As of the Record Date, Parent and International together hold
approximately 70% of the outstanding Common Stock. Parent and International have
agreed, among other things, to vote their shares in favor of the Merger and the
adoption of the Merger Agreement.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The date of this Proxy Statement is September 2, 1998.
<PAGE> 7
AVAILABLE INFORMATION
The Company is currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copies obtained from the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such
material may also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov. In addition, the Common Stock is
listed and traded on the New York Stock Exchange (the "NYSE"). Reports, proxy
statements and other information can also be inspected and copied at the New
York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "Schedule 13E-3") under the Exchange Act. This
Proxy Statement does not contain all of the information set forth in the
Schedule 13E-3, certain parts of which are omitted in accordance with the rules
and regulations of the Commission. The Schedule 13E-3 and any amendments
thereto, including exhibits filed as a part thereof, may be examined and copied
at the principal executive offices of the Company, located at Six Parkway North,
Deerfield, Illinois 60015, during regular business hours by any Stockholder or
such Stockholder's representative who has been so designated in writing. A copy
of the Schedule 13E-3 and any amendments thereto, including exhibits filed as a
part thereof, will be transmitted by the Company to any Stockholder or such
Stockholder's representative who has been so designated in writing upon written
request and at the expense of the requesting Stockholder.
2
<PAGE> 8
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. This summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed information
contained elsewhere or incorporated by reference in this Proxy Statement and the
Annexes hereto. Stockholders are urged to read this Proxy Statement and the
Annexes hereto carefully and in their entirety. Unless otherwise defined herein,
capitalized terms used in this summary have the respective meanings ascribed to
them elsewhere in this Proxy Statement.
THE COMPANY
BT Office Products International, Inc., a Delaware corporation (the
"Company"), is a leading full-service distributor of office products, serving
primarily medium- and large-sized businesses and institutions in major markets
in both the United States and Europe. The Company offers its customers a full
range of office products, including traditional office supplies, office
furniture, computer supplies and accessories, copiers and office equipment,
business forms and advertising specialty and promotional products. In the United
States, the Company services major business markets through 24 sales and
distribution centers and 57 branch sales offices in 34 states as of August 11,
1998. In Europe, the Company is the largest office products distributor in
Germany and one of the leading office products distributors in The Netherlands,
Sweden and the United Kingdom. The Company also serves markets in Austria,
Italy, Switzerland and the Baltic States through licensed dealers for its
"Classic" brand of office products. The principal executive offices of the
Company are located at Six Parkway North, Deerfield, Illinois 60015 and its
telephone number is (847) 444-4000. See "Certain Information Concerning the
Company."
PARENT, INTERNATIONAL AND THE PURCHASER
Buhrmann NV (formerly NV Koninklijke KNP BT), a Netherlands corporation
("Parent"), is an international trading house with activities aimed at the
graphic industry and the office market. Parent's operating companies distribute
graphic paper, graphic equipment, office products, personal computers and
related equipment. Parent, which was renamed Buhrmann NV in July 1998, has
operating companies in more than 20 countries with annual sales of approximately
NLG 12 billion (approximately $6 billion). Buhrmann International B.V. (formerly
KNP BT International B.V.), a Netherlands corporation ("International"), is a
holding company and wholly-owned subsidiary of Parent. The principal executive
offices of the Parent and International are located at Museumplein 9, 1071 DJ
Amsterdam and their telephone number is 31-20-5747474.
BT OPI Acquisition Corp., a Delaware corporation (the "Purchaser"),
wholly-owned by Parent and International, was recently incorporated and
organized for the purpose of merging into the Company and has conducted no
business to date except in conjunction therewith. The principal executive
offices of the Purchaser are located at Museumplein 9, 1071 DJ Amsterdam and its
telephone number is 31-20-5747474. See "Certain Information Concerning Parent,
International and the Purchaser."
THE SPECIAL MEETING
Time, Date and Place; Record Date. The special meeting of the stockholders
of the Company (the "Stockholders") (together with any adjournment(s) or
postponement(s) thereof, the "Special Meeting") will be held on Tuesday,
September 29, 1998 at 11:00 a.m. at the offices of Winthrop, Stimson, Putnam &
Roberts, One Battery Park Plaza, 34th Floor, New York, New York 10004.
Stockholders of record at the close of business on September 3, 1998 (the
"Record Date") will be entitled to notice of and to vote at the Special Meeting.
Holders of Common Stock are entitled to one vote per share of Common Stock. This
Proxy Statement is first being mailed to Stockholders of the Company on or about
September 3, 1998. At the close of business on September 1, there were
33,504,770 shares of Common Stock outstanding and entitled to vote, held by
approximately 180 Stockholders of record.
Matters to be Considered at the Special Meeting. At the Special Meeting,
the Stockholders of the Company will consider and vote upon (i) a proposal to
approve and adopt the Agreement and Plan of Merger
3
<PAGE> 9
dated as of June 2, 1998 by and among the Company, Parent, International and the
Purchaser (the "Merger Agreement"), which provides for the merger (the "Merger")
of the Purchaser with and into the Company, with the Company as the surviving
corporation (the "Surviving Corporation") and (ii) such other matters as may
properly be brought before the Special Meeting. See "The Special
Meeting -- Matters to be Considered at the Special Meeting."
Required Votes. The Merger Agreement provides that it must be approved and
adopted by the affirmative vote of (i) a majority of the shares of Common Stock
outstanding and (ii) a majority of the shares of Common Stock held by
Stockholders (other than Parent or International or their respective affiliates
(the "Public Stockholders")) that are voted at the Special Meeting. As of the
Record Date, Parent and International, together, held approximately 70% of the
outstanding shares of Common Stock. Parent and International have agreed to vote
their shares of Common Stock in favor of the Merger.
Voting and Revocation of Proxies; Adjournments. This Proxy Statement is
being furnished to Stockholders of record at the close of business on the Record
Date in connection with the solicitation of Proxies by the Board of Directors of
the Company (the "Board") for use at the Special Meeting. All shares of Common
Stock which are represented at the Special Meeting by a properly executed proxy
received and not duly and timely revoked will be voted at the Special Meeting in
accordance with the instructions contained therein. Proxies that do not contain
any instruction to vote for or against or to abstain from voting on the Merger
will be voted in accordance with the recommendations of the Board.
If the Special Meeting is adjourned, for whatever reason, the approval of
the Merger shall be considered and voted upon by the Stockholders of the Company
at the subsequent, reconvened meeting, if any.
Any Proxy signed and returned by a Stockholder may be revoked by such
Stockholder at any time before it is voted by giving due notice of such
revocation to the Secretary of the Company at Six Parkway North, Deerfield,
Illinois 60015, by signing and delivering a Proxy bearing a later date or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting without taking other affirmative action as aforementioned will not
constitute a revocation of a Proxy. See "The Special Meeting -- Voting and
Revocation of Proxies."
Solicitation of Proxies. The cost of soliciting Proxies will be borne by
the Company. The Company may solicit Proxies and the Company's directors,
officers and employees may also solicit Proxies by telephone, telegram or
personal interview. In addition, the Company has retained Beacon Hill Partners,
Inc. to assist in its solicitation of proxies from brokers, nominees,
institutions and individuals. Arrangements will be made to furnish copies of
Proxy materials to fiduciaries, custodians and brokerage houses for forwarding
to beneficial owners of Common Stock. Such persons will be paid reasonable
out-of-pocket expenses. See "The Special Meeting -- Solicitation of Proxies."
THE MERGER
Effect of the Merger; Merger Consideration. Pursuant to the Merger
Agreement, the Purchaser will be merged with and into the Company, with the
Company continuing as the surviving corporation. The effect of the Merger will
be to convert the Company from a publicly held corporation to a privately held
corporation wholly-owned by Parent. Pursuant to the Merger Agreement, each
outstanding share of Common Stock (other than shares of Common Stock as to which
dissenters' rights have been duly asserted and perfected under the Delaware
General Corporation law (the "DGCL") and other than shares of Common Stock held
by Parent, International, the Company or any wholly-owned subsidiary of the
Company) will be converted into the right to receive $13.75 in cash, without
interest (the "Merger Consideration"). See "The Merger Agreement -- The Merger."
Effective Time. The Merger Agreement provides that, as soon as practicable
following the satisfaction or, to the extent permitted under the Merger
Agreement, waiver of all conditions to the Merger, the Company and the Purchaser
will file a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by the DGCL in
connection with the Merger, and the Merger will become effective upon such
filing or at such later time as is specified in such certificate of merger (the
4
<PAGE> 10
"Effective Time"). If the Stockholders of the Company approve and adopt the
Merger Agreement, the Effective Time is expected to occur as soon as practicable
following the Special Meeting.
Treatment of Stock Options. At the Effective Time, each option to purchase
shares of Common Stock (an "Option") granted under the Company's 1995 Stock
Option Plan (the "Stock Option Plan") or the Company's Amended and Restated
Non-Qualified Stock Option Agreement dated as of June 25, 1996 (the "Option
Agreement"), whether or not vested, will be terminated and, in exchange for such
Option, the holder will be entitled to receive from the Company, for each share
of Common Stock subject to such Option, a cash payment equal to the excess, if
any, of the Merger Consideration over the applicable exercise price. See "The
Merger Agreement -- The Merger -- Options."
Recommendation of the Board of Directors. The Board, upon the
recommendation of its Independent Committee of disinterested members and the
factors relied on by the Independent Committee, has (i) determined that the
Merger Agreement and the Merger are fair to and in the best interests of the
Company and its Public Stockholders and (ii) unanimously recommends a vote FOR
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. In reaching its determination that the Merger Agreement and the Merger
are fair to and in the best interests of the Company and its Public
Stockholders, the Independent Committee and the Board considered a number of
factors, as more fully described under "Special Factors -- Determinations of the
Independent Committee and the Board; Fairness of the Merger."
Opinion of Financial Advisor. BT Wolfensohn has acted as financial advisor
(the "Financial Advisor") to the Independent Committee in connection with the
Merger. At the June 2, 1998 meeting of the Independent Committee at which the
Merger Agreement was approved by the Independent Committee, BT Wolfensohn
delivered its opinion dated June 2, 1998 (the "Financial Advisor Opinion"), to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Merger Consideration was fair, from a
financial point of view, to the Public Stockholders. The full text of the
Financial Advisor Opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Annex II to
this Proxy Statement and should be read carefully in its entirely. The Financial
Advisor Opinion relates only to the fairness of the Merger Consideration to the
Public Stockholders, from a financial point of view, does not address any other
aspect of the Merger or any related transactions and does not constitute a
recommendation to any Stockholder of the Company as to how such Stockholder
should vote at the Special Meeting. See "Special Factors -- Opinion of Financial
Advisor."
Interests of Certain Persons in the Merger. Certain directors and
executive officers of the Company have interests in the Merger in conflict with
the interests of the other Stockholders. In particular, pursuant to the Merger
Agreement, the Company has agreed to take all actions necessary to provide that
at the Effective Time each outstanding Option held by an executive officer of
the Company will be terminated and in exchange for such Option, the holder
thereof will be entitled to receive from the Company, for each share of Common
Stock subject to such Option, a cash payment equal to the excess, if any, of the
Merger Consideration over the applicable exercise price. Executive officers of
the Company will receive an aggregate of approximately $1.7 million in respect
of their Options. In addition, three of the Company's directors are officers of
the Parent or its affiliates. The Independent Committee and the Board were aware
of these interests and conflicts and considered them in addition to the other
matters described under "Special Factors -- Determinations of the Independent
Committee and the Board; Fairness of the Merger." For information concerning
such benefits, see "Special Factors -- Interests of Certain Persons in the
Merger."
Security Ownership of Certain Beneficial Owners and Management. As of
September 1, 1998, the directors and executive officers of the Company
beneficially owned 8,550 shares of Common Stock (other than shares of Common
Stock issuable upon exercise of Options), representing less than 1% of such
shares outstanding. To the knowledge of the Company, all directors and officers
of the Company intend to vote their shares eligible to be voted for the approval
and adoption of the Merger Agreement.
Parent and International have agreed in the Merger Agreement to vote their
shares of Common Stock in favor of the Merger.
5
<PAGE> 11
Financing the Merger. The total amount of funds required to pay the Merger
Consideration is estimated to be approximately $138.9 million. Parent has agreed
that it will ensure that the Purchaser has sufficient funds to pay the Merger
Consideration and will provide for such funds from Parent's available cash or
lines of credit. Approximately $6.5 million will be required to pay holders of
outstanding Options upon cancellation of such Options and approximately $2.6
million will be required to pay related fees and expenses of the Company. Such
amounts are expected to be obtained from available cash of the Company. See
"Financing the Merger."
Conditions to the Merger. The obligations of each of the Company, Parent,
International and the Purchaser to consummate the Merger are subject to various
conditions, including, without limitation, obtaining requisite Stockholder and
Public Stockholder approval, the receipt of all consents, authorizations and
approvals, the accuracy of the representations and warranties of each of the
parties to the Merger Agreement and the absence of any injunction, proceeding or
other legal restraint prohibiting the consummation of the Merger. See "The
Merger Agreement -- Conditions to the Merger."
Termination of the Merger Agreement. The Merger Agreement will be subject
to termination at any time prior to the Effective Time by the mutual written
consent of the Boards of Directors of the Parent, International and Purchaser
and the Board of the Company upon the recommendation of the Independent
Committee. The Merger Agreement also will be subject to termination by either
Parent, International and Purchaser, on the one hand, or the Company upon the
recommendation of the Independent Committee, on the other hand if (i) the Public
Stockholders fail to approve and adopt the Merger Agreement at the Special
Meeting, (ii) the Merger is not consummated by November 30, 1998, or (iii) prior
to the consummation of the Merger, the Independent Committee shall have
withdrawn, or modified or changed in any manner adverse to Parent, International
or Purchaser its approval of the Merger Agreement or the Merger after having
concluded in good faith after consultation with independent legal counsel that
there is a reasonable probability that the failure to take such action would
result in a violation of fiduciary obligations under applicable law. If the
Merger Agreement is terminated as described therein, there shall be no liability
on the part of Parent, International, Purchaser or the Company. See "The Merger
Agreement -- Termination of the Merger Agreement."
Appraisal Rights. Holders of Common Stock on the Record Date who do not
vote in favor of approving and adopting the Merger Agreement and who otherwise
comply with the applicable statutory procedures of Section 262 of the DGCL will
be entitled to appraisal rights under Section 262 of the DGCL in connection with
the Merger and will be entitled to receive, in lieu of the Merger Consideration,
payment in cash of the "fair value" of their shares of Common Stock. The full
text of Section 262 of the DGCL is attached as Annex III to this Proxy
Statement. See "Appraisal Rights" for a further discussion of such rights and
legal consequences of voting shares of Common Stock in favor of the Merger.
Federal Income Tax Consequences. The receipt of cash pursuant to the
Merger by a Stockholder of the Company who is a U.S. Stockholder (as defined
herein) will be a taxable transaction for United States federal income tax
purposes and may also be taxable under applicable state, local and foreign
income and other tax laws. In general, a U.S. Stockholder will recognize gain or
loss for United States federal income tax purposes in an amount equal to the
difference between the adjusted tax basis of his, her or its Common Stock and
the amount of cash received in exchange therefor in the Merger. If the Common
Stock is a capital asset in the hands of such U.S. Stockholder at the Effective
Time, such gain or loss generally will be long-term capital gain or loss if the
holding period is more than 12 months at the Effective Time. See "Special
Factors -- Federal Income Tax Consequences."
BECAUSE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING ON THE PARTICULAR
CIRCUMSTANCES OF EACH STOCKHOLDER, IT IS RECOMMENDED THAT HOLDERS OF COMMON
STOCK CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL (AND ANY STATE, LOCAL
AND FOREIGN) TAX CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
6
<PAGE> 12
MARKET PRICE OF THE COMPANY'S COMMON STOCK
The Common Stock is listed on the NYSE under the ticker symbol "BTF." On
January 13, 1998, one week prior to the public announcement of Parent's proposal
to the Company to acquire all of the shares of Common Stock held by the Public
Stockholders, the high and low sales prices of the Common Stock were $7 7/8 and
$7 3/4 per share, respectively. On January 21, 1998, the last trading date prior
to public announcement of Parent's proposal to the Company to acquire the shares
of Common Stock of Public Stockholders, the high and low sales prices of the
Common Stock on the NYSE were $10 1/2 and $9 9/16 per share, respectively. On
September 1, 1998, the last trading day before the printing of this Proxy
Statement, the high and the low sales prices of the Common Stock, as quoted on
the NYSE were 13 1/2 and 13 3/8 per share, respectively. Stockholders are urged
to obtain current market prices for the Common Stock prior to making any
decision with respect to the Merger. See "Market Price and Dividend
Information."
BACKGROUND OF THE MERGER
For a description of the events leading up to the approval and adoption of
the Merger Agreement by the Board, see "Special Factors -- Background to the
Merger."
SELECTED FINANCIAL DATA
Certain financial data of the Company are set forth herein. See "Selected
Financial Data."
7
<PAGE> 13
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company and its subsidiaries for each of the five fiscal years ended December
31, 1993 through December 31, 1997 and the six months ended June 30, 1997 and
June 30, 1998. The year-end data has been derived from, should be read in
conjunction with, and are qualified in their entirety by, the audited
consolidated financial statements of the Company, including the notes thereto,
which are included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997. The interim data has been derived from, should be read
in conjunction with, and are qualified in their entirety by, the unaudited
quarterly consolidated financial statements of the Company, including the notes
thereto, which are included in the Company Quarterly Report on Form 10-Q for the
period ended June 30, 1998. See Annexes IV and V hereto.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
---------------------------------------------------------- -------------------
1997 1996 1995 1994(11) 1993 1998 1997
---------- ---------- ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales:
United States......................... $1,147,689 $1,086,960 $ 833,010 $589,823 $469,263 $614,030 $587,149
Europe................................ 471,055 325,554 299,360 199,718 117,591 264,628 225,081
---------- ---------- ---------- -------- -------- -------- --------
Total............................... 1,618,744 1,412,514 1,132,370 789,541 586,854 878,658 792,230
Costs of products sold.................. 1,162,737 1,004,713 819,078 557,737 408,514 639,196 564,230
---------- ---------- ---------- -------- -------- -------- --------
Gross Profit............................ 456,007 407,801 313,292 231,804 178,340 239,462 228,000
---------- ---------- ---------- -------- -------- -------- --------
Selling and administrative
expenses.............................. 383,758 345,879 266,163 197,088 157,370 205,635 190,374
Depreciation and amortization........... 16,485 13,693 10,339 7,796 6,961 9,229 8,075
Amortization of intangibles............. 10,636 10,046 8,117 6,111 4,737 4,818 5,302
---------- ---------- ---------- -------- -------- -------- --------
Operating income (loss):
United States......................... 34,836 31,335 22,797 18,541 12,879 15,471 20,632
Europe................................ 10,292 6,848 5,876 2,268 (3,607) 4,309 3,617
---------- ---------- ---------- -------- -------- -------- --------
Total............................... 45,128 38,183 28,673 20,809 9,272 19,780 24,249
---------- ---------- ---------- -------- -------- -------- --------
Other income (expense):
Interest income and other............. 2,749 2,091 1,287 629 339 1,295 1,309
Equity in earnings (loss) of
affiliated company(1)............... -- -- -- (112) 153 -- --
Interest expense...................... (15,283) (7,401) (3,561) (4,389) (2,122) (7,701) (7,515)
Interest expense to affiliates(2)..... (639) (5,172) (12,372) (12,641) (10,078) (408) (425)
---------- ---------- ---------- -------- -------- -------- --------
Total............................... (13,173) (10,482) (14,646) (16,513) (11,708) (6,814) (6,631)
---------- ---------- ---------- -------- -------- -------- --------
Income (loss) before income taxes,
extraordinary item and cumulative
effect of accounting change........... 31,955 27,701 14,027 4,296 (2,436) 12,966 17,618
Income tax expense...................... 14,700 13,000 7,337 4,455 1,764 5,800 8,275
---------- ---------- ---------- -------- -------- -------- --------
Income (loss) before extraordinary item
and cumulative effect of accounting
change................................ 17,255 14,701 6,690 (159) (4,200) 7,166 9,343
Extraordinary item -- going private
costs, net of tax(3).................. -- -- -- -- -- (1,000) --
Cumulative effect of accounting change,
net of tax(4)......................... -- -- -- -- (692) -- --
---------- ---------- ---------- -------- -------- -------- --------
Net Income (loss)....................... $ 17,255 $ 14,701 $ 6,690 $ (159) $ (4,892) $ 6,166 $ 9,343
========== ========== ========== ======== ======== ======== ========
PER SHARE DATA(5):
Basic earnings per share:
Income (loss) before extraordinary
item and cumulative effect of
accounting change................... $ 0.52 $ 0.44 $ 0.24 $ (0.01) $ (0.18) $ 0.21 $ 0.28
Extraordinary item.................... -- -- -- -- -- (0.03) --
Cumulative effect of accounting
change.............................. -- -- -- -- (0.03) -- --
---------- ---------- ---------- -------- -------- -------- --------
Net income (loss)..................... $ 0.52 $ 0.44 $ 0.24 $ (0.01) $ (0.21) $ 0.18 $ 0.28
Diluted earnings per share:
Income (loss) before extraordinary
item and cumulative effect of
accounting change................... $ 0.51 $ 0.44 $ 0.24 $ (0.01) $ (0.18) $ 0.21 $ 0.28
Extraordinary item.................... -- -- -- -- -- (0.03) --
Cumulative effect of accounting
change.............................. -- -- -- -- (0.03) -- --
---------- ---------- ---------- -------- -------- -------- --------
Net income (loss)..................... $ 0.51 $ 0.44 $ 0.24 $ (0.01) $ (0.21) $ 0.18 $ 0.28
</TABLE>
8
<PAGE> 14
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED JUNE 30
---------------------------------------------------------- -------------------
1997 1996 1995 1994(11) 1993 1998 1997
---------- ---------- ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................ 763,701 742,819 524,647 429,371 287,794 803,734 712,639
Short-term debt(6)...................... 225,407 47,934 25,619 282,015 174,114 222,280 23,805
Long-term debt(7)....................... 31,837 219,702 99,551 13,399 23,521 69,093 211,016
Stockholders' equity(8)................. 273,713 268,652 260,235 21,933 7,707 278,997 268,153
RATIO OF EARNINGS TO FIXED CHARGES(9)... 1.13 1.24 0.92 1.24
BOOK VALUE PER SHARE(10)................ 8.16 8.33
</TABLE>
- ---------------
(1) Represents earnings (loss) on the Company's 40% interest in Bierbrauer +
Nagel GmbH & Co. KG ("B+N") accounted for on the equity method through June
30, 1994. Effective July 1, 1994, the operating results of B+N have been
consolidated with those of the Company reflecting the acquisition of the
remaining 60% beneficial interest in B+N.
(2) The substantial decrease in interest expense to affiliates in 1996 was
largely attributable to the pay down of debt with proceeds from a $250
million revolving credit facility.
(3) Expenses of the "going private" transaction have been recorded as an
extraordinary item. As of June 30, 1998, the Company had incurred
approximately $1.0 million in costs consisting mainly of fees for legal and
financial advisors. The total costs for these and filing costs are
estimated to be $2.6 million. The Company has determined that these
expenses are not deductible for tax purposes and accordingly no tax effect
has been recorded.
(4) In 1993, the Company adopted Statement of Financial Accounting Standards
No. 106. "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The effect of this adoption increased 1993 net periodic
postretirement cost by $1.1 million and increased the 1993 net loss by
$692,000.
(5) For 1994 and 1993, gives effect to stock split that occurred in connection
with the Reorganization resulting in 23,400,000 shares outstanding.
(6) Short-term debt includes amounts due within twelve months to third parties
and affiliates of Parent, including the current portion of long-term debt.
For 1997, the $194.7 million outstanding under the syndicated bank
Competitive Advance and Revolving Credit Facility (the "Bank Credit
Agreement") has been classified as current portion of the long-term debt.
The balances in 1994 and prior years consisted principally of amounts due
to affiliates of Parent. The Company also received in 1995 and 1994
non-interest bearing advances from affiliates of Parent associated with
acquisitions during these periods totaling $21.9 million and $43.9 million,
respectively.
(7) Consists of long-term debt with third parties, affiliates of Parent, and
capitalized leases, less current portion.
(8) The Company has never declared or paid cash dividends on its Common Stock.
(9) The ratio of earnings to fixed charges was calculated as pre-tax income
divided by the sum of interest expense, capitalized interest and the
interest portion of rental expense for the two most recent fiscal year end
and quarter periods. For the period ended June 30, 1998, earnings were
insufficient to cover fixed charges by $1.1 million.
(10) Book value per share was calculated as total stockholders equity divided by
the common shares outstanding at the end of the period for the most recent
year end and quarter period.
(11) In March 1996, the Company discovered certain accounting and financial
reporting irregularities at its New York Division. The irregularities
involved misstatements in the reporting of gross profit margins and
operating expenses principally in 1995 and 1994, as well as concealment in
the accounting records of theft of Company assets. The impact of the
charges associated with these issues resulted in a reduction of operating
income for 1995 by approximately $7.5 million and for 1994 by approximately
$2.9 million. An independent investigation, completed in August 1996,
uncovered no basis for any further adjustment to the financial statements.
9
<PAGE> 15
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished on behalf of the Company in
connection with the solicitation of Proxies by the Board for use at the Special
Meeting to be held at 11:00 a.m., local time, on Tuesday, September 29, 1998, at
the offices of Winthrop, Stimson, Putnam & Roberts, One Battery Park Plaza, 34th
Floor, New York, New York 10004, and at any adjournments or postponements
thereof.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the Stockholders of the Company will consider and
vote on a proposal to approve and adopt the Merger Agreement and such other
matters as may properly be brought before the Special Meeting. The Merger
Agreement is attached to this Proxy Statement as Annex I. See "The Merger" and
"The Merger Agreement." The Board, upon recommendation of its Independent
Committee, has determined that the Merger is fair to and in the best interests
of the Public Stockholders and unanimously recommends a vote FOR approval and
adoption of the Merger Agreement. See "Special Factors -- Background of the
Merger" and "Special Factors -- Determinations of the Independent Committee and
the Board; Fairness of the Merger."
REQUIRED VOTES
The approval and adoption of the Merger Agreement will require the
affirmative vote of (i) a majority of the shares of Common Stock outstanding and
(ii) a majority of the shares held by Public Stockholders that are voted at the
Special Meeting.
As of the Record Date, Parent and International, together, held
approximately 70% of the outstanding Common Stock. Parent and International have
agreed in the Merger Agreement that they will vote their shares of Common Stock
in favor of the Merger. See "Special Factors -- Security Ownership of Certain
Beneficial Owners and Management."
VOTING AND REVOCATION OF PROXIES
All shares of Common Stock which are represented at the Special Meeting by
a properly executed Proxy received and not duly and timely revoked will be voted
at the Special Meeting in accordance with the instructions contained therein. If
a Proxy is signed and returned without indicating any voting instructions,
shares of Common Stock represented by such Proxy will be voted FOR the Merger.
The Board is not currently aware of any business to be acted upon at the Special
Meeting other than as described herein. If, however, other matters are properly
brought before the Special Meeting or any adjournments or postponements thereof,
the persons appointed as proxies will have the discretion to vote or act thereon
in accordance with their best judgment, unless authority to do so is withheld in
the Proxy. The persons appointed as proxies will not exercise their
discretionary voting authority to vote any such Proxy in favor of any
adjournments or postponements of the Special Meeting if instruction is given to
vote against the Merger.
A Proxy signed and returned by a Stockholder may be revoked prior to its
being voted by (i) delivering to the Company, at or before the Special Meeting,
a written notice of revocation, (ii) duly executing a subsequent Proxy relating
to the same shares at or before the Special Meeting or (iii) attending the
Special Meeting and voting in person. Any written instrument revoking a Proxy
must be received before the taking of the votes at the Special Meeting and
should be sent to: BT Office Products International, Inc., Six Parkway North,
Deerfield, Illinois 60015, Attention: Secretary.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
The Board has fixed September 3, 1998 as the Record Date for the
determination of the holders of Common Stock entitled to notice of and to vote
at the Special Meeting. Only holders of Common Stock at the close of business on
the Record Date will be entitled to notice of, and to vote at, the Special
Meeting. At the
10
<PAGE> 16
close of business on September 1, there were 33,504,770 shares of Common Stock
outstanding and entitled to vote at the Special Meeting, held by approximately
180 Stockholders of record. The presence, in person or by properly executed
Proxy, of the holders of a majority of the outstanding shares of Common Stock is
necessary to constitute a quorum at the Special Meeting.
Holders of Common Stock on the Record Date are entitled to one vote per
share of Common Stock, exercisable in person or by properly executed Proxy, upon
each matter properly submitted for the vote of stockholders at the Special
Meeting.
If fewer shares of Common Stock are voted in favor of approval and adoption
of the Merger Agreement than the number required for approval, it is expected
that the Special Meeting will be adjourned for the purpose of allowing
additional time for soliciting and obtaining additional proxies or votes, and,
at any subsequent reconvening of the Special Meeting, all proxies will be voted
in the same manner as such proxies would have been voted at the original
convening of the Special Meeting, except for any proxies which have theretofore
effectively been revoked or withdrawn.
APPRAISAL RIGHTS
Holders of Common Stock on the Record Date who do not vote in favor of
approving and adopting the Merger Agreement and who otherwise comply with the
applicable statutory procedures of Section 262 of the DGCL will be entitled to
appraisal rights under Section 262 of the DGCL in connection with the Merger and
will be entitled to receive, in lieu of the Merger Consideration, payment in
cash of the "fair value" of their shares of Common Stock. The full text of
Section 262 of the DGCL is attached as Annex III to this Proxy Statement. See
"Appraisal Rights" for a further discussion of such rights and legal
consequences of voting shares of Common Stock in favor of the Merger.
SOLICITATION OF PROXIES
The Company will bear the cost of solicitation of Proxies and the cost of
printing and mailing this Proxy Statement. In addition to solicitation by mail,
the Company's directors, officers and employees may also solicit Proxies from
stockholders of the Company by telephone, telegram or personal interview. Such
directors, officers and employees will not be additionally compensated for any
such solicitation but may be reimbursed for reasonable out-of-pocket expenses in
connection therewith. The Company has retained Beacon Hill Partners, Inc. at an
estimated cost of $4,500, plus reimbursement of expenses, to assist in its
solicitation of proxies from brokers, nominees, institutions and individuals.
Arrangements will also be made with brokerage houses and other fiduciaries,
custodians and nominees for the forwarding of solicitation material to the
beneficial owners of shares of Common Stock held of record by such persons and
the Company will reimburse such brokerage houses, fiduciaries, custodians and
nominees for their reasonable out-of-pocket expenses in connection therewith.
If you have any questions or require additional material, please call
Thomas F. Cullen, Vice President, General Counsel and Secretary of the Company
at (847) 444-4000.
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY TO THE COMPANY IN THE ACCOMPANYING POSTAGE-PAID ENVELOPE.
STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES REPRESENTING COMMON STOCK WITH
THEIR PROXY. IN THE EVENT THE MERGER IS CONSUMMATED, CERTIFICATES SHOULD BE
DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL
WHICH WILL BE SENT TO STOCKHOLDERS PROMPTLY AFTER THE EFFECTIVE TIME. SEE "THE
MERGER AGREEMENT -- THE MERGER -- EXCHANGE OF CERTIFICATES."
11
<PAGE> 17
SPECIAL FACTORS
BACKGROUND OF THE MERGER
The Company was organized in 1984 as a subsidiary of the predecessor of
Parent. On June 30, 1995, Parent and the Company effected a series of
transactions (the "Corporate Reorganization") in order to reorganize the legal
ownership of various of their businesses and to recapitalize the ongoing office
products distribution business which now constitutes the "Company." Prior to the
Corporate Reorganization, the Company was a holding company which operated
mainly Parent's U.S. office products distribution business. The Corporate
Reorganization included, among other things, the transfer by Parent of its
European office products businesses to the Company and the transfer by the
Company of its packaging business to Parent.
In July of 1995, the Company completed its initial public offering at
$11.50 per share. The primary reason that Parent took the Company public was its
belief that as a public company the Company would significantly lower its cost
of capital, increase its access to capital, create a currency for use by the
Company in making acquisitions and provide liquidity for the Company's
stockholders. At that time the Parent did not have the access to capital to
continue to fund the Company's acquisitions. Since the Company's initial public
offering, trading values for the Common Stock have been, on average, relatively
low, resulting in a relatively illiquid trading market for the Common Stock.
At the time of the Company's initial public offering, Parent's business
activities consisted of distribution, packaging and paper products divisions,
with the Company a part of its distribution division. In the fall of 1997,
Parent sold KNP Leykam, its paper production division, which left Parent with
the distribution and packaging divisions and the proceeds of the sale.
In December 1997, the Company announced its U.S. plan to implement an
enterprise-wide system solution known as "Project Millennium" which is designed
to standardize business processes, centralize certain business functions, and
enhance customer service capabilities. The Company anticipates that the
implementation of Project Millennium will take approximately three and one half
years and that earnings for 1998 and 1999 would be adversely impacted, although
the Company expects to realize some economic benefits from Project Millennium
starting in late 1998. In addition, the Company could not be assured that
Project Millennium would be successful or that actual costs would not exceed
those estimated.
In December of 1997, Morgan Stanley & Co. Incorporated ("Morgan Stanley")
was retained by Parent to assist it in formulating and analyzing a possible
restructuring of the business and capital structure of the Company and its
subsidiaries. At the same time, Parent was evaluating the effect of Project
Millennium, the Company's need for additional capital, and the effect of
competition in the office products distribution industry on the Company's
margins.
As a result of Parent's review of its structure and strategy, Parent
concluded that its packaging division should be sold and that Parent would focus
on its distribution division (including office products distribution) as its
core business. After considering these factors and the fact that the proceeds
from the sale of its paper production division provided it with a source of
funds, Parent determined that it should attempt to acquire the approximately 30%
interest in the Company that it did not currently own.
On January 20, 1998, Parent informed the Company's outside directors, Mr.
Philip E. Beekman and Mr. Lorrence T. Kellar, of its intention to make an offer
to acquire all publicly held shares of Common Stock of the Company. In light of
its equity ownership of approximately 70% of the Company's Common Stock, Parent
suggested that the Company form a special committee of disinterested directors
to consider its proposal. At a special telephonic meeting of the Board on
January 21, 1998, the Board formed the Independent Committee and appointed Mr.
Beekman and Mr. Kellar as members of the Independent Committee, with Mr. Beekman
serving as Chairman. Neither Mr. Beekman nor Mr. Kellar is an employee of the
Company or affiliates of Parent. For their services on the Independent
Committee, the Company has agreed to pay Mr. Beekman a per diem fee of $1,500
and Mr. Kellar a per diem fee of $1,000 for service on such Independent
Committee, in accordance with the Company's normal practice. As of August 12,
1998, neither Mr. Beekman nor Mr. Kellar has been paid any compensation for his
services on the Independent
12
<PAGE> 18
Committee. On January 22, 1998, the Company issued a press release to the effect
that Parent was prepared to make an offer to acquire the remaining publicly held
shares of Common Stock of the Company for a cash purchase price of $10.50 per
share.
After the January 21, 1998 Board meeting, the Independent Committee
immediately began the process of retaining a financial advisor and legal
counsel. The Independent Committee considered several nationally recognized
investment banking firms for possible retention to act as financial advisor to
the Independent Committee. During January 1998, the Financial Advisor was
retained to act as the Independent Committee's financial advisor, and the law
firm of Wachtell, Lipton, Rosen & Katz was retained as independent legal counsel
to assist in its review of and response to Parent's proposal.
On February 3, 1998 and February 4, 1998, management of the Company
presented forecasts and budgets for the Company to the Independent Committee and
its advisors and to Parent and Morgan Stanley. These presentations included a
review of the Company's financial projections for the next five years and a
discussion of the possible effect on the Company's results of operations from
expenditures and anticipated benefits relating to Project Millennium. Over the
next several weeks, in order to evaluate Parent's proposal, the Financial
Advisor conducted a review of the business, operations and prospects of the
Company and legal counsel to the Independent Committee performed legal due
diligence on the Company. On February 6, 1998, Mr. Koffrie, the Company's
Chairman, met with the Financial Advisor and legal counsel in New York to answer
questions regarding the Financial Advisor's evaluation of the Company. On
February 11, 1998, the Financial Advisor met with management of the Company at
the Company's headquarters as part of the due diligence process.
On February 10, 1998, Mr. Klaas de Kluis, then Chairman of the Executive
Board of Parent, received a letter from George H. Harad, Chief Executive Officer
and Chairman of Boise Cascade Corporation ("Boise Cascade"), indicating Boise
Cascade's possible interest in pursuing an acquisition or other strategic
combination with the Company and that an offer by Boise Cascade would be at a
premium over Parent's then outstanding proposed offer of $10.50 per share and
the then current market price of the Company's Common Stock (although no price
was specified in the letter), provided that Boise Cascade could acquire all of
the outstanding shares of the Company's Common Stock. As Parent had no interest
in selling its shares of Common Stock of the Company and it considered office
products distribution to be its core business, Parent declined to pursue
discussions. On March 2, 1998, Mr. Harad sent a letter to Messrs. Beekman and
Kellar, the two members of the Independent Committee, informing them of his
correspondence with Mr. de Kluis. Messrs. Beekman and Kellar directed Mr. Harad
to contact the Financial Advisor if Mr. Harad had any information or proposal
relevant to the Independent Committee. In a subsequent discussion, the Financial
Advisor confirmed to Mr. Harad that the Independent Committee did not have the
authority to pursue a sale of the Company to a third party. There was no further
contact between Boise Cascade and either Parent or the Independent Committee.
On February 26, 1998, the Financial Advisor and Morgan Stanley met to begin
discussions on the Merger Consideration. During the course of the following two
months, representatives of the Independent Committee's financial advisors and
Parent's financial advisors met to discuss the terms of the proposed
transaction.
On April 24, 1998, Parent, its counsel and Morgan Stanley met with counsel
for the plaintiffs in certain litigation relating to the proposed transaction
and with the plaintiffs' financial advisor to discuss the terms of the proposed
transaction. See "Stockholder Litigation."
On May 6, 1998, a representative from Parent met with the members of the
Independent Committee to discuss Parent's proposal. The negotiations lasted into
the evening with the parties agreeing to continue negotiating the following day.
Prior to meeting the next day, counsel for Parent discussed the status of the
negotiations with counsel for the plaintiffs. On May 7, 1998, Parent and the
Independent Committee reached an agreement in principle on the Merger
Consideration of $13.75 per share and issued a press release to that effect and
that the agreement was subject to definitive documentation, final board approval
by the Company and approval by a majority of the Company's public stockholders.
13
<PAGE> 19
On May 8, 1998, Parent's counsel sent a draft of the Merger Agreement to
counsel to the Independent Committee for review and comment. From May 8 through
May 28, counsel for Parent and counsel for the Independent Committee negotiated
the terms of the Merger Agreement.
On June 2, 1998, the Independent Committee met to consider the terms of the
Merger Agreement and the Merger. The Financial Advisor made a presentation to
the Independent Committee and allowed the members of the Independent Committee
to ask questions regarding the Financial Advisor's analysis. Legal counsel to
the Independent Committee was available to answer legal questions. The
Independent Committee was advised by the Financial Advisor that, in the
Financial Advisor's view, the per share amount to be received in the Merger was
fair from a financial point of view to the Public Stockholders. After further
discussion and deliberation, a motion determining the Merger and the Merger
Agreement to be fair and in the best interests of the Public Stockholders and to
approve the Merger and the Merger Agreement was made and carried unanimously,
and the Independent Committee resolved to recommend that similar action be taken
by the Board of the Company.
Based on the Financial Advisor Opinion and such other factors as the Board
deemed relevant, the Board unanimously approved and adopted the Merger Agreement
and the transactions contemplated thereby and deemed the Merger fair to and in
the best interest of the Stockholders of the Corporation. The Board unanimously
resolved that the Merger Agreement be recommended to the Stockholders of the
Corporation for consideration and adoption at the Special Meeting.
DETERMINATIONS OF THE INDEPENDENT COMMITTEE AND THE BOARD; FAIRNESS OF THE
MERGER
As discussed under "-- Background of the Merger," the Independent Committee
unanimously recommended the Merger Agreement and the Merger to the Board,
determining the Merger Agreement and the Merger to be fair to and in the best
interests of the Public Stockholders. In reaching this conclusion, the
Independent Committee considered a number of factors, including, among other
things, the Financial Advisor Opinion which states that, as of the date and
subject to the assumptions and limitations therein, the consideration to be
received by Public Stockholders pursuant to the Merger Agreement is fair from a
financial point of view to such holders. The full text of such opinion, which
sets forth, among other things, the opinion expressed, procedures followed,
matters considered and limitations on review undertaken in connection with such
opinion, is attached as Annex II to this Proxy Statement. Stockholders are urged
to read the opinion in its entirety.
Reasons for the Independent Committee's Determination. In reaching its
recommendation, the Independent Committee considered the following material
factors:
(a) The terms of the proposed Merger, including, among other things,
the consideration to be paid to holders of Common Stock, which represents a
79% premium to the closing price of the Common Stock one week prior to the
announcement of Parent's initial proposal, and the circumstances under
which the Merger Agreement could be terminated. The Independent Committee
determined that these terms, which were the product of intensive
arm's-length negotiations, provide Stockholders with a transaction that,
taking into account the risks and potential rewards of continued investment
in the Company, is more attractive to the Public Stockholders than
retaining their shares of Common Stock.
(b) Statements by representatives of Parent that Parent had no
intention of selling its investment in the Company and that Parent had no
interest in, and would not support, any transaction involving the
acquisition of the Company by a third party. Based on Parent's stated
intention to retain control of the Company, the Independent Committee
believed that the Company's stockholders were unlikely to realize in the
foreseeable future a price for their shares that includes a control
premium.
(c) The presentation and opinion of the Financial Advisor, BT
Wolfensohn, which included, among other things, analyses of the value of
the Company and comparisons with similar companies and similar
going-private transactions, and which indicated that the consideration to
be received by the Public Stockholders was fair to such holders from a
financial point of view (such Financial Advisor Opinion was
14
<PAGE> 20
given subject to certain limitations, qualifications and assumptions
specified therein; see "Opinion of Financial Advisor").
(d) The Company's business, condition and prospects. In this respect,
the Independent Committee considered that the Company has recently
underperformed its primary competitors in certain respects, but that
current management initiatives (particularly Project Millennium) have the
potential to significantly improve the Company's operating results. In
addition, the Independent Committee considered that there were other
strategies available, such as a more aggressive acquisition policy, that
could improve the Company's competitive position, although such strategies
entailed additional risks to the Company.
(e) The current and historical trading prices for the Company's
shares. In this respect the Independent Committee considered that the
Company's shares were trading at an all-time low in December 1997 and early
January 1998, and that certain factors, such as the relatively small public
float for the shares and the fact that few research analysts follow the
Company, may have led to the Common Stock being undervalued in the market.
(f) The risks to Public Stockholders associated with the Common Stock,
including, without limitation, the continuing pressure from competition,
which recently has caused erosion of the Company's operating margins, and
the possibility that Project Millennium will not be implemented
successfully or that its anticipated benefits will be significantly
delayed. The Independent Committee believed that the uncertainty relating
to these risks might be an obstacle to realizing stockholder value, and the
Independent Committee recognized that these risks to Public Stockholders
would be eliminated by the Merger.
(g) The fact that the Merger Agreement provides that the Merger will
be subject to the approval of a majority of the Public Stockholders voting
at the Special Meeting.
In reviewing the financial analyses performed by the Financial Advisor, the
Independent Committee noted that, with respect to the analysis based on trailing
12-month EBITDA, the Merger yielded a result that was within the range, but
below the median, of values for the Core Comparables. (See "-- Opinion of
Financial Advisor -- Analysis of Selected Publicly Traded Companies.") All other
analyses by the Financial Advisor yielded results that were at or above the
median of comparable companies or transactions. The Independent Committee
concluded that no single financial test is determinative of the fairness of the
Merger and the analyses of the Financial Advisor, taken as a whole, supported
the Independent Committee's conclusion that the Merger is fair to and in the
best interest of the Public Stockholders.
The Independent Committee also noted that the Merger Consideration
represented a 68% premium to the Company's book value per share at March 31,
1998 of $8.21. However, the Independent Committee did not consider this to be of
particular significance because it did not believe that a reliable correlation
exists between book value and fair market value for businesses such as the
Company, where such a significant portion of the value of the business consists
of ongoing relationships with customers.
In view of the fact that Parent had indicated to the Independent Committee
its intention to continue to operate the business of the Company, the
Independent Committee did not perform, or ask the Financial Advisor to perform,
a formal liquidation analysis of the Company. However, due to the nature of the
Company's tangible assets, which consist primarily of inventory and accounts
receivable, the Independent Committee believed that there was no practical
possibility that a liquidation of the Company would produce greater value to the
Public Stockholders than the Merger. Instead, the Independent Committee focused
primarily on the Company's value as a going concern, as reflected in the various
analyses described under "Opinion of Financial Advisor."
The foregoing discussion of the information and factors considered and
given weight by the Independent Committee is not intended to be exhaustive. In
view of the wide variety of the factors considered in connection with its
evaluation of the proposed Merger, the Independent Committee did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the foregoing factors or determine that any
15
<PAGE> 21
factor was of particular importance. Rather, the Independent Committee viewed
its position and recommendation as being based on the totality of the
information presented and considered by it.
Reasons for the Board's Determination. In reaching its decision to approve
the Merger Agreement, the Board relied on the Independent Committee's
recommendation and the factors relied on by the Independent Committee as
described above. In view of the wide variety of factors considered in connection
with its evaluation of the proposed Merger, the Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the foregoing factors or determine that any factor was of particular
importance. Rather, the Board viewed its position as being based on the totality
of the information presented and considered by it. In connection with its
consideration of the determination by the Independent Committee, as part of its
determination with respect to the fairness of the consideration to be received
by holders of Common Stock pursuant to the Merger Agreement, the Board adopted
the conclusion, and the analyses underlying such conclusion, of the Independent
Committee, based upon its view as to the reasonableness of such analyses.
Fairness of the Merger to Unaffiliated Stockholders. The Board believes
that the Merger is fair to and in the best interests of unaffiliated
stockholders for all of the reasons set forth above. In addition, in light of
Parent's control of the Company through majority representation on the Company's
Board of Directors, the Company formed the Independent Committee, which was
comprised of all of the independent directors of the Company, none of whom are
officers or employees of the Company, Parent, the Purchaser or their respective
affiliates, to consider Parent's proposal. The Independent Committee engaged
independent counsel and the Financial Advisor. The Merger Consideration was the
highest price obtained following intensive arm's-length negotiations between the
Independent Committee and representatives of Parent. The Financial Advisor
Opinion considered the fairness of the consideration to be received by the
Public Stockholders pursuant to the Merger Agreement. Except with respect to
options to purchase Common Stock, none of Parent, the Purchaser nor any of their
affiliates will receive the Merger Consideration. See "-- Interests of Certain
Persons in the Merger -- Interests in Common Stock and Options." The Independent
Committee unanimously determined that the Merger Agreement and the Merger are
fair to and in the best interests of the Public Stockholders. Finally, the Board
considered the fact that the Merger would be subject to the approval of a
majority of the Public Stockholders voting at the Special Meeting.
In light of all of the foregoing, none of the Independent Committee, the
Board and a majority of the directors who are not employees of the Company
considered it necessary to, and both the Independent Committee and the Board
believe the proposed transaction is fair despite the fact they did not, retain
an unaffiliated representative to act solely on behalf of unaffiliated
stockholders for purposes of negotiating the terms of the Merger and the Merger
Agreement.
In reaching this conclusion, both the Independent Committee and the Board
considered it significant that (i) both members of the Independent Committee
were independent of Parent, International and the Purchaser, (ii) both members
of the Independent Committee were highly experienced and sophisticated in
business and financial matters and were well informed about the business and
operations of the Company, (iii) the Independent Committee had retained
independent financial and legal advisors that had extensive experience with
transactions similar to the Merger and (iv) the Financial Advisor had been
retained to advise the Independent Committee as to the fairness of any proposal
received from Parent and had reached the conclusions expressed in the Financial
Advisor Opinion.
OPINION OF FINANCIAL ADVISOR
BT Wolfensohn has acted as financial advisor to the Independent Committee
in connection with the Merger. At the June 2, 1998 meeting of the Independent
Committee, the Financial Advisor delivered its oral opinion, subsequently
confirmed in writing as of the same date to the Independent Committee, to the
effect that, as of the date of such opinion, based upon and subject to the
assumptions made, matters considered and limits of the review undertaken by the
Financial Advisor, the consideration to be paid in the Merger is fair to the
Public Stockholders.
16
<PAGE> 22
The full text of the Financial Advisor Opinion, which sets forth, among
other things, the assumptions made, matters considered and limits on the review
undertaken by the Financial Advisor in connection with the opinion, is attached
as Annex II to this Proxy Statement and is incorporated herein by reference. The
Company's Stockholders are urged to read the Financial Advisor Opinion in its
entirety. The summary of the Financial Advisor Opinion set forth in this Proxy
Statement is qualified in its entirety by reference to the full text of the
Financial Advisor Opinion. A copy of the Financial Advisor's presentation to the
Independent Committee has been filed as an exhibit to the Schedule 13E-3. See
"Available Information."
In connection with the Financial Advisor's role as financial advisor to the
Independent Committee, and in arriving at its opinion, the Financial Advisor
has, among other things, reviewed certain publicly available financial
information and other information concerning the Company and certain internal
analyses and other information furnished to it by the Company. The Financial
Advisor also held discussions with the members of the senior management of the
Company regarding the businesses and prospects of the Company. In addition, the
Financial Advisor (i) reviewed the reported prices and trading activity for the
Common Stock of the Company, (ii) compared certain financial and stock market
information for the Company with similar information for selected companies
whose securities are publicly traded, (iii) reviewed the financial terms of
selected going private transactions which it deemed comparable in whole or in
part, (iv) reviewed the terms of the Merger Agreement, and (v) performed such
other studies and analyses and considered such other factors as it deemed
appropriate.
In preparing its opinion, the Financial Advisor did not assume
responsibility for the independent verification of, and did not independently
verify, any information, whether publicly available or furnished to it,
concerning the Company, including, without limitation, any financial
information, forecasts or projections, considered in connection with the
rendering of its opinion. Accordingly, for purposes of its opinion, the
Financial Advisor assumed and relied upon the accuracy and completeness of all
such information. The Financial Advisor did not conduct a physical inspection of
any of the properties or assets, and did not prepare or obtain any independent
evaluation or appraisal of any of the assets or liabilities of the Company. With
respect to the financial forecasts and projections made available to the
Financial Advisor and used in its analysis, the Financial Advisor assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company as to the
matters covered thereby. In rendering its opinion, the Financial Advisor
expressed no view as to the reasonableness of such forecasts and projections or
the assumptions on which they are based. The Financial Advisor Opinion was
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to the Financial Advisor as of, the date of
such opinion.
For purposes of rendering its opinion, the Financial Advisor assumed that,
in all respects material to its analysis, the representations and warranties
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements to be performed by it under the
Merger Agreement and all conditions to the obligation to consummate the Merger
will be satisfied without any waiver thereof. The Financial Advisor also assumed
that all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the transactions contemplated by
the Merger Agreement will be obtained and that in connection with obtaining any
necessary governmental, regulatory or other approvals and consents, or any
amendments, modifications or waivers to any agreements, instruments or orders,
no limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on any
party thereto or materially reduce the contemplated benefits of the Merger.
The Financial Advisor relied on Parent's statements that it has no interest
in any transaction that would result in the sale of shares of Common Stock owned
by it. The Financial Advisor was not requested or authorized to solicit, and did
not solicit, interest from any party with respect to an acquisition of the
outstanding shares of Common Stock, the Company or its constituent businesses.
In addition, the Financial Advisor was informed by Parent that Parent has no
intention to pursue a sale of the Company after consummating the Merger pursuant
to the Merger Agreement.
17
<PAGE> 23
Set forth below is a brief summary of certain financial analyses performed
by the Financial Advisor in connection with its opinion and reviewed with the
Independent Committee at its meeting on June 2, 1998.
Historical Stock Performance. The Financial Advisor reviewed and analyzed
recent and historical market prices and trading volume for Company's Common
Stock and compared such market prices to certain stock market and industry
indices. The Financial Advisor also noted that the $13.75 per share
consideration exceeded the Company's 52-week high. For the 52 weeks ended
January 21, 1998 (the day prior to the Company's press release to the effect
that Parent was prepared to make an offer to acquire the remaining publicly held
shares of Common Stock of the Company for a cash purchase price of $10.50 per
share), the highest Common Stock closing price was $12.31 (September 1, 1997).
The $13.75 offer price represents a 12% premium to this closing price. This
fact, among others, supports a determination that the consideration to be paid
in the Merger is fair to the Public Stockholders.
Analysis of Selected Publicly Traded Companies. The Financial Advisor
compared certain financial information and commonly used valuation measurements
for the Company implied by the cash consideration to be received in the Merger
by the Public Stockholders to corresponding information and measurements for a
group of three publicly traded contract stationers (the "Core Comparables"):
Boise Cascade Office Products Corporation, Corporate Express, Inc., and U.S.
Office Products Company. The Financial Advisor also compared certain financial
information and commonly used valuation measurements for the Company implied by
the cash consideration to be received in the Merger by the Public Stockholders
to corresponding information and measurements for 11 publicly traded office
products distributors (along with the Core Comparables, the "Composite Group"):
Staples, Inc., Office Depot, Inc., OfficeMax, Inc., Unisource Worldwide, Inc.,
United Stationers Inc., Viking Office Products, Inc., Pitney Bowes Inc., IKON
Office Solutions, Inc., Samas Groep N.V., Koninklijke Ahrend NV, and Guilbert
S.A. The Core Comparables were selected based on the similarity of their
contract stationer operations to those of the Company. The balance of the
companies composing the Composite Group were selected based on the similarity of
their office products distribution operations to the operations of the Company.
Such financial information and valuation measurements included, among other
things, (i) common equity market valuation; (ii) capitalization ratios; (iii)
operating performance; (iv) ratios of common equity market value as adjusted for
debt and cash ("Enterprise Value") to earnings before interest expense, income
taxes and depreciation and amortization ("EBITDA"); and (v) ratios of common
equity market prices per share ("Equity Value") to earnings per share ("EPS").
Such multiples were based on closing share prices on May 27, 1998, except for
U.S. Office Products Company which is from January 12, 1998, the last trading
day prior to its restructuring announcement, and Viking Office Products, Inc.
which is from May 15, 1998, the last trading day prior to its merger
announcement. To calculate the trading multiples of the Composite Group, the
Financial Advisor used publicly available information concerning historical and
projected financial performance, including published historical financial
information and earnings estimates reported by the Institutional Brokers
Estimate System ("IBES"). IBES is a data service that monitors and publishes
compilations of earnings estimate by selected research analysts regarding
companies of interest to institutional investors. The Financial Advisor
calculated that, on a trailing 12-month ("LTM") basis, the multiple of
Enterprise Value to EBITDA was 9.0x for the Company, compared to a range of 8.9x
to 12.3x, with a median of 9.6x, for the Core Comparables.
The Financial Advisor further calculated that the multiple of Equity Value
to trailing LTM EPS was 24.1x for the Company, compared to a range of 15.1x to
30.8x, with a median of 18.2x, for the Core Comparables; and the multiple of
Equity Value to estimated calendar year 1998 EPS was 24.0x for the Company,
compared to a range of 15.0x to 24.2x, with a median of 21.9x, for the Core
Comparables. Based on the foregoing comparisons, the Financial Advisor noted
that the multiples implied by the cash consideration to be received in the
Merger by the Public Stockholders was within the ranges of trading multiples for
the Core Comparables and that this fact supported a determination that the
consideration to be paid in the Merger is fair to the Public Stockholders.
None of the companies utilized as a comparison are identical to the
Company. Accordingly, the Financial Advisor believes that the analysis of
publicly traded comparable companies is not simply mathematical. Rather, it
involves complex considerations and qualitative judgments, reflected in the
Financial Advisor
18
<PAGE> 24
Opinion, concerning differences in financial and operating characteristics of
the comparable companies and other factors that could affect the public trading
value of the comparable companies.
Premium Analysis. The Financial Advisor compared the premiums paid in 24
transactions (the "Selected Large Stockholder Transactions") having a
transaction valuation over $100 million and where the bidder owned at least 40%
of the outstanding shares prior to the transaction consisting of
(acquiror/target, date announced): MascoTech, Inc./TriMas Corporation (December
11, 1997), Rexel S.A./Rexel Inc. (August 29, 1997), Anthem Inc./Accordia Inc.
(May 2, 1997), Samsung Electronics Co. Ltd./AST Research Inc. (January 30,
1997), Mafco Holdings Inc./Mafco Consolidated Group (January 21, 1997), Zurich
Versicherungs GmbH/Zurich Reinsurance Centre (January 13, 1997), Novartis
AG/SyStemix Inc. (May 27, 1996), Berkshire Hathaway Inc./GEICO Corporation
(August 25, 1995), COBE Laboratories/ REN Corporation -- USA (July 14, 1995),
BIC S.A./Bic Corporation (May 15, 1995), McCaw Cellular Communications/LIN
Broadcasting (April 7, 1995), Club Mediterranee S.A./Club Med Inc. (April 5,
1995), Conseco Inc./CCP Insurance Inc. (February 27, 1995), Arcadian
Corp./Arcadian Partners L.P. (January 18, 1995), WMX Technologies Inc./Chemical
Waste Management Inc. (July 28, 1994), Rust International Inc./Brand Companies
Inc. (November 13, 1992), American Maize-Products Co./American Fructose Corp.
(September 9, 1992), Leucadia National Corporation/PHLCORP Inc. (August 17,
1992), Tele-Communications Inc./United Artists Entertainment (May 1, 1991), BHP
Holdings (USA) Inc./ Hamilton Oil Corporation (February 6, 1991), Murphy Oil
Corporation/Ocean Drilling & Exploration (January 3, 1991), Renault Vehicules
Industriels/Mack Trucks Inc. (July 6, 1990), American Express Company/Shearson
Lehman Brothers Holdings (March 2, 1990) and Fuji Heavy Industries Ltd./Subaru
of America Inc. (January 16, 1990). The premiums paid in the Selected Large
Stockholder Transactions (i) based on the target company's closing stock price
four weeks prior to the public announcement of such transactions, ranged from 1%
to 69% (with a median of 26%); (ii) based on the target's closing stock price
one week prior to the public announcement, ranged from 8% to 70% (with a median
of 21%), and (iii) based on the target's closing stock price one day prior to
the public announcement ranged from 1% to 66% (with a median of 18%).
The Financial Advisor also reviewed the historical trading prices and
trading volumes for the shares of Common Stock. This review indicated that the
consideration to be received in the Merger by the Public Stockholders represents
a premium of 33% to the closing price on January 21, 1998 ($10.38); a premium of
79% to the closing price on January 15, 1998 ($7.69); and a premium of 76% to
the closing price on December 22, 1997 ($7.81).
Discounted Cash Flow Analysis. The Financial Advisor performed a
discounted cash flow analysis for the Company. The Financial Advisor calculated
the discounted cash flow values for the Company as the sum of the net present
values of (i) the estimated future cash flow that the Company will generate for
the years 1998 through 2002, plus (ii) the value of the Company at the end of
such period. The estimated future cash flows were based on the financial
projections for the Company for the years 1998 through 2002 prepared by the
Company's management. The terminal values of the Company were calculated based
on projected EBITDA for 2002 and a range of multiples of 7.0x, 8.0x and 9.0x.
The Financial Advisor used discount rates ranging from 9.0% to 10.0%. The
Financial Advisor used such discount rates based on its judgment of the
estimated weighted average cost of capital of the Company and the Core
Comparables, and used such multiples based on its review of the trading
characteristics of the common stock of the Company and Core Comparables. This
analysis indicated a range of values of $10.64 to $16.15 per share. Based on the
midpoint of the terminal value multiple range and the midpoint of the discount
rate range, the analysis indicated a value of $13.34 per share. The Financial
Advisor noted that in various past periods the Company's multiple of EBITDA has
tended to be at a discount to that of the Core Comparables.
Other Considerations. The Financial Advisor also took notice that other
alternatives to the proposed transaction, including retaining the status quo of
the Company ownership, engaging in a recapitalization or seeking to enter into a
transaction with a third party, were unlikely to be achieved under the
circumstances, given that Parent and International held, in the aggregate,
approximately 70% of the outstanding shares of Common Stock, and the stated
unwillingness of Parent to sell its interest in the Company.
19
<PAGE> 25
The foregoing summary describes all analyses and factors that the Financial
Advisor deemed material in its presentation to the Independent Committee, but is
not a comprehensive description of all analyses performed and factors considered
by the Financial Advisor in connection with preparing its opinion. A copy of the
Financial Advisor's written presentation to the Independent Committee with
respect to its opinion has been filed as an exhibit to the Schedule 13E-3 and
may be inspected, copied and obtained in the manner specified in "Available
Information." The preparation of a fairness opinion is a complex process
involving the application of subjective business judgment in determining the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, is not readily
susceptible to summary description. The Financial Advisor believes that its
analyses must be considered as a whole and that considering any portion of such
analyses and of the factors considered without considering all analyses and
factors could create a misleading view of the process underlying the opinion. In
arriving at its fairness determination, the Financial Advisor did not assign
specific weights to any particular analyses.
In conducting its analyses and arriving at its opinions, the Financial
Advisor utilized a variety of generally accepted valuation methods. The analyses
were prepared solely for the purpose of enabling the Financial Advisor to
provide its opinion to the Independent Committee as to the fairness of the
consideration to be received in the Merger by the Public Stockholders and does
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are inherently subject to
uncertainty. In connection with its analyses, the Financial Advisor made, and
was provided by the Company's management with, numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control. Analyses based on
estimates or forecasts of future results are not necessarily indicative of
actual past or future values or results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the Company or its advisors, neither the Financial Advisor nor any
other person assumes responsibility if future results or actual values are
materially different from these forecasts or assumptions.
The terms of the Merger were determined through negotiations between the
Independent Committee and Parent and were approved by the Independent Committee.
Although the Financial Advisor provided advice to the Independent Committee
during the course of these negotiations, the decision to recommend the Merger
was solely that of the Independent Committee. As described above, the opinion
and presentation of the Financial Advisor to the Independent Committee were only
one of a number of factors taken into consideration by the Independent Committee
in making its determination to recommend the Merger. The Financial Advisor's
opinion was provided to the Independent Committee to assist it in connection
with its consideration of the Merger and does not constitute a recommendation to
any stockholder as to how to vote with respect to the Merger.
The Independent Committee selected the Financial Advisor as financial
advisor in connection with the Merger based on the Financial Advisor's
qualifications, expertise, reputation and experience in mergers and
acquisitions. The Financial Advisor is engaged in the merger and acquisition and
client advisory business and, for legal and regulatory purposes, is a division
of BT Alex. Brown Incorporated, a registered broker dealer and member of the New
York Stock Exchange. The Independent Committee has retained the Financial
Advisor pursuant to a letter agreement dated January 30, 1998 (the "Engagement
Letter"). As compensation for the Financial Advisor's services in connection
with the Merger, the Company agreed to pay the Financial Advisor a fee of
$125,000 upon the execution of the Engagement Letter, $125,000 upon the
expiration of 90 days from the date of such execution if discussions regarding a
transaction were continuing, and $500,000 upon the announcement of an agreement
in principle to consummate the Merger. Upon consummation of the transactions
contemplated by the Merger Agreement, the Company will pay the Financial Advisor
an aggregate financial advisory fee equal to 1.25% of the total consideration to
be received in the Merger by the Public Stockholders and the option holders
other than Parent and International, reduced by the amount of any fees
previously paid pursuant to the Engagement Letter. Regardless of whether the
Merger is consummated, the Company has agreed to reimburse the Financial Advisor
for reasonable fees and disbursements of the Financial Advisor's counsel and all
of the Financial Advisor's reasonable travel and other out-of-pocket
20
<PAGE> 26
expenses incurred in connection with the Merger or otherwise arising out of the
retention of the Financial Advisor under the Engagement Letter. The Company has
also agreed to indemnify the Financial Advisor and certain related persons to
the full extent lawful against certain liabilities, including certain
liabilities under the federal securities laws arising out of its engagement or
the Merger.
The Financial Advisor is an internationally recognized investment banking
firm experienced in providing advice in connection with mergers and acquisitions
and related transactions. The Financial Advisor and its affiliates may actively
trade securities of the Company for their own account or the account of their
customers and, accordingly, may from time to time hold a long or short position
in such securities.
POSITION OF PARENT, INTERNATIONAL AND PURCHASER
Parent, International and the Purchaser had no involvement in the
Independent Committee's evaluation of the fairness of the Merger Consideration
to the Public Stockholders and none of such parties has undertaken any formal
evaluation of its own as to the fairness of the Merger Consideration. Parent,
International and Purchaser, however, have considered the factors set forth
above under "-- Determinations of the Independent Committee and the Board;
Fairness of the Merger" and "-- Opinion of Financial Advisor." Parent,
International and Purchaser believe that the Merger and the Merger Consideration
are fair to and in the best interests of the Public Stockholders. In connection
with their consideration of the determination by the Independent Committee and,
as part of their determination with respect to the fairness of the consideration
to be received by the Public Stockholders pursuant to the Merger Agreement,
Parent, International and Purchaser adopted the conclusion, and the analyses
underlying such conclusion, of the Independent Committee, based upon their view
as to the reasonableness of such analyses.
In view of the wide variety of factors considered in connection with their
evaluation of the Merger, Parent, International and the Purchaser did not find
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the individual factors, or determine that any factor was of
particular importance, in reaching their determination. Rather, Parent,
International and Purchaser viewed their position as being based on the totality
of the information presented and considered by them.
PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the Merger is for Parent to acquire beneficial ownership of
the entire equity interest in the Company. Parent, International and the
Purchaser entered into the Merger Agreement for the reasons described in
"-- Background to the Merger." The Company entered into the Merger Agreement for
the reasons described in "-- Determinations of the Independent Committee and the
Board; Fairness of the Merger."
The Merger has been structured as a merger of Purchaser with and into the
Company, with the Company being the Surviving Corporation. Parent structured the
transaction as a merger because it believed a merger to be the most efficient
means of acquiring the entire public interest in the Company in a single
transaction and because a merger provides flexibility with respect to certain
financial, operational and tax planning considerations. Prior to determining to
proceed with a merger proposal, Parent also considered a cash tender offer but
rejected it because there could be no assurance that Parent would acquire the
entire equity interest in the Company. Parent, International, the Purchaser and
the Company are undertaking the Merger at this time for the reasons set forth
under "-- Background of the Merger" and "-- Determinations of the Independent
Committee and the Board; Fairness of the Merger."
For additional information concerning the purpose of the Merger, see
"-- Background to the Merger" and "-- Determinations of the Independent
Committee and the Board; Fairness of the Merger."
CERTAIN CONSEQUENCES OF THE MERGER
As a result of the Merger, Purchaser will be merged with and into the
Company and the Company, as the Surviving Corporation, will become a
wholly-owned subsidiary of Parent. The Certificate of Incorporation of
Purchaser, as in effect immediately prior to the Effective Time, will be the
Certificate of Incorporation of the
21
<PAGE> 27
Surviving Corporation and the By-laws of Purchaser, as in effect immediately
prior to the Effective Time, will be the By-laws of the Surviving Corporation.
The directors of Purchaser immediately prior to the Effective Time shall be the
directors of the Surviving Corporation and the officers of the Company
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation.
After the Merger, the Surviving Corporation will be a wholly-owned
subsidiary of Parent. Accordingly, subject to applicable law and contractual
limitations, if any, Parent will be able to distribute, by way of dividend, loan
or otherwise, some or all of the assets of the Company, or otherwise make use of
such assets for investment in affiliates or other transactions as Parent may in
its sole discretion determine. Parent will realize all of the Company's profits
and losses, as well as any future deterioration or improvement in the Company's
earnings. In addition, Parent will be able to direct and control the policies of
the Company and its subsidiaries, including with respect to any extraordinary
corporate transaction such as a merger, reorganization or liquidation involving
the Company or any of its subsidiaries, a sale or transfer of a material amount
of assets of the Company or any of its subsidiaries, a change in the
capitalization or other changes in the Company's corporate structure or business
or the composition of the Company's Board or management, without taking into
account the current public minority equity interest. Any such extraordinary
transaction may occur with affiliates of the Parent, International or the
Purchaser. See "-- Plans for the Company After the Merger."
Following consummation of the Merger, the Common Stock will be deregistered
under the Exchange Act and delisted from the NYSE. The Company's ongoing
disclosure requirements under the Exchange Act will be terminated as well.
Following the Merger, the Company's Public Stockholders will no longer have any
interest in, and will not be Stockholders of, the Company and, therefore, will
not participate in its future potential earnings and growth and will not be
subject to the risks associated with an investment in the Company.
Stockholders who properly perfect their statutory appraisal rights under
and in accordance with Section 262 of the DGCL will have the right to seek
appraisal of their Common Stock. See "Appraisal Rights."
PLANS FOR THE COMPANY AFTER THE MERGER
Parent currently intends that, following the Merger, the business and
operations of the Company will be continued by the Surviving Corporation
substantially as they have been and are currently being conducted. It is
anticipated that Parent will from time to time evaluate and review the business,
operations and properties of the Surviving Corporation and make such changes as
are deemed appropriate. Following the Merger, Parent intends to review the
Company's corporate structure and make such changes as it deems appropriate in
order to achieve tax and financial reporting efficiencies within Parent's group
of companies.
Except as described in this Proxy Statement, Parent, International and the
Purchaser do not have any present plans or proposals involving the Company or
its subsidiaries which relate to or would result in an extraordinary corporate
transaction such as a merger, reorganization, or liquidation, or sale or
transfer of a material amount of assets, or any material change in the present
dividend policy, indebtedness or capitalization, or any other material change in
the Company's corporate structure or business. However, Parent will review
proposals or may propose the acquisition or disposition of assets or other
changes in the Surviving Corporation's business, corporate structure,
capitalization, management or dividend policy which it considers to be in the
best interest of the Surviving Corporation and its stockholders.
ACCOUNTING TREATMENT
The Merger will be accounted for by Parent in accordance with accounting
principles generally accepted in the Netherlands and comply with the financial
reporting requirements included in Part 9, Book 2 of the Dutch Civil Code. The
assets and liabilities and results of operations of the Company will be
consolidated into the assets and liabilities and results of operations of Parent
subsequent to the consummation of the Merger.
22
<PAGE> 28
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Winthrop, Stimson, Putnam & Roberts, the following are,
under currently applicable law, the material United States federal income tax
considerations generally applicable to the Merger.
This discussion addresses such considerations only as they apply to a
beneficial owner of shares of Common Stock that is (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created in or
under the laws of the United States or any political subdivision thereof or
therein, (iii) an estate the income of which is includible in gross income for
United States federal income tax purposes regardless of its source or (iv) a
trust the administration of which is subject to the primary supervision of a
court within the United States and for which one or more United States persons
have the authority to control all substantial decisions (a "U.S. Stockholder").
The tax treatment described herein may vary depending upon each U.S.
Stockholder's particular circumstances and tax position. Certain U.S.
Stockholders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, U.S. Stockholders that do not hold their shares as
capital assets and U.S. Stockholders that have acquired their existing stock
upon the exercise of options or otherwise as compensation) may be subject to
special rules not discussed below. No ruling from the Internal Revenue Service
(the "IRS") will be applied for with respect to the United States federal income
tax consequences discussed herein and, accordingly, there can be no assurance
that the IRS will agree with the conclusions stated herein. The discussion below
is based upon the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and regulations, rulings and judicial decisions thereunder as of
the date hereof, and such authorities may be repealed, revoked or modified so as
to result in United States federal income tax consequences different from those
discussed below. In addition, this discussion does not consider the effects of
any applicable state, local, foreign or other tax laws. Each U.S. Stockholder
should consult his, her or its own tax advisor as to the particular tax
consequences to such stockholder of the Merger, including the applicability and
effect of any state, local, foreign or other tax laws.
The receipt by a U.S. Stockholder of cash in exchange for Common Stock
pursuant to the Merger will be a taxable transaction for United States federal
income tax purposes and may also be a taxable transaction under applicable
state, local and foreign income and other tax laws. The tax consequences of such
receipt by a U.S. Stockholder may vary depending upon, among other things, the
particular circumstances of the U.S. Stockholder. In general, a U.S. Stockholder
will recognize gain or loss for United States federal income tax purposes equal
to the difference between the adjusted tax basis of his, her or its Common Stock
and the amount of cash received in exchange therefor in the Merger. If the
Common Stock is a capital asset in the hands of such U.S. Stockholder, such gain
or loss generally will be capital gain or loss that generally will be long-term
capital gain or loss if the holding period for the Common Stock is more than 12
months at the Effective Time. Generally, for U.S. Stockholders who are
individuals, long-term capital gain will be subject to a maximum rate of 20%.
The receipt of cash by a U.S. Stockholder of the Company pursuant to the
Merger may be subject to 31% "backup withholding" unless the stockholder (i) is
a corporation or comes within certain other exempt categories, or (ii) provides
a certified taxpayer identification number on Form W-9 and otherwise complies
with the backup withholding rules. Backup withholding is not an additional tax;
any amounts so withheld may be credited against the United States federal income
tax liability of the stockholder subject to the withholding.
For U.S. federal income tax purposes, the Merger will be treated as a
purchase for cash of the Company's stock from the Public Stockholders directly
or indirectly by Parent and International and will not result in the termination
of the existence of the Company.
The tax discussion set forth above includes only a discussion of the
material tax consequences generally expected to arise from the Merger and may
not reflect the tax consequences to a given stockholder. Due to the individual
nature of tax consequences, all Stockholders are urged to consult their tax
advisors as to the specific tax consequences to them of the Merger, including
the effects of applicable state, local or foreign income or other tax laws. In
particular, non-U.S. Stockholders should consult with their tax advisors with
respect to the tax treatment of the Merger Consideration.
23
<PAGE> 29
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain members of the Board and of the Company's management have
interests in the Merger, described herein, in conflict with the interests of the
Stockholders. The Board is aware of the conflicts summarized below and
considered them along with the other matters described under "-- Determinations
of the Independent Committee and the Board; Fairness of the Merger."
The following members of the Company's Board are also officers or employees
of Parent or its affiliates: Frans H.J. Koffrie (who is also the Acting
President and Chief Executive Officer of the Company), Harry G. Vreedenburgh and
George Dean. The Independent Committee was comprised of Philip E. Beekman and
Lorrence T. Kellar, neither of whom is an officer or employee of Parent or its
affiliates.
Interests in Common Stock and Options. At the Effective Time, each
outstanding Option granted under the Stock Option Plan or Option Agreement,
whether or not vested, will be terminated and, in exchange for such Option, the
holder will be entitled to receive from the Company, for each share of Common
Stock subject to such Option, a cash payment equal to the excess, if any, of the
Merger Consideration over the applicable exercise price. Executive officers of
the Company will receive an aggregate of approximately $1.7 million in respect
of their Options.
Indemnification and Insurance. The Certificate of Incorporation and the
By-Laws of the Surviving Corporation shall contain the provisions with respect
to indemnification and exculpation from liability set forth in the Company's
Certificate of Incorporation and By-Laws on the date of the Merger Agreement,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner that would adversely
affect the rights thereunder of individuals who on or prior to the Effective
Time were directors, officers, employees or agents of Company, unless such
modification is required by law.
Parent or the Surviving Corporation shall maintain in effect for three
years from the Effective Time policies of directors' and officers' liability
insurance containing terms and conditions which are not less advantageous to the
insured than any such policies of the Company currently in effect on the date of
the Merger Agreement (the "Company Insurance Policies"), with respect to matters
occurring prior to the Effective Time, to the extent available, and having the
maximum available coverage under any such Company Insurance Policies; provided,
that in no event shall Parent or the Surviving Corporation be required to pay
annual premiums for insurance in excess of that which is commercially
reasonable; and provided further, however, that if the annual premiums for such
insurance coverage exceed that which is commercially reasonable, Parent or the
Surviving Corporation shall be obligated to obtain a policy with the greatest
coverage at a cost which is commercially reasonable.
The officers of the Company immediately prior to the Effective Time shall
be the initial officers of the Surviving Corporation. The directors of Purchaser
will be the initial directors of the Surviving Corporation. See "The Merger
Agreement -- The Merger -- Certificate of Incorporation; By-laws; Officers and
Directors."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Prior to the initial public offering of 10,000,000 shares of Common Stock
of the Company on the NYSE on July 19, 1995, all of the Common Stock of the
Company was beneficially owned by Parent.
By virtue of its beneficial ownership of a majority of the outstanding
shares of the Company's Common Stock, Parent is in a position to control
substantially all corporate transactions requiring the vote of a majority of
Stockholders, including election of the entire Board, without the concurrence of
other Stockholders, and thereby is in a position to control the Company. Parent
is the beneficial owner of 23,400,000 shares of Common Stock, or approximately
70% of the issued and outstanding shares of Common Stock. Approximately 19% of
such shares are held of record by International, a wholly-owned subsidiary of
Parent, and the balance is held of record by Parent.
The following table sets certain information regarding the beneficial
ownership of the Company's voting securities as of September 1, 1998 by (i) each
person who is known by the Company to own beneficially more
24
<PAGE> 30
than 5% of the Company's outstanding Common Stock; (ii) each director and
executive officer of the Company; and (iii) all executive officers and directors
of the Company as a group (unless otherwise indicated, all addresses are c/o the
Company at Six Parkway North, Deerfield, Illinois 60015):
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OWNERSHIP CLASS(1)
---------------- ---------- --------
<S> <C> <C>
Buhrmann NV................................................. 23,400,000(2) 70.0
Buhrmann International B.V. ................................ 6,411,600 19.1
Frans H.J. Koffrie.......................................... -- --
Harry G. Vreedenburgh....................................... -- --
George Dean................................................. -- --
Lorrence T. Kellar.......................................... 1,000 *
Philip E. Beekman........................................... 6,000 *
Richard C. Dubin............................................ 169,140(3) *
Michael J. Miller........................................... 123,750(4) *
Janhein H. Pieterse......................................... 156,300(5) *
Francis J. Leonard.......................................... 28,040(6) *
Thomas F. Cullen............................................ 3,750(7) *
All Directors and Executive Officers as a Group (10
persons).................................................. 487,980(8) 1.5
</TABLE>
- ---------------
(1) An asterisk denotes beneficial ownership of 1% or less of the Common Stock.
(2) Includes 6,411,600 shares of Common Stock which are held of record by
International.
(3) Includes 169,140 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(4) Includes 123,750 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(5) Includes 155,000 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(6) Includes 27,790 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(7) Includes 3,750 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(8) Includes 479,430 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
FINANCING THE MERGER
The total amount of funds required to pay the Merger Consideration is
estimated to be approximately $138.9 million. Parent will ensure that the
Purchaser has sufficient funds to pay the Merger Consideration and will provide
for such funds from Parent's available cash or lines of credit. Approximately
$6.5 million will be required to pay holders of outstanding Options upon
cancellation of such Options and approximately $2.6 million will be required to
pay related fees and expenses of the Company and such amounts are expected to be
obtained from available cash of the Company.
25
<PAGE> 31
FEES AND EXPENSES
Estimated fees and expenses to be incurred by the Company in connection
with the Merger are as follows:
<TABLE>
<S> <C>
Investment banker fees...................................... $1,810,000
Commission filing fees...................................... 27,788
Legal fees.................................................. 600,000
Accounting fees............................................. 25,000
Printing and mailing expenses............................... 75,000
Solicitation expenses....................................... 4,500
Miscellaneous............................................... 57,712
----------
Total............................................. $2,600,000
==========
</TABLE>
REGULATORY APPROVALS
The Company, Parent, International and the Purchaser are not aware of any
governmental consents or approvals that are required prior to the parties'
consummation of the Merger. It is presently contemplated that if such
governmental consents and approvals are required, such consents and approvals
will be sought. There can be no assurance that any such consents and approvals
would be obtained.
APPRAISAL RIGHTS
Under the DGCL, any Stockholder that does not wish to accept $13.75 per
share for his, her or its shares of Common Stock as provided in the Merger
Agreement has the right to dissent from the Merger and to seek an appraisal of,
and to be paid the fair value (exclusive of any element of value arising from
the accomplishment or expectation of the Merger) for the shares of Common Stock,
provided that such stockholder complies with the provisions of Section 262 of
the DGCL.
Holders of record of Common Stock who do not vote in favor of the Merger
Agreement and who otherwise comply with the applicable statutory procedures will
be entitled to appraisal rights under Section 262 of the DGCL. A person having a
beneficial interest in shares of Common Stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect appraisal rights.
The following discussion is a summary of the material provisions of Section
262 of the DGCL. The following summary is qualified in its entirety by the full
text of Section 262 of the DGCL that is reprinted in its entirety as Annex III.
All references in Section 262 of the DGCL and in this summary to a "Stockholder"
or "holder" are to the record holder of the shares of Common Stock as to which
appraisal rights are asserted.
Under Section 262 of the DGCL, holders of shares of Common Stock
("Appraisal Shares") who follow the procedures set forth in Section 262 of the
DGCL will be entitled to have their Appraisal Shares appraised by the Delaware
Chancery Court and to receive payment in cash of the "fair value" of such
Appraisal Shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, as determined by such court.
Under Section 262 of the DGCL, where a proposed merger is to be submitted
for approval at a meeting of Stockholders, the corporation, not less than 20
days prior to the meeting, must notify each of its Stockholders who was a
Stockholder on the record date for such meeting with respect to shares for which
appraisal rights are available, that appraisal rights are so available, and must
include in such notice a copy of Section 262 of the DGCL.
This Proxy Statement constitutes such notice to the holders of Appraisal
Shares and the applicable statutory provisions of the DGCL are attached to this
Proxy Statement as Annex III. Any Stockholder who wishes to exercise such
appraisal rights or that wishes to preserve his, her or its right to do so
should review the
26
<PAGE> 32
following discussion and Annex III carefully, because failure to timely and
properly comply with the procedures therein specified will result in the loss of
appraisal rights under the DGCL.
A holder of Appraisal Shares wishing to exercise such holder's appraisal
rights (i) must not vote in favor of the Merger Agreement or consent thereto in
writing (including by returning a signed Proxy without indicating any voting
instructions as to the Proposal) and (ii) must deliver to the Company prior to
the vote on the Merger Agreement at the Special Meeting, a written demand for
appraisal of such holder's Appraisal Shares. This written demand for appraisal
must be in addition to and separate from any proxy or vote abstaining from or
against the Merger. This demand must reasonably inform the Company of the
identity of the Stockholder and of the Stockholder's intent thereby to demand
appraisal of his, her or its shares. A holder of Appraisal Shares wishing to
exercise such holder's appraisal rights must be the record holder of such
Appraisal Shares on the date the written demand for appraisal is made and must
continue to hold such Appraisal Shares until the consummation of the Merger.
Accordingly, a holder of Appraisal Shares who is the record holder of Appraisal
Shares on the date the written demand for appraisal is made, but who thereafter
transfers such Appraisal Shares prior to consummation of the Merger, will lose
any right to appraisal in respect of such Appraisal Shares.
Only a holder of record of Appraisal Shares is entitled to assert appraisal
rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificates. If
the Appraisal Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Appraisal Shares are owned of record by more than one owner
as in a joint tenancy or tenancy in common, the demand should be executed by or
on behalf of all joint owners. An authorized agent, including one or more joint
owners, may execute a demand for appraisal on behalf of a holder of record;
however, the agent must identify the record owner or owners and expressly
disclose the fact that, in executing the demand, the agent is agent for such
owner or officers. A record holder such as a broker who holds Appraisal Shares
as nominee for several beneficial owners may exercise appraisal rights with
respect to the Appraisal Shares held for one or more beneficial owners while not
exercising such rights with respect to the Appraisal Shares held for other
beneficial owners; in such case, the written demand should set forth the number
of Appraisal Shares as to which appraisal is sought. When no number of Appraisal
Shares is expressly mentioned, the demand will be presumed to cover all
Appraisal Shares in brokerage accounts or other nominee forms and those who wish
to exercise Appraisal Rights under Section 262 of the DGCL are urged to consult
with their brokers to determine the appropriate procedures for the making of a
demand for appraisal by such a nominee.
All written demands for appraisal should be sent or delivered to Thomas F.
Cullen, Vice President, General Counsel and Secretary of the Company at BT
Office Products International, Inc., Six Parkway North, Deerfield, Illinois
60015.
Within ten days after the consummation of the Merger, the Company will
notify each Stockholder that has properly asserted appraisal rights under
Section 262 of the DGCL and that has not voted in favor of the Merger Agreement
of the date the Merger became effective.
Within 120 days after the consummation of the Merger, but not thereafter,
the Company or any Stockholder who has complied with the statutory requirements
summarized above may file a petition in the Delaware Chancery Court demanding a
determination of the fair value of the Appraisal Shares that are entitled to
appraisal rights. The Company is under no obligation to and has no present
intention to file a petition with respect to the appraisal of the fair value of
the Appraisal Shares that are entitled to appraisal rights. Accordingly, it will
be the obligation of Stockholders wishing to assert appraisal rights to initiate
all necessary action to perfect their appraisal rights within the time
prescribed in Section 262 of the DGCL.
Within 120 days after the consummation of the Merger, any Stockholder that
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of Appraisal Shares not voted in favor of adoption of
the Merger Agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such Appraisal Shares. Such
statements must be mailed within 10 days after a written
27
<PAGE> 33
request therefor has been received by the Company, or within 10 days after
expiration of the period for delivery of demands for appraisal under Section 262
of the DGCL, whichever is later.
If a petition for an appraisal is filed on a timely basis, after a hearing
on such petition, of which the Register in Chancery (if so ordered by the
Delaware Chancery Court) shall give notice to Stockholders, the Delaware
Chancery Court will determine the Stockholders entitled to appraisal rights and
will appraise the "fair value" of their Appraisal Shares, exclusive of any
element of value arising from the accomplishment or expectation of the Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. Stockholders considering seeking appraisal
should be aware that the fair value of their Appraisal Shares as determined
under Section 262 of the DGCL could be more than, the same as or less than the
value of the consideration they would receive pursuant to the Merger Agreement
if they did not seek appraisal of their Appraisal Shares and that investment
banking opinions as to fairness from a financial point of view are not
necessarily opinions as to fair value under Section 262 of the DGCL. The
Delaware Supreme Court has stated, however, that "proof of value by any
techniques or methods that are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by Stockholders whose Appraisal
Shares have been appraised. The costs of the action may be determined by the
Delaware Chancery Court and taxed upon the parties as the Delaware Chancery
Court deems equitable. The Delaware Chancery Court may also order that all or a
portion of the expenses incurred by any Stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares that has duly demanded an appraisal in
compliance with Section 262 of the DGCL will not, after the consummation of the
Merger, be entitled to vote the Appraisal Shares subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those Appraisal Shares (except dividends or other distributions payable to
holders of record of Appraisal Shares as of a record date prior to the
consummation of the Merger).
If any Stockholder that properly demands appraisal of his, her or its
Appraisal Shares under Section 262 of the DGCL fails to perfect, or effectively
withdraws or loses, his, her or its right to appraisal, as provided in Section
262 of the DGCL, the Appraisal Shares of such stockholder will be converted into
the right to receive the consideration receivable with respect to such Appraisal
Shares in accordance with the Merger Agreement. A stockholder will fail to
perfect, or effectively lose or withdraw, his, her or its right to appraisal if,
among other things, no petition for appraisal is filed within 120 days after the
consummation of the Merger, or if such Stockholder delivers to the Company a
written withdrawal of his, her or its demand for appraisal. Any such attempt to
withdraw an appraisal demand more than 60 days after the consummation of the
Merger will require the written approval of the Company.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of such rights (in which
event a Stockholder will be entitled to receive the consideration receivable
with respect to his, her or its Appraisal Shares in accordance with the Merger
Agreement).
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the Merger
Agreement that is attached as Annex I to this Proxy Statement and incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Merger Agreement. All capitalized terms used herein and not defined are used
as defined in the Merger Agreement. Stockholders are urged to review the Merger
Agreement carefully and in its entirety.
28
<PAGE> 34
THE MERGER
In General. The Merger Agreement provides that, following the approval and
adoption of the Merger Agreement by the affirmative vote of (i) a majority of
the shares of Common Stock outstanding and (ii) a majority of the shares held by
the Public Stockholders that are voted at the Special Meeting and the
satisfaction or waiver of the other conditions to the Merger, Purchaser will be
merged with and into the Company, the separate existence of Purchaser will cease
and the Company will be the Surviving Corporation. Following the Merger, the
Surviving Corporation will be a wholly-owned subsidiary of Parent. As a result
of the Merger, all the rights, privileges, powers and franchises of the Company
and Purchaser will vest in the Surviving Corporation and all restrictions,
liabilities and duties of the Company and Purchaser will become the
restrictions, liabilities and duties of the Surviving Corporation.
Effective Time. The Merger Agreement provides that, as soon as practicable
following the satisfaction or, to the extent permitted under the Merger
Agreement, waiver of all conditions to the Merger, the Company and Purchaser
will file a certificate of merger with the Secretary of State of the State of
Delaware and make all other filings or recordings required by the DGCL in
connection with the Merger, and the Merger will become effective upon such
filing or at such later time as is specified in such certificate of merger.
Conversion of Securities. At the Effective Time, (i) each outstanding
share of Common Stock held by the Company or any wholly-owned subsidiary of the
Company as treasury stock immediately prior to the Effective Time shall be
canceled and no payment shall be made with respect thereto; (ii) outstanding
shares of Common Stock held by Parent and International immediately prior to the
Effective Time shall be converted into fully paid and non-assessable shares of
common stock of the Surviving Corporation at a rate of one share of Common Stock
of the Surviving Corporation for each 23,400 shares of Common Stock owned by
Parent and International, respectively; (iii) each share of common stock of
Purchaser outstanding immediately prior to the Effective Time will be canceled;
and (iv) each share of Common Stock outstanding immediately prior to the
Effective Time shall, except as otherwise provided in (i), (ii) and (iii) above
or as provided in the following paragraph, be converted into the right to
receive the Merger Consideration.
Shares of Common Stock outstanding immediately prior to the Effective Time
and held by a holder who has not voted in favor of the Merger or consented
thereto in writing and who has delivered a written demand for appraisal of such
shares in accordance with Section 262 of the DGCL shall not be converted into a
right to receive the Merger Consideration, if any, unless such holder fails to
perfect, withdraws or otherwise loses his, her or its right to appraisal. If
after the Effective Time such holder fails to perfect, withdraws or loses his,
her or its right to appraisal, such shares shall be treated as if they had been
converted as of the Effective Time into a right to receive the Merger
Consideration. See "Appraisal Rights."
Certificate of Incorporation; By-laws; Officers and Directors. At the
Effective Time, the directors of the Purchaser immediately prior to the
Effective Time will become the directors, and the officers of the Company
immediately prior to the Effective Time will become the officers, of the
Surviving Corporation until the earlier of their death, resignation or removal
or until their respective successors are duly elected or appointed and
qualified, as the case may be. At the Effective Time, the Certificate of
Incorporation and By-laws of the Purchaser as in effect immediately prior to the
Effective Time, will be the Certificate of Incorporation and By-laws of the
Surviving Corporation until thereafter changed or amended as provided therein or
with applicable law.
Exchange of Certificates. As soon as practicable after the Effective Time,
an exchange agent designated by Parent (the "Exchange Agent") will mail to each
holder of shares of Common Stock a letter of transmittal for use in effecting
the surrender of the certificates representing shares of Common Stock (the
"Certificates") in exchange for the Merger Consideration. The letter of
transmittal shall specify that the delivery shall be effected and risk of loss
and title shall pass only upon proper delivery of the Certificates to the
Exchange Agent. Upon surrender of a Certificate to the Exchange Agent, together
with a duly executed letter of transmittal and any other required documents, the
holder of such shares will be entitled to receive the Merger Consideration and
until so surrendered, each such Certificate shall, after the Effective Time,
represent for all purposes, only the right to receive the Merger Consideration.
After the Effective Time, holders of Certificates will have no right to vote or
to receive any dividends or other distributions with respect to any shares of
29
<PAGE> 35
Common Stock, other than any distributions payable to holders of record as of a
date prior to the Effective Time, and shall have no other rights other than as
provided in the Merger Agreement or by applicable law. After the Effective Time,
there shall be no further registration of transfers of shares of Common Stock.
If, after the Effective Time, certificates representing shares of Common Stock
are presented to the Surviving Corporation, they shall be canceled and exchanged
for the Merger Consideration provided for, and in accordance with the procedures
set forth, above.
If any portion of the Merger Consideration is to be paid to a Person other
than the registered holder of the shares of Common Stock represented by the
Certificate or Certificates surrendered in exchange therefor, it shall be a
condition to such payment that the Certificate or Certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall: (i) pay to the Exchange Agent any
transfer or other taxes required as a result of such payment to a Person other
than the registered holder of such Common Stock; or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
Any portion of the Merger Consideration made available to the Exchange
Agent that remains unclaimed by the holders of shares of Common Stock six months
after the Effective Time shall be delivered to the Surviving Corporation, upon
demand, and any such holder who has not exchanged his, her or its shares of
Common Stock for the Merger Payment prior to that time shall thereafter look
only to the Company for payment of the Merger Payment in respect of such shares.
Notwithstanding the foregoing, the Company shall not be liable to any holder of
shares of Common Stock for any amount paid to a public official pursuant to
applicable abandoned property laws. Any amounts remaining unclaimed by holders
of Common Stock five years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of the Company free and clear of any claims
or interest of any Person previously entitled thereto.
Any portion of the Merger Consideration made available to the Exchange
Agent to pay for Common Stock for which appraisal rights have been perfected
shall be delivered to the Surviving Corporation upon demand. The Exchange Agent
will be entitled to deduct and withhold from the Merger Consideration such
amounts as may be required under the Code. Such withheld amounts shall be
treated as having been paid to the holder of the Certificates in respect of
which such deduction and withholding was made by the Exchange Agent.
STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO
THE EXCHANGE AGENT WITHOUT A LETTER OF TRANSMITTAL AND SHOULD NOT RETURN THEIR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Dissenting Stockholders. Shares of Company Common Stock outstanding
immediately prior to the Effective Time and held by a holder (if any) who has
not voted in favor of the Merger or consented thereto in writing and who demands
appraisal for such shares of Company Common Stock in accordance with Section 262
of the DGCL shall not be converted into a right to receive the Merger
Consideration unless such holder fails to perfect or withdraws or otherwise
loses such holder's right to appraisal, if any. If, after the Effective Time,
such holder fails to perfect or withdraws or loses any such right to appraisal,
each such share of such holder shall be treated as a share that had been
converted as of the Effective Time into the right to receive Merger
Consideration. The Company shall give Parent (i) prompt notice of any demands
for appraisal of any shares of Company Common Stock received by the Company and
(ii) the opportunity to participate in and direct all negotiations and
proceedings with respect to any such demands. The Company shall not, without the
prior written consent of Parent, make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
Options. At the Effective Time, each outstanding Option granted under the
Stock Option Plan or Option Agreement, whether or not vested, will be terminated
and, in exchange for such Option, the holder will be entitled to receive from
the Company, for each share of Common Stock subject to such Option, a cash
payment equal to the excess, if any, of the Merger Consideration over the
applicable exercise price.
30
<PAGE> 36
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company, subject to certain exceptions, regarding the Company and the
Subsidiaries as to, among other things: (i) due organization, existence, good
standing, corporate power and authority, and qualifications or licensing to do
business; (ii) the requisite corporate power, authorization, execution, and
delivery of the Merger Agreement and the consummation of the transactions
contemplated thereby and the validity and enforceability thereof; (iii) consents
and approvals necessary for consummation of the Merger; (iv) the absence of any
violations, breaches or defaults under charter documents, laws, orders or
agreements that would result from compliance with any provisions of the Merger
Agreement; (v) capitalization, including the number of shares of Common Stock
outstanding, the number of shares issuable upon the exercise of options and
warrants, and obligations to issue, transfer, sell or vote in any particular
manner any equity or debt instrument; (vi) the due organization, existence, good
standing, corporate power and authority, qualifications or licensing to do
business, and capitalization of the Subsidiaries; (vii) compliance with the
Securities Act and the Exchange Act in connection with the documents filed by
the Company with the Commission and the fair presentation, in conformity with
generally accepted accounting principles applied on a consistent basis, of the
consolidated financial position of the Company by the financial statements
included in the documents filed by the Company with the Commission; (viii) no
untrue statement of a material fact or omissions of any material facts in this
Proxy Statement or in the 13E-3 Statement; (ix) compliance of this Proxy
Statement with the applicable provisions of the Exchange Act; (x) the absence of
pending litigation or violation of any law that is reasonably likely to have a
Material Adverse Effect; (xi) certain tax matters including the filing and
correctness of material Tax Returns, the payment or accrual of all material
Taxes and the absence of any deficiency for any proposed Taxes; (xii) certain
employee benefit plan and ERISA matters including the compliance of such plans
with applicable law, the payment of all contributions and payments due and non
minimum funding requirements; (xiii) compliance with applicable laws; (xiv) the
absence of any undisclosed fees or commissions owed to investment bankers or
brokers; and (xv) approval by the Independent Committee of the Merger Agreement
and the Merger as well as receipt of the Financial Advisor's Opinion. For
purposes of the Merger Agreement, "Material Adverse Effect" means a material
adverse effect on the business, assets, liabilities, results of operations or
financial condition of the Company and the Subsidiaries taken as a whole.
The Merger Agreement also contains various representations and warranties
of Parent, International and Purchaser as to, among other things: (i) due
organization, existence, good standing, corporate power and authority and
qualifications or licensing to do business; (ii) the requisite corporate power,
authorization, execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereby and the validity and
enforceability thereof; (iii) consents and approvals necessary for consummation
of the Merger; (iv) the absence of any violations, breaches or defaults under
charter documents, laws, orders or agreements that would result from compliance
with any provisions of the Merger Agreement; (v) no untrue statement of a
material fact or omissions of any material facts in this Proxy Statement or in
the 13E-3 Statement; (vi) the absence of any undisclosed fees or commissions
owed to investment bankers or brokers; and (vii) absence of litigation that
would reasonably be expected to have a material adverse effect on the ability of
Parent, International or Purchaser to perform their respective obligations under
the Merger Agreement.
CERTAIN COVENANTS
The Company has also agreed that until the Effective Time, except as
contemplated by the Merger Agreement:
(i) it will, and will ensure that each of its Subsidiaries, operate
the businesses conducted by it in the ordinary course and usual course, and
will use its reasonable efforts to preserve intact its present business
organizations, keep available the services of its present officers and key
employees and preserve its relationships with material customers and
suppliers and others having business dealings with it to the end that its
goodwill and ongoing business will not be impaired at the Effective Time;
(ii) it will not adopt or propose any change in its Certificate of
Incorporation or By-laws;
31
<PAGE> 37
(iii) it will not, and will not permit any Subsidiary to, merge or
consolidate with any other Person or acquire or agree to acquire a
substantial portion of assets of any other Person except in the ordinary
course of business consistent with past practice;
(iv) it will not, and will not permit any Subsidiary to, sell, lease,
license or otherwise dispose of any material assets or property except in
the ordinary course consistent with past practice;
(v) it will not, and will not permit any Subsidiary to, (a) declare or
pay any dividends on or make other distributions in respect of any of its
capital stock; (b) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock,
(c) repurchase, redeem or otherwise acquire any share of its capital stock,
or (d) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any share of its capital stock of any class or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares or convertible securities;
(vi) will not, and will not permit any Subsidiary to, other than in
the ordinary course of business consistent with prior practice, incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities of the Company or any Subsidiary or guarantee
any debt securities of others; and
(vii) will not, and will not permit any Subsidiary to, (a) adopt,
amend or terminate any material employee benefit plan or (b) grant to any
executive officer any increase in compensation or in severance or
termination pay, or enter into or amend any employment, severance or
similar agreement, arrangement or plan with any executive officer, except
for normal increases in compensation in the ordinary course of business.
In addition, the Company has agreed that it will not, and will not permit
any Subsidiary to, agree or commit to do any of the foregoing and will not, and
will not permit any Subsidiary to: (i) take or agree or commit to take any
action that would result in any of the representations and warranties of the
Company under the Merger Agreement becoming untrue; or (ii) take or agree to
commit to take any action that would result in any of the conditions to the
Merger not being satisfied.
Announcement. Neither the Company, on the one hand, nor Parent,
International and Purchaser, on the other hand, will issue any press release or
otherwise make any public statement with respect to the Merger Agreement and the
Merger without the prior consent of the other, except as may be required by
applicable law or stock exchange regulation.
No Solicitation. Under the Merger Agreement, the Company and the
Subsidiaries have agreed that until the Effective Time, the Company and the
Subsidiaries and the officers, directors, employees or other agents of the
Company and the Subsidiaries will not, directly or indirectly, take any action
to solicit, initiate or take any action knowingly to facilitate the submission
of any Acquisition Proposal or, subject to the fiduciary duties of the Board of
Directors under applicable law as advised by counsel to the Company, engage in
negotiations with, or disclose any nonpublic information relating to the Company
or any Subsidiary or afford access to the properties, books or records of the
Company or any Subsidiary to, any Person, except to customers and suppliers of
the Company and the Subsidiaries in the ordinary course of business. The Company
has also agreed to promptly notify Parent after receipt of any Acquisition
Proposal or any indication that any Person is considering making an Acquisition
Proposal or any request for nonpublic information relating to the Company or any
Subsidiary or for access to the properties, books or records of the Company or
any Subsidiary by any Person that may be considering making, or has made, an
Acquisition Proposal and to keep Parent fully informed of the status and,
subject to the fiduciary duties of the Board of Directors of the Company under
the DGCL, details of any such Acquisition Proposal, indication or request. For
purposes of the foregoing, "Acquisition Proposal" means any offer or proposal
for, or any indication of interest in, a merger or other business combination
involving the Company or any Subsidiary or the acquisition of any equity
interest in, any voting securities of, or a substantial portion of the assets
of, the Company or any Subsidiary, other than the transactions contemplated by
the Merger Agreement.
32
<PAGE> 38
Notification of Certain Matters. The Company, on the one hand, and Parent,
on the other hand, agree to give prompt notice to the other party of (i) the
occurrence, or nonoccurrence, of any event the occurrence, or nonoccurrence, of
which would be likely to cause any representation or warranty contained in the
Merger Agreement to be untrue or inaccurate in any material respect at or prior
to the Effective Time and (ii) any material failure of the Company, or Parent,
International or Purchaser, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
the Merger Agreement.
Director and Officer Liability. The Certificate of Incorporation and the
By-Laws of the Surviving Corporation shall contain the provisions with respect
to indemnification and exculpation from liability set forth in Company's
Certificate of Incorporation and By-Laws on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who on or prior to the Effective Time were
directors, officers, employees or agents of Company, unless such modification is
required by law. Parent has guaranteed the obligations of the Company under
these provisions.
Parent or the Surviving Corporation shall maintain in effect for three
years from the Effective Time policies of directors' and officers' liability
insurance containing terms and conditions which are not less advantageous to the
insured than any such policies of the Company currently in effect on the date of
this Agreement (the "Company Insurance Policies"), with respect to matters
occurring prior to the Effective Time, to the extent available, and having the
maximum available coverage under any such Company Insurance Policies; provided,
that in no event shall Parent or the Surviving Corporation be required to pay
annual premiums for insurance in excess of that which is commercially
reasonable; and provided further, however, that if the annual premiums for such
insurance coverage exceed that which is commercially reasonable, Parent or the
Surviving Corporation shall be obligated to obtain a policy with the greatest
coverage at a cost which is commercially reasonable.
CONDITIONS TO THE MERGER
Conditions to the Obligations of Parent, International and Purchaser. The
obligations of Parent, International and Purchaser to consummate the Merger are
subject to the satisfaction of the following conditions:
(i) The representations and warranties of the Company contained in the
Merger Agreement shall be true and correct in all material respects at and
as of the Effective Time as though made at and as of the Effective Time,
except to the extent that any such representation or warranty is made as of
a specified date, in which case such representation or warranty shall have
been true and correct in all material respects as of such date;
(ii) The Company shall have performed and complied in all material
respects with all of its undertakings and agreements required by the Merger
Agreement to be performed or complied with by it prior to or at the
closing;
(iii) No injunction, restraining order or decree of any governmental
authority shall be in effect, no statute, rule or regulation shall have
been enacted by a governmental authority and no action, suit or proceeding
shall have been instituted or threatened that prevents the consummation of
the Merger or materially challenges the transactions contemplated under the
Merger Agreement;
(iv) All consents, approvals and authorizations, and all material
filings with and notifications of governmental entities or other entities
which regulate the businesses of the Company or any Subsidiary, necessary
on the part of the Company or any Subsidiary, to the execution and delivery
of the Merger Agreement and the consummation of the transactions
contemplated thereby shall have been obtained or effected or filed;
(v) Except as set forth in the Disclosure Letter (as defined in the
Merger Agreement) dated June 2, 1998 or as set forth in the Company's
Commission reports, there shall have been no material
33
<PAGE> 39
adverse change since December 31, 1997 in the business, assets,
liabilities, results of operations or financial condition of the Company
and any Subsidiary, taken as a whole; and
(vi) The Merger Agreement shall have been approved and adopted by the
affirmative vote of a majority of the shares of Common Stock held by Public
Stockholders that are voted at the Special Meeting.
Any or all of the conditions referred to above may be waived, to the extent
permitted by applicable law, as provided herein under "-- Amendment; Waiver."
Conditions to the Obligations of the Company. The obligations of the
Company to consummate the Merger are subject to the satisfaction of the
following conditions:
(i) The representations and warranties of Parent, International and
Purchaser contained in the Merger Agreement shall be true and correct in
all material respects at and as of the Effective Time as though made at and
as of the Effective Time, except to the extent that any such representation
or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct in all material
respects as of such date;
(ii) Each of Parent, International and Purchaser each shall have
preformed and complied in all material respects with all of its
undertakings and agreements required by this Agreement to be performed or
complied with by Parent and Purchaser prior to or at the closing;
(iii) No injunction, restraining order or decree of any governmental
authority shall be in effect no statute, rule or regulation shall have been
enacted by a governmental authority and no action, suit or proceeding shall
have been instituted or threatened, that prevents the consummation of the
Merger or materially challenges the transactions contemplated under the
Merger Agreement;
(iv) All consents, approvals and authorizations, and all material
filings with and notifications of governmental entities or other entities
which regulate the businesses of Parent, International or Purchaser,
necessary on the part of Parent or Purchaser, to the execution and delivery
of the Merger Agreement and the consummation of the transactions
contemplated thereby shall have been obtained or effected or filed;
(v) The Merger Agreement shall have been approved and adopted by the
affirmative vote of (i) a majority of the shares of Common Stock
outstanding and (ii) majority of the shares held by Public Stockholders
that are voted at the Special Meeting; and
(vi) The Financial Advisor Opinion shall not have been withdrawn or
revoked.
Any or all of the conditions referred to above may be waived, to the extent
permitted by applicable law, as provided herein under "-- Amendment; Waiver."
TERMINATION OF THE MERGER AGREEMENT
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time (notwithstanding any approval
of the Merger Agreement by the Stockholders of the Company) by:
(i) mutual written consent of the Boards of Directors of Parent,
International and Purchaser and the Board of the Company upon
recommendation of the Independent Committee;
(ii) either the Company upon the recommendation of the Independent
Committee, on the one hand, or Parent, International and Purchaser, on the
other hand, if the Merger has not been consummated by November 30, 1998;
(iii) either the Company upon the recommendation of the Independent
Committee, on the one hand, or Parent, International and Purchaser, on the
other hand, if prior to the consummation of the Merger, the Independent
Committee shall have withdrawn or modified or changed in any manner adverse
to Parent or Purchaser its approval of the Merger Agreement or the Merger
after having concluded in
34
<PAGE> 40
good faith after consultation with independent legal counsel that there is
reasonable probability that the failure to take such action would result in
a violation of fiduciary obligations under applicable law; and
(iv) either the Company upon the recommendation of the Independent
Committee, on the one hand, or Parent, International and Purchaser, on the
other hand, if the Special Meeting shall have been held and the Public
Stockholders of the Company shall have failed to approve and adopt the
Merger Agreement and the Merger at such meeting.
Effect of Termination. If the Merger Agreement is terminated in accordance
with its terms, it shall become void and of no effect with no liability on the
part of any party thereto, except that the agreements contained in the Merger
Agreement with respect to termination costs and expenses shall survive the
termination thereof.
FEES AND EXPENSES
Except as contemplated by the Merger Agreement, all costs and expenses
incurred in connection with the Merger Agreement and the consummation of the
transactions contemplated thereby will be paid by the party incurring such
expenses.
AMENDMENT; WAIVER
The Merger Agreement may be amended in writing by the Company, Parent,
International or Purchaser; provided, however, that after adoption of the Merger
Agreement and the Merger by the Stockholders of the Company no such amendment
may be made without the further approval of the Stockholders of the Company
except to the extent permitted by Delaware Law. Notwithstanding the foregoing,
any amendment of the Merger Agreement on behalf of the Company shall be subject
to the approval of the Board of the Company upon the recommendation of the
Independent Committee.
At any time prior to the Effective Time, whether before or after the
Special Meeting, Parent, by action taken by its Board of Directors, or the
Company, by action taken by its Board upon the recommendation of the Independent
Committee, may (i) extend the time for the performance of any of the obligations
or other acts of any other party hereto or (ii) waive compliance with any of the
agreements of any other party or with any conditions to its own obligations. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party by a duly authorized officer.
CERTAIN INFORMATION CONCERNING THE COMPANY
DIRECTORS
Certain information regarding each director is set forth below, including
such individual's age and principal occupation, a brief account of business
experience during at least the last five years, other directorships currently
held and the year in which the individual was first elected a director of the
Company. The directors hold office until their successors are elected and
qualified or until their earlier removal or resignation. Unless otherwise
indicated, during the last five years the directors set forth below have not
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors) and have not been party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
were or are subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities, subject to, federal or
state securities or finding any violation with respect to such laws. Unless
otherwise indicated, the business address of each person listed below is the
Company's address.
Frans H. J. Koffrie, age 46, has served as Chairman of the Company's Board
of Directors since January 1998, as Acting President and Chief Executive Officer
of the Company since August 1997 and as a member of the Company's Board of
Directors since January 1996. Mr. Koffrie has also served as a member (and
Chairman since July 1998) of the Executive Board of Parent since June 1993, as a
Chairman of the Executive Board of Distribution Group of Parent since January
1996, in which capacity Mr. Koffrie has senior
35
<PAGE> 41
management responsibilities for various divisions of the Distribution Group
including the Paper Merchanting Division, the Graphic Systems Division in Europe
and Asia, the Information Systems Division and the Office Products Division, as
a director of International's Board of Management since May 1995, as a member
(and Chairman since May 1998) of Purchaser's Board of Directors since April 1998
and as President and Chief Executive Officer of Purchaser since May 1998. He
previously served as a member of the Executive Board of the VRG Groep N.V. from
April 1990 to March 1993. Mr. Koffrie is a citizen of The Netherlands.
Lorrence T. Kellar, age 60, has served as a member of the Company's Board
of Directors since January 1996. Mr. Kellar has been a Vice President -- Real
Estate of Kmart Corporation since May 1996. Mr. Kellar also currently serves as
a member of the Board of Directors of Multi-Color Corporation and Loehmann's
Inc. and a trustee of the Bartlett Management Trust, a mutual fund investment
company. He previously served as a Group Vice President of Kroger Co. from 1986
to April 1996 and as a member of the Board of Directors of the U.S. Shoe
Corporation from May 1986 to May 1995. Mr. Kellar is a United States citizen.
Philip E. Beekman, age 66, has served as a member of the Company's Board of
Directors since December 1996. Mr. Beekman is President and Chief Executive
Officer of Owl Hollow Enterprises, Inc., a consulting and investment company.
Mr. Beekman also currently serves as a member of the Board of Directors of The
General Chemical Group, Inc., Linens 'n Things, Inc., Consolidated Cigar
Corporation and Kendle International Inc. He previously served as Chairman and
Chief Executive Officer of Hook-SuperRx, Inc., a retail drug store chain, from
July 1986 to July 1994, and President and Chief Operating Officer of Seagram
Company, Ltd. from January 1977 to June 1986 and, prior thereto, as President of
Colgate Palmolive International from March 1973 to December 1976. Mr. Beekman is
a United States citizen.
Harry G. Vreedenburgh, age 47, a member of the Company's Board of Directors
since January 1998, has also served as a member of the Executive Board of the
Distribution Group of Parent since January 1996. Mr. Vreedenburgh has been the
Chief Financial Officer of the Distribution Group of Parent since October 1994,
as a member of Purchaser's Board of Directors since April 1998 and as Vice
President, Treasurer and Secretary of Purchaser since May 1998. He previously
served as Staff Director of Corporate Planning & Systems of Parent from 1993 to
1994 and, prior thereto, as Group Controller of the VRG Groep N.V. from 1987 to
1992. Mr. Vreedenburgh is a citizen of The Netherlands.
George Dean, age 51, a member of the Company's Board of Directors since
January 1998, has also served as a member of the Executive Board of Parent since
July 1998 and as a member of the Executive Board of the Distribution Group of
Parent since January 1996. Mr. Dean has been the Managing Director for the Paper
Merchanting Division of the Parent's Distribution Group since June 1995. He
previously served as the Managing Director of Contract Papers (Holding) Ltd.
from January 1990 to June 1995. Mr. Dean is a British citizen.
EXECUTIVE OFFICERS
The Board of Directors appoints the Company's executive officers. Certain
information concerning the Company's executive officers is set forth below,
except that information concerning Mr. Koffrie is set forth above under
"-- Directors." Unless otherwise indicated, during the last five years the
Company's executive officers set forth below have not been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) and
have not been party to a civil proceeding of a judicial or administrative body
of competent jurisdiction and as a result of such proceeding were or are subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities, subject to, federal or state securities or
finding any violation with respect to such laws. Unless otherwise indicated, the
business address of each person listed below is the Company's address.
Richard C. Dubin, age 56, has served as Executive Vice President and
President, BT Office Products North America since August 1997. Mr. Dubin has
been a Vice President of the Company since April 1995 and previously served as
Regional President, Midwest-West Region of the Company from January 1995 to
August 1997. Prior thereto, Mr. Dubin was the President of BT Buschart Office
Products, Inc. ("BT Buschart") from April 1990 through December 1994. Mr. Dubin
was the President of Buschart Office Products, Inc., a contract stationer
serving the St. Louis metropolitan area and the predecessor of BT
36
<PAGE> 42
Buschart, from September 1981 until the acquisition of Buschart Office Products,
Inc. by the Company in April 1990. Mr. Dubin is a United States citizen.
Janhein H. Pieterse, age 46, has served as President, BT Office Products
Europe since July 1995, as a Vice President of the Company since April 1995, and
prior thereto had served as the President -- European Operations of the Office
Products Division of Parent since January 1995. He previously served as the
President of the Copier Division of Parent from April 1994 to December 1994.
From October 1992 to March 1994, Mr. Pieterse served as the President of
Trimbach B.V., a solid board packaging manufacturing company. From August 1991
to September 1992, he served as the Managing Director of the group of packaging
manufacturing companies of BT. From January 1989 to July 1991, Mr. Pieterse was
the Managing Director of all operating companies in Australia and New Zealand of
Koninklijke Van Ommeren N.V., a Netherlands shipping/tanker company, and from
1986 to 1988, he served as the President of the Worldwide airfreight network of
such company. Mr. Pieterse is a citizen of The Netherlands.
Francis J. Leonard, age 42, has served as the Company's Vice
President -- Finance and Chief Financial Officer since April 1997 and as Chief
Accounting Officer since April 1995. Mr. Leonard also served as Controller of
the Company from April 1995 to April 1997. Mr. Leonard was employed in various
financial and accounting positions at Richardson Electronics Ltd., a worldwide
distributor of electronic devices, from April 1985 to July 1991, and as
Treasurer thereof from July 1991 through April 1995. Mr. Leonard is a certified
public accountant. Mr. Leonard is a United States citizen.
Thomas F. Cullen, age 42, was appointed Secretary of the Company in April
1997 and has served as Vice President, General Counsel of the Company since
November 1996. Prior thereto, Mr. Cullen had been engaged in the private
practice of law in Stamford, Connecticut since 1985. Mr. Cullen is a United
States citizen.
Michael J. Miller, age 42, has served as a Senior Vice President, Strategic
Systems of the Company since January 1997 and as a Vice President of the Company
since April 1995. Prior thereto, Mr. Miller was the Regional President,
South-Southeast Region of the Company from January 1995 to January 1997. Mr.
Miller previously was the President of BT Miller Business Systems, Inc. ("BT
Miller") from November 1992 through December 1994. Mr. Miller was the President
and a stockholder of Miller Business Systems, Inc., the predecessor of BT
Miller, from November 1985 until the acquisition of Miller Business Systems,
Inc. by the Company in November 1992. Mr. Miller is a United States citizen.
CERTAIN INFORMATION CONCERNING
PARENT, INTERNATIONAL AND THE PURCHASER
PARENT
The members of the Parent's supervisory board are as set forth below.
Unless otherwise indicated, during the last five years the members of Parent's
supervisory board set forth below have not been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors) and have not
been party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding were or are subject to
a judgment, decree or final order enjoining future violations of, or prohibiting
or mandating activities, subject to, federal or state securities or finding any
violation with respect to such laws. Unless otherwise indicated, the business
address of each person listed below is Parent's address.
Paul C. van den Hoek, age 59, has served as a member (and Chairman since
April 1998) of Parent's Supervisory Board since March 1993. Mr. van den Hoek
also currently serves as an attorney and Chairman of the Board at the law firm
of Stibbe Stimont Monahan Duhot; as Chairman of the Supervisory Board of
Advanced Semiconductor Materials International N.V., Ballast Nedam N.V., Meneba
N.V. and Het Financieele Daghlad B.V.; as a member of the Supervisory Board of
Molnlycke (Nederland) B.V., Robeco Groep N.V., Rolinco N.V., Rorento N.V. and
AEX Exchanges N.V.; and as a professor at Vrije Universiteit. Mr. van den Hoek
is a citizen of The Netherlands.
G.H. Smit, age 50, has served as a member of Parent's Supervisory Board
since June 1998. Mr. Smit also currently serves as Chairman of the Executive
Board of Vedior N.V., as Chairman of the Supervisory Board of
37
<PAGE> 43
Gran Dorado Leisure N.V. and as a member of the Supervisory Board of Transavia
Airlines B.V., Otra N.V. and Endemol Entertainment N.V. From 1990 to 1977, Mr.
Smit previously served as a member of the Management Board of Vendex
International N.V. Mr. Smit is a citizen of The Netherlands.
A.G. Jacobs, age 62, has served as a member of Parent's Supervisory Board
since June 1998. Mr. Jacobs also currently serves as a member of the Supervisory
Board of ING Groep N.V., N.V. Koninklijke Nederlandsche Petroleum Maatschappij,
N.V. Verenigd Bezit VNU, N.V. Struktongroep, IHC Caland N.V. and AEX Exchanges
N.V. and as the Chairman of the Supervisory Board of Nederlandse Participatie
Maatschappij N.V., Vedior N.V. and Johan Enschede B.V. From 1992 to June 1998,
Mr. Jacobs previously served as Chairman of the Executive Board of ING Groep
N.V. From 1994 to 1998, Mr. Jacobs served as a member of the Supervisory Board
of Nationale Investeringsbank N.V. Mr. Jacobs is a citizen The Netherlands.
The members of Parent's Executive Board are Mr. Koffrie and Mr. Dean.
Information concerning Mr. Koffrie and Mr. Dean is set forth above under
"Certain Information Concerning the Company -- Directors."
INTERNATIONAL
The members of International's Board of Management are Mr. Koffrie and Mr.
Klaas de Kluis. Information concerning Mr. Koffrie is set forth above under
"Certain Information Concerning the Company -- Directors." Unless otherwise
indicated, the business address of each person listed below is International's
address.
Klaas de Kluis, age 62, has served as a director of International's Board
of Management since January 1998. Mr. de Kluis also currently serves as Chairman
of the Supervisory Board of Brocacef Holding N.V., Koninklijke Van Ommeren N.V.,
Van Wijnen Groep N.V. and Schuttersveld N.V. and as a member of the Supervisory
Board of Gelderse Papiergroep N.V. and Sappi Ltd. Mr. de Kluis previously served
as Chairman of the Executive Board of Parent from December 1997 to July 1998.
From 1993 to 1996, Mr. de Kluis served as Vice-President of the Executive Board
of Parent and from April 1997 to December 1997 as a member of the Supervisory
Board of Parent. From August 1993 to June 1996, Mr. de Kluis served as President
of the Company. From 1993 to 1998, Mr. de Kluis served as Chairman of the
Supervisory Board of Abemy Group. From 1993 to 1997, Mr. de Kluis served as a
member of the Supervisory Board of Koninklijke Landre & Glinderman N.V. Mr. de
Kluis is a citizen of The Netherlands.
PURCHASER
The members of the Purchaser's board of directors are Mr. Koffrie and Mr.
Vreedenburgh. Information concerning Mr. Koffrie and Mr. Vreedenburgh is set
forth under "Certain Information Concerning the Company -- Directors."
The officers of Purchaser are Mr. Koffrie and Mr. Vreedenburgh. Information
concerning Mr. Koffrie and Mr. Vreedenburgh is set forth under "Certain
Information Concerning the Company -- Directors."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH PARENT
In the normal course of business, the Company and Parent and its other
affiliates have from time to time entered into various business transactions and
agreements, and the Company and its subsidiaries and Parent and its affiliates
may enter into additional material transactions in the future. The following is
a summary of each of the material agreements between the Company and Parent as
well as all material transactions between the Company and Parent and its other
subsidiaries since January 1, 1996. Unless otherwise expressly indicated, such
transactions were not necessarily conducted on an arm's length basis. Certain of
the transactions are evidenced by agreements which are summarized below.
In connection with the relocation of Mr. Rudolf Huyzer, from The
Netherlands to the United States in 1994, the Company advanced Mr. Huyzer
$1,017,928 for the purchase of a residence in the Chicago area. The
collateralized note evidencing the advance provided that interest was payable
quarterly and accrued at a rate of
38
<PAGE> 44
7.25% per annum beginning on November 6, 1994 with respect to $915,428 of the
principal amount thereof and beginning on January 1, 1995 with respect to the
balance of the principal amount. Principal has been repayable in quarterly
installments since September 1996 and thereafter until September 2024. As of
December 31, 1996, the aggregate principal amount outstanding under such note
was $850,000 and as of December 31, 1997, the aggregate principal amount
outstanding under such note was $650,000. The note was repaid in full in April
1998. Mr. Huyzer served as President and Chief Executive Officer of the Company
from April 1995 until his retirement in August 1997.
CREDIT FACILITIES
The Company and certain of its European subsidiaries (the "European
Subsidiaries") entered into a credit agreement dated as of June 16, 1997 (the
"Affiliate Credit Agreement") with Buhrmann Europcenter N.V. ("Europcenter"),
which facility expires in July 1999. Pursuant to the terms of the Affiliate
Credit Agreement, the Antilliana Credit Agreement, as modified by the Assignment
and Modification Agreement dated June 26, 1996 among the Company, Antilliana and
KNP BT Finance (USA), Inc., an affiliate of Parent, was terminated.
The Company currently has a commitment of NLG 110 million (approximately
$55 million) under the Affiliate Credit Agreement, which commitment is available
for borrowings to be used for the Company's European operations. Pursuant to the
terms of the Affiliate Credit Agreement, the European Subsidiaries may also lend
funds representing positive balances in certain cash management accounts of up
to NLG 20 million (approximately $10 million) to Europcenter.
Under the Affiliate Credit Agreement, loans are available in German Marks,
British Pounds, Netherlands Guilders, Swedish Kronor and any other currency
acceptable to the lender. Loans from Europcenter to the European Subsidiaries
bear interest at 1% over the applicable interbank rate as determined therein.
Loans from the European Subsidiaries to Europcenter bear interest at 1% less
than the applicable interbank rate as determined therein.
The Affiliate Credit Agreement contains certain events of default,
including Parent's failure to beneficially own more than 50% of the issued and
outstanding share capital of the Company. There is a commitment fee payable by
the Company on the unused portion of the commitment from Europcenter, which fee
fluctuates based on the Company's consolidated leverage ratio (consisting of the
ratio of consolidated debt to EBITDA) for the period of the four consecutive
fiscal quarters most recently ended as of a given date, adjusted on a pro forma
basis to give effect to material acquisitions and divestitures. The commitment
fee at December 31, 1997 was 0.3% of the unused commitment.
At December 31, 1997, the Company had outstanding loans payable to
Europcenter under the Affiliate Credit Agreement of $16.5 million and
Europcenter had outstanding loans payable to the European Subsidiaries of $9.6
million. The latter amount is included in cash and cash equivalents.
The Company, acting for itself and each of its wholly-owned U.S.
subsidiaries, entered into an amended and restated cash management agreement
dated as of June 16, 1997 (the "Cash Management Agreement") with Sengewald USA,
Inc. and KNP BT USA Holdings, Inc., each affiliates of Parent. The Cash
Management Agreement replaced the cash management agreement dated June 24, 1996
to which the Company and certain affiliates of Parent were parties.
Pursuant to the Cash Management Agreement, each of the parties other than
the Company invests cash representing positive balances in certain cash
management accounts with the Company and the Company provides overdraft
protection to these U.S. affiliates of Parent up to specified limits.
Under the Cash Management Agreement, investments earn interest at the LIBO
rate as determined therein less .625% and loans from the Company bear interest
at the LIBO rate plus .625%. At December 31, 1997, the investment balance for
affiliate parties totaled $629,000. Each party to the Cash Management Agreement
may terminate such agreement upon thirty days notice to the other parties
thereto and the Cash Management Agreement would terminate as to all parties upon
the occurrence of certain other events, including Parent's failure to own more
than 50% of the issued and outstanding share capital of the Company.
39
<PAGE> 45
REGISTRATION RIGHTS
Pursuant to the terms of a registration rights agreement (the "Registration
Rights Agreement") among the Company, Parent and International, which agreement
became effective upon completion of the Company's initial public offering in
July 1995, each of International and Parent has the right to require the Company
to register for public offering and sale all or a portion of the Common Stock
held by it from time to time (and, if pursuant to a short-form registration
statement, if available, on an unlimited number of occasions). In addition,
during the term of the Registration Rights Agreement, each of International and
Parent has the right to participate in any registration of Common Stock
initiated by the Company, subject to certain limitations. The Company will pay
all out-of-pocket expenses of any such registrations, including reasonable fees
and expenses of one counsel for International and Parent, and will indemnify
certain liabilities, including liabilities under the federal securities laws, in
connection therewith. Each of International and Parent will pay all underwriting
discounts and commissions applicable to shares of Common Stock sold by it
pursuant to any such registrations. The rights of International and Parent under
the Registration Rights Agreement are transferable to any affiliate of Parent.
TAX MATTERS
The Company, Parent and certain of Parent's affiliates entered into a tax
matters agreement in connection with the Reorganization and the Company's
initial public offering (the "Tax Matters Agreement") whereby Parent will
indemnify the Company for any taxes and any related interest, penalties or other
additions to tax ("Taxes") arising in any taxable year in respect of the certain
packaging manufacturing businesses (the "Packaging Businesses") in the United
States transferred by the Company to Parent in connection with the Corporate
Reorganization and their disposition in the Corporate Reorganization and any
Taxes arising any year with respect to the Company's initial public offering.
Under the Tax Matters Agreement, Parent will also indemnify the Company to the
extent of any Taxes relating to its office products distribution operations
prior to the Corporate Reorganization in excess of certain thresholds specified
in the agreement. The computation of any increase in Taxes and any resulting
liability for indemnity payments will be determined after giving effect to the
tax adjustment otherwise giving rise to indemnification and to any other net
refunds of Taxes to which indemnity is provided to that indemnified party.
The Tax Matters Agreement also provides for the treatment of such matters
as allocating overlap period Taxes, return preparation, refunds, audits and
controversies with tax authorities, sharing information and resolving
controversies between parties.
During the year ended December 31, 1997, the Company received reimbursement
of $287,677 under the Tax Matters Agreement, primarily representing the
Packaging Business' share of the 1991 to 1993 Internal Revenue Service audit
that was settled in early 1997. In addition, the Company made a payment of
$153,589 under the Tax Matters Agreement representing certain tax benefits
obtained by the Company which were attributable to the Packaging Business.
Prior to the Corporate Reorganization, the Company and certain of its
subsidiaries, as well as the Packaging Businesses, had comprised a consolidated
United States federal income tax group. For periods following the Corporate
Reorganization, the Packaging Businesses will no longer be a part of the
Company's consolidated United States federal income group.
INTELLECTUAL PROPERTY
Pursuant to a license agreement between Parent and the Company, which
became effective upon the completion of the Company's initial public offering in
July 1995, Parent has granted a royalty-free, perpetual license to the Company
and its subsidiaries to use the name "BT" along with Parent's logo in connection
with the Company's office products distribution businesses. However, the license
to use such logo terminates upon the change of control of the Company or upon
the occurrence of certain other events.
SERVICES
Parent and its subsidiaries have provided services to the Company and its
subsidiaries, including certain financial and treasury services, as well as
insurance, tax, legal and human resource services. In connection with
40
<PAGE> 46
such services, the Company has paid fees to Parent. The Company has also
provided certain support services to Parent and its affiliates (including the
Packaging Businesses).
The Company and Parent entered into an Intercompany Services Agreement for
the continuing provision of such services, which agreement became effective upon
completion of the Company's initial public offering in July 1995. The agreement
has a one-year term and thereafter automatically renews for successive one year
periods unless earlier terminated by either party. Such agreement provides for
fees to be paid at rates determined on the basis of costs calculated in a manner
not inconsistent with past practices, if any, but no greater than the good faith
estimate of the fee that would be charged by an independent third party. At any
time during the term of the agreement, the Company or Parent may request that
Parent or the Company, as the case may be, provide additional or different
services or case providing one or more services then being provided.
The Company uses office space provided by Parent for certain of its
executive officers and employees in Parent's headquarters in Amsterdam. During
1997, the Company reimbursed Parent at market rates for the cost of such space.
GUARANTIES
Parent has guarantied certain obligations of the Company under various
leases for real property and equipment. Parent continues to maintain its
outstanding guaranties and provided certain additional guaranties pursuant to
the terms of an agreement for credit support dated as of June 15, 1995 (the
"Agreement for Credit Support") with the Company and certain of its
subsidiaries. Subject to the terms and conditions of the Agreement for Credit
Support, Parent agreed to provide from time to time until January 31, 1996,
directly or through one of its affiliates, guaranties of certain obligations of
the Company and its subsidiaries up to an aggregate principal amount of all such
guaranteed obligations outstanding as specified therein. Each of the Company and
such subsidiaries will reimburse any amounts paid by Parent under any guaranty
made by Parent under the Agreement for Credit Support. Pursuant to the terms of
the Agreement for Credit Support, the Company and such subsidiaries have agreed
to pay a guaranty fee to Parent of .25% per annum of the daily aggregate
principal amount of the guaranteed obligations outstanding for each day through
the earlier of the repayment of such obligations and the release of Parent with
respect to all guaranties. The Agreement for Credit Support contains certain
events of default which include Parent's failure to own, beneficially and of
record, more than 50% of the issued and outstanding share capital of the Company
(provided, however, that Parent is obligated under the Credit Agreement to give
45 days' notice to the Company of its intention to so reduce its ownership of
the Company's share capital). The Company had $10.1 million outstanding under
the Agreement for Credit Support at December 31, 1996. The carrying amount of
such guarantees was $10.3 million at December 31, 1997.
SALES TO AND PURCHASES FROM AFFILIATES
The Company has sold office products and related services to affiliates of
Parent. Such transactions generally were effected on terms comparable to those
available in transactions with unaffiliated parties. Revenue from such
transactions amounted to approximately $1.3 million for 1996 and $1.7 million
for 1997. In addition, the Company has occasionally purchased certain products
from Parent and its other affiliates (including the Packaging Businesses) for
resale. Such purchases totaled approximately $8.6 million for 1996 and $8.1
million for 1997. The Company expects to continue to engage in similar
affiliated party transactions on generally the same basis as it would engage in
such transactions with unaffiliated third parties.
LEASES
Veenman Kantoormachines B.V., Veenman Office Management B.V., Direct Dealer
Services Nederland B.V. and Repro Copiers Nederland B.V. lease one of their
facilities from an affiliate of Parent under an operating lease that expires on
September 30, 1999. Rental expense under such lease was $0.6 million in 1996 and
$0.5 million in 1997. Future total minimum lease payments are $1.0 million. BT
Office Products Deutschland GmbH, formerly known as bax Burosysteme
Vertriebsgesellschaft mbH, an indirect wholly-owned subsidiary of the Company
acquired from Parent in 1996, leases one of its facilities from an affiliate of
41
<PAGE> 47
Parent under an operating lease that expires on June 30, 1999. Rental expense
under such lease was $0.3 million in 1997 and future total minimum lease
payments are $0.4 million.
ARTICLE 403 STATEMENT
Parent has issued an Article 403 Statement under Netherlands law for the
Company's Netherlands subsidiaries. Pursuant to such Article 403 Statement,
Parent is liable for claims of third parties against such companies. The Company
has agreed to indemnify Parent for any such liability.
BUSINESS ACQUISITION
In July 1996, the Company assumed control of bax Burosysteme
Vertriebsgesellschaft mbH ("Bax"), an office equipment distributor located in
Germany and an indirect wholly-owned subsidiary of Parent. In October 1996, the
Company completed the acquisition of Bax by acquiring the shares of Bax from
Parent for approximately $9.8 million in cash. Bax leases one of its facilities
from an affiliate of Parent under an operating lease that expires on June 30,
1999. Rental expense under such lease was $270,000 in 1996 and $0.3 million in
1997.
STOCKHOLDER LITIGATION
Five putative class action complaints have been filed in the Court of
Chancery of the State of Delaware, New Castle County, by persons claiming to
represent the Public Stockholders. Four of the complaints name several of the
Company's directors, the Company and Parent. Spitzer v. De Wit, et al., Civil
Action No. 16152NC (filed on January 22, 1998); Birnbaum v. De Wit, et al.,
Civil Action No. 16153NC (filed on January 22, 1998); David v. De Wit, et al.,
Civil Action No. 16155NC (filed on January 23, 1998); and Wright v. BT Office
Products [sic], et al., Civil Action No. 16156NC (filed on January 23, 1998). A
fifth complaint, naming several of the Company's directors, and the Company, was
filed on January 23, 1998: Howard Gunty, Inc. Profit Sharing & Trust v. BT
Office Products International, Inc., et al., Civil Action No. 16154NC. The
complaints allege, among other things, that Parent's purported proposal to
purchase the Company's publicly held stock for $10.50 a share was unfair and
inadequate; that Parent's proposal served no legitimate business purpose of the
Company; that Parent had breached its duty as a controlling shareholder of the
Company; and that the directors did not satisfy their duty of loyalty to the
Company. These matters were consolidated by the Court of Chancery on May 21,
1998.
The complaints seek, among other things, declaration of class action
status; preliminary and permanent injunctive relief; recission; monetary
damages; costs and attorneys' fees. The Company and Parent believe the
complaints are without merit, but have recently entered into a memorandum of
understanding involving all of these cases in order to minimize the expense and
risk associated with protracted litigation. While the plaintiffs did not have a
direct role in the negotiations relating to the Merger Agreement, the memorandum
of understanding acknowledges that Parent took into account the desirability of
addressing the claims asserted by the plaintiffs in increasing its offer to
$13.75. The memorandum of understanding provides that the actions be dismissed
with prejudice and that plaintiffs' claims be extinguished. The memorandum of
understanding is being reduced to a stipulation of settlement and will be
subject to the review of the Court of Chancery.
42
<PAGE> 48
MARKET PRICE AND DIVIDEND INFORMATION
The Common Stock (NYSE symbol: BTF) commenced trading on the NYSE on July
19, 1995. Prior to that time, there was no market for the Common Stock. The
following table sets forth the range of high and low sale prices of the Common
Stock on the NYSE for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
First Quarter Fiscal Year 1996.............................. $23 1/2 $13
Second Quarter Fiscal Year 1996............................. $23 7/8 $15 1/2
Third Quarter Fiscal Year 1996.............................. $17 7/8 $ 9 7/8
Fourth Quarter Fiscal Year 1996............................. $14 $ 8 1/8
First Quarter Fiscal Year 1997.............................. $11 1/8 $ 6 7/8
Second Quarter Fiscal Year 1997............................. $ 9 $ 7 1/4
Third Quarter Fiscal Year 1997.............................. $13 $ 7 5/16
Fourth Quarter Fiscal Year 1997............................. $12 7/16 $ 6 11/16
First Quarter Fiscal Year 1998.............................. $12 $ 7 5/16
Second Quarter Fiscal Year 1998............................. $13 9/16 $11 9/16
Third Quarter Fiscal Year 1998 (through September 1,
1998)..................................................... $13 9/16 $13 1/8
</TABLE>
On January 21, 1998, the last trading date prior to public announcement of
Parents' proposal to the Company to acquire the shares of Common Stock of the
Public Stockholders, the high and low sales prices of the Common Stock on the
NYSE were $10 1/2 and $9 9/16 per share, respectively. On September 1, 1998, the
last trading date before the printing of this Proxy Statement, the high and low
prices of the Common Stock on the New York Stock Exchange were $13 1/2 and
$13 3/8 per share, respectively.
Stockholders are urged to obtain current market quotations for the Common
Stock prior to making any decision with respect to the Merger.
As of September 1, there were 33,504,770 shares of Common Stock outstanding
and approximately 180 record holders of Common Stock.
The Company has not declared or paid cash dividends on its Common Stock.
The Company currently anticipates that it will retain all available funds for
use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Company's Board of Directors
and will be dependent upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company and its subsidiaries
for each of the two years ended December 31, 1997, incorporated by reference in
this Proxy Statement, have been audited by Coopers & Lybrand LLP, independent
auditors, as stated in their report incorporated herein by reference. The
financial statements of the Company and its subsidiaries for the year ended
December 31, 1995, incorporated by reference in this Proxy, have been audited by
Ernst & Young LLP, independent auditors, as stated in their report incorporated
herein by reference.
Representatives of PricewaterhouseCoopers LLP will attend the Special
Meeting and will have an opportunity to make a statement if they desire to do so
and to respond to appropriate questions from Stockholders.
43
<PAGE> 49
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
(a) Current Report on Form 8-K filed pursuant to Section 13 of the
Exchange Act on February 26, 1998;
(b) Current Report on Form 8-K filed pursuant to Section 13 of the
Exchange Act on June 8, 1998;
(c) Annual Report on Form 10-K of the Company for its fiscal year
ended December 31, 1997, filed pursuant to Section 13 of the Exchange Act;
(d) Quarterly Report on Form 10-Q of the Company for its fiscal
quarter ended March 31, 1998, filed pursuant to Section 13 of the Exchange
Act; and
(e) Quarterly Report on Form 10-Q of the Company for its fiscal
quarter ended June 30, 1998, filed pursuant to Section 13 of the Exchange
Act.
In addition, all documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date hereof and prior to the date of the Special Meeting shall be deemed to
be incorporated herein by reference and shall be deemed to be a part hereof from
the date of filing of such documents (such documents, and the documents
enumerated above, being herein referred to as "Incorporated Documents"). All
statements contained herein relating to the Company are qualified in their
entirety by reference to the more detailed information set forth in the
Incorporated Documents.
Any statement contained in an Incorporated Document shall be deemed to be
modified or superseded for all purposes to the extent that a statement contained
herein or in any other subsequently filed Incorporated Document modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Proxy Statement. Copies of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 (other than exhibits) and the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1998 are attached to
this Proxy Statement as Annexes IV and V.
NO PERSON IS AUTHORIZED TO PROVIDE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS WITH RESPECT TO THE MATTERS DESCRIBED IN THIS PROXY STATEMENT
OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY REFERENCE
HEREIN. ANY INFORMATION OR REPRESENTATIONS WITH RESPECT TO SUCH MATTERS NOT
CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THEREOF, AS THE CASE MAY
BE.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Proxy Statement has been delivered, upon the written or oral
request of such person, by first-class mail or other equally prompt means within
one business day of receipt of such request, a copy of any or all of the
Incorporated Documents, other than exhibits to such Incorporated Documents,
unless such exhibits are specifically incorporated by reference into the
information that this Proxy Statement incorporates. The Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 attached hereto
contains a list briefly describing all the exhibits not contained therein. The
Company will furnish any exhibit upon the payment of a specified reasonable fee,
which fee will be limited to the Company's reasonable expenses in furnishing
such exhibit. Written or oral requests for such copies should be directed to:
Thomas F. Cullen, Vice President, General Counsel and Secretary of the Company
at Six Parkway North, Deerfield, Illinois 60015, telephone number (847)
444-4000.
44
<PAGE> 50
ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NV KONINKLIJKE KNP BT,
KNP BT INTERNATIONAL B.V.
BT OPI ACQUISITION CORP.
AND
BT OFFICE PRODUCTS INTERNATIONAL, INC.
DATED AS OF JUNE 2, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 51
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1
SHAREHOLDERS' ACTION
Section 1.01 Proxy Statement; Other Filings................ I-1
Section 1.02 Meeting of Stockholders of the Company........ I-1
Section 1.03 Legal Requirements for Merger................. I-2
Section 1.04 Additional Agreements and Provisions.......... I-2
ARTICLE 2
THE MERGER
Section 2.01 The Merger.................................... I-2
Section 2.02 Effective Time................................ I-2
Section 2.03 Closing....................................... I-2
Section 2.04 Certificate of Incorporation; By-laws;
Officers and Directors........................ I-2
Section 2.05 Effect on Capital Stock....................... I-3
(a) Capital Stock of the Purchaser........... I-3
(b) Capital Stock of Company................. I-3
(c) Cancellation of Treasury Stock........... I-3
(d) Capital Stock of Company Held by Parent
or International......................... I-3
Section 2.06 Dissenting Shares............................. I-3
Section 2.07 Treatment of Options.......................... I-3
Section 2.08 Exchange of Certificates...................... I-4
(a) Exchange Agent........................... I-4
(b) Exchange Procedures...................... I-4
(c) No Further Ownership Rights in Company
Stock.................................... I-4
(d) Termination of Exchange Fund............. I-4
(e) No Liability............................. I-5
(f) Lost Certificates........................ I-5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01 Organization of the Company and the
Subsidiaries.................................. I-5
Section 3.02 Capitalization of the Company; Ownership...... I-5
Section 3.03 Subsidiaries of the Company................... I-5
Section 3.04 Authorization................................. I-6
Section 3.05 Fairness Opinion and Approval by the
Independent Committee......................... I-6
Section 3.06 No Violations; Consents and Approvals......... I-6
Section 3.07 SEC Reports................................... I-7
Section 3.08 Information Supplied.......................... I-7
Section 3.09 Litigation.................................... I-7
Section 3.10 Compliance with Applicable Laws............... I-7
Section 3.11 Brokers and Finders........................... I-7
Section 3.12 Tax Matters................................... I-8
Section 3.13 Employee Benefits............................. I-8
</TABLE>
I-i
<PAGE> 52
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT, INTERNATIONAL AND THE PURCHASER
Section 4.01 Organization and Authority of Parent,
International and the Purchaser............... I-8
Section 4.02 Authorization................................. I-8
Section 4.03 No Violations; Consents and Approvals......... I-9
Section 4.04 Information in Proxy Statement; 13E-3
Statement..................................... I-9
Section 4.05 Brokers and Intermediaries.................... I-9
Section 4.06 Litigation.................................... I-9
Section 4.07 Financing..................................... I-10
ARTICLE 5
CERTAIN COVENANTS AND AGREEMENTS
Section 5.01 Conduct of Business........................... I-10
(a) Ordinary Course.......................... I-10
(b) Dividends; Changes in Stock.............. I-10
(c) Governing Documents...................... I-10
(d) No Acquisitions.......................... I-10
(e) No Dispositions.......................... I-10
(f) No Indebtedness.......................... I-10
(g) Employee Benefits; Executive
Compensation............................. I-10
(h) Other Business........................... I-11
Section 5.02 Announcement.................................. I-11
Section 5.03 No Solicitation............................... I-11
Section 5.04 Notification of Certain Matters............... I-11
Section 5.05 Directors' and Officers' Indemnification...... I-11
ARTICLE 6
CONDITIONS PRECEDENT
Section 6.01 Conditions to Each Party's Obligation to
Effect the Merger............................. I-12
(a) No Injunction or Proceeding.............. I-12
(b) Consents................................. I-12
(c) Approval of Holders of Company Common
Stock.................................... I-12
Section 6.02 Conditions to the Obligation of the Company to
Effect the Merger............................. I-12
(a) Representations and Warranties........... I-12
(b) Agreements............................... I-12
(c) Opinion of Financial Advisor............. I-12
Section 6.03 Conditions to the Obligations of Parent,
International and the Purchaser to Effect the
Merger........................................ I-13
(a) Representations and Warranties........... I-13
(b) Agreements............................... I-13
(c) No Material Adverse Change............... I-13
</TABLE>
I-ii
<PAGE> 53
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.01 Termination................................... I-13
Section 7.02 Effect of Termination......................... I-13
Section 7.03 Amendment..................................... I-14
Section 7.04 Waiver........................................ I-14
ARTICLE 8
MISCELLANEOUS
Section 8.01 Nonsurvival of Representations and
Warranties.................................... I-14
Section 8.02 Expenses...................................... I-14
Section 8.03 Applicable Law................................ I-14
Section 8.04 Notices....................................... I-14
Section 8.05 Entire Agreement.............................. I-15
Section 8.06 Assignment.................................... I-15
Section 8.07 Headings; References.......................... I-15
Section 8.08 Counterparts.................................. I-15
Section 8.09 No Third Party Beneficiaries.................. I-16
Section 8.10 Severability; Enforcement..................... I-16
</TABLE>
I-iii
<PAGE> 54
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 2, 1998 (the "Agreement")
among BT Office Products International, Inc., a Delaware corporation (the
"Company"), NV Koninklijke KNP BT, a Netherlands corporation ("Parent"), KNP BT
International B.V., a Netherlands corporation and wholly-owned subsidiary of
Parent ("International"), and BT OPI Acquisition Corp., a Delaware corporation
wholly-owned by Parent and International (the "Purchaser").
WHEREAS, the Boards of Directors of the Purchaser, Parent and International
and the Board of Directors of the Company upon the recommendation of its
independent committee of disinterested members (the "Independent Committee")
have unanimously approved, and deem advisable and in the best interests of their
stockholders, the acquisition of the Company by Parent and International;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Parent, International, the Purchaser and the Company and Parent and
International as the stockholders of the Purchaser have each approved this
Agreement and the merger of the Purchaser with and into the Company in
accordance with the terms, and subject to the conditions of, this Agreement (the
"Merger") and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
SHAREHOLDERS' ACTION
SECTION 1.01 PROXY STATEMENT; OTHER FILINGS. As promptly as practicable
after the date hereof, the Company shall prepare and file with the Securities
and Exchange Commission (the "Commission") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and shall use its best efforts to have
cleared by the Commission, and promptly thereafter shall mail to its
stockholders, a proxy statement and form of proxy with respect to the meeting of
holders of Common Stock, par value $0.01 per share, of the Company ("Company
Common Stock"). The term "Proxy Statement" shall mean such proxy statement at
the time it initially is mailed to holders of Company Common Stock and all
amendments or supplements thereto, if any, similarly filed and mailed. As soon
as practicable after the date hereof the Purchaser shall promptly prepare and
file a Rule 13E-3 Transaction Statement pursuant to Rule 13e-3 under the
Exchange Act (together with any amendment or supplement thereto, the "13E-3
Statement"). The Company shall notify Parent and International promptly of the
receipt by it of any comments of the Commission and of any request by the
Commission for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent and International with copies of
all correspondence between it and its representatives, on the one hand, and the
Commission or the members of its staff, on the other hand, with respect to the
Proxy Statement. The Company, Parent, International and the Purchaser each shall
use its best efforts to obtain and furnish the information required to be
included in the Proxy Statement and the 13E-3 Statement and to respond promptly
to any comments made by the Commission with respect to the Proxy Statement and
the 13E-3 Statement and any preliminary version thereof.
SECTION 1.02 MEETING OF STOCKHOLDERS OF THE COMPANY. Promptly after the
date hereof, the Company shall take all action necessary, in accordance with the
DGCL, its Certificate of Incorporation and By-Laws and the requirements of the
New York Stock Exchange, to convene a meeting of its stockholders as promptly as
practicable to consider and vote upon the adoption of this Agreement and the
Merger. In addition to the stockholder vote required to adopt and approve this
Agreement and the Merger by the DGCL, the adoption of this Agreement and the
Merger shall require the affirmative vote of a majority of shares held by Public
Stockholders (as defined herein) that are voted at such meeting of stockholders.
Subject to the fiduciary obligations of the Board of Directors of the Company
under applicable law as advised by outside counsel, the Proxy Statement shall
contain the determinations of the Independent Committee and the recommendation
of the Board of Directors of the Company that the holders of Company Common
Stock vote to adopt and approve this Agreement and the Merger. At any such
meeting Parent and International shall vote, or cause to
I-1
<PAGE> 55
be voted, in favor of the Merger all of the shares of Company Common Stock then
owned by Parent and International, respectively, or any subsidiary or affiliate
of Parent or International, respectively.
SECTION 1.03 LEGAL REQUIREMENTS FOR MERGER. (a) Parent, International and
the Purchaser will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on Parent, International or the
Purchaser with respect to the Merger and will promptly cooperate with and
furnish information to the Company in connection with any such requirements
imposed upon the Company in connection with the Merger.
(b) The Company will take all reasonable actions necessary to comply
promptly with all legal requirements which may be imposed on it with respect to
the Merger and will promptly cooperate with and furnish information to Parent,
International and the Purchaser in connection with any such requirements imposed
upon Parent, International or the Purchaser in connection with the Merger.
SECTION 1.04 ADDITIONAL AGREEMENTS AND PROVISIONS. Subject to the terms
and conditions of this Agreement, each of the parties hereto agrees to use its
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. If at any time after the Effective Time (as hereinafter defined)
any further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation (as hereinafter defined) with
full title to all properties, assets, rights, approvals, immunities and
franchises of either the Company or the Purchaser, the proper officers and
directors of each corporation that is a party to this Agreement shall take all
such necessary action. The parties hereto agree to use their respective best
reasonable efforts to challenge any action, including using all best reasonable
efforts to have any order or injunction vacated or reversed, brought against any
of the parties hereto seeking a temporary restraining order or preliminary or
permanent injunctive relief which would prohibit, or materially interfere with,
the consummation of the transactions contemplated by this Agreement.
ARTICLE II
THE MERGER
SECTION 2.01 THE MERGER. At the Effective Time, upon the terms and
subject to the conditions set forth in this Agreement and in accordance with the
DGCL, the Purchaser shall be merged with and into the Company, the separate
existence of the Purchaser shall cease, and the Company shall continue as the
surviving corporation (the "Surviving Corporation"). The Merger shall have the
effects as provided by the DGCL and other applicable law.
SECTION 2.02 EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article 6, the parties
shall file with the Secretary of State of the State of Delaware a certificate of
merger (the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or recordings required
under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Secretary of State of the State of
Delaware, or at such other time as is permissible in accordance with the DGCL
and as Parent and the Company shall agree and as specified in the Certificate of
Merger (the time the Merger becomes effective being the "Effective Time").
SECTION 2.03 CLOSING. The closing of the Merger (the "Closing") will take
place at the offices of Winthrop, Stimson, Putnam & Roberts, One Battery Park
Plaza, New York, New York at 10:00 a.m. (New York City time) on the date of the
satisfaction of the conditions provided in Article 6, or at such other time and
place as the Company and Parent shall agree (the "Closing Date").
SECTION 2.04 CERTIFICATE OF INCORPORATION; BY-LAWS; OFFICERS AND
DIRECTORS. Pursuant to the Merger: (a) the Certificate of Incorporation and
By-laws of the Purchaser as in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation and By-laws of the Surviving
Corporation following the Merger until thereafter changed or amended as provided
therein and with applicable law; (b) the directors of the Purchaser immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
I-2
<PAGE> 56
following the Merger and until the earlier of their death, resignation or
removal or until their respective successors are duly elected or appointed and
qualified; and (c) the officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation until the
earlier of their death, resignation or removal or until their respective
successors are duly elected or appointed and qualified.
SECTION 2.05 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, Parent,
International, the Purchaser or the holders of any shares of Company Common
Stock:
(a) Capital Stock of the Purchaser. Each share of Common Stock of the
Purchaser, par value $1.00 per share ("Purchaser Common Stock"), which is
issued and outstanding immediately prior to the Effective Time, shall be
canceled.
(b) Capital Stock of Company. Subject to Sections 2.05(c), 2.05(d)
and 2.06, each share of Company Common Stock which is issued and
outstanding immediately prior to the Effective Time shall be converted into
and become a right to receive $13.75 in cash (the "Merger Consideration")
and, when so converted, shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any
such shares of Company Common Stock shall, to the extent such certificate
represents such shares, cease to have any rights with respect thereto,
except the right to receive the Merger Consideration allocable to the
shares represented by such certificate upon surrender of such certificate
in accordance with Section 2.08.
(c) Cancellation of Treasury Stock. Any shares of Company Common
Stock that are owned immediately prior to the Effective Time by the Company
or any wholly-owned subsidiary of the Company which constitutes treasury
stock in the hands of the holder thereof, shall be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor, and each holder of a certificate representing any such shares
shall cease to have any rights with respect thereto.
(d) Capital Stock of Company Held by Parent or International. Any
shares of Company Common Stock that are owned immediately prior to the
Effective Time by Parent or International shall be converted into fully
paid and non-assessable shares of common stock of the Surviving Corporation
at a rate of one share of common stock of the Surviving Corporation for
each 23,400 shares of Company Common Stock owned by Parent or
International, respectively.
SECTION 2.06 DISSENTING SHARES. Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock outstanding
immediately prior to the Effective Time and held by a holder (if any) who has
not voted in favor of the Merger or consented thereto in writing and who demands
appraisal for such shares of Company Common Stock in accordance with Section 262
of the DGCL ("Dissenting Shares") shall not be converted into a right to receive
the Merger Consideration, unless such holder fails to perfect or withdraws or
otherwise loses such holder's right to appraisal, if any. If, after the
Effective Time, such holder fails to perfect or withdraws or loses any such
right to appraisal, each such share of such holder shall be treated as a share
that had been converted as of the Effective Time into the right to receive the
Merger Consideration, without interest, in accordance with Section 2.05(b). The
Company shall give Parent (i) prompt notice of any demands for appraisal of any
shares of Company Common Stock received by the Company and (ii) the opportunity
to participate in and direct all negotiations and proceedings with respect to
any such demands. The Company shall not, without the prior written consent of
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands.
SECTION 2.07 TREATMENT OF OPTIONS. Prior to the Effective Time, the
Company will take all actions necessary to provide that, at the Effective Time,
each option to purchase shares of Company Common Stock (a "Company Stock
Option") granted under the BT Office Products International, Inc. 1995 Stock
Option Plan (the "Stock Option Plan") or the BT Office Products International,
Inc. Amended and Restated Non-Qualified Stock Option Agreement dated as of June
25, 1996 (the "Option Agreement"), whether or not vested, will be terminated
and, in exchange for such Company Stock Option, the holder will be entitled to
receive from the Company, for each share of Company Common Stock subject to such
Company Stock
I-3
<PAGE> 57
Option, a cash payment equal to the excess, if any, of the Merger Consideration
over the applicable exercise price.
SECTION 2.08 EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. Prior to the Effective Time, Parent shall appoint a
bank or trust company to act as exchange agent (the "Exchange Agent") for the
payment of the Merger Consideration. As of the Effective Time, Parent shall have
deposited with the Exchange Agent, for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Section 2.08, the
aggregate amount of cash payable pursuant to Section 2.05(b) hereof in exchange
for outstanding shares of Company Common Stock (the "Exchange Fund").
(b) Exchange Procedures. Promptly after the Effective Time, the Exchange
Agent shall mail (or at the request of a holder of Company Common Stock, hand
deliver) to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to receive cash
pursuant to Section 2.05(b) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
representing such shares of Company Common Stock shall pass, only upon delivery
of the certificates representing such shares of Company Common Stock to the
Exchange Agent and shall be in such form and have such other provisions as the
Exchange Agent may reasonably specify), and instructions for use in effecting
the surrender of the certificates representing such shares of Company Common
Stock, in exchange for the Merger Consideration. Upon surrender to the Exchange
Agent of a certificate or certificates representing shares of Company Common
Stock and acceptance thereof by the Exchange Agent, the holder thereof shall be
entitled to the amount of cash into which the number of shares of Company Common
Stock previously represented by such certificate or certificates surrendered
shall have been converted pursuant to this Agreement. The Exchange Agent shall
accept such certificates upon compliance with such reasonable terms and
conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices. After the Effective Time,
there shall be no further transfer on the records of the Company or its transfer
agent of certificates representing shares of Company Common Stock and if such
certificates are presented to the Company for transfer, they shall be canceled
against delivery of the Merger Consideration allocable to the shares of Company
Common Stock represented by such certificate or certificates. If any Merger
Consideration is to be remitted to a name other than that in which the
certificate for the Company Common Stock surrendered for exchange is registered,
it shall be a condition of such exchange that the certificate so surrendered
shall be properly endorsed, with signature guaranteed, or otherwise in proper
form for transfer and that the person requesting such exchange shall pay to the
Company, or its transfer agent, any transfer or other taxes required by reason
of the payment of Merger Consideration to a name other than that of the
registered holder of the certificate surrendered, or establish to the
satisfaction of the Company or its transfer agent that such tax has been paid or
is not applicable. Until surrendered as contemplated by this Section 2.08 each
certificate for shares of Company Common Stock shall be deemed at any time after
the Effective Time to represent only the right to receive upon such surrender
the Merger Consideration allocable to the shares represented by such certificate
as contemplated by Section 2.05(b). No interest will be paid or will accrue on
any amount payable as Merger Consideration. Subject to completion of the
documentation referred to above, the Merger Consideration shall be paid at the
Effective Time to holders of Company Common Stock.
(c) No Further Ownership Rights in Company Stock. Merger Consideration
paid upon the surrender for exchange of certificates representing shares of
Company Common Stock in accordance with the terms of this Section 2.08 shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Company Common Stock represented by such certificates.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund
(including any interest and other income received by the Exchange Agent in
respect of all such funds) which remains undistributed to the holders of the
certificates representing shares of Company Common Stock for six months after
the Effective Time shall be delivered to the Surviving Corporation, upon demand,
and any holders of shares of Company Common Stock prior to the Merger who have
not theretofore complied with this Section 2.08 shall thereafter
I-4
<PAGE> 58
look only to the Surviving Corporation and only as general creditors thereof for
payment of their claim for Merger Consideration to which such holders may be
entitled.
(e) No Liability. No party to this Agreement shall be liable to any Person
(as hereinafter defined) in respect of any amount from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(f) Lost Certificates. In the event any certificate or certificates
representing shares of Company Common Stock shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such certificate or certificates to be lost, stolen or destroyed, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed certificate the
Merger Consideration deliverable in respect thereof as determined in accordance
with, this Section 2.08, provided that the Person to whom the Merger
Consideration is paid shall, as a condition precedent to the payment thereof,
indemnify Parent in an agreement reasonably satisfactory to it against any claim
that may be made against Parent or the Company with respect to the certificate
claimed to have been lost, stolen or destroyed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent, International and the
Purchaser as follows:
SECTION 3.01 ORGANIZATION OF THE COMPANY AND THE SUBSIDIARIES. The
Company and each of its Subsidiaries (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all the requisite corporate power and
authority to carry on its business as now being conducted and to own, lease, use
and operate the properties owned and used by it. The Company and each of its
Subsidiaries is qualified or licensed and in good standing to do business in
each jurisdiction in which the nature of its business requires it to be so
qualified or licensed, except to the extent the failure to be so qualified or
licensed has not had, and would not reasonably be expected to have, a Material
Adverse Effect. The term "Material Adverse Effect" means a material adverse
effect of the business, assets, liabilities, results of operations or financial
condition of the Company and its Subsidiaries, taken as a whole. The term
"Subsidiary" means any corporation, joint venture, partnership, limited
liability company or other entity of which the Company, directly or indirectly,
owns or controls capital stock (or other equity interests) representing more
than fifty percent of the general voting power under ordinary circumstance of
such entity. The term "Person" means any individual, corporation, partnership,
trust or unincorporated organization or a government or any agency or political
subdivision thereof.
SECTION 3.02 CAPITALIZATION OF THE COMPANY; OWNERSHIP. The authorized
capital stock of the Company consists of 90,000,000 shares of Company Common
Stock, of which 33,471,000 shares are issued and outstanding as of the date
hereof, and 10,000,000 shares of Preferred Stock, par value $.01 per share, of
which no shares are issued and outstanding as of the date hereof. All of the
issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid and non-assessable and free of preemptive
rights. Except for outstanding Company Stock Options, there are no outstanding
options, warrants or other rights of any kind to acquire (including preemptive
rights) any additional shares of capital stock of the Company or securities
convertible into or exchangeable for, or which otherwise confer on the holder
thereof any right to acquire, any such additional shares, nor is the Company
committed to issue any such option, warrant, right or security. Following the
Merger, the Company will have no obligation to issue, transfer or sell any
shares of its capital stock or other securities of the Company pursuant to any
employee benefit plan or otherwise.
SECTION 3.03 SUBSIDIARIES OF THE COMPANY. The only direct or indirect
Subsidiaries of the Company are as set forth on Schedule 3.03 to the disclosure
letter dated the date hereof and delivered by the Company to Parent (the
"Disclosure Letter"). All outstanding shares of capital stock or other equity
interests of each Subsidiary are owned by the Company free and clear of any and
all liens, claims, security interests or options, except for restrictions on
transfer under federal and state securities laws. All shares of capital stock of
each Subsidiary which is a corporation have been validly issued and are fully
paid and non-assessable. There are no
I-5
<PAGE> 59
outstanding options, warrants or other rights of any kind to acquire (including
preemptive rights) any additional equity interests of any Subsidiary or
securities convertible into or exchangeable for, or which otherwise confer on
the holder thereof any right to acquire, any additional equity interests of any
Subsidiary, nor is any Subsidiary committed to issue any such option, warrant,
right or security. Other than the Subsidiaries referred to in the first sentence
of this Section 3.03, the Company does not own, directly or indirectly, any
equity interest in any other corporation, joint venture, partnership, limited
liability company or other entity.
SECTION 3.04 AUTHORIZATION. The Company has all requisite corporate power
and authority to enter into this Agreement and, subject to any necessary
approval of the Merger by the stockholders of the Company, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all requisite
corporate action on the part of the Company (other than the approval of this
Agreement and the transactions contemplated hereby by the stockholders of the
Company). The Board of Directors of the Company has unanimously adopted
resolutions approving this Agreement and the Merger, determined that the terms
of the Merger are fair to, and in the best interests of, the Company's
stockholders and recommended that the Company's stockholders approve and adopt
this Agreement. This Agreement has been duly executed and delivered by the
Company and, assuming the due authorization, execution and delivery hereof by
the Parent, International and the Purchaser, constitutes the valid and binding
obligation of the Company, enforceable against the Company except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
SECTION 3.05 FAIRNESS OPINION AND APPROVAL BY THE INDEPENDENT
COMMITTEE. On or prior to the date hereof, the Independent Committee (i)
approved the terms of this Agreement and the transactions contemplated hereby as
they relate to the stockholders (other than Parent, International and their
affiliates) of the Company (the "Public Stockholders"), including without
limitation the Merger, (ii) has determined that the Merger is fair to and in the
best interest of the Public Stockholders and (iii) recommended that the Board of
Directors of the Company approve and authorize this Agreement and such
transactions. The Independent Committee has received the opinion, dated as of
the date hereof, of BT Wolfensohn to the effect that the consideration to be
received by the Public Stockholders in the Merger is fair to such stockholders
from a financial point of view. Based on such opinion, and such other factors as
it deemed relevant, the Board of Directors of the Company has taken all of the
actions set forth in clauses in (i) and (ii) above, and has directed that this
Agreement be submitted to a vote at a meeting of stockholders.
SECTION 3.06 NO VIOLATIONS; CONSENTS AND APPROVALS.
(a) Neither the execution, delivery and performance of this Agreement by
the Company nor the consummation by the Company of the transactions contemplated
hereby will (i) violate any provision of the Certificate of Incorporation or
By-Laws of the Company or any of its Subsidiaries, (ii) conflict with, result in
a violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration or to the imposition of any lien) under, or result
in the acceleration or trigger of any payment, time of payment, vesting or
increase in the amount of any compensation or benefit payable pursuant to, the
terms, conditions or provisions of any note, bond, mortgage, indenture,
guarantee or other evidence of indebtedness, lease, license, contract,
agreement, plan or other instrument or obligation to which the Company or any of
its Subsidiaries is a party or by which any of them or any of their assets may
be bound or (iii) conflict with or violate any federal, state, local or foreign
order, writ, injunction, judgment, award, decree, statute, law, rule or
regulation (collectively, "Laws") applicable to the Company, any of its
Subsidiaries or any of their properties or assets, except in the case of clauses
(ii) or (iii) for such conflicts, violations, breaches, defaults or liens which
individually and in the aggregate would not have or result in a Material Adverse
Effect or materially impair or delay the consummation of the transactions
contemplated hereby.
(b) No filing or registration with, declaration or notification to, or
order, authorization, consent or approval of, any federal, state, local or
foreign court, legislative, executive or regulatory authority or agency (a
I-6
<PAGE> 60
"Governmental Entity") or any other Person is required in connection with the
execution, delivery and performance of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, except (i)
applicable requirements under the Exchange Act, (ii) the filing of the
Certificate of Merger with the Secretary of State and (iii) such other consents,
approvals, orders, authorizations, notifications, registrations, declarations
and filings the failure of which to be obtained or made individually and in the
aggregate would not have or result in a Material Adverse Effect or materially
impair or delay the consummation of the transactions contemplated hereby.
SECTION 3.07 SEC REPORTS. The Company has filed all reports and schedules
(including without limitation proxy statements) required to be filed with the
Commission since December 31, 1996 (collectively, the "Company SEC Reports").
None of the Company SEC Reports, as of their respective dates (as amended
through the date hereof), contained any untrue statement of material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. Each of the balance sheets (including the related
notes) included in the Company SEC Reports presents fairly the consolidated
financial position of the Company and its Subsidiaries as of the respective
dates thereof, and the other related statements (including the related notes)
included therein present fairly the results of operations and cash flows of the
Company and its Subsidiaries for the respective periods or as of the respective
dates set forth therein, all in conformity with generally accepted accounting
principles consistently applied during the periods involved, except as otherwise
noted therein and subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments and any other adjustments described
therein. All of the Company SEC Reports, as of their respective dates (as
amended through the date hereof), complied in all material respects with the
requirements of the Exchange Act and the applicable rules and regulations
thereunder.
SECTION 3.08 INFORMATION SUPPLIED. (a) The Proxy Statement, on the date
the Proxy Statement is mailed to stockholders of the Company and at the time of
the stockholder vote referred to in Section 6.01(c), will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act and the rules and regulations thereunder. No representation
is made by the Company with respect to any information supplied by Parent,
International, the Purchaser or any of their affiliates (other than the Company
and its Subsidiaries) expressly for inclusion in the Proxy Statement or the
13E-3 Statement.
(b) The information supplied in writing by the Company specifically for
inclusion in the 13E-3 Statement, on the date the 13E-3 Statement is filed with
the Commission and at the time mailed to stockholders of the Company, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
SECTION 3.09 LITIGATION. Except as disclosed in the Company SEC Reports
or as set forth on Schedule 3.09 of the Disclosure Letter, there is no action,
suit or proceeding pending or, to the knowledge of the Company, threatened
against the Company or any Subsidiary at law, in equity or otherwise, in,
before, or by any court or governmental agency or authority which is reasonably
likely to have a Material Adverse Effect.
SECTION 3.10 COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in the
SEC Reports, the businesses of the Company and its Subsidiaries are not being
conducted in violation of any law, ordinance or regulation of any Governmental
Entity, except for possible violations which individually or in the aggregate do
not, and, insofar as reasonably can be foreseen, in the future will not, have a
Material Adverse Effect. No investigation or review by any Governmental Entity
with respect to the Company or any of its Subsidiaries is pending or, to the
knowledge of the Company, threatened, nor has any Governmental Entity indicated
an intention to conduct the same, except for investigations or reviews which
individually or in the aggregate would not have a have a Material Adverse
Effect.
SECTION 3.11 BROKERS AND FINDERS. Other than BT Wolfensohn, neither the
Company nor any Subsidiary has employed any broker, finder, advisor or
intermediary in connection with the transactions
I-7
<PAGE> 61
contemplated by this Agreement which would be entitled to a broker's, finder's
or similar fee or commission in connection therewith or upon the consummation
thereof. Any such fees due to BT Wolfensohn shall be paid by the Company.
SECTION 3.12 TAX MATTERS. The Company and its Subsidiaries have filed all
federal, state, county, local and material foreign Returns required to be filed
by them, and have paid all taxes shown to be due thereon, other than taxes
appropriate reserves for which have been made in the Company's financial
statements to the extent required under generally accepted accounting principles
in the United States, except where the failure to file such tax returns or to
have paid such taxes would not, singly or in the aggregate, have a Material
Adverse Effect. There are no assessments or adjustments that have been asserted
in writing against the Company or its Subsidiaries for any period for which the
Company has not made appropriate reserves in the Company's financial statements
to the extent required by generally accepted accounting principles in the United
States. The term "Returns" means all returns, reports, estimates, information
returns and statements of any nature with respect to any federal, state, local
or foreign income, gross receipts, profits, franchise, transfer, sales, use
payroll, occupation, property (real or personal), excise and similar taxes
(including interest, penalties or additions to such taxes).
SECTION 3.13 EMPLOYEE BENEFITS. (a) With respect to each employee benefit
plan (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and each other plan, program, policy, contract or
arrangement providing for bonuses, pensions, deferred pay, stock or stock
related awards, severance pay, salary continuation or similar benefits, or other
employee benefits or compensation to or for the benefit of any employee of the
Company or its Subsidiaries (or the beneficiaries or dependents of such
employees ) (each such employee benefit plan and other plan, program, policy,
contract or arrangement being referred to herein as a "Company Benefit Plan"),
(i) the Company Benefit Plan has been administered in compliance with
its terms and with the requirements of all applicable laws, including but
not limited to ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), and
(ii) all contributions and payments of insurance premiums required to
be made with respect to such Company Benefit Plans have been made when due,
except where failure to comply or to make such contributions or payments does
not have and would not reasonable be expected (so far as can be foreseen at the
time) to have a Material Adverse Effect.
(b) No Company Benefit plan is a defined benefit pension plan subject to
Title IV of ERISA or the minimum funding requirements of Section 302 of ERISA or
Section 412 of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT, INTERNATIONAL AND THE PURCHASER
SECTION 4.01 ORGANIZATION AND AUTHORITY OF PARENT, INTERNATIONAL AND THE
PURCHASER. Each of Parent and International is a corporation duly incorporated,
validly existing and in good standing under the laws of the Netherlands. The
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.
SECTION 4.02 AUTHORIZATION. Each of Parent, International and the
Purchaser has all corporate power and authority to enter into this Agreement and
to perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all requisite corporate action on the part of Parent,
International and the Purchaser. The appropriate governing bodies of each of
Parent and International and the Board of Directors of Purchaser have, and
Parent and International as the stockholders of the Purchaser have, approved
this Agreement and the Merger. This Agreement has been duly executed and
delivered by each of Parent, International and the Purchaser and, assuming the
due authorization, execution and delivery hereof by the Company, constitutes the
valid and binding obligation of
I-8
<PAGE> 62
each of Parent, International and the Purchaser, enforceable against each of
Parent, International and the Purchaser except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, or similar laws
affecting creditors' rights generally or by general equitable principles.
SECTION 4.03 NO VIOLATIONS; CONSENTS AND APPROVALS. (a) Neither the
execution, delivery and performance of this Agreement by Parent, International
and the Purchaser nor the consummation by Parent, International and the
Purchaser of the transactions contemplated hereby will (i) violate any provision
of the respective organizational documents, including, without limitation, if
any, the certificate of incorporation or by-laws of Parent, International or the
Purchaser, (ii) conflict with, result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration or to the
imposition of any lien) under, or result in the acceleration or trigger of any
payment, time of payment, vesting or increase in the amount of any compensation
or benefit payable pursuant to, the terms, conditions or provisions of any note,
bond, mortgage, indenture, guarantee or other evidence of indebtedness, lease,
license, contract, agreement, plan or other instrument or obligation to which
Parent, International or the Purchaser is a party or by which any of them or any
of their assets may be bound or (iii) conflict with or violate any Laws
applicable to Parent, International, the Purchaser or any of their properties or
assets; except in the case of clauses (ii) and (iii) for such conflicts,
violations, breaches, defaults or liens which individually and in the aggregate
would not have or result in a material adverse effect on the business, results
of operations or financial condition of Parent, International and the Purchaser,
taken as a whole, or materially impair or delay the consummation of the
transactions contemplated hereby.
(b) No filing or registration with, declaration or notification to, or
order, authorization, consent or approval of, any Governmental Entity is
required in connection with the execution, delivery and performance of this
Agreement by Parent, International or the Purchaser or the consummation by
Parent, International or the Purchaser of the transactions contemplated hereby,
except (i) applicable requirements under the Exchange Act, (ii) the filing of
the Certificate of Merger with the Secretary of State and (iii) such other
consents, approvals, orders, authorizations, notifications, registrations,
declarations and filings the failure of which to be obtained or made
individually and in the aggregate would not have a material adverse effect on
the business, results of operations or financial conditions of Parent,
International and the Purchaser, taken as a whole, or materially impair or delay
the consummation of the transactions contemplated hereby.
SECTION 4.04 INFORMATION IN PROXY STATEMENT; 13E-3 STATEMENT. (a) The
information supplied in writing by Parent, International or the Purchaser
specifically for inclusion in the Proxy Statement (and any amendment thereof or
supplement thereto), on the date the Proxy Statement is mailed to stockholders
of the Company and at the time of the stockholder vote referred to in Section
6.01(c), will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
are made, not misleading.
(b) The 13E-3 Statement on the date filed with the Commission and at the
time mailed to stockholders of the Company, (i) will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading and (ii)
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder. No representation is made
by Parent, International or the Purchaser with respect to any information
supplied by the Company or any of its Subsidiaries expressly for inclusion in
the 13E-3 Statement.
SECTION 4.05 BROKERS AND INTERMEDIARIES. Parent, International and the
Purchaser have not employed any broker, finder, advisor or intermediary other
than Morgan Stanley & Co. Incorporated in connection with the transactions
contemplated by this Agreement which would be entitled to a broker's, finder's,
or similar fee or commission in connection therewith or upon the consummation
thereof. Any such fees due to Morgan Stanley & Co. Incorporated shall be paid by
the Purchaser.
SECTION 4.06 LITIGATION. There is no action, suit or proceeding pending
or, to the knowledge of the Parent, International or Purchaser, threatened
against Parent, International or Purchaser, at law, in equity or
I-9
<PAGE> 63
otherwise, in, before, or by any court or governmental agency or authority which
would reasonably be expected to have a material adverse effect on the ability of
Parent, International or Purchaser to perform their respective obligations under
this Agreement.
SECTION 4.07 FINANCING. Parent will have, at the Closing, sufficient
funds to perform its obligations hereunder.
ARTICLE V
CERTAIN COVENANTS AND AGREEMENTS
SECTION 5.01 CONDUCT OF BUSINESS. From the date of this Agreement to the
Effective Time, the Company covenants and agrees (except as otherwise expressly
contemplated by this Agreement or consented to in writing by Parent) that:
(a) Ordinary Course. The Company and each of its Subsidiaries shall
operate the businesses conducted by it in the ordinary and usual course,
and shall use their reasonable efforts to preserve intact their present
business organizations, keep available the services of their present
officers and key employees and preserve their relationships with material
customers and suppliers and others having business dealings with them to
the end that their goodwill and on-going businesses shall be unimpaired at
the Effective Time.
(b) Dividends; Changes in Stock. Other than pursuant to existing
stock option plans and agreements, the Company shall not and shall not
permit any of its Subsidiaries to, (i) declare or pay any dividends on or
make other distributions in respect of any of its capital stock (other than
dividends by wholly-owned subsidiaries of the Company); (ii) split, combine
or reclassify any of its capital stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock; (iii) repurchase, redeem or
otherwise acquire any share of its capital stock; or (iv) issue, deliver or
sell, or authorize or propose the issuance, delivery or sale of, any share
of its capital stock of any class or any securities convertible into, or
any rights, warrants or options to acquire, any such shares or convertible
securities.
(c) Governing Documents. The Company shall not amend or propose to
amend its Certificate of Incorporation or By-laws except as otherwise
contemplated herein.
(d) No Acquisitions. The Company shall not, and shall not permit any
Subsidiary of the Company to, acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire, other than in the ordinary course of business
consistent with past practice, any assets which are material, individually
or in the aggregate, to the Company and its Subsidiaries taken as a whole.
(e) No Dispositions. The Company shall not, and shall not permit any
Subsidiary of the Company to, sell, lease, license or otherwise dispose of,
or agree to sell, lease, license or otherwise dispose of, any of its
assets, except in the ordinary course of business consistent with past
practice.
(f) No Indebtedness. The Company shall not, and shall not permit any
Subsidiary of the Company to, incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities of the
Company or any Subsidiary of the Company or guarantee any debt securities
of others, other than in the ordinary course of business consistent with
past practice.
(g) Employee Benefits; Executive Compensation. The Company shall not,
and shall not permit any Subsidiary to, (a) adopt, amend or terminate any
material employee benefit plan or (b) grant to any executive officer any
increase in compensation or in severance or termination pay, or enter into
or amend any employment, severance or similar agreement, arrangement or
plan with any executive officer, except for normal increases in
compensation in the ordinary course of business.
I-10
<PAGE> 64
(h) Other Business. Except for such actions as may be required by
law, the Company shall not, and shall not permit any Subsidiary of the
Company to, take any action that will result in any of the representations
and warranties of the Company set forth in this Agreement becoming untrue
or in any of the conditions to the Merger set forth in Article 6 not being
satisfied.
SECTION 5.02 ANNOUNCEMENT. Neither the Company, on the one hand, nor
Parent, International or the Purchaser, on the other hand, shall issue any press
release or otherwise make any public statement with respect to this Agreement
and the transactions contemplated hereby without the prior consent of the other
(which consent shall not be unreasonably withheld), except as may be required by
applicable law or stock exchange regulation. Notwithstanding anything in this
Section 5.02 to the contrary, Parent, International, the Purchaser and the
Company will, to the extent practicable, consult with each other before issuing,
and provide each other the opportunity to review and comment upon, any such
press release or other public statements with respect to this Agreement and the
transactions contemplated hereby whether or not required by law.
SECTION 5.03 NO SOLICITATION. From the date of this Agreement to the
Effective Time, the Company covenants and agrees that the Company shall not, nor
shall it authorize or permit any of its Subsidiaries or any officer, director,
employee, investment banker, attorney or other adviser or representative of the
Company or any of its Subsidiaries ("Company Representatives") to, (i) solicit,
initiate, or encourage the submission of, any Acquisition Proposal, (ii) enter
into any agreement with respect to any Acquisition Proposal or (iii) participate
in any discussions or negotiations regarding, or furnish to any Person any
information for the purpose of facilitating the making of, or take any other
action to facilitate any inquiries or the making of, any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation, of which
the Company or any of its Subsidiaries had knowledge at the time of such
violation, of the restrictions set forth in the immediately preceding sentence
by any officer, director, employee, investment banker, attorney, employee, or
other adviser or representative of the Company or any of its Subsidiaries,
whether or not such Person is purporting to act on behalf of the Company or any
of its Subsidiaries or otherwise, shall be deemed to be a breach of this Section
5.03 by the Company. The Company shall promptly advise Parent of any Acquisition
Proposal and any inquiries with respect to any Acquisition Proposal. For
purposes of this Agreement, "Acquisition Proposal" means any proposal for a
merger or other business combination involving the Company or any of its
Subsidiaries or any proposal or offer to acquire in any manner, directly or
indirectly, an equity interest in the Company or any of its Subsidiaries, any
voting securities of the Company or any of its Subsidiaries or a substantial
portion of the assets of the Company. Notwithstanding the foregoing, the
Company, its Subsidiaries and Company Representatives shall not be obligated to
take or refrain from taking any action pursuant to this Section 5.03 if the
Board of Directors of the Company, after consultation with independent legal
counsel, determines in good faith that to take or refrain from taking any such
action would result in a violation of its fiduciary obligations.
SECTION 5.04 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence, or nonoccurrence, of any event the occurrence, or
nonoccurrence, of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (b) any material failure of the Company,
or Parent, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder, provided,
however, that the delivery of any notice pursuant to this Section 5.04 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
SECTION 5.05 DIRECTORS' AND OFFICERS' INDEMNIFICATION. (a) Parent shall
cause the certificate of incorporation and the by-laws of the Surviving
Corporation to contain the provisions with respect to indemnification and
exculpation from liability set forth in the Company's Certificate of
Incorporation and By-Laws on the date of this Agreement, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who on or prior to the Effective Time were directors,
officers, employees or agents of Company, unless such modification is required
by law. Parent hereby guarantees the payment obligations of the Surviving
Corporation arising from the indemnification and exculpation provisions referred
to in the preceding sentence.
I-11
<PAGE> 65
(b) Parent or the Surviving Corporation shall maintain in effect for three
years from the Effective Time policies of directors' and officers' liability
insurance containing terms and conditions which are not less advantageous to the
insured than any such policies of the Company currently in effect on the date of
this Agreement (the "Company Insurance Policies"), with respect to matters
occurring prior to the Effective Time, to the extent available, and having the
maximum available coverage under any such Company Insurance Policies; provided,
that in no event shall Parent or the Surviving Corporation be required to pay
annual premiums for insurance under this Section 5.05(b) in excess of that which
is commercially reasonable; and provided further, however, that if the annual
premiums for such insurance coverage exceed that which is commercially
reasonable, Parent or the Surviving Corporation shall be obligated to obtain a
policy with the greatest coverage at a cost which is commercially reasonable.
Each party hereto agrees to use its best reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable law and regulations to
consummate and make effective the transactions contemplated by this Agreement.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions (any of which may be waived by the parties hereto in
writing, in whole or in part, to the extent permitted by applicable law):
(a) No Injunction or Proceeding. No preliminary or permanent
injunction, temporary restraining order or other decree of a Governmental
Entity shall be in effect, no statute, rule or regulation shall have been
enacted by a Governmental Entity and no action, suit or proceeding by any
Governmental Entity shall have been instituted or threatened, which
prohibits the consummation of the Merger or materially challenges the
transactions contemplated hereby.
(b) Consents. Other than filing the Certificate of Merger, all
consents, approvals and authorizations of and filings with Governmental
Entities required for the consummation of the transactions contemplated
hereby, shall have been obtained or effected or filed.
(c) Approval of Holders of Company Common Stock. This Agreement shall
have been approved and adopted by the affirmative vote of (i) a majority of
the shares of Company Common Stock outstanding and (ii) a majority of the
shares of Company Common Stock held by Public Stockholders that are voted
at the meeting referred to in Section 1.02.
SECTION 6.02 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger is further subject
to the satisfaction or waiver of each of the following conditions prior to or at
the Closing Date:
(a) Representations and Warranties. The representations and
warranties of Parent, International and the Purchaser contained in this
Agreement shall be true and correct in all material respects at and as of
the Effective Time as though made at and as of the Effective Time, except
to the extent that any such representation or warranty is made as of a
specified date, in which case such representation and warranty shall have
been true and correct in all material respects as of such date.
(b) Agreements. Each of Parent, International and the Purchaser shall
have performed and complied in all material respects with all its
undertakings and agreements required by this Agreement to be performed or
complied with by it prior to or at the Closing.
(c) Opinion of Financial Advisor. The opinion of BT Wolfensohn
referred to in Section 3.05 shall not have been withdrawn or revoked.
I-12
<PAGE> 66
SECTION 6.03 CONDITIONS TO THE OBLIGATIONS OF PARENT, INTERNATIONAL AND
THE PURCHASER TO EFFECT THE MERGER. The obligations of Parent, International
and the Purchaser to effect the Merger are further subject to the satisfaction
or waiver of each of the following conditions prior to or at the Closing Date:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects at and as of the Effective Time as though
made at and as of the Effective Time, except to the extent that any such
representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct in all
material respects as of such date.
(b) Agreements. The Company shall have performed and complied in all
material respects with all of its undertakings and agreements required by
this Agreement to be performed or complied with by it prior to or at the
Closing Date.
(c) No Material Adverse Change. Except as set forth on Schedule
6.03(c) of the Disclosure Letter or as set forth in the Company SEC
Reports, since December 31, 1997, there shall have been no material adverse
change in the business, assets, liabilities, results of operations or
financial condition of the Company and its Subsidiaries, taken as a whole.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, whether before or
after stockholder approval thereof:
(a) by the mutual written consent of the Boards of Directors of
Parent, International and the Purchaser, and the Board of Directors of the
Company upon recommendation of the Independent Committee;
(b) by either the Company upon the recommendation of the Independent
Committee, on the one hand, or Parent, International and the Purchaser, on
the other hand, if:
(i) the Merger has not been consummated on or prior to November 30,
1998; provided, however, that the right to terminate this Agreement
under this Section 7.01(b)(i) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger to occur on or prior
to such date;
(ii) the stockholders of the Company fail to approve and adopt this
Agreement and the transactions contemplated hereby at the meeting of the
holders of Company Common Stock referred to in Section 6.01(c)
(including any adjournment thereof) by the votes referred to in Section
6.01(c); provided, however, that the right to terminate this Agreement
under this Section 7.01(b)(ii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the stockholders of the Company
to approve and adopt this Agreement; or
(iii) if, prior to the consummation of the Merger, the Independent
Committee shall have withdrawn, or modified or changed in any manner
adverse to Parent, International or the Purchaser its approval of this
Agreement or the Merger after having concluded in good faith after
consultation with independent legal counsel that there is a reasonable
probability that the failure to take such action would result in a
violation of fiduciary obligations under applicable law.
SECTION 7.02 EFFECT OF TERMINATION. In the event of the termination of
this Agreement as provided in Section 7.01, written notice thereof shall
forthwith be given by the terminating party or parties to the other party or
parties specifying the provision hereof pursuant to which such termination is
made, and this Agreement shall forthwith become null and void, and there shall
be no liability on the part of Parent, International, the Purchaser or the
Company (except as set forth in this Section 7.02 and Section 7.01 hereof,
I-13
<PAGE> 67
each which shall survive any termination of this Agreement); provided that
nothing herein shall relieve any party from any liability or obligation with
respect to any willful breach of this Agreement.
SECTION 7.03 AMENDMENT. This Agreement may be amended in writing by the
parties hereto; provided, however, that after adoption of this Agreement and the
Merger by the stockholders of the Company no such amendment may be made without
the further approval of the stockholders of the Company except to the extent
permitted by the DGCL. Notwithstanding the foregoing, any amendment of this
Agreement on behalf of the Company shall be subject to the approval of the Board
of Directors of the Company upon the recommendation of the Independent
Committee.
SECTION 7.04 WAIVER. At any time prior to the Effective Time, whether
before or after the meeting of holders of the Company Common Stock referred to
in Section 6.01(c) hereof, Parent by action taken by its Board of Directors or
the Company, by action taken by its Board of Directors upon the recommendation
of the Independent Committee, may (i) extend the time for the performance of any
of the obligations or other acts of any other party hereto or (ii) waive
compliance with any of the agreements of any other party or with any conditions
to its own obligations. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party by a duly authorized officer.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time and all such
representations and warranties will be extinguished on consummation of the
Merger and neither Company, any Subsidiary nor any officer, director or employee
or stockholder shall be under any liability whatsoever with respect to any such
representation or warranty after such time. This Section 8.01 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time.
SECTION 8.02 EXPENSES. Except as contemplated by this Agreement, all
costs and expenses incurred in connection with Agreement and the consummation of
the transactions contemplated hereby shall be paid by the party incurring such
expenses.
SECTION 8.03 APPLICABLE LAW. The rights and duties of Parent,
International, the Purchaser and the Company under this Agreement shall be
governed by the law of the State of Delaware.
SECTION 8.04 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given or made as
follows: (a) if sent by registered or certified mail in the United States return
receipt requested, upon receipt; (b) if sent by reputable overnight air courier
(such as DHL or Federal Express), two business days after being so sent; (c) if
sent by telecopy transmission, with a copy mailed on the same day in the manner
provided in clauses (a) or (b) above, when transmitted and receipt is confirmed
by telephone; or (d) if otherwise actually personally delivered, when delivered
and shall be sent or delivered as follows:
If to the Company, to:
BT Office Products International, Inc.
2150 East Lake Cook Road
Suite 590
Buffalo Grove, IL 60089
Telephone: (847) 793-7500
Telecopy: (847) 808-0161
Attention: Thomas F. Cullen, Esq.
I-14
<PAGE> 68
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019-6150
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
Attention: Elliott V. Stein, Esq.
If to Parent, International or the Purchaser, to:
NV Koninklijke KNP BT
Hoogoorddreef 62
1101 BE Amsterdam ZO
P.O. Box 22740
1100 DE Amsterdam ZO
The Netherlands
Telephone: 31-20-651-11-08
Telecopy: 31-20-691-88-49
Attention: Heidi van der Kooij, Esq.
with a copy to:
Winthrop, Stimson, Putnam & Roberts
Financial Centre
695 East Main Street
P.O. Box 6760
Stamford, CT 06904-6760
Telephone: (203) 965-8262
Telecopy: (203) 965-8226
Attention: Frode Jensen, III., Esq.
Such names and addresses may be changed by such notice.
SECTION 8.05 ENTIRE AGREEMENT. This Agreement (including the documents
and instruments referred to herein) contains the entire understanding of the
parties hereto with respect to the subject matter contained herein, supersedes
and cancels all prior agreements, negotiations, correspondence, undertakings and
communications of the parties, oral or written, respecting such subject matter.
SECTION 8.06 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties; provided, however, Parent, International or the
Purchaser may assign this Agreement to any Subsidiary of Parent, International
or the Purchaser. No such assignment shall relieve Parent, International or the
Purchaser of its obligations under this Agreement. Subject to the first sentence
of this Section 8.06, this Agreement will be binding upon, inure to the benefit
of and be enforceable by, the parties hereto and their respective successors and
assigns.
SECTION 8.07 HEADINGS; REFERENCES. The article, section and paragraph
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. All
references herein to "Articles" or "Sections" shall be deemed to be references
to Articles or Sections hereof unless otherwise indicated.
SECTION 8.08 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each counterpart shall be deemed to be an original but all of
which shall be considered one and the same agreement.
I-15
<PAGE> 69
SECTION 8.09 NO THIRD PARTY BENEFICIARIES. Except as provided in Sections
2.07 and 5.05, nothing in this Agreement, express or implied, is intended to
confer upon any Person not a party to this Agreement any rights or remedies
under or by reason of this Agreement.
SECTION 8.10 SEVERABILITY; ENFORCEMENT. Any term or provision of this
Agreement that is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or unenforceability
of any of the terms or provisions of this Agreement in any other jurisdiction.
If any provision of this Agreement is so broad as to be unenforceable, the
provisions shall be interpreted to be only so broad as is enforceable.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
BT OFFICE PRODUCTS INTERNATIONAL, INC.
By: /s/ RICHARD C. DUBIN
------------------------------------
Name: Richard C. Dubin
Title: Executive Vice President
NV KONINKLIJKE KNP BT
By: /s/ FRANS H.J. KOFFRIE
------------------------------------
Name: Frans H.J. Koffrie
Title: Member of Executive Board
KNP BT INTERNATIONAL B.V.
By: /s/ FRANS H.J. KOFFRIE
------------------------------------
Name: Frans H.J. Koffrie
Title: Director
BT OPI ACQUISITION CORP.
By: /s/ HARRY G. VREEDENBURGH
------------------------------------
Name: Harry G. Vreedenburgh
Title: Vice President
I-16
<PAGE> 70
ANNEX II
[BT WOLFENSOHN LOGO]
June 2, 1998
The Independent Committee of the Board of Directors
BT Office Products International, Inc.
2150 E. Lake Cook Road
Buffalo Grove, Illinois 60089-1877
Gentlemen:
BT Wolfensohn has acted as financial advisor to the Independent Committee
of the Board of Directors of BT Office Products International, Inc. (the
"Company") in connection with the proposed Agreement and Plan of Merger (the
"Merger Agreement"), dated as of June 2, 1998, among the Company, NV Koninklijke
KNP BT ("KNP"), KNP BT International B.V., a wholly-owned subsidiary of KNP
("KNP International"), and BT OPI Acquisition Corp., a corporation wholly-owned
by KNP and KNP International ("Merger Sub"), which provides, among other things,
for the merger of Merger Sub with and into the Company (the "Transaction"). As
set forth more fully in the Merger Agreement, as a result of the Transaction
each share of the common stock, par value $.01 per share, of the Company (the
"Common Stock") not owned directly or indirectly by the Company, KNP or KNP
International, other than shares as to which dissenters' rights have been
perfected, will be converted into the right to receive $13.75 in cash (the
"Consideration"). The Transaction is conditioned upon the approval of holders of
a majority of the shares of Common Stock not owned by KNP or KNP International
that are voted at a meeting of shareholders. The terms and conditions of the
Transaction are more fully set forth in the Merger Agreement. We understand that
KNP and KNP International collectively own in the aggregate approximately 70% of
the outstanding Common Stock.
You have requested BT Wolfensohn's opinion, as investment bankers, as to
the fairness, from a financial point of view, of the Consideration to be
received by the holders of the Common Stock other than KNP and KNP International
(the "Public Shareholders").
In connection with BT Wolfensohn's role as financial advisor to the
Independent Committee, and in arriving at its opinion, BT Wolfensohn has
reviewed certain publicly available financial and other information concerning
the Company and certain internal analyses and other information furnished to it
by the Company. BT Wolfensohn has also held discussions with members of the
senior management of the Company regarding the Company's business and prospects.
In addition, BT Wolfensohn has (i) reviewed the reported prices and trading
activity for the Common Stock, (ii) compared certain financial and stock market
information for the Company with similar information for certain companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
transactions involving the acquisition by a controlling stockholder of the
publicly-held shares of the company which BT Wolfensohn deemed comparable in
whole or in part, (iv) reviewed the terms of the Merger Agreement, and (v)
performed such other studies and analyses and considered such other factors as
it deemed appropriate.
BT Wolfensohn has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning the Company, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, BT Wolfensohn has assumed and relied upon the accuracy and completeness
of all such information and BT Wolfensohn has not conducted a physical
inspection of any of the properties or assets, and has not prepared or obtained
any independent evaluation or appraisal of any of the assets or liabilities, of
the Company. With respect to the financial forecasts and projections made
available to BT Wolfensohn and used in its analyses, BT Wolfensohn has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of the Company as to the
matters covered thereby. We understand, based on KNP's statements, that KNP has
no interest in any transaction that would result in the sale of Common Stock
owned by it, and we were not requested or authorized to solicit, and did not
solicit, interest from any party with respect to an acquisition of the
outstanding Common Stock, the Company or its constituent businesses. In
addition, we
II-1
<PAGE> 71
The Independent Committee of the Board of Directors
BT Office Products International, Inc.
June 2, 1998
Page 2
have been informed by KNP that it has no intention to pursue a sale of the
Company after consummating the merger pursuant to the Merger Agreement. BT
Wolfensohn's opinion is necessarily based upon economic, market and other
conditions as in effect on, and the information made available to it as of, the
date hereof.
For purposes of rendering its opinion, BT Wolfensohn has assumed that the
Transaction will be consummated on the terms and subject to the conditions
described in the Merger Agreement and that all conditions to the Transaction
will be satisfied without waiver of such conditions.
This opinion is addressed to, and for the use and benefit of, the
Independent Committee of the Board of Directors of the Company. This opinion is
not a recommendation to the Public Shareholders as regards the Transaction or as
to whether they should vote for the Transaction. This opinion is limited to the
fairness, from a financial point of view, of the Consideration to be received by
the Public Shareholders.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust (together with its affiliates, the "BT Group") and,
for legal and regulatory purposes is a division of BT Alex. Brown Incorporated,
a registered broker-dealer and member of the New York Stock Exchange. BT
Wolfensohn will be paid a fee for its services as financial advisor to the
Independent Committee in connection with the Transaction, a substantial portion
of which is contingent upon consummation of the Transaction. In the ordinary
course of business, members of the BT Group may actively trade in the securities
and other instruments and obligations of the Company for their own accounts and
for the accounts of their customers. Accordingly, the BT Group may at any time
hold a long or short position in such securities, instruments and obligations.
Based upon and subject to the foregoing, it is BT Wolfensohn's opinion as
investment bankers that as of the date hereof the Consideration to be received
by the Public Shareholders pursuant to the Transaction is fair from a financial
point of view.
Very truly yours,
BT WOLFENSOHN
II-2
<PAGE> 72
ANNEX III
DELAWARE GENERAL CORPORATION LAW
SEC.262 APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec.228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec.251 (other than a merger effected pursuant to
sec.251(g) of this title), sec.252, sec.254, sec.257, sec.258, sec.263 or
sec.264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec.251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
III-1
<PAGE> 73
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to sec.228 or
sec.253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
III-2
<PAGE> 74
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by one or more publications at
least one week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest that the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal fights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
III-3
<PAGE> 75
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
III-4
<PAGE> 76
ANNEX IV
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM
- ------------------ TO
- ------------------
COMMISSION FILE NUMBER 1-13858
BT OFFICE PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3245865
(State of Incorporation) (IRS Employer Identification No.)
2150 E. LAKE COOK ROAD 60089-1877
BUFFALO GROVE, ILLINOIS (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code (847) 793-7500
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
<S> <C>
Common Stock, par value $.01 per share New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of March 18, 1998 was approximately
$120,852,000.
As of March 18, 1998, the number of shares outstanding of each of the
registrant's classes of common stock is as follows:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NUMBER OF SHARES OUTSTANDING
- ------------------- ----------------------------
<S> <C>
Common Stock, par value $.01 per share 33,471,000
DOCUMENTS INCORPORATED BY REFERENCE
- --------------------------------------------------------------------------------------------
None
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IV-1
<PAGE> 77
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I.......................................................................... IV-3
Item 1. Business.................................................... IV-3
Item 2. Properties.................................................. IV-12
Item 3. Legal Proceedings........................................... IV-13
Item 4. Submission of Matters to a Vote of Security Holders......... IV-13
PART II......................................................................... IV-13
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... IV-13
Item 6. Selected Financial Data..................................... IV-13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. IV-15
Item 8. Financial Statements and Supplementary Data................. IV-22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. IV-22
PART III........................................................................ IV-22
Item 10. Directors and Executive Officers of the Registrant.......... IV-22
Item 11. Executive Compensation...................................... IV-24
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ IV-32
Item 13. Certain Relationships and Related Transactions.............. IV-33
PART IV......................................................................... IV-36
Item 14. Exhibits, Financial Statements, Financial Statement
Schedule, and Reports on Form 8-K......................... IV-36
</TABLE>
IV-2
<PAGE> 78
PART I
ITEM 1. BUSINESS
GENERAL
BT Office Products International, Inc. ("BT Office Products" or the
"Company") is a leading full-service distributor of office products, serving
primarily medium- and large-sized businesses and institutions in major markets
in both the United States and Europe. The Company offers its customers a full
range of office products, including traditional office supplies, office
furniture, computer supplies and accessories, copiers and office equipment,
business forms and advertising specialty and promotional products. In the United
States, the Company services major business markets through 24 sales and
distribution centers and 56 branch sales offices in 35 states as of February 27,
1998. In Europe, the Company is the largest office products distributor in
Germany and one of the leading office products distributors in The Netherlands,
Sweden and the United Kingdom. The Company also serves markets in Austria,
Italy, Switzerland and the Baltic States through licensed dealers for its
"Classic" brand of office supplies.
BT Office Products has developed and implemented an integrated full-service
approach to serving the office products needs of its customers. The Company
operates large regional distribution facilities, purchases products directly
from manufacturers whenever possible and offers a wide variety of products and
high levels of customer service.
COMPANY HISTORY
Background
In 1984, Buhrmann-Tetterode NV ("BT"), a large Dutch graphic and business
systems, packaging manufacturing and paper distribution company and a
predecessor of NV Koninklijke KNP BT ("KNP BT"), established BT Office Products
International, Inc. (then known as BT USA, Inc.) as a holding company for its
United States operations (the "Holding Company").
In 1990, BT established a separate division headquartered in Amsterdam to
administer its office products distribution businesses in the United States and
Europe (the "Office Products Division"). In March 1993, BT merged with two other
large companies with headquarters in The Netherlands, NV Koninklijke KNP ("KNP")
and VRG Groep NV ("VRG"), to form KNP BT. As a result, the Office Products
Division became a division of KNP BT.
On June 30, 1995, KNP BT and the Holding Company effected a series of
transactions (collectively, the "Reorganization") in order to reorganize the
legal ownership of various of their businesses and to recapitalize the ongoing
office products distribution business which now constitutes the Company. In
connection with the Reorganization, (i) the Holding Company transferred certain
packaging manufacturing businesses in the U.S. (the "Packaging Businesses") and
other non-office products assets and liabilities to KNP BT; (ii) KNP BT
transferred its European office products businesses (the "European Businesses")
and Kelly Paper Company, a wholesale cash and carry printing paper and supplies
business headquartered in California ("Kelly Paper"), to the Holding Company;
and (iii) KNP BT made a capital contribution of $118.0 million (the "Capital
Contribution") to the Holding Company. As a result of the Reorganization, the
Holding Company was recapitalized to constitute the Company, which now owns and
manages all of KNP BT's office products distribution businesses worldwide.
In July 1995, the Company completed the sale of 10,000,000 shares of common
stock of the Company, par value $.01 per share (the "Common Stock"), at a price
of $11.50 per share in an initial public offering (the "Offering"). After the
Offering, KNP BT beneficially owns approximately 70% of the Company's
outstanding common stock. The net proceeds received from the Offering, after
underwriting discounts and commissions and costs related to the Offering and the
Reorganization ("Net Proceeds") were $98.4 million. Of the Net Proceeds, the
Company used $65.8 million to repay, in full, non-interest-bearing advances from
affiliates made in 1994 and 1995 to finance several acquisitions. The Company
used the remaining Net Proceeds to reduce outstanding indebtedness under the
interest-bearing advances from affiliates made to the Company for working
capital and other general corporate purposes.
United States
BT Office Products entered into the office products distribution business
in the United States in 1987 through the acquisition of a controlling interest
in a contract stationer servicing the New
IV-3
<PAGE> 79
York metropolitan area. Since then, the Company has expanded its operations
throughout the United States by acquiring over 40 businesses in both new markets
and existing markets. Such acquisitions have contributed significantly to
increasing the Company's net sales in the United States from $469 million in
1993 to $1,148 million in 1997.
In January 1998, the Company organized its United States operations into
the following nine geographical regions and Kelly Paper: New England, Northeast,
Mid-Atlantic, Central, Midwest, Great Lakes, South-Southeast, Northwest and
West-Southwest.
Europe
BT Office Products entered into the office products distribution business
in Europe in 1989 through the acquisition of a contract stationer based in
London, England. Since then, the Company has expanded its European operations in
the United Kingdom, Germany, The Netherlands and Sweden by acquiring over 30
businesses in both new markets and existing markets. Such acquisitions have
contributed significantly to increasing the Company's net sales in Europe from
$118 million in 1993 to $471 million in 1997.
Subsequent Event
On January 22, 1998, KNP BT, the Company's 70% stockholder, announced that
it is prepared to make an offer to acquire the approximately 30% of the
Company's stock that is publicly-traded for a cash purchase price of $10.50 per
share. The Company has formed an independent committee of its Board of Directors
to represent the interests of the minority shareholders. This committee,
together with independent financial and legal advisors retained by the
committee, is evaluating the proposal. The parties have not reached a definitive
agreement.
GROWTH STRATEGIES
The Company's growth strategy is to increase its business by: (i) expanding
the scope of its operations, primarily through acquisitions of substantial
office products distributors in major metropolitan markets in Europe and the
United States where it does not currently have operations and making selected
add-on acquisitions (smaller companies that will be integrated into an existing
business); (ii) leveraging its international capabilities in order to grow its
business in Europe; (iii) focusing its sales efforts on broadening its customer
base; and (iv) increasing sales of products and services to existing customers
by effective utilization of value-added services offered by the Company.
Growth through Acquisitions
BT Office Products has historically grown through a combination of
acquisitions and internal growth. During 1997, acquisition activity slowed
considerably as the Company focused on integrating previously acquired
companies. Nevertheless, the Company did complete eleven strategic acquisitions
during the year, primarily in Europe. Through such acquisitions, the Company
expanded its position in certain key markets in Germany, The Netherlands and
Sweden.
The Company's long-term strategy is to expand its operations through
selective acquisitions of established quality office products distributors in
the United States and Europe in order to create cost savings (through reduced
administrative expenses as a percentage of sales and additional purchasing
power) and increase sales and total profitability. Additionally, in those
markets where the Company cannot acquire a desirable substantial office products
distributor, the Company may consider beginning a start-up or "greenfield"
operation as an alternative means of entering such markets as it did in Atlanta
in 1995. The Company's long-term strategy also includes selectively making
add-on acquisitions of smaller contract stationers in existing markets to enable
the Company to increase sales within an existing market and generate operating
efficiencies, such as the consolidation of warehouses and administrative
functions.
In building its business through acquisitions, the Company generally has
retained existing senior management of acquired companies with experience in
local market conditions and customer needs, whenever possible, and has
centralized administrative functions, merchandising, purchasing and systems
development to achieve cost savings through economies of scale. The integration
of acquired businesses may, however, lead to the loss of key employees of the
acquired companies and diversion of management attention from other ongoing
business concerns.
The Company may not be able to complete targeted acquisitions because of
competition, price or the availability of suitable candidates. The Company
anticipates significant future acquisition fund-
IV-4
<PAGE> 80
ing, to the extent required, will necessitate obtaining additional debt and/or
equity capital resources, which may not be available. In addition, the Company
encounters various risks with each acquisition, including the possible inability
to integrate the acquired business into its distribution network, diversion of
management's attention from current operations, and unanticipated problems,
costs, or liabilities, some or all of which could have a material adverse effect
on the operations and financial performance of the Company. Additional risks
arising out of the Company's operations in foreign countries include those
associated with currency exchange rates, differing legal and regulatory
requirements, as well as language and cultural differences.
Leveraging International Capabilities
BT Office Products derives approximately 29% of its total sales revenue
from outside the United States. The Company's net sales in Europe have grown
from $118 million in 1993 to $471 million in 1997. Management believes that
there are opportunities for additional growth in Europe and that the Company is
well-positioned to capitalize on such opportunities because of the extensive
experience of its European operating and executive managers in acquiring and
operating businesses in the Company's European markets. The Company is also
pursuing new and additional business from multinational corporations which have
locations in the United States and Europe.
Broadening Our Customer Base
The Company believes that many larger customers are seeking to control
overhead and reduce the total cost of their office products needs while
demanding a significantly broader range of products and services. Many of these
customers are also reducing the number of suppliers with whom they do business.
The Company views these changing market conditions as a major opportunity to
obtain new customers. The Company will seek to attract new customers by
combining a dedication to technology solutions with high levels of customer
responsiveness and flexibility. Specific initiatives of the Company to broaden
its customer base include: (i) expansion of the Company's sales force at the
local level with particular emphasis on college recruiting; (ii) implementation
of sales training programs focused on the increasingly complex needs of
customers; (iii) forming strategic alliances with selected partners in new
markets; and (iv) expanding product and service offerings to meet the changing
needs of the customers.
Historically, the Company has focused on large- and medium-sized accounts.
In 1997, BT Office Products entered into a long-term contract with Kinko's, Inc.
("Kinko's"). Pursuant to such contract, BT Office Products will provide in-store
stocking requirements for a wide variety of office, computer, and presentation
products for resale to Kinko's customers. In 1997, approximately 170 Kinko's
retail outlets were implemented on this plan and the Company anticipates the
number of stores on the plan to be 665 by the end of 1998. Additionally, the
Company anticipates initiating a test program in 1998 to approach small and home
office credit card customers through the Internet.
Expanding Products and Services Offered to
Existing Customers
Management believes there are significant opportunities to increase sales
of both products and services to existing customers, particularly by increasing
customers' utilization of the value-added services offered by the Company, such
as stockless delivery, electronic commerce and custom billing.
BT Office Products works with its larger customers to develop an
"outsourcing" approach by providing value-added services to reduce customers'
costs associated with office supplies. For example, customers may rely entirely
on the Company to deliver office products when and as needed by the customers'
employees, resulting in a "stockless supply" system. The customers completely
eliminate their inventory of office products, storage facilities for office
products and all related personnel and administrative requirements.
BT Office Products offers a variety of leading-edge electronic commerce
solutions to meet the needs of its customers. The Company currently provides
customers with remote order entry, CD ROM catalogs, Internet ordering systems,
materials management software and EDI electronic billing and payment options
designed to decrease response times and error rates and improve customer
service. The Company offers its customers access to its entire selection of
office products through the Company's electronic commerce systems. Through the
use of customized software programs installed by the Company on the customer's
computer system or via the Internet, customers can
IV-5
<PAGE> 81
order office products through their personal computers which are linked to BT
Office Products' on-line order management system. Ordering is made easier by
various browser options, including recently ordered items, in the online
catalogs, a flexible order template and a "Quick Pick" list to streamline
frequently ordered items.
BT Office Products also provides its customers with billing and usage
information in hard copy or magnetic tape, cartridge or diskette media, in each
case designed to a particular customer's specifications. The Company is also
committed to making continuous improvements in technology such as the
development and implementation of the Company's "National Selling System"
("NSS"), which provides a uniform information system and order management
capabilities to serve the needs of large customers with multiple locations.
Customized cost center billing allows a customer, with the Company's assistance,
to analyze and rationalize its ordering and usage of office supplies and to use
such information for budgeting purposes.
OPERATING STRATEGIES
BT Office Products serves its customers through local operating divisions
that provide sales, marketing and order fulfillment services, while it conducts
merchandising, purchasing, systems development, sales training and many
administrative functions on a regional or central basis. The Company is reducing
as well as controlling its operating costs by consolidating administrative
functions on a regional or central basis and expanding the use of its logistics
and distributions systems over a growing sales base. Management believes this
operating strategy allows it to be flexible and responsive to local market needs
while securing the benefits of economies of scale.
Implementation of Enterprise-wide Systems
In 1997, the Company announced its plan to implement an enterprise-wide
systems solution known as "Project Millennium," a program designed to
standardize business processes, centralize certain business functions and
enhance customer service as well as quality throughout the Company's U.S.
operations. The capital requirements for Project Millennium are estimated to be
$60 million, of which $16 million has been capitalized as of December 31, 1997
and the remaining amount will be spent over the next three years. The Company
has established cross-functional teams, assisted by Computer Sciences
Corporation ("CSC"), to provide technical support for the conversion and
implementation of the new systems.
The implementation plan will occur in two phases in order to maximize
benefits and minimize disruption to the business. The first phase, which
commenced in early 1998, will focus on the gradual transition of Company
accounts from its legacy systems to NSS, the development of billing and cash
application systems, the centralization of procurement and the establishment of
a data warehouse system. The second phase, which the Company expects to commence
in mid-1999, will focus on warehouse technology, remaining accounting and
finance operations and specialty products (furniture, promotional products and
print).
As a result of this investment, the Company expects to provide enhanced
customer service as well as increased operational productivity primarily through
the installation of a leading-edge information technology system and
centralization of certain functions (primarily in the areas of accounting and
procurement) on a company-wide basis. Project Millennium will assist the Company
with its strategic plan to consolidate business processes that do not directly
affect the customer while constantly improving services which are close to the
customer. The Company anticipates that this program will also allow the Company
to reduce costs and improve working capital by lowering costs through systems,
consolidations and improved practices. Additionally, the Company believes that
the program will enable it to improve customer quality by designing enhanced
tools for customer service, staying on the leading edge of electronic commerce,
and building a data warehouse which creates new marketing opportunities. When
completed in the year 2001, the Company expects to achieve favorable financial
benefits from this program of approximately $17 million per year before
depreciation charges.
In Europe, similar projects are underway to consolidate and centralize
certain functions within the Company over the next four years. The Company is
currently evaluating operational systems for the office supplies and copier
businesses that will also accommodate Year 2000 and Euro currency system
requirements. Currently, BT Office Products Deutschland is completely integrated
on Oracle financial and accounting software and is installing one common
materials management/operating system due to be completed during 1998.
IV-6
<PAGE> 82
Certification of Business and Quality Systems
BT Office Products is the first national contract stationer in the United
States to have operating units ISO 9002 certified for general office products
distribution. At December 31, 1997, all of the Company's U.S. operating units
acquired prior to 1997 are ISO-certified facilities. Many of the Company's
European operating units have also achieved ISO certifications. The Company
expects that all remaining U.S. and European centers will be certified by the
end of 1998. The emphasis on quality reinforces the Company's dedication to
customer responsiveness and relies on company-wide processes, called Business
and Quality Systems, to help the Company achieve superior customer satisfaction.
PRODUCT OFFERINGS
The Company offers its customers a full range of office products, including
traditional office supplies, office furniture, computer supplies and
accessories, copiers and office equipment, advertising specialty and promotional
products and business forms. The Company's larger operating divisions typically
have in stock 6,000 to 7,000 SKUs of office supplies, all of which are contained
in the Company's common catalogs. The Company also has access, through the
Company's EDI and other ordering systems, to over 45,000 additional SKUs of
office supplies, computer supplies and catalog furniture from wholesalers and
other suppliers, enabling the Company to provide its customers with immediate
access to a broad range of products. The Company provides a wide variety of
customized value-added services to its customers, which are designed to reduce
the customer's total overall cost of managing its office products needs.
Office Supplies
The Company provides its customers access to one of the broadest available
selections of office supplies. Products include paper, writing instruments,
mailroom supplies, filing supplies, organizers, desktop accessories, business
forms, binders, tape, printed products, staplers and other fastening products,
and consumable items. In addition to the wide variety of brand name office
products offered by the Company, the Company sells over 300 different items
under the "BT MASTERBRAND(TM)" label in the United States and over 950 different
items under its "Classic" trademark through participating dealers in Europe.
Office Furniture and Ergonomic Products
The Company sells a comprehensive line of "catalog furniture," which is a
term used generally to describe low- and mid-priced desks, chairs, file cabinets
and other office furniture that is included in the Company's catalogs and
generally sold from stock on a piece basis. Catalog furniture is sold by both
the Company's office supplies sales force and its office furniture sales force.
The Company also offers executive furniture and modular office systems, and at
certain locations, office design and space planning. These products are
generally ordered by a customer in connection with a corporate relocation or
expansion, facility reconfiguration or refurbishment. To complement office
furniture, the Company sells a broad range of ergonomic products designed to
enhance worker comfort, safety and productivity.
Computer Supplies and Accessories
The Company sells a variety of consumable computer supplies and
accessories, such as diskettes, tape and optical storage media, keyboard storage
drawers and personal computer stands, mouse pads and other keyboard accessories,
monitor accessories, screen filters, cleaning and maintenance products, laser
printer toner (including recycled toner), and other computer-related
consumables. Sales of personal computers and other computer hardware are not
material.
Office Equipment -- Copiers, Postal/Mail and
Conference Equipment
The Company sells and services copiers, facsimile machines, postal/mail
equipment, printers and related supplies primarily in Europe. Veenman
Kantoormachines B.V., Veenman Office Management B.V., Direct Dealer Services
Nederland B.V. and Repro Copiers Nederland B.V. (collectively, the "Veenman
Group"), which operates in The Netherlands, is an exclusive distributor of
Konica copiers, printers and facsimile machines and Pitney Bowes postal/mail
equipment. In the United States and Germany, the Company offers a wide range of
conference supplies and equipment, including seating, tables, overhead
projectors, LED panels, easels and related supplies.
IV-7
<PAGE> 83
Advertising Specialty and Promotional Products
The Company sells numerous advertising specialty and promotional products,
all of which may be personalized with the customer's logo and/or name. The
Company was recognized in 1997 by Advertising Specialty Institute in Counselor
magazine as being among the top twenty-five largest distributors of promotional
products in the United States.
Forms Management and Printing Services
The Company offers customized forms management services to reduce the
customer's indirect costs for maintaining forms. The Company works directly with
third-party printers to arrange for the supply of such forms to its customers,
allowing a customer to reduce its storage and personnel requirements. The
Company also provides customized printing services for its customers for
products such as business cards and company stationery. During 1997, the Company
announced a strategic alliance with the Document Solutions Division of Moore
Corporation to sell and distribute forms in the Company's Northeast Region.
Printing Paper Products
Kelly Paper operates a wholesale cash and carry printing and communication
paper and printing supplies business primarily for small commercial printers
through a central warehouse in Whittier, California, and 35 wholesale stores
located in California, Arizona and Nevada. Over 85% of Kelly Paper's sales are
made from its wholesale stores, with the balance made from its central
warehouse. A typical store is approximately 14,000 square feet in size. Kelly
Paper plans to open five to eight additional stores in the western United States
in the next three years.
SALES AND MARKETING
Overview
The Company's marketing strategy is designed to increase its customer base
of medium- and large-sized businesses and institutions by flexibly and
responsively demonstrating to customers and potential customers that the total
overall cost of managing their office products needs can be reduced by focusing
on process cost reduction. The Company works with customers to simplify and
reduce the costs of the office product procurement process by providing services
such as customized and tailored catalogs, electronic as well as paper
requisition forms, CD ROM catalogs with built-in order logic, EDI and Internet
ordering. The Company's release of SyntraNet(SM), a full-line Internet ordering
system, in 1997 was an important initiative in assisting customers in achieving
their process cost reduction goals. The Company has implemented its NSS program
to service its growing base of customers with multiple locations across broad
geographic areas. This program includes the establishment of common product and
pricing data, the implementation of a telecommunications network and a common
order-entry as well as order-management system. This system enables the Company
to provide customers with consolidated reports, billing and other useful
customer information as well as serve as the foundation for the development of
additional common customer service and operating systems. In 1997, national
account sales exceeded 14% of the Company's net sales in the United States.
The Company markets its products and services to customers through a local
dedicated sales force using the Company's centrally produced full-color catalogs
of its product and service offerings in each of the United States, The
Netherlands, Germany, Sweden and the United Kingdom. Most of the office products
offered in these main catalogs are kept in stock at the Company's distribution
centers. Additionally, in the United States, the Company is linked
electronically to certain of its suppliers so that items not in stock can be
delivered to a customer on a next-day basis and the Company can better manage
its inventory levels. In addition to its main catalogs in each country, the
Company produces a substantial number of customized and promotional catalogs.
Together, BT Office Products' local sales force and catalogs are key elements of
its marketing strategy.
Through its contract with Kinko's, the Company has begun to focus its sales
and marketing efforts on opportunities in the small office and home office
markets. In addition, in select markets, BT Office Products intends to pursue
initiating Internet catalog ordering for the small and home office buyer.
Finally, the Company intends to continue its direct mail and telemarketing
activities in select markets.
IV-8
<PAGE> 84
The Company's centralized merchandising departments in the U.S. and Europe
produce many of the major selling tools of the Company. Since all product
selections and supplier contact are the responsibilities of the merchandising
department, the Company has opportunities both to maximize efficiencies through
product selection and to leverage the substantial buying power of the Company.
The advertising function in the U.S., which is a part of the merchandising
department, provides the marketing materials to support the more than 1,100
outside sales representatives of the Company. The centralization of advertising
provides buying power in materials and consistency in the message and image of
the Company's services. The merchandising functions are coordinated between the
United States and Europe to support the Company's appeal to customers seeking
service in multiple countries.
Sales Force
The Company uses a variety of sales approaches tailored to the specific
needs of its customers. The majority of the Company's sales are conducted
through a sales force of approximately 1,100 persons in the United States, 375
in Germany, 200 in The Netherlands, 70 in Sweden and 20 in the United Kingdom.
Most of the sales force in the United States is compensated on a commission
basis and most of the sales force in Europe is compensated on a salaried basis.
The Company services its customers through sales personnel and customer service
representatives.
The Company's sales force assists its customers with the implementation of
a comprehensive office products procurement system, which includes the supply of
office products as well as the provision of customized services, such as
specialized catalogs and electronic order entry. Management is committed to
provide training for its sales force, with the objective of enabling sales
personnel to educate customers as to the total overall costs of managing their
office products needs and assisting customers in designing programs to minimize
these costs. The Company has initiated a college recruiting program in order to
expand its local sales force to meet the needs of its customers.
Catalogs
The Company annually publishes a full-color catalog of its office products
offerings in the United States (containing approximately 10,000 SKUs) and in
Germany, The Netherlands, Sweden and the United Kingdom (each containing
approximately 6,000 SKUs). The catalogs consist of a narrative and pictorial
selling presentation, prices and a description of each item's uses and features,
as well as descriptions of the services available to customers. The Company also
produces other specialty catalogs for its marketing efforts, targeted to
customers by size and/or type. In addition, the Company also provides customized
catalogs containing 100 to 500 SKUs of office products for its larger customers,
and CD ROM catalogs with built-in order logic and EDI capability. The Company
generally does not utilize newspaper, radio or other forms of mass media
advertising.
Classic Licensing Program
The Company sells its Classic private label brand of office products in
Europe through a network of dealers under its Classic licensing program. This
licensing program supplements the Company's direct sales of Classic products in
Germany, The Netherlands, Sweden and the United Kingdom in markets not otherwise
serviced through its wholly-owned distributors. Under the Classic license
program, the Company enters into agreements with independent office products
dealers, granting exclusive distribution arrangements for the Classic brand of
office products in a specific geographic area. The Classic program thus enables
the Company to establish a business relationship with a large number of local
dealers across Europe, some of which may become attractive acquisition
candidates. Currently, there are 66 participating independent dealers in the
Classic license program in Germany. The Company has entered into license
agreements with one dealer in each of Austria, Italy, Switzerland and the Baltic
States.
The Company offers participating dealers a full menu of services, including
catalogs, direct marketing assistance, promotions and order fulfillment. Through
the use of the Company's warehouse and distribution facility in Langenlonsheim,
Germany (near Frankfurt), a participating dealer has the ability to offer
next-day delivery in a cost-effective manner and to take advantage of the
centralized logistics (e.g., stock control, picking, packing and shipping),
merchandising and information systems of the Company. In this capacity, the
Company serves as a wholesaler to the Classic license program participants,
permitting them to reduce inventory and distribution facilities costs. As a
result, small
IV-9
<PAGE> 85
local dealers have the ability to offer their customers products and services
comparable to those of larger and better capitalized office products dealers
without the expense of carrying larger product inventories.
In addition to the revenue the Company generates on the sales of its
Classic products and the annual licensing fees paid by the participating
dealers, the Company realizes other economic benefits from these arrangements.
Because participating dealers are required to (i) participate in the Company's
Classic brand marketing activities, thereby broadening the market for the
Classic name, and (ii) buy Classic products from suppliers of the Company, the
purchasing power of the Company, and therefore the dealers as well, is increased
without requiring any incremental investment by the Company.
CUSTOMERS
No single customer accounted for more than 1% of the Company's sales in
1997. The Company's customers include many Fortune 500 companies, other large
corporations, banks, financial services companies, governmental entities and
educational institutions. Many customers have multiple locations that are
serviced by the Company's operating divisions.
PURCHASING
The Company purchases a large majority of its products in volume directly
from manufacturers or major office products wholesalers, who deliver the
merchandise to each of the Company's distribution centers. Generally, the
Company has been able to return any unsold or obsolete office products inventory
to its suppliers, resulting in minimal inventory write-offs. However, no
assurance can be given that the Company's suppliers will continue to offer this
return policy in the future.
To maximize its purchasing power, the Company's purchasing strategy has
been to establish preferred relations with certain suppliers with whom the
Company can capitalize on purchasing economies. This "preferred supplier"
strategy creates advantageous pricing relationships for the Company and has led
to competition among suppliers for inclusion in such group. To further maximize
its purchasing power, the Company has been consolidating, and will continue to
consolidate, its purchases from key suppliers to increase its importance to
those suppliers, including the sourcing of the office products sold under the
"BT MASTERBRAND(TM)," "Masterbrand" and "Classic" brand names. Additionally, the
Company has utilized, and will continue to utilize, its ability to provide
suppliers access to international markets as part of its purchasing strategy.
Certain of the Company's suppliers are linked through EDI with the
Company's on-line order entry system. Products ordered through the Company's
on-line order entry system that are not in stock are automatically purchased by
the Company through EDI from the Company's suppliers. These products are
delivered by such suppliers to the Company's warehouses in time for next-day
delivery to the customer with other ordered products.
During the fiscal year ended December 31, 1997, the Company purchased
merchandise from over 500 suppliers in the United States. The largest supplier
accounted for approximately 14% of the Company's total U.S. purchases, and the
ten largest suppliers accounted for approximately 48% of total U.S. inventory
purchases. Although a substantial portion of the Company's purchases are
concentrated with a relatively small number of suppliers, the Company believes
that alternative sources of supply are available for virtually every product it
sells. However, the Company believes that customer brand preference is an
important factor in the purchase of certain office products and that its
competitive position is enhanced by the inclusion of popular brand name items.
The Company considers its relationship with its suppliers to be good and has not
experienced any difficulty in sourcing its merchandise.
LOGISTICS
The Company receives orders through its electronic commerce systems, as
well as by traditional telephone, fax and mail-in purchase order methods. After
an order has been placed with the Company, picking documents are created for
those items in stock and routed to the appropriate distribution center for order
fulfillment. At the same time, the Company's EDI systems transmit those portions
of the orders not in stock to the Company's suppliers. The Company has
arrangements with various suppliers to receive product on a same-day basis.
These items are combined with in-stock items to accommodate customer delivery
requests. In 1997, the Company filled over 98% of orders for office prod-
IV-10
<PAGE> 86
ucts from customers in the United States on either a same-day or next-day
shipment basis, depending on the customer's specific needs. Through its advanced
logistics systems, the Company processes thousands of orders daily so that it
can offer its customers such delivery services.
The Company's distribution centers use automated routing software, scanning
and conveyor or carousel picking technology to enhance accuracy and efficiency.
After an order is picked and packed, conveyors and overhead scanning systems are
utilized to route and manifest outgoing customer deliveries. Significant
detailed reporting is available to optimize warehouse productivity, inventory
turns, SKU selection and sourcing decisions and to evaluate supplier
performance.
The Company's distribution centers have a logistical and economic reach of
up to approximately six hours by truck in any direction. The Company uses a
combination of owned and leased vehicles and third-party services to deliver
office products.
The Company can provide its customers with delivery of office products
directly to the desks of the individual office employees of the customer.
Desktop delivery creates savings for the customer by reducing the need for
storage facilities, personnel and capital investment in non-income producing
inventory. In many cases, customers rely entirely on the Company to deliver
office products when and as needed by the customer's employees, resulting in a
"stockless supply" system whereby they completely eliminate their inventory of
office products, storage facilities for office products and all related
personnel and administrative requirements.
COMPETITION
The Company operates in a highly competitive environment which has resulted
in pressure on gross profit levels for the past few years. The principal
competitive factors in the office products distribution industry are service,
price, product quality and product offerings. Management believes that
increasing industry-wide competition and price sensitivity of customers will
continue to exert pressure on gross profit levels in the future.
The Company's principal competitors, depending upon the regions in which it
operates, are national office products distributors, traditional contract
stationers, direct mail order companies, retail office products superstores and
stationery stores. With respect to medium- and large-sized businesses and other
institutions, which are the Company's target market, management believes that
existing customers and potential customers prefer to deal with large value-added
office products distributors, such as the Company, which can provide the lowest
total overall cost of managing their office products needs, high levels of
service, convenience and rapid delivery.
The Company's largest competitors in the United States are Boise Cascade
Office Products Corporation, Corporate Express, Inc., U.S. Office Products
Company and the office products distribution businesses of Office Depot Inc. and
Staples, Inc. These businesses compete for, and sell office products to, many of
the same customers as the Company. Management believes that it competes
favorably with these companies on the basis of its customized and value-added
services and the price of its products.
Historically, the German market was highly fragmented and customers in
Germany were serviced to a large extent by local dealers who generally operated
within a local or regional territory. Consolidation within the German market was
occurring at a slow pace. However, in 1997, several international contract
stationers entered into or continued their expansion within the German market.
This trend is anticipated to continue as the local dealers are pressured to
compete with these international companies. The Company's largest competitors in
Germany include Corporate Express, Inc., Guilbert S.A., Lyreco and Viking Office
Products.
The United Kingdom market has also experienced a significant amount of
consolidation over the past few years. The Company's major competitors in the
United Kingdom are Guilbert S.A., Corporate Express, Inc., Dudley Stationery
Ltd. and Samas.
In The Netherlands, the Company's competitors are principally local
dealers. The largest competitors are Ahrend and Samas.
In Sweden, the Company's main competitors are Svanstroms, Tybring-Gjedde,
and Durab.
Some of the Company's competitors have greater financial resources and
purchasing power than the Company and, particularly in the case of the retail
office products superstores, significant name recognition. In addition, the
Company be-
IV-11
<PAGE> 87
lieves that the office products distribution industry will continue to
consolidate over the next few years and, consequently become more competitive.
Also, the Company believes that increasing competition and heightened price
sensitivity among customers have led to industry-wide pressure on gross margins,
a trend which the Company expects will continue in the future.
EMPLOYEES
At December 31, 1997, the Company employed approximately 6,650 persons. The
Company believes that its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 2150 East Lake
Cook Road, Buffalo Grove, Illinois 60089. The Company owns and leases properties
for use in the ordinary course of business. The leases expire at various times
through 2022, and many of the Company's leases contain options to renew and/or
purchase the property. The Company's European operations are managed and
coordinated from its European headquarters in Amsterdam.
As of February 27, 1998, the Company's principal distribution centers were
as follows:
<TABLE>
<S> <C>
United States
Phoenix, Arizona
Newark, California
Rancho Dominguez, California
Aurora, Colorado
Tampa, Florida
Atlanta, Georgia
Chicago, Illinois(1)
Indianapolis, Indiana
Springdale, Maryland
Needham, Massachusetts
Warren, Michigan
Plymouth, Minnesota
Vinita Park, Missouri
North Bergen, New Jersey
Albuquerque, New Mexico
New York, New York
Greensboro, North Carolina
Lewis Center, Ohio
Portland, Oregon
Glenfield, Pennsylvania(1)
Philadelphia, Pennsylvania
Arlington, Texas
Houston, Texas
Salt Lake City, Utah
Europe
Germany
Langenlonsheim
Maisach bei Munich
Scharnhausen
Wupertal
Ulm-Lehr
The Netherlands
Berkel (Rotterdam)
Capelle aan den IJssel
Gorinchem
Utrecht
Zaandam (Amsterdam)
Zwolle
Sweden
Boras
United Kingdom
Reading
</TABLE>
- -------------------------
(1) These sales and distribution centers are owned by the Company. All other
distribution centers and distribution breakdown facilities are leased by the
Company.
The Company's Kelly Paper operation maintains a central distribution center
of approximately 82,000 square feet in Whittier, California as well as 31
wholesale stores in California, three in Arizona and one in Nevada.
Although the Company believes that its distribution facilities are
generally adequate for its current level of business, the Company believes that
its operations in certain markets may require new or expanded facilities in the
next several years.
As of February 27, 1998, the Company had 56 principal sales branches in the
United States and 52 principal sales branches in Europe.
IV-12
<PAGE> 88
ITEM 3. LEGAL PROCEEDINGS
BT Office Products has been served with several class action complaints
that have been filed in the Court of Chancery of the State of Delaware. The
actions allege breach of fiduciary duties and related claims against KNP BT, the
Company and certain of its directors in connection with the January 22, 1998
announcement that KNP BT was prepared to make an offer to purchase the
outstanding shares of the Company that it does not already own. The defendants
intend to defend the lawsuits vigorously and the Company does not expect such
lawsuits to have a material adverse effect on the financial condition or results
of operations of the Company.
The Company is also involved in various ordinary routine legal proceedings
incidental to the conduct of its business. Management does not believe that any
of these legal proceedings will have a material adverse effect on the financial
condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company (NYSE symbol: BTF) commenced trading on the
New York Stock Exchange (the "Exchange") on July 19, 1995. Prior to that time,
there was no market for the Common Stock of the Company. The following table
sets forth the range of high and low sale prices of the Company's Common Stock
on the Exchange for each quarterly period during the fiscal years ending
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996
------------------------------- ----------------------------
HIGH LOW HIGH LOW
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First quarter........ 11 1/8 6 7/8 23 1/2 13
Second quarter....... 9 7 1/4 23 7/8 15 1/2
Third quarter........ 13 7 5/16 17 7/8 9 7/8
Fourth quarter....... 12 7/16 6 11/16 14 8 1/8
</TABLE>
As of March 4, 1998, there were approximately 214 holders of record of the
Common Stock.
The Company has not declared or paid cash dividends on its Common Stock.
The Company currently anticipates that it will retain all available funds for
use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future. Any future determination to
pay cash dividends will be at the discretion of the Company's Board of Directors
and will be dependent upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant by the
Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data for the
Company for each of the five years ended December 31, 1993 through 1997. The
selected statement of operations data and balance sheet data have been derived
from the Company's audited financial statements. The information contained
herein should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the audited consolidated
financial statements of the Company for the three years ended December 31, 1997,
and the notes thereto included herein.
IV-13
<PAGE> 89
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------
1997 1996 1995 1994(9) 1993
---------- ---------- --------- -------- --------
(In thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
United States........................ $1,147,689 $1,086,960 $ 833,010 $589,823 $469,263
Europe............................... 471,055 325,554 299,360 199,718 117,591
---------- ---------- --------- -------- --------
Total............................. 1,618,744 1,412,514 1,132,370 789,541 586,854
Costs of products sold................. 1,162,737 1,004,713 819,078 557,737 408,514
---------- ---------- --------- -------- --------
Gross profit........................... 456,007 407,801 313,292 231,804 178,340
---------- ---------- --------- -------- --------
Selling and administrative expenses.... 383,758 345,879 266,163 197,088 157,370
Depreciation and amortization.......... 16,485 13,693 10,339 7,796 6,961
Amortization of intangibles............ 10,636 10,046 8,117 6,111 4,737
---------- ---------- --------- -------- --------
Operating income (loss):
United States........................ 34,836 31,335 22,797 18,541 12,879
Europe............................... 10,292 6,848 5,876 2,268 (3,607)
---------- ---------- --------- -------- --------
Total............................. 45,128 38,183 28,673 20,809 9,272
---------- ---------- --------- -------- --------
Other income (expense):
Interest income and other............ 2,749 2,091 1,287 629 339
Equity in earnings (loss) of
affiliated company(1)............. -- -- -- (112) 153
Interest expense..................... (15,283) (7,401) (3,561) (4,389) (2,122)
Interest expense to affiliates(2).... (639) (5,172) (12,372) (12,641) (10,078)
---------- ---------- --------- -------- --------
Total............................. (13,173) (10,482) (14,646) (16,513) (11,708)
---------- ---------- --------- -------- --------
Income (loss) before income taxes and
cumulative effect of accounting
change............................... 31,955 27,701 14,027 4,296 (2,436)
Income tax expense..................... 14,700 13,000 7,337 4,455 1,764
---------- ---------- --------- -------- --------
Income (loss) before cumulative effect
of accounting change................. 17,255 14,701 6,690 (159) (4,200)
Cumulative effect of accounting change,
net of income tax benefit(3)......... -- -- -- -- (692)
---------- ---------- --------- -------- --------
Net income (loss)...................... $ 17,255 $ 14,701 $ 6,690 $ (159) $ (4,892)
========== ========== ========= ======== ========
PER SHARE DATA(4):
Income (loss) before cumulative effect
of accounting change................. $ .52 $ .44 $ .24 $ (.01) $ (.18)
Net income (loss)--Basic............... .52 .44 .24 (.01) (.21)
Net income (loss)--Diluted............. .51 .44 .24 (.01) (.21)
OPERATING DATA:
Selling and administrative expenses as
a percentage of net sales............ 23.7% 24.5% 23.5% 25.0% 26.8%
Distribution centers (at period end)... 37 37 38 28 19
Inventory turns(5)..................... 9.0x 9.5x 9.8x 8.9x 8.1x
BALANCE SHEET DATA (AT PERIOD END):
Total assets........................... 763,701 742,819 524,647 429,371 287,794
Short-term debt(6)..................... 225,407 47,934 25,619 282,015 174,114
Long-term debt(7)...................... 31,837 219,702 99,551 13,399 23,521
Stockholders' equity(8)................ 273,713 268,652 260,235 21,933 7,707
</TABLE>
(footnotes on following page)
IV-14
<PAGE> 90
(footnotes for preceding page)
- ------------------------------
(1) Represents earnings (loss) on the Company's 40% interest in Bierbrauer +
Nagel GmbH & Co. KG ("B+N") accounted for on the equity method through June
30, 1994. Effective July 1, 1994, the operating results of B+N have been
consolidated with those of the Company reflecting the acquisition of the
remaining 60% beneficial interest in B+N.
(2) The substantial decrease in interest expense to affiliates in 1996 was
largely attributable to the pay down of debt with proceeds from a $250
million revolving credit facility.
(3) In 1993, the Company adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The effect of this adoption increased 1993 net periodic
postretirement cost by $1.1 million and increased the 1993 net loss by
$692,000.
(4) For 1994 and 1993, gives effect to a stock split that occurred in connection
with the Reorganization resulting in 23,400,000 shares outstanding.
(5) Inventory turns are calculated by dividing (i) the inventory costs of
products sold by (ii) the average of the ending inventory balance from the
prior fiscal period and the current fiscal period, except for acquisitions
made during the current period, for which inventory balances are weighted
for the portion of the period included in operations.
(6) Short-term debt includes amounts due within twelve months to third parties
and affiliates of KNP BT, including the current portion of long-term debt.
For 1997, the $194.7 million outstanding under the syndicated bank
Competitive Advance and Revolving Credit Facility (the "Bank Credit
Agreement") has been classified as current portion of the long-term debt.
The balances in 1994 and prior years consisted principally of amounts due to
affiliates of KNP BT. The Company also received in 1995 and 1994
non-interest bearing advances from affiliates of KNP BT associated with
acquisitions during these periods totaling $21.9 million and $43.9 million,
respectively.
(7) Consists of long-term debt with third parties, affiliates of KNP BT, and
capitalized leases, less current portion.
(8) The Company has never declared or paid cash dividends on its Common Stock.
(9) In March 1996, the Company discovered certain accounting and financial
reporting irregularities at its New York Division. The irregularities
involved misstatements in the reporting of gross profit margins and
operating expenses principally in 1995 and 1994, as well as concealment in
the accounting records of theft of Company assets. The impact of the charges
associated with these issues resulted in a reduction of operating income for
1995 by approximately $7.5 million and for 1994 by approximately $2.9
million. An independent investigation, completed in August 1996, uncovered
no basis for any further adjustment to the financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
Accounting for Reorganization
On June 30, 1995, Kelly Paper and the European Businesses, which had been
owned by KNP BT, were transferred to the Company as part of the Reorganization.
This transfer was accounted for on an historical basis in a manner similar to a
pooling of interests, as it represents a transaction among entities under common
control. In light of the common ownership, the Company's consolidated financial
statements reflect the combined United States and European office products
distribution businesses as if the combination were effective prior to June 30,
1995. The Company's financial statements exclude the results of operations and
the assets and liabilities of the Holding Company's non-office products
businesses which were transferred to KNP BT in connection with the
Reorganization.
Integration of Acquired Businesses
The Company's results of operations and financial condition reflect its
rapid growth through acquisitions. The Company has made and continues to make
significant investments in connection with the purchase and integration of its
acquired businesses in order to attain long-term improvements in profitability;
however, the costs of integration have had an adverse effect on short-term
operating results. Management believes that, as the Company integrates its
acquired businesses, the adverse effect of integration expenses on profitability
will decline as will operating expenses as a percentage of net sales.
IV-15
<PAGE> 91
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to consolidated net sales of certain items in the Company's
consolidated statement of operations:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales:
United States............................................. 70.9% 76.9% 73.6%
Europe.................................................... 29.1 23.1 26.4
----- ----- -----
Total.................................................. 100.0 100.0 100.0
Costs of products sold...................................... 71.8 71.1 72.4
----- ----- -----
Gross profit................................................ 28.2 28.9 27.6
Selling and administrative expenses......................... 23.7 24.5 23.5
Depreciation and amortization............................... 1.0 1.0 0.9
Amortization of intangibles................................. 0.7 0.7 0.7
----- ----- -----
Operating income:
United States............................................. 2.2 2.2 2.0
Europe.................................................... 0.6 0.5 0.5
----- ----- -----
Total.................................................. 2.8 2.7 2.5
----- ----- -----
Other income (expense):
Interest income and other................................. 0.2 0.1 0.1
Interest expense.......................................... (0.9) (0.5) (0.3)
Interest expense to affiliates............................ (0.1) (0.4) (1.1)
----- ----- -----
Income before income taxes.................................. 2.0 1.9 1.2
Income tax expense.......................................... 0.9 0.9 0.6
----- ----- -----
Net income.................................................. 1.1% 1.0% 0.6%
===== ===== =====
</TABLE>
Year Ended December 31, 1997 Compared
with Year Ended December 31, 1996
Net sales increased to $1,618.7 million in 1997 from $1,412.5 million in
1996, an increase of $206.2 million or 14.6%. The increase in sales was driven
by growth from acquisitions of 12.7% and sales at the Company's existing
locations of 4.6%, while currency translation had a negative impact of 2.7%.
Net sales in the United States increased to $1,147.7 million in 1997 from
$1,087.0 million in 1996, an increase of $60.7 million or 5.6%. The incremental
impact of the Company's 1996 U.S. acquisitions accounted for 0.5% of the growth
in 1997. Increased sales at the Company's existing operations accounted for the
remaining 5.1% of growth. The Company believes the principal factors
contributing to its internal growth were increased sales to existing and new
accounts and 1996 add-on acquisitions in existing markets. Net sales in the
United States were negatively impacted by increasingly competitive market
conditions and lower paper prices.
Net sales in Europe increased to $471.0 million in 1997 from $325.5 million
in 1996, an increase of $145.5 million or 44.7%. The incremental impact of 1996
and 1997 acquisitions accounted for 53.5% of the European sales growth in 1997.
Excluding the negative impact of currency translation of 11.9%, sales growth at
existing locations increased 3.1% for the year ended 1997, compared to 1996. The
Company believes that internal growth continues to be negatively effected by the
continued softness in the German economy, where approximately 50% of the
Company's European sales originate.
Gross profit as a percentage of net sales was 28.2% in 1997 as compared to
28.9% in 1996, a decrease of 0.7%. The decrease was attributable primarily to
highly competitive market conditions resulting in lower product margins, a shift
in product mix particularly in Europe due to the impact of late 1996
acquisitions, and fluctuations caused by the use of the LIFO method in valuing
the U.S. inventory.
Selling and administrative expenses, expressed as a percentage of net
sales, were 23.7% in 1997
IV-16
<PAGE> 92
compared to 24.5% in 1996, a decrease of 0.8%. The impact of late 1996 and 1997
acquisitions, which principally occurred in Europe, had the effect of increasing
current year costs by 0.1%. Additionally, the Company's provision for doubtful
accounts increased from 0.1% in 1996 to 0.4% in 1997, principally due to
unfavorable collection experience. In the United States, where selling and
administrative expenses were down 0.6%, the focus in 1997 was on rationalizing
the business, integrating recent acquisitions and controlling other costs. The
printed forms management business in New York was outsourced in September 1997
as part of a strategic alliance with the Document Solutions Division of Moore
Corporation. While reducing operating costs, this alliance will also provide the
Company printing industry expertise. Additionally, warehouses in Iowa, Florida
and California were integrated into existing larger facilities. As a result of
these and other efforts to focus on staffing and logistic requirements, total
U.S. personnel was approximately 1.5% lower than the previous year-end. In
Europe, active labor cost control programs in Germany and the United Kingdom led
to favorable cost levels expressed as a percentage of sales. These expenses also
included $2.1 million in 1997 related to personnel reduction costs principally
related to the former Chief Executive Officer and $3.1 million in 1996 related
to special investigation costs at the Company's New York Division.
In December 1997, the Company announced its U.S. plan to implement an
enterprise-wide system solution, known as Project Millennium, which is designed
to standardize business processes, centralize certain business functions, and
enhance customer service capabilities. Total selling and administrative expenses
incurred on the project in 1997 of $2.4 million included a fourth quarter one-
time charge of $1.0 million for normal severance costs and facility
consolidation costs. The 1996 selling and administrative expenses of $1.0
million related entirely to design phase costs incurred in the analysis of
existing systems and business processes. Ongoing project costs associated with
the dedicated internal functional teams, outside consultants, maintenance and
facility costs are being capitalized or expensed in accordance with accounting
guidance. Additionally, ongoing costs will include systematic accrual of
supplemental severance and retention payments, duplicate staffing expenses while
centralized functions are implemented prior to local functions being eliminated,
increased costs associated with maintenance contracts on the new hardware and
software and training costs.
The Company anticipates the implementation of the new systems will take
approximately three and one half years. The Company expects approximately 110
current job positions to be eliminated as a result of consolidating and
centralizing certain functions. It is anticipated that additional labor savings
will be achieved through normal staff attrition in the customer service and
warehouse operations areas after the new systems and processes have been
implemented. The Company expects to realize some economic benefits from the
project starting in late 1998, although earnings for 1998 and 1999 will be
adversely impacted until sufficient benefits can be realized to offset ongoing
costs. However, the Company does anticipate year-over-year earnings growth for
1998.
Operating income as a percentage of net sales was 2.8% in 1997 as compared
to 2.7% in 1996, an increase of 0.1%. Excluding the Project Millennium costs,
personnel reduction costs and New York special investigation costs described
above, operating income as a percentage of net sales would have been 3.1% in
1997 compared to 3.0% in 1996, or an increase of 0.1%. The dollar growth in
operating income reflects the effects of the Company's 1996 and 1997 European
acquisitions, which were accretive to earnings, and cost containment as the
Company rationalizes existing operations and integrates acquisitions.
Interest expense, including affiliated interest expense, increased to $15.9
million in 1997 from $12.6 million during 1996. The increase was primarily
attributable to interest expense on debt associated with the new acquisitions
and capital investments in 1997 and 1996. In 1997, capitalized interest related
to Project Millennium financing totaled $0.4 million.
Net income increased to $17.3 million in 1997 from $14.7 million in 1996.
Increased operating income at existing operations and acquisitions were offset
slightly by higher interest costs. The effective income tax rate was
approximately 46% for 1997 as compared to 47% for 1996. This rate decrease is
primarily due to the effects of non-deductible goodwill amortization and other
permanent differences against a relatively higher pre-tax income base in 1997,
as well as the change in the composition of income earned in countries which
have varying tax rates.
IV-17
<PAGE> 93
Year Ended December 31, 1996 Compared
with Year Ended December 31, 1995
Net sales increased to $1,412.5 million in 1996 from $1,132.4 million in
1995, an increase of $280.1 million or 24.7%.
Net sales in the United States increased to $1,087.0 million in 1996 from
$833.0 million in 1995, an increase of $254.0 million or 30.5%. The Company's
1996 acquisitions and the incremental impact of its 1995 acquisitions accounted
for $89.7 million of the increase. Increased sales at the Company's existing
operations accounted for the remaining $164.3 million of the increase, or a
growth rate at existing locations of 19.7%. The Company believes that the
principal factors contributing to this growth were increased sales to existing
and new accounts and add-on acquisitions at ten divisions.
Net sales in Europe increased to $325.5 million in 1996 from $299.4 million
in 1995, an increase of $26.1 million or 8.7%. The Company's acquisitions of the
Keller + Roth Group and Bax in July 1996 and Bjorsell in December 1996 accounted
for $27.6 million of the increase. Increased sales at the Company's existing
operations, excluding the negative impact of currency translation, accounted for
$20.6 million of the increase, or a growth rate at existing locations of 6.9%.
The Company believes that the principal factor contributing to this internal
growth was sales associated with an add-on acquisition in Germany. European
sales have been impacted by the softness in the German economy. Offsetting the
increase in net sales during 1996 from acquisitions and internal growth was a
$13.5 million negative impact of currency translation. In addition, net sales
for 1995 were favorably impacted by $8.6 million for the personal computer sales
and service operations of Bierbrauer & Nagel GmbH & Co. KG, which was
transferred to the Information Systems Division of KNP BT effective July 1,
1995.
Gross profit as a percentage of net sales was 28.9% in 1996 compared to
27.6% in 1995, an increase of 1.3%. The increase was attributable primarily to
improved margin management, higher margins on paper and related product sales of
approximately 0.4%, and a lower LIFO charge associated with inventory cost
decreases in the U.S. amounting to 0.3%.
Selling and administrative expenses, expressed as a percentage of net
sales, were 24.5% in 1996 compared to 23.5% in 1995, an increase of 1.0%. The
fluctuation was attributable primarily to the impact on costs due solely to
lower U.S. selling prices on paper and related products of 0.4%, higher
professional fees associated with the New York Division investigation of 0.2%,
higher facility costs associated with four new distribution centers of 0.2%,
costs relating to Project Millennium of 0.1%, and declining sales associated
with the existing operations in Germany against a relatively fixed expense base
of 0.1%.
Operating income increased to $38.2 million in 1996 from $28.7 million in
1995, an increase of $9.5 million or 33.1%. Operating income in the United
States increased to $31.3 million in 1996 from $22.8 million in 1995, an
increase of $8.5 million or 37.3%. Operating income in Europe increased to $6.9
million in 1996 from $5.9 million in 1995, an increase of $1.0 million or 16.9%.
Operating income as a percentage of net sales was 2.7% in 1996 as compared
to 2.5% in 1995. Operating income as a percentage of net sales in the United
States was 2.9% in 1996 as compared to 2.7% in 1995. Higher product margins were
substantially offset by the impact of lower U.S. paper prices, higher facility
costs and professional fees. Operating income as a percentage of net sales in
Europe was 2.1% in 1996 as compared to 2.0% in 1995. The slight increase was
primarily due to new acquisitions offset by lower sales associated with the
existing operations in Germany as a result of the soft market conditions against
a relatively fixed expense base.
Interest expense, including affiliated interest expense, decreased to $12.6
million in 1996 from $16.0 million in 1995. While the Company has continued to
invest in new acquisitions and capital expenditures in 1995 and 1996, the
average interest bearing debt levels are lower in 1996 as a result of proceeds
received in mid-1995 from the Reorganization and the Offering. In addition,
interest rates have decreased due to generally lower market rates and more
favorable lending terms under the Antilliana Credit Agreement and the Bank
Credit Agreement (each as defined below).
Net income increased to $14.7 million in 1996 from $6.7 million in 1995.
The increase in net income was due to increased operating income at existing
operations, acquisitions, lower interest costs and a lower effective income tax
rate. The effective income tax rate was 47.0% for 1996 as compared to
IV-18
<PAGE> 94
52.0% for 1995. This rate decrease is primarily due to the effects of
non-deductible goodwill amortization and other permanent differences against a
relatively higher pre-tax income base in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Prior to July 1995, the Company relied upon cash flow from operations,
capital contributions from KNP BT, and cash from revolving credit facilities
with KNP BT to fund working capital, capital expenditures and acquisitions. In
July 1995, the Company completed the sale of 10 million shares of Common Stock
in the Offering. Of the Net Proceeds of $98.4 million, the Company used $65.8
million to repay, in full, non-interest bearing advances from affiliates of KNP
BT made in 1994 and 1995 to finance acquisitions. The Company used the remaining
Net Proceeds to reduce outstanding indebtedness under the interest bearing
advances from affiliates of KNP BT made to the Company for working capital and
other general corporate purposes. Upon the completion of the Offering, the
Company also entered into a $200 million long term credit agreement with KNP BT
Antilliana N.V. ("Antilliana"), an affiliate of KNP BT (the "Antilliana Credit
Agreement"), to provide funds for working capital and other general corporate
purposes.
On August 2, 1996, the Company entered into a five-year, non-amortizing
$250 million syndicated bank Competitive Advance and Revolving Credit Facility
Agreement (the "Bank Credit Agreement"). The Bank Credit Agreement was used to
pay down existing debt owing to affiliates of the Company and is being used for
working capital needs and general corporate purposes, including acquisitions.
Effective in August 1996, the Company reduced the commitments available under
the Antilliana Credit Agreement to $50 million, of which $15.0 million was
available through an affiliated Delaware corporation to support the U.S. cash
management activity.
The Bank Credit Agreement, as amended in December 1996 and May 1997,
contains various loan covenants calculated quarterly including a maximum
leverage ratio based on total debt to pro forma EBITDA (3.75 to 1 for each of
the four quarter rolling periods ending on or before March 31, 1998, and
reducing to 3.25 to 1 in subsequent quarters), a minimum EBITDA less capital
expenditures to interest ratio, and a minimum net worth requirement. In
addition, under a change in control clause, an event of default would occur if
any person or group, other than KNP BT or its affiliates, shall own more than
50% of the voting shares of the Company.
The Company utilizes revolving lines of credit providing an aggregate of
$22.5 million to fund the Company's U.S. cash management requirements. Amounts
outstanding under such lines are payable on demand. The Company also utilizes
the 70 million Netherlands Guilders ("NLG") Affiliate Credit Agreement
(approximately $35 million), available through KNP BT Europcenter N.V.
("Europcenter"), an affiliate of KNP BT, to fund its European needs, including
acquisitions. This agreement, which expires in July 1999, replaced the
Antilliana Credit Agreement. See "Certain Relationships and Related
Transactions--Credit Facilities."
Cash provided by operating activities in the year ended December 31, 1997
was $34.5 million, which included $17.3 million of net income and $28.7 million
of non-cash depreciation and amortization charges. Significant cash requirements
for 1997 included $17.8 million related to acquisitions and $28.2 million for
capital expenditures. These requirements were partially financed by $10.1
million of net borrowings under notes payable, long-term obligations and
obligations with affiliates.
Cash provided by operating activities in the year ended December 31, 1996
was $48.5 million, which included $14.7 million of net income and $25.4 million
of non-cash depreciation and amortization charges. Significant cash requirements
for 1996 included $130.1 million related to acquisitions and $25.1 million for
capital expenditures. These requirements were partially financed by $119.0
million of net borrowings under notes payable and long-term obligations. The
Company repaid a significant portion of the borrowings under the Antilliana
Credit Agreement with borrowings under the Bank Credit Agreement during the
second half of 1996.
Cash used for operating activities for the year ended December 31, 1995 was
$0.3 million. The Company generated cash flows of $6.7 million from net income
and $19.8 million from non-cash depreciation and amortization charges. The cash
flow was used to finance its net cash needs of $26.8 million for other operating
activities. An increase in accounts receivable accounted for $32.7 million of
these needs. The increase in accounts receivable
IV-19
<PAGE> 95
was attributable to higher sales levels in the U.S. and Europe. Other
significant cash requirements in 1995 included $161.4 million for the repayment
of amounts due under the credit facility with KNP BT and its affiliates, $37.2
million related to acquisitions, $21.9 million for capital expenditures and $.7
million for the net repayment of notes payable and long-term obligations.
Remaining cash for these activities and other uses of funds were provided by the
$118.0 million Capital Contribution and the Net Proceeds of the Offering.
In 1997, the Company had total capital expenditures of $28.2 million, of
which approximately $15 million related to the purchase of software and related
programming costs associated with Project Millennium. The Company has budgeted
aggregate capital expenditures of $52 million for the year ended December 31,
1998. These budgeted expenditures include $25 million for Project Millennium, as
well as investments in other information technology systems and improvements to
existing distribution centers.
Since August 1996, the Company has principally relied upon the $250 million
Bank Credit Agreement to fund its operations and acquisition growth. At December
31, 1997, borrowings under the Bank Credit Agreement totaled $194.7 million. The
Bank Credit Agreement contains financial covenants, the most restrictive of
which currently limits the Company's ability to fully utilize the remaining
available capacity. During the next twelve months, the Company does not believe
that internally generated earnings and related cash flow requirements for
capital expenditures and working capital will be sufficient to comply with all
of the existing financial covenants contained in the Bank Credit Agreement. As a
result, borrowings under the Bank Credit Agreement have been classified as
current portion of long-term obligations in the consolidated balance sheet.
The Company's majority shareholder, KNP BT, has advised the Company that it
will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in the Notes to the Company's Consolidated Financial Statements, KNP
BT has announced that it is prepared to make an offer to purchase the
outstanding shares of the Company that it does not already own in a so-called
"going private" transaction. If the going private transaction is completed, KNP
BT has advised the Company that it intends to reduce or eliminate its existing
indebtedness under the Bank Credit Agreement and/or otherwise cause such
indebtedness to be refinanced. If the going private transaction is not
completed, the Company intends to renegotiate the existing Bank Credit Agreement
so as to avoid or cure any such default or defaults or event or events of
default and/or to refinance the indebtedness under the Bank Credit Agreement, in
either case, at a cost that is not expected to be material to the Company's 1998
results of operations. Pending the resolution of this transaction, the Company
needs to evaluate longer term solutions for its working capital and capital
expenditure requirements as well as funding for potential future acquisitions.
YEAR 2000 ISSUES
The Company is currently in the process of evaluating its systems and
related communications equipment for the impact of the Year 2000 issue. In the
United States, the Company has made a decision, as part of the overall analysis
of its existing systems and business processes under Project Millennium, to
convert in 1998 the application systems at several of the smaller sites to one
of the two main applications systems used by larger divisions of the Company.
The Company believes the Year 2000 compliant code for these two main application
systems, which are currently operated by external computer software firms,
already exists or will be available in 1998. The Company has recently engaged an
outside consulting firm to assist the Company in the evaluation of these two
application systems. Any modifications deemed appropriate will be coordinated
with the implementation timetable of Project Millennium to ascertain earliest
compliance. The software applications selected as part the enterprise-wide
systems solution of Project Millennium are Year 2000 compliant. A similar
evaluation of systems and related communication equipment is being conducted for
the Company's European operations. In addition, the Company's European
operations are also evaluating their systems for dual currencies with the
planned introduction of the Euro currency effective January 1, 1999. The Company
is still quantifying the costs relating to this issue. Such costs may be
material to the quarterly financial results. If the Company or any of its
significant vendors or customers does not successfully and timely complete such
changes, the Com-
IV-20
<PAGE> 96
pany's business could be materially adversely affected.
EFFECTS OF FLUCTUATIONS IN FOREIGN CURRENCY
EXCHANGE RATES
Approximately 29% of the Company's net sales and operating expenses are
generated from its European operations and are denominated in a variety of
currencies other than U.S. dollars. Each of the Company's European operations
conducts substantially all of its business in its local currency with minimal
cross-border product movement. As a result, these operations are not subject to
material operational risks associated with fluctuations in exchange rates. The
Company's results of operations, however, are impacted by the translation rate
of the European operations' currencies into U.S. dollars. Additionally, because
the Company intends to expand the size and scope of its international
operations, this exposure to fluctuations in exchange rates will be increased.
Accordingly, no assurance can be given that the Company's results of operations
will not be adversely affected by fluctuations in foreign currency exchange
rates. Although the Company currently does not engage in any activities with
respect to hedging its exposure to such fluctuations, it may consider engaging
in such efforts in the future.
INFLATION
The Company does not believe that inflation has had a material impact on
its business or results of operations in recent years. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
OTHER
In June 1997, the FASB issued Statement No. 130 ("SFAS 130"), "Reporting
Comprehensive Income." This statement, effective for fiscal years beginning
after December 15, 1997, will require the Company to report components of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is defined by
Concepts Statement No. 8, "Elements of Financial Statements," as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company is evaluating the effects of this
pronouncement.
Also in June 1997, the FASB issued Statement No. 131 ("SFAS 131"),
"Disclosures about Segments of an Enterprise and Related Information." This
statement, effective for financial statements for periods beginning after
December 15, 1997, requires that a public business enterprise report financial
and descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company is evaluating the effects of this
pronouncement.
In February 1998, the FASB issued Statement No. 132 ("SFAS 132"),
"Employers Disclosures about Pensions and Other Postretirement Benefits." This
statement, effective for fiscal years beginning after December 15, 1997,
standardizes the disclosure requirements for pensions and other postretirement
benefits, requires additional information on changes in benefit obligations and
fair values of plain assets and eliminates certain currently required
disclosures. The Company is evaluating the effects of this pronouncement.
FORWARD LOOKING STATEMENTS
Various statements made within this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Annual
Report on Form 10-K constitute "forward looking statements" for purposes of the
Securities and Exchange Commission's "safe harbor" provisions under the Private
Securities Litigation Reform Act of 1995 and the Securities Exchange Act of
1934, as amended. Investors are cautioned that all forward looking statements
involve risks and uncertainties, including those detailed in the Company's
filings with the Securities and Exchange Commission. There can be no assurance
that actual results will not differ from the Company's expectations. Factors
which could cause materially different results include, among others,
uncertainties related to the introduction of the Company's products and
services; the ability to finance and successfully complete and integrate future
acquisitions; mix of sales by product category and country; continual
competitive pressure on pricing and margins; delays in implementing the
technological and operational
IV-21
<PAGE> 97
changes planned under Project Millennium; the volatility of paper prices; the
fluctuation in interest rates; and the expansion into international markets,
including currency exchange rates and general market conditions.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
See Item 14 below for a listing of financial statements and the financial
statement schedule included therein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
DIRECTORS
Certain information regarding each director is set forth below, including
such individual's age and principal occupations, a brief account of business
experience during at least the last five years, other directorships currently
held and the year in which the individual was first elected a director of the
Company. The directors hold office until their successors are elected and
qualified or until their earlier removal or resignation.
Frans H.J. Koffrie, age 45, has served as Chairman of the Company's Board
of Directors since January 1998, as Acting President and Chief Executive Officer
of the Company since August 1997 and as a member of the Company's Board of
Directors since January 1996. Mr. Koffrie has also served as a member of the
Executive Board of KNP BT since June 1993 and as Chairman of the Executive Board
of the Distribution Group of KNP BT since January 1996, in which capacity Mr.
Koffrie has senior management responsibilities for various divisions of the
Distribution Group including the Paper Merchanting Division, the Graphic Systems
Division in Europe and Asia, the Information Systems Division and the Office
Products Division. He previously served as a member of the Executive Board of
the VRG Groep N.V. from April 1990 to March 1993.
Lorrence T. Kellar, age 60, has served as a member of the Company's Board
of Directors since January 1996. Mr. Kellar has been a Vice President-Real
Estate of Kmart Corporation since May 1996. Mr. Kellar also currently serves as
a member of the Board of Directors of Multi-Color Corporation and Loehmann's
Inc. and as a trustee of the Bartlett Management Trust, a mutual fund investment
company. He previously served as a Group Vice President of Kroger Co. from 1986
to April 1996 and as a member of the Board of Directors of the U.S. Shoe
Corporation from May 1986 to May 1995.
Philip E. Beekman, age 66, has served as a member of the Company's Board of
Directors since December 1996. Mr. Beekman is President and Chief Executive
Officer of Owl Hollow Enterprises, Inc., a consulting and investment company.
Mr. Beekman also currently serves as a member of the Board of Directors of The
General Chemical Group Inc., Linens 'n Things, Inc., Consolidated Cigar
Corporation and Kendle International Inc. He previously served as Chairman and
Chief Executive Officer of Hook-SupeRx, Inc., a retail drug store chain, from
July 1986 to July 1994, and President and Chief Operating Officer of Seagram
Company, Ltd. from January 1977 to June 1986 and, prior thereto, as President of
Colgate Palmolive International from March 1973 to December 1976.
Harry G. Vreedenburgh, age 47, a member of the Company's Board of Directors
since January 1998, has also served as a member of the Executive Board of the
Distribution Group of KNP BT since January 1996. Mr. Vreedenburgh has been the
Chief Financial Officer of the Distribution Group of KNP BT since October 1994.
He previously served as Staff Director of Corporate Planning & Systems of KNP BT
from 1993 to 1994 and, prior thereto, as Group Controller of the VRG Groep N.V.
from 1987 to 1992.
George Dean, age 50, a member of the Company's Board of Directors since
January 1998, has also served as a member of the Executive Board of the
Distribution Group of KNP BT since January 1996. Mr. Dean has been the Managing
Director for the Paper Merchanting Division of the KNP BT Distribution Group
since June 1995. He previously served as the Chief Executive Officer of Contract
Papers (Holdings) Ltd. from January 1990 to June 1995.
IV-22
<PAGE> 98
EXECUTIVE OFFICERS
The Board of Directors appoints the Company's executive officers. Certain
information concerning the Company's executive officers is set forth below,
except that information concerning Mr. Koffrie is set forth above under
"Directors". There are no family relationships among any of the directors or
executive officers of the Company.
Richard C. Dubin, age 56, has served as Executive Vice President and
President, BT Office Products North America since August 1997. Mr. Dubin has
been a Vice President of the Company since April 1995 and previously served as
Regional President, Midwest-West Region of the Company from January 1995 to
August 1997. Prior thereto, Mr. Dubin was the President of BT Buschart Office
Products, Inc. ("BT Buschart") from April 1990 through December 1994. Mr. Dubin
was the President of Buschart Office Products, Inc., a contract stationer
serving the St. Louis metropolitan area and the predecessor of BT Buschart, from
September 1981 until the acquisition of Buschart Office Products, Inc. by the
Company in April 1990.
Janhein H. Pieterse, age 46, has served as President, BT Office Products
Europe since July 1995, as a Vice President of the Company since April 1995, and
prior thereto had served as the President-European Operations of the Office
Products Division of KNP BT since January 1995. He previously served as the
President of the Copier Division of KNP BT from April 1994 to December 1994.
From October 1992 to March 1994, Mr. Pieterse served as the President of
Trimbach B.V., a solid board packaging manufacturing company. From August 1991
to September 1992, he served as the Managing Director of a group of packaging
manufacturing companies of BT. From January 1989 to July 1991, Mr. Pieterse was
the Managing Director of all operating companies in Australia and New Zealand of
Koninklijke Van Ommeren N.V., a Netherlands shipping/tanker company, and from
1986 to 1988, he served as the President of the worldwide airfreight network of
such company.
Francis J. Leonard, age 42, has served as the Company's Vice
President-Finance and Chief Financial Officer since April 1997 and as Chief
Accounting Officer since April 1995. Mr. Leonard also served as Controller of
the Company from April 1995 to April 1997. Mr. Leonard was employed in various
financial and accounting positions at Richardson Electronics Ltd., a worldwide
distributor of electronic devices, from April 1985 to July 1991, and as
Treasurer thereof from July 1991 through April 1995. Mr. Leonard is a certified
public accountant.
Thomas F. Cullen, age 43, was appointed Secretary of the Company in April
1997 and has served as Vice President, General Counsel of the Company since
November 1996. Prior thereto, Mr. Cullen had been engaged in the private
practice of law in Stamford, Connecticut since 1985.
David Kirshner, age 58, has served as Regional President, Great Lakes
Region of the Company since January 1995 and as a Vice President of the Company
since April 1995. Prior thereto, Mr. Kirshner was the President of BT Publix
Office Products, Inc. ("BT Publix") from June 1990 through December 1994. Mr.
Kirshner had been the Vice President of Publix Office Supplies, Inc., a contract
stationer serving the Chicago metropolitan area and the predecessor of BT
Publix, from 1975 until June 1986 and the President of Publix Office Supplies,
Inc. from June 1986 until the acquisition of Publix Office Supplies, Inc. by the
Company in April 1990.
Michael J. Miller, age 42, has served as Senior Vice President, Strategic
Systems of the Company since January 1997 and as a Vice President of the Company
since April 1995. Prior thereto, Mr. Miller was the Regional President, South-
Southeast Region of the Company from January 1995 to January 1997. Mr. Miller
previously was the President of BT Miller Business Systems, Inc. ("BT Miller")
from November 1992 through December 1994. Mr. Miller was the President and a
stockholder of Miller Business Systems, Inc., the predecessor of BT Miller, from
November 1985 until the acquisition of Miller Business Systems, Inc. by the
Company in November 1992.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and persons holding more than ten
percent of a registered class of the Company's equity securities to file with
the Securities and Exchange Commission and the New York Stock Exchange initial
reports of ownership, reports of changes in ownership and annual reports of
IV-23
<PAGE> 99
ownership of Common Stock and other equity securities of the Company. Such
directors, officers, and ten percent stockholders are also required to furnish
the Company with copies of all such filed reports.
Based solely upon a review of the copies of such reports furnished to the
Company, or representations that no reports were required, the Company believes
that all of its directors, executive officers and ten percent shareholders
complied with all filing requirements under Section 16(a) in 1997.
ITEM 11. EXECUTIVE COMPENSATION
Set forth below is information concerning the compensation of (i) Mr.
Koffrie, who has served as Acting President and Chief Executive Officer of the
company since August 1997, (ii) Mr. Huyzer, who served as President and Chief
Executive Officer of the Company from April 1995 until his retirement from the
Company effective August 11, 1997, and (iii) each of the other four most highly
compensated
executive officers of the Company (collectively, including Messrs. Koffrie and
Huyzer, the "Named Executive Officers").
The following table summarizes the compensation paid to, awarded to, or
earned by, the Named Executive Officers for services rendered in all capacities
to the Company during the fiscal years ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------- ------------
AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) OPTIONS(3) COMPENSATION
- --------------------------- ---- -------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Frans H.J. Koffrie.......... 1997 $ --(4) $ --(4) $ --(4) --(5) $28,000(6)
Acting President and Chief 1996 -- -- -- -- --
Executive Officer 1995 -- -- -- -- --
Rudolf A.J. Huyzer.......... 1997 386,077 182,934(7) 1,262,975(8) 100,000 4,077(9)
Former President and Chief 1996 500,000 34,615(7) 68,421(10) 146,670 15,503(11)
Executive Officer 1995 500,000 50,000(7) -- 200,000 4,186(12)
Richard C. Dubin............ 1997 277,404 127,979 62,436(13) 105,000 27,822(14)
Executive Vice President 1996 250,000 148,438 -- 71,930 25,000(15)
and President, BT Office 1995 250,000 -- -- 70,000 25,000(16)
Products North America
Michael J. Miller........... 1997 250,000 80,000 -- 25,000 28,200(17)
Senior Vice President, 1996 250,000 100,000 -- 60,000 27,975(18)
Strategic Systems 1995 250,000 -- -- 70,000 28,000(19)
David Kirshner.............. 1997 250,000 34,175 -- -- 27,850(20)
Vice President and
Regional 1996 250,000 5,000 -- 50,670 27,772(21)
President, Great Lakes
Region 1995 250,000 -- -- 70,000 27,772(22)
Janhein H. Pieterse......... 1997 168,919(23) 43,919(24) -- 35,000 26,071(25)
Vice President and
President, 1996 182,075(26) 14,566(27) -- 50,000 25,264(28)
BT Office Products Europe 1995 195,250(29) -- -- 70,000 --
</TABLE>
- ------------------------------
(1) All bonus compensation is reflected in the table below in the year such
compensation was earned rather than in the subsequent year when such
compensation was paid.
(2) With respect to each of the Named Executive Officers other than as indicated
for Mr. Huyzer in 1996 and 1997 and Mr. Dubin in 1997, the aggregate amount
of perquisites and other personal benefits, securities or property received
was less than either $50,000 or 10% of the total annual salary and bonus
reported for such officer.
IV-24
<PAGE> 100
(footnotes continued from preceding page)
- ------------------------------
(3) All of the options were granted pursuant to the Company's 1995 Stock Option
Plan. The options granted to the Named Executive Officers (except for those
granted to Mr. Pieterse) are exercisable in accordance with the following
vesting schedule:
(a) as to fifty percent (50%) of the number of shares covered by the option,
after the completion of one (1) year of continuous service from the
grant date;
(b) as to an additional twenty-five percent (25%) of the number of shares
covered by the option, after the completion of two (2) years of
continuous service from the grant date; and
(c) as to the remaining twenty-five percent (25%) of the number of shares
covered by the option, after the completion of three (3) years of
continuous service from the grant date.
In addition, all options vest upon retirement and must be exercised within
three years of the retirement date.
Mr. Pieterse's options are immediately exercisable as of the date of grant.
However, all such options are subject to resale restrictions whereby fifty
percent (50%) of the shares acquired upon exercise of an option may be sold
or transferred after the completion of one (1) year of continuous service
from the grant date; an additional twenty-five percent (25%) of the shares
acquired upon exercise of an option may be sold or transferred after the
completion of two (2) years of continuous service from the grant date; and
the remaining twenty-five percent (25%) of the shares acquired upon
exercise of an option may be sold or transferred after the completion of
three (3) years of continuous service from the grant date.
(4) Mr. Koffrie was appointed Acting President and Chief Executive Officer of
the Company effective August 11, 1997. Except for the director's fees
disclosed in footnote 6 below, Mr. Koffrie served without compensation by
the Company during 1997. He was not an employee of the Company during 1997
and was not an officer of the Company prior to his appointment to the
aforementioned offices. Mr. Koffrie is a member of the Executive Board of
KNP BT and an employee of KNP BT and receives compensation from KNP BT.
None of such compensation during 1997, however, was for services rendered
to the Company, and neither KNP BT nor Mr. Koffrie was paid or reimbursed
any amount either directly or indirectly by the Company or otherwise in
respect of Mr. Koffrie's service as an officer of the Company.
(5) Mr. Koffrie was not an employee of the Company during 1997 and therefore
was not eligible to receive, and did not receive, any options under the
Company's 1995 Stock Option Plan. Although Mr. Koffrie received options to
purchase shares of KNP BT stock during 1997, no such options were granted
for services rendered to the Company.
(6) As described under "-- Compensation of Directors" below, directors who are
not employees of the Company receive certain fees for their service as
directors and members of committees of the Board of Directors of the
Company. As a non-employee director of the Company, Mr. Koffrie received
fees of $28,000 from the Company during 1997.
(7) Guaranteed bonus payments pursuant to the terms of Mr. Huyzer's former
employment agreement.
(8) This amount includes: $150,769 salary continuance under employment
agreement, $853,847 separation payment, $84,000 representing the amount of
bonus compensation Mr. Huyzer received during the twenty-four (24) month
period immediately preceding his retirement date, $122,692 in accrued but
not used vacation time, $25,000 in lieu of reimbursement costs for
outplacement services pursuant to Mr. Huyzer's separation agreement and
$26,667 perquisite allowance. See "-- Employment Contracts, Termination of
Employment and Change-In-Control Arrangements."
(9) Consists of employee matching contributions to the Company's 401(k) plan of
$4,077.
(10) This amount includes $68,421 perquisite allowance ($40,000 annual payment
plus $28,421 of 1995 allowance paid in 1996).
(11) Consists of employer matching contributions to the Company's 401(k) plan of
$4,968 and final reimbursement of moving expenses of $10,535. In addition,
Mr. Huyzer was granted options to purchase 10,000 shares of KNP BT stock on
April 26, 1996, representing approximately 1% of the total number of
options granted to KNP BT employees for 1996. The exercise price of the
options is NLG 34.00 (or $16.83 based on the December 31, 1997 exchange
rate of NLG 1 = $.4950 (the "1997 Exchange Rate")). The options expire on
April 25, 2000. (The potential realizable values of Mr. Huyzer's options
granted in 1996 at assumed annual rates of stock price appreciation over
the option terms of 5% and 10%, respectively, were approximately $36,300
and $78,100. The foregoing 5% and 10% assumed annual rates of compound
stock price appreciation over the term of the options are set forth in
accordance with rules and regulations of the Securities and Exchange
Commission and do not represent the Company's estimate of KNP BT's stock
price appreciation or a projection by the Company of KNP BT's future stock
prices.)
(12) Consists of employer matching contributions to the Company's 401(k) plan of
$4,186. In addition, Mr. Huyzer was granted options to purchase 10,000
shares of KNP BT stock on May 4, 1995, representing approximately 1% of the
total number of options granted to KNP BT employees for 1995. The exercise
price of the options is NLG 34.44 (or $17.05 based on the 1997 Exchange
Rate). The options expire on May 3, 1999. (The potential realizable values
of Mr. Huyzer's options granted in 1995 at assumed annual rates of stock
price appreciation over the option terms of 5% and 10%, respectively, were
approximately $36,700 and $79,100. The foregoing 5% and 10% assumed annual
rates of compound stock price appreciation over the term of the options are
set forth in accordance with rules and regulations of the Securities and
Exchange Commission and do not represent the Company's estimate of KNP BT's
stock price appreciation or a projection by the Company of KNP BT's future
stock prices.)
(13) This amount includes: $18,269 for prorated portion of annual housing
allowance of $50,000 and a one-time $25,000 settling-in allowance
associated with Mr. Dubin's move to the Chicago area and a $19,167
perquisite allowance pursuant to the terms of Mr. Dubin's employment
agreement. See "-- Employment Contracts, Termination of Employment and
Change-In-Control Arrangements."
(14) Consists of employer matching contributions to the Company's 401(k) plan of
$1,298 and accruals under the Company's SERP of $26,524. See "--
Supplemental Executive Retirement Plan."
(15) Consists of employer matching contributions to the Company's 401(k) plan of
$679 and accruals under the Company's SERP of $24,321. See "-- Supplemental
Executive Retirement Plan."
IV-25
<PAGE> 101
(footnotes continued from preceding page)
- ------------------------------
(16) Consists of employer matching contributions to the Company's 401(k) plan of
$660 and accruals under the Company's SERP of $24,340. See "-- Supplemental
Executive Retirement Plan."
(17) Consists of employer matching contributions to the Company's 401(k) plan of
$3,200 and accruals under the Company's SERP of $25,000. See "--
Supplemental Executive Retirement Plan."
(18) Consists of employer matching contributions to the Company's 401(k) plan of
$2,975 and accruals under the Company's SERP of $25,000. See "--
Supplemental Executive Retirement Plan."
(19) Consists of employer matching contributions to the Company's 401(k) plan of
$3,000 and accruals under the Company's SERP of $25,000. See "--
Supplemental Executive Retirement Plan."
(20) Consists of employer matching contributions to the Company's 401(k) plan of
$2,850 and accruals under the Company's SERP of $25,000. See "--
Supplemental Executive Retirement Plan."
(21) Consists of employer matching contributions to the Company's 401(k) plan of
$2,772 and accruals under the Company's SERP of $25,000. See "--
Supplemental Executive Retirement Plan."
(22) Consists of employer matching contributions to the Company's 401(k) plan of
$2,772 and accruals under the Company's SERP of $25,000. See "--
Supplemental Executive Retirement Plan."
(23) Salary was NLG 341,250 or $168,919 based on the 1997 Exchange Rate.
(24) Bonus was NLG 88,725 or $43,919 based on the 1997 Exchange Rate.
(25) Pension contribution of NLG 52,669 or $26,071 based on the 1997 Exchange
Rate.
(26) Salary was NLG 318,648 or $182,075 based on the December 31, 1996 exchange
rate of NLG 1 = $.5714.
(27) Bonus was NLG 25,492 or $14,566 based on the December 31, 1996 exchange
rate of NLG 1 = $.5714.
(28) Pension contribution of NLG 44,215 or $25,264 based on December 31, 1996
exchange rates of NLG 1 = $.5714.
(29) Salary was NLG 312,400 or $195,250 based on the December 31, 1995 exchange
rate of NLG 1 = $.6250.
IV-26
<PAGE> 102
OPTION GRANTS, EXERCISES AND VALUES IN FISCAL 1997
The following table sets forth certain information concerning individual
grants of options to purchase Common Stock made by the Company during the fiscal
year ended December 31, 1997 ("Fiscal 1997") to each of the Named Executive
Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE PRESENT VALUE
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION ON GRANT
GRANTED(1) FISCAL 1997(2) ($ PER SHARE) DATE DATE(3)
-------------------- ------------------ ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Frans H.J. Koffrie.......... -- -- -- -- --
Acting President and
Chief Executive Officer
Rudolf A.J. Huyzer.......... 100,000(4) 13.5% 7.50 08/11/00 $352,790
Former President and
Chief Executive Officer
Richard C. Dubin............ 30,000(5) 14.2% 7.50 05/06/07 105,837
Executive Vice President 75,000(6) 9.0625 08/11/07 315,997
and President, BT Office
Products North America
Michael J. Miller........... 25,000(5) 3.4% 7.50 05/06/07 88,197
Senior Vice President,
Strategic Systems
David Kirshner.............. -- -- -- -- --
Vice President and
Regional President,
Great Lakes Region
Janhein H. Pieterse......... 35,000(5) 4.7% 7.50 05/06/02 123,477
Vice President and
President, BT Office
Products Europe
</TABLE>
- ------------------------------
(1) All of the options were granted pursuant to the Company's 1995 Stock Option
Plan.
(2) The total number of options granted in 1997 pursuant to the 1995 Stock
Option Plan was 739,300. Options to purchase 664,300 shares were granted on
May 6, 1997 and options to purchase 75,000 shares were granted on August 11,
1997.
(3) Option values reflect Black-Scholes model output for options. The
assumptions used in the model included: expected volatility of 42.5%,
risk-free rate of return of 6.5%, no dividend yield and time to exercise of
five years.
(4) Granted on May 6, 1997. Options expire three years from retirement date of
August 11, 1997 pursuant to the 1995 Stock Option Plan.
(5) Granted on May 6, 1997.
(6) Granted on August 11, 1997.
IV-27
<PAGE> 103
The following table summarizes the aggregated option exercises by the Named
Executive Officers in Fiscal 1997 and the year-end values of unexercised
options.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND FISCAL 1997 YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED VALUE DECEMBER 31, 1997 AT DECEMBER 31, 1997
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Frans H.J. Koffrie(1)........... -- -- -- --
Acting President and
Chief Executive Officer
Rudolf A.J. Huyzer.............. -- -- 30,000/0(2) $183,200/0(3)
Former President and Chief 446,670/0(4) 25,000/0(5)
Executive Officer
Richard C. Dubin................ -- -- 88,465/158,465(4) 0/7,500(5)
Executive Vice President and
President, BT Office Products
North America
Michael J. Miller............... -- -- 82,500/72,500(4) 0/6,250(5)
Senior Vice President,
Strategic Systems
David Kirshner.................. -- -- 77,835/42,835(4) 0/0
Vice President and Regional
President, Great Lakes Region
Janhein H. Pieterse............. -- -- 155,000/0(4) 8,750/0(5)
Vice President and President, BT
Office Products Europe
</TABLE>
- ------------------------------
(1) Mr. Koffrie was not an employee of the Company during 1997 and has not
received any options under the Company's 1995 Stock Option Plan. Although
Mr. Koffrie does hold options to purchase shares of KNP BT stock, no such
options were granted to Mr. Koffrie for services rendered to the Company.
See footnote 4 to "-- Summary Compensation Table" above.
(2) Refers to ordinary shares of KNP BT.
(3) The value was determined based on a December 31, 1997 market price of NLG
46.70 and has been translated from Netherlands guilders based upon the 1997
Exchange Rate.
(4) Refers to shares of Common Stock of the Company.
(5) Only the May 6, 1997 grants ($7.50) had an option price below the December
31, 1997 market price of $7.75. The value was determined as number of
options under the May 6, 1997 grant times a value of $.25 per share.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive an annual fee of
$20,000 plus a per diem fee of $1,000 for their service on the Board and the
Chairman of the Board of Directors receives an annual fee of $30,000 plus a per
diem fee of $1,500. For committee meetings of the Board of Directors held on a
day other than the day of a Board meeting, members receive a per diem fee of
$1,000 and the Chairman of the committee receives a per diem fee of $1,500. For
each committee meeting held on the same day of a Board meeting, the committee
Chairman receives a fee of $500. A per diem fee of $500 is also paid to each
Board member for participation in telephonic meetings of the Board and its
committees. Directors who are employees of the Company do not receive annual or
per diem fees. All directors are reimbursed for expenses incurred in attending
meetings.
IV-28
<PAGE> 104
EMPLOYMENT CONTRACTS, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
Mr. Koffrie served the Company as its Acting President and Chief Executive
Officer during 1997 without compensation and was not an employee of the Company.
Accordingly, the Company is not a party to any employment agreement with Mr.
Koffrie. Mr. Koffrie is fulfilling the responsibilities of his temporary
position of Acting President and Chief Executive Officer of the Company while
performing his responsibilities as an executive member of the Distribution Group
of KNP BT (of which the Company is an operating division). The Company's Board
of Directors has temporarily suspended its search for a successor until the
completion of any transaction resulting from the announcement by KNP BT on
January 22, 1998, that it was prepared to make an offer to acquire the 30% of
the stock in the Company it does not already own.
The Company has entered into an employment agreement with Mr. Dubin,
effective as of August 11, 1997, pursuant to which he serves as Executive Vice
President of the Company and President, BT Office Products North America. The
initial term of this agreement expires on December 31, 1999. During the term of
his employment, Mr. Dubin is entitled to receive an annual base salary, an
annual bonus of up to 60% of his base salary based on achievement of certain
financial criteria and personal targets and certain perquisites and other
benefits. So long as Mr. Dubin does not move his permanent residence to the
greater Chicago area, he is also entitled to a taxable housing allowance equal
to $50,000 per year. In addition, Mr. Dubin is entitled to a one-time, taxable
settling-in allowance in an amount equal to $25,000. In connection with his
appointment as Executive Vice President and President, BT Office Products North
America, Mr. Dubin was granted options representing the right to purchase 75,000
shares of the Company's common stock. See "Option Grants in Fiscal 1997."
If the employment of Mr. Dubin is terminated as a consequence of
non-renewal of his agreement, Mr. Dubin shall be entitled to a bonus payment for
the last year of the initial term equal to 1.5 times the average of bonuses
earned during the last two years of service to the Company and continuation for
a period of eighteen months following December 31, 1998 of base salary, full
benefits, perquisite allowance and retirement plan contributions. If the
employment of Mr. Dubin is terminated by the Company without cause prior to the
expiration of the initial term, he shall be entitled to bonus payments for each
year remaining on the initial term of the agreement and continuation for a
period of eighteen months following termination of base salary, full benefits,
perquisite allowance and retirement plan contributions.
The Company has entered into employment agreements with Messrs. Kirshner
and Miller, effective as of January 1, 1995, pursuant to which they currently
serve as, respectively, Vice President and Regional President, Great Lakes
Region and Senior Vice President, Strategic Systems of the Company. Each of
these agreements is for a term of four years unless renewed or sooner terminated
in accordance with its terms. Pursuant to their employment agreements, each of
Messrs. Kirshner and Miller receives an annual base salary, an annual bonus of
up to 50% of his base salary based on achievement of certain financial criteria
and personal targets and certain perquisites and other benefits.
If the employment of Messrs. Dubin, Kirshner or Miller is terminated due to
death, disability, resignation (other than following non-renewal by the Company
in the final year of the initial term as provided in the agreements) or for
cause, such person is entitled to receive earned and unpaid base salary through
the effective date of termination, business expense reimbursements, and all
other amounts due but unpaid to such person for the year immediately preceding
the year in which such termination occurs. In addition, if the employment of
Messrs. Dubin, Kirshner or Miller is terminated due to death or disability, such
person is entitled to receive any unpaid perquisite allowance and a prorated
bonus payment for the year during which such termination occurs.
If the employment of Messrs. Kirshner or Miller is terminated by the
Company without cause prior to the expiration of the initial term of the
agreements or as a consequence of non-renewal of the agreements, each such
person shall be entitled to bonus payments for each year remaining in the
initial term and continuation for the remainder of the initial term of base
salary, full benefits, perquisite allowance and retirement plan contributions.
Each of the employment agreements for Messrs. Dubin, Kirshner and Miller
contain a cove-
IV-29
<PAGE> 105
nant not to compete with the Company. The covenant applies during the term of
employment plus a period of eighteen months after the termination of employment
with the Company.
The Company has entered into an employment agreement with Mr. Pieterse,
effective July 1, 1995, pursuant to which he currently serves as Vice President
and President, BT Office Products Europe. This agreement is for an indefinite
period unless terminated in accordance with its terms. Pursuant to Mr.
Pieterse's employment agreement, he is entitled to receive an annualized salary
and an annual bonus based on achievement of certain financial criteria and
personal targets. If Mr. Pieterse's employment is terminated due to disability,
he receives base pay through the balance of that year plus one additional year
supplementary payment of up to his full base salary. Mr. Pieterse's employment
agreement contains a covenant not to compete with the Company for a period of
twelve months following termination of employment.
The Company and KNP BT have entered into a Separation Agreement and General
Release with Mr. Huyzer (the "Separation Agreement"), pursuant to which Mr.
Huyzer retired from employment with the Company effective as of August 11, 1997.
Pursuant to the terms of the Separation Agreement, the Company has paid Mr.
Huyzer (i) $853,847 as a separation payment, (ii) $84,000, representing the
amount of bonus compensation Mr. Huyzer received during the twenty-four months
immediately preceding his retirement date, (iii) $122,692, representing Mr.
Huyzer's accrued but unused vacation time, and (iv) $25,000, in lieu of
reimbursement costs for outplacement services. In addition, the Company paid
$150,769 in respect of salary continuation for Mr. Huyzer in 1997.
In 1998, the Company also paid Mr. Huyzer $182,934, representing 62.5% of
the bonus he would have otherwise been entitled to receive under the Company's
executive management bonus plan for 1997. The Company has agreed to reimburse
Mr. Huyzer relocation costs including up to $25,000 for the costs associated
with Mr. Huyzer's travel and lodging to search for a home in The Netherlands
(plus certain taxes payable on such relocation costs).
The Company and KNP BT have agreed to contribute monthly on Mr. Huyzer's
behalf to certain KNP BT pension plans for 36 consecutive months following Mr.
Huyzer's retirement. The Company has also agreed to pay (for a period of
eighteen months after his retirement) (i) the costs of covering Mr. Huyzer and
his spouse under KNP BT's health insurance plan, and (ii) the costs of Mr.
Huyzer's disability insurance premiums under KNP BT's disability insurance plan.
All of Mr. Huyzer's unvested options granted pursuant to the Company's 1995
Stock Option Plan became vested as of the date of Mr. Huyzer's retirement. Such
options to purchase stock in the Company shall expire on the third anniversary
of Mr. Huyzer's retirement from the Company. KNP BT has modified the terms of
its option plan to enable Mr. Huyzer to exercise his KNP BT options in
accordance with their original term and exercise date.
In consideration of the aforementioned payments and benefits, Mr. Huyzer
has released both the Company and KNP BT from any and all claims, including any
claims related to his former employment agreement or his employment with the
Company.
KNP BT PENSION PLANS
Mr. Koffrie participates in certain retirement programs offered by KNP BT.
None of the benefits thereunder, however, are payable for services rendered to
the Company. See footnote 4 to "--Summary Compensation Table" above.
Mr. Pieterse participates in certain retirement programs offered by KNP BT,
including the Average Indexed Salary Module ("AIS"), applicable to all KNP BT
employees in The Netherlands, and the Elective Contribution Module ("ECM").
Contributions to the programs made on Mr. Pieterse's behalf and the liabilities
associated with his retirement benefits are accrued for by KNP BT. ECM is
applicable to KNP BT employees whose annual base salary exceeds $71,832.
Benefits from all of these programs are paid from contributions of KNP BT. Mr.
Pieterse will receive an estimated annual age 65 retirement benefit of $30,411
(with annual adjustments) from AIS based upon his annual adjusted base salary as
of his retirement date up to $71,832, annual contributions by KNP BT of $10,780
(indexed), and an accrued benefit as of December 31, 1997 of $12,737. ECM
provides benefits in addition to AIS in the form of an account balance which
will be converted to an annuity when Mr. Pieterse reaches age 65. The estimated
ECM benefit which will have accrued for the account of
IV-30
<PAGE> 106
Mr. Pieterse at age 65 is $541,887 plus interest, based upon continuing annual
contributions by KNP BT of $14,251 (indexed) and an accrued benefit as of
December 31, 1997 of $211,438. In addition to these retirement programs, Mr.
Pieterse elected to contribute to the KNP BT Pension-Plus Module (the "PPM").
This program, which converts to an annuity upon retirement, enables participants
to increase their retirement pensions. All of the foregoing amounts have been
converted into U.S. dollars based upon the 1997 Exchange Rate.
Mr. Huyzer also participates in certain retirement programs offered by KNP
BT, including the AIS, ECM and Flexible Retirement Module ("FRM"). Benefits from
all of these programs are paid from contributions of KNP BT. Mr. Huyzer will
receive an estimated annual age 65 retirement benefit of $15,427 (with annual
adjustments) from AIS based upon his annual adjusted base salary as of his
retirement date up to $71,832, annual contributions by KNP BT through August
2000 pursuant to the terms of the Separation Agreement of $14,657 (indexed), and
an accrued benefit as of December 31, 1997 of $12,955. ECM provides benefits in
addition to AIS in the form of an account balance which will be converted to an
annuity when Mr. Huyzer reaches age 65. The estimated ECM benefit which will
have accrued for the account of Mr. Huyzer at age 65 is $508,418 plus interest,
based upon continuing annual contributions by KNP BT through August 2000 of
$47,292 (indexed) and an accrued benefit as of December 31, 1997 of $337,643.
The FRM provides a supplemental benefit for employees over age 50. Mr. Huyzer
will receive an estimated account balance of $294,940 plus interest, based upon
annual contributions of KNP BT of $42,225 (indexed) and an accrued benefit as of
December 31, 1997 of $142,463. The FRM is also composed of an accrued benefit as
of December 31, 1997 of $32,265, based upon annual contributions by KNP BT
through August 2000 of $17,958 (indexed). In addition to these retirement
programs, Mr. Huyzer elected to contribute to the PPM. All of the foregoing
amounts have been converted into U.S. dollars based upon the 1997 Exchange Rate.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Certain executive officers of the Company participate in the Company's
Supplemental Executive Retirement Plan (the "SERP"), which provides supplemental
non-qualified retirement benefits to participants. The SERP requires the Company
to credit annually to the participant's account an amount equal to a percentage
of such participant's annual compensation as determined by the Company. For each
year prior to January 1, 1995 during which an amount is deemed to be held in a
participant's account, his account is credited with interest at a rate equal to
that of thirty-year U.S. Treasury securities as of the end of that year. From
and after 1995, a participant's account is treated as if deemed to be invested
in investment vehicles available to such participant under the 401(k) plan and
credited annually with income, expenses, gains and losses from such deemed
investments.
A "grantor trust" under Section 677 of the Code may be established under
the SERP. In the event of a "change-in-control" (as defined in the SERP), the
Company is obliged to transfer amounts equal to the accounts under the SERP to
the trust. Assets in the trust, at all times, are subject to claims of the
general creditors of the grantor of such trust.
Upon a participant's termination of employment with the Company for any
reason other than "cause" (as defined in the SERP), such participant is entitled
to receive the entire value of his account. Payment under the SERP is made
either in a lump sum or in monthly installments over a period of no more than
five years, as elected by the participant. The SERP also allows participants to
designate beneficiaries to receive their SERP benefits in the event of death.
Amounts accrued in 1995, 1996 and 1997 under the SERP for the participating
Named Executive Officers are reported in the Summary Compensation Table above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Compensation Committee currently consists of Messrs. Koffrie, Kellar
and Beekman. Mr. Koffrie has served as Acting President and Chief Executive
Officer of the Company since August 11, 1997. Mr. Koffrie is a member of the
Executive Board of KNP BT and is the Chairman of the Executive Board of the
Distribution Group of KNP BT. Other than Mr. Koffrie, no executive officer of
the Company served as: (i) a member of the compensation committee (or other
board committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another entity, one of whose
executive officers served on the Compensation Committee of the Board of
Directors of the Company; (ii) a
IV-31
<PAGE> 107
director of another entity, one of whose executive officers served on the Board
of Directors of the Company; or (iii) a member of the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of another entity, one of whose
executive officers served as a director of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Prior to the Offering, all of the Common Stock of the Company was
beneficially owned by KNP BT. KNP BT is headquartered in Amsterdam and is
principally engaged in the distribution and packaging businesses and, through
the Company, the distribution of office products.
By virtue of its beneficial ownership of a majority of the outstanding
shares of the Company's Common Stock, KNP BT is in a position to control
substantially all corporate transactions requiring the vote of a majority of
stockholders, including election of the entire Board of Directors, as well as
merger and consolidation proposals, without the concurrence of other
stockholders, and thereby is in a position to control the Company. Three of the
Company's five directors are employed by KNP BT. In connection with the
Offering, KNP BT and certain of its affiliates entered into various transactions
and agreements with the Company which govern certain ongoing relationships,
including an intercompany services agreement and a tax matters agreement,
between the Company and KNP BT and its affiliates. See "Company
History--Subsequent Event" and "Certain Relationships and Related
Transactions--Relationship with KNP BT."
KNP BT is the beneficial owner of 23,400,000 shares of Common Stock, or
approximately 70% of the issued and outstanding shares of Common Stock.
Approximately 27% of such shares are held of record by KNP BT International
B.V., a wholly-owned subsidiary of KNP BT ("KNP BT International"), and the
balance is held of record by KNP BT. The address for KNP BT and KNP BT
International is Museumplein 9, 1071 DJ Amsterdam, The Netherlands.
The following table sets forth as of February 27, 1998, certain information
regarding the beneficial ownership of the Common Stock (i) by each person who is
known by the Company to own beneficially more than 5% of the Common Stock, (ii)
by each current director and Named Executive Officer of the Company, and (iii)
by all executive officers and directors of the Company as a group. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF PERCENTAGE OF COMMON
COMMON STOCK STOCK BENEFICIALLY
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED(1)
------------------------ ------------------- --------------------
<S> <C> <C>
NV Koninklijke KNP BT................................... 23,400,000(2) 70.0
KNP BT International B.V. .............................. 6,411,600 19.2
Rudolf A.J. Huyzer...................................... 466,670(3) 1.3
Frans H.J. Koffrie...................................... -- --
Harry G. Vreedenburgh................................... -- --
George Dean............................................. -- --
Lorrence T. Kellar...................................... 1,000 *
Philip E. Beekman....................................... 6,000 *
Richard C. Dubin........................................ 88,465(4) *
Michael J. Miller....................................... 82,500(5) *
David Kirshner.......................................... 80,835(6) *
Janhein H. Pieterse..................................... 156,300(7) *
All Directors and Executive Officers as a Group (12
persons).............................................. 893,310(8) 2.7
</TABLE>
- ------------------------------
(1) An asterisk denotes beneficial ownership of 1% or less of the Common Stock.
(2) Includes 6,411,600 shares of Common Stock which are held of record by KNP BT
International.
(3) Includes 446,670 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(4) Includes 88,465 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(5) Includes 82,500 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(6) Includes 77,835 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(7) Includes 155,000 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
(8) Includes 861,760 options granted under the 1995 Stock Option Plan which are
currently exercisable or exercisable within 60 days.
IV-32
<PAGE> 108
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
RELATIONSHIP WITH KNP BT
Prior to the Offering, KNP BT, through its ownership of all of the Common
Stock of the Company, had the ability to elect the Company's Board of Directors
and to control the direction and policies of the Company and the outcome of any
matter requiring stockholder approval, including mergers, consolidations and the
sale of all or substantially all of the assets of the Company, and to prevent or
cause a change of control of the Company. Following the Offering, KNP BT,
together with KNP BT International, owns approximately 70% of the outstanding
Common Stock of the Company and continues to have sufficient voting power to
elect the Company's Board of Directors and control such matters.
In the normal course of business, the Office Products Division and KNP BT
and its other affiliates have from time to time entered into various business
transactions and agreements, and the Company and its subsidiaries and KNP BT and
its affiliates may enter into additional material transactions in the future.
The following is a summary of each of the material agreements between the
Company and KNP BT as well as all material transactions between the Company and
KNP BT and its other subsidiaries since January 1, 1997. Unless otherwise
expressly indicated, such transactions were not necessarily conducted on an
arm's length basis. Certain of the transactions are evidenced by agreements
which are summarized below.
In connection with Mr. Huyzer's relocation from The Netherlands to the
United States in 1994, the Company advanced Mr. Huyzer $1,017,928 for the
purchase of a residence in the Chicago area. The collateralized note evidencing
the advance provides that interest is payable quarterly and accrues at a rate of
7.25% per annum beginning on November 6, 1994 with respect to $915,428 of the
principal amount thereof and beginning on January 1, 1995 with respect to the
balance of the principal amount. Principal has been repayable in quarterly
installments since September 1996 and thereafter until September 2024. As of
December 31, 1997, the aggregate principal amount outstanding under such note
was $650 thousand.
CREDIT FACILITIES
The Company and certain of its European subsidiaries (the "European
Subsidiaries") entered into a credit agreement dated as of June 16, 1997 (the
"Affiliate Credit Agreement") with Europcenter, which facility expires in July
1999. Pursuant to the terms of the Affiliate Credit Agreement, the Antilliana
Credit Agreement, as modified by the Assignment and Modification Agreement dated
June 26, 1996 among the Company, Antilliana and KNP BT Finance (USA), Inc., an
affiliate of KNP BT ("KNP BT Finance"), was terminated.
The Company has a commitment of NLG 70 million (approximately $35 million)
under the Affiliate Credit Agreement, which commitment is available for
borrowings to be used for the Company's European operations. Pursuant to the
terms of the Affiliate Credit Agreement, the European Subsidiaries may also lend
funds representing positive balances in certain cash management accounts of up
to NLG 20 million (approximately $10 million) to Europcenter.
Under the Affiliate Credit Agreement, loans are available in German Marks,
British Pounds, Netherlands Guilders, Swedish Kronor and any other currency
acceptable to the lender. Loans from Europcenter to the European Subsidiaries
bear interest at 1% over the applicable interbank rate as determined therein.
Loans from the European Subsidiaries to Europcenter bear interest at 1% less
than the applicable interbank rate as determined therein.
The Affiliate Credit Agreement contains certain events of default,
including KNP BT's failure to beneficially own more than 50% of the issued and
outstanding share capital of the Company. There is a commitment fee payable by
the Company on the unused portion of the commitment from Europcenter, which fee
fluctuates based on the Company's consolidated leverage ratio (consisting of the
ratio of consolidated debt to EBITDA) for the period of the four consecutive
fiscal quarters most recently ended as of a given date, adjusted on a pro forma
basis to give effect to material acquisitions and divestitures. The commitment
fee at December 31, 1997 was 0.3% of the unused commitment.
At December 31, 1997, the Company had outstanding loans payable to
Europcenter under the Affiliate Credit Agreement of $16.5 million and
IV-33
<PAGE> 109
Europcenter had outstanding loans payable to the European Subsidiaries of $9.6
million. The latter amount is included in cash and cash equivalents.
The Company, acting for itself and each of its wholly-owned U.S.
subsidiaries, entered into an amended and restated cash management agreement
dated as of June 16, 1997 (the "Cash Management Agreement") with Sengewald USA,
Inc. and KNP BT USA Holdings, Inc., each affiliates of KNP BT. The Cash
Management Agreement replaced the cash management agreement dated June 24, 1996
to which the Company and certain affiliates of KNP BT were parties.
Pursuant to the Cash Management Agreement, each of the parties other than
the Company invests cash representing positive balances in certain cash
management accounts with the Company and the Company provides overdraft
protection to these U.S. affiliates of KNP BT up to specified limits.
Under the Cash Management Agreement, investments earn interest at the LIBO
rate as determined therein less .625% and loans from the Company bear interest
at the LIBO rate plus .625%. At December 31, 1997, the investment balance for
affiliate parties totaled $629 thousand. Each party to the Cash Management
Agreement may terminate such agreement upon thirty days notice to the other
parties thereto and the Cash Management Agreement would terminate as to all
parties upon the occurrence of certain other events, including KNP BT's failure
to own more than 50% of the issued and outstanding share capital of the Company.
REGISTRATION RIGHTS
Pursuant to the terms of a registration rights agreement (the "Registration
Rights Agreement") among the Company, KNP BT and KNP BT International, which
agreement became effective upon completion of the Offering in July 1995, each of
KNP BT International and KNP BT has the right to require the Company to register
for public offering and sale all or a portion of the Common Stock held by it
from time to time (subject to certain limitations) on a maximum of four
occasions (and, if pursuant to a short-form registration statement, if
available, on an unlimited number of occasions). In addition, during the term of
the Registration Rights Agreement, each of KNP BT International and KNP BT has
the right to participate in any registration of Common Stock initiated by the
Company, subject to certain limitations. The Company will pay all out-of-pocket
expenses of any such registrations, including reasonable fees and expenses of
one counsel for KNP BT International and KNP BT, and will indemnify KNP BT
International and KNP BT and their respective officers and directors against
certain liabilities, including liabilities under the federal securities laws, in
connection therewith. Each of KNP BT International and KNP BT will pay all
underwriting discounts and commissions applicable to shares of Common Stock sold
by it pursuant to any such registrations. The rights of KNP BT International and
KNP BT under the Registration Rights Agreement are transferable to any affiliate
of KNP BT.
TAX MATTERS
The Company, KNP BT and certain of KNP BT's affiliates entered into a tax
matters agreement in connection with the Reorganization and the Offering (the
"Tax Matters Agreement") whereby KNP BT will indemnify the Company for any taxes
and any related interest, penalties or other additions to tax ("Taxes") arising
in any taxable year in respect of the Packaging Businesses and their disposition
in the Reorganization and any Taxes arising in any year with respect to certain
other operations that were disposed of by the Company prior to the Offering.
Under the Tax Matters Agreement, KNP BT will also indemnify the Company to the
extent of any Taxes relating to its office products distribution operations
prior to the Reorganization in excess of certain thresholds specified in the
agreement. The computation of any increase in Taxes and any resulting liability
for indemnity payments will be determined after giving effect to the tax
adjustment otherwise giving rise to indemnification and to any other net refunds
of Taxes to which indemnity is provided to that indemnified party.
The Tax Matters Agreement also provides for the treatment of such matters
as allocating overlap period Taxes, return preparation, refunds, audits and
controversies with tax authorities, sharing information and resolving
controversies between parties.
During the year ended December 31, 1997, the Company received reimbursement
of $287,677 under the Tax Matters Agreement, primarily representing the
Packaging Business' share of the 1991 to 1993 Internal Revenue Service audit
that was settled in early 1997. In addition, the Company made a
IV-34
<PAGE> 110
payment of $153,589 under the Tax Matters Agreement representing certain tax
benefits obtained by the Company which were attributable to the Packaging
Business.
Prior to the Reorganization, the Company and certain of its subsidiaries,
as well as the Packaging Businesses, had comprised a consolidated United States
federal income tax group. For periods following the Reorganization, the
Packaging Businesses will no longer be a part of the Company's consolidated
United States federal income tax group.
INTELLECTUAL PROPERTY
Pursuant to a license agreement between KNP BT and the Company, which
became effective upon the completion of the Offering in July 1995, KNP BT has
granted a royalty-free, perpetual license to the Company and its subsidiaries to
use the name "BT" along with KNP BT's logo in connection with the Company's
office products distribution businesses. However, the license to use such logo
terminates upon the change of control of the Company or upon the occurrence of
certain other events.
SERVICES
KNP BT and its subsidiaries have provided services to the Company and its
subsidiaries, including certain financial and treasury services, as well as
insurance, tax, legal and human resource services. In connection with such
services, the Company has paid fees to KNP BT. The Company has also provided
certain support services to KNP BT and its affiliates (including the Packaging
Businesses).
The Company and KNP BT entered into an Intercompany Services Agreement for
the continuing provision of such services, which agreement became effective upon
completion of the Offering in July 1995. The agreement has a one-year term and
thereafter automatically renews for successive one year periods unless earlier
terminated by either party. Such agreement provides for fees to be paid at rates
determined on the basis of costs calculated in a manner not inconsistent with
past practices, if any, but no greater than the good faith estimate of the fee
that would be charged by an independent third party. At any time during the term
of the agreement, the Company or KNP BT may request that KNP BT or the Company,
as the case may be, provide additional or different services or cease providing
one or more services then being provided.
The Company uses office space provided by KNP BT for certain of its
executive officers and employees in KNP BT's headquarters in Amsterdam. During
1997, the Company reimbursed KNP BT at market rates for the cost of such space.
GUARANTIES
KNP BT has guaranteed certain obligations of the Company under various
leases for real property and equipment. The carrying amount of such guarantees
was $10.3 million at December 31, 1997.
SALES TO AND PURCHASES FROM AFFILIATES
The Company has sold office products and related services to affiliates of
KNP BT. Such transactions generally were effected on terms comparable to those
available in transactions with unaffiliated parties. Revenue from such
transactions amounted to approximately $1.7 million for 1997. In addition, the
Company has occasionally purchased certain products from KNP BT and its other
affiliates (including the Packaging Businesses) for resale. Such purchases
totaled approximately $8.1 million for 1997. The Company expects to continue to
engage in similar affiliated party transactions on generally the same basis as
it would engage in such transactions with unaffiliated third parties.
LEASES
The Veenman Group leases one of their facilities from an affiliate of KNP
BT under an operating lease that expires on September 30, 1999. Rental expense
under such lease was $0.5 million in 1997. Future total minimum lease payments
are $1.0 million. BT Office Products Deutschland GmbH, formerly known as bax
Burosysteme Vertriebsgesellschaft mbH, an indirect wholly-owned subsidiary of
the Company acquired from KNP BT in 1996, leases one of its facilities from an
affiliate of KNP BT under an operating lease that expires on June 30, 1999.
Rental expense under such lease was $0.3 million in 1997 and future total
minimum lease payments are $0.4 million.
ARTICLE 403 STATEMENT
KNP BT has issued an Article 403 Statement under Netherlands law for the
Company's Netherlands subsidiaries. Pursuant to such Article 403 Statement, KNP
BT is liable for claims of third parties against such companies that exceed such
IV-35
<PAGE> 111
companies' net worth. The Company has agreed to indemnify KNP BT for any such
liability.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL
STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
(a) The following financial statements and financial statement schedule of
the Company are included in this Report:
FINANCIAL STATEMENTS:
Reports of Independent Accountants
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts
EXHIBITS:
The Exhibit Index appears on p. IV-60 and the Exhibits are not included
herein.
(b) REPORTS ON FORM 8-K:
No Current Reports on Form 8-K were filed in the fourth quarter of 1997.
IV-36
<PAGE> 112
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BT OFFICE PRODUCTS INTERNATIONAL, INC.
Date: March 30, 1998 By: /s/ FRANS H.J. KOFFRIE
------------------------------------
Frans H.J. Koffrie
Acting President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FRANS H.J. KOFFRIE Chairman of the Board of March 30, 1998
- --------------------------------------------------- Directors, Acting President and
(Frans H.J. Koffrie) Chief Executive Officer
/s/ RICHARD C. DUBIN Executive Vice President and March 30, 1998
- --------------------------------------------------- President, BT Office Products
(Richard C. Dubin) North America
/s/ JANHEIN H. PIETERSE Vice President and President, BT March 30, 1998
- --------------------------------------------------- Office Products Europe
(Janhein H. Pieterse)
/s/ FRANCIS J. LEONARD Vice President--Finance and March 30, 1998
- --------------------------------------------------- Chief Financial Officer
(Francis J. Leonard) (Principal Accounting Officer)
/s/ HARRY G. VREEDENBURGH Director March 30, 1998
- ---------------------------------------------------
(Harry G. Vreedenburgh)
/s/ GEORGE DEAN Director March 30, 1998
- ---------------------------------------------------
(George Dean)
/s/ LORRENCE T. KELLAR Director March 30, 1998
- ---------------------------------------------------
(Lorrence T. Kellar)
/s/ PHILIP E. BEEKMAN Director March 30, 1998
- ---------------------------------------------------
(Philip E. Beekman)
</TABLE>
IV-37
<PAGE> 113
CONSOLIDATED FINANCIAL STATEMENTS
BT OFFICE PRODUCTS INTERNATIONAL, INC.
CONTENTS
<TABLE>
<S> <C>
Reports of Independent Accountants.......................... IV-39
Financial Statements:
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... IV-41
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................... IV-43
Consolidated Statements of Stockholders' Equity for the
years ended
December 31, 1997, 1996 and 1995.......................... IV-44
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... IV-45
Notes to Consolidated Financial Statements.................. IV-46
</TABLE>
IV-38
<PAGE> 114
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
BT Office Products International, Inc.
We have audited the accompanying consolidated balance sheets of BT Office
Products International, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a) of this Form 10-K. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of BT Office Products
International, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1997 and 1996, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects the
information required to be included therein.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 9, 1998
IV-39
<PAGE> 115
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
BT Office Products International, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of BT Office Products International, Inc.
and subsidiaries for the year ended December 31, 1995. Our audit also included
the financial statement schedule listed in the Index at Item 14(a) of this Form
10-K. These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations of BT Office
Products International, Inc. and subsidiaries and their cash flows for the year
ended December 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects the information
required to be included therein.
Ernst & Young LLP
Chicago, Illinois
April 5, 1996
IV-40
<PAGE> 116
CONSOLIDATED BALANCE SHEETS
BT OFFICE PRODUCTS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 19,466 $ 20,163
Accounts receivable, less allowances of $9,753 in 1997 and
$4,915 in 1996 219,118 203,629
Other receivables 33,429 22,197
Due from affiliates 1,055 475
Inventories 123,324 119,370
Deferred income taxes 3,011 1,761
Investment in sales-type leases 10,128 10,573
Prepaid expenses and other current assets 15,330 13,838
-------- --------
Total current assets 424,861 392,006
Deferred income taxes 4,231 5,688
Investment in sales-type leases 15,652 17,119
Other assets 6,903 6,238
Property, plant and equipment:
Land 1,236 1,236
Buildings 33,995 31,755
Machinery and equipment 116,906 96,907
-------- --------
152,137 129,898
Accumulated depreciation and amortization 64,212 51,483
-------- --------
Net property, plant and equipment 87,925 78,415
Costs in excess of net assets of businesses acquired, net of
accumulated
amortization of $22,144 in 1997 and $16,621 in 1996 216,686 231,222
Other intangible assets, net of accumulated amortization of
$31,582 in 1997 and $27,213 in 1996 7,443 12,131
-------- --------
TOTAL ASSETS $763,701 $742,819
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
IV-41
<PAGE> 117
CONSOLIDATED BALANCE SHEETS
BT OFFICE PRODUCTS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable $ 24,591 $ 41,207
Current portion of long-term obligations 200,816 6,727
Accounts payable 140,780 123,306
Due to affiliates 1,570 1,504
Accrued compensation and benefits 28,084 21,977
Accrued sales tax 10,249 8,778
Accrued expenses 28,799 29,434
Income tax payable -- 2,363
Deferred income taxes 1,986 2,765
-------- --------
Total current liabilities 436,875 238,061
Long-term obligation with affiliates 16,500 4,247
Long-term obligations, less current portion 15,337 215,455
Accrued pension and post retirement costs 7,346 9,252
Deferred income taxes 5,880 1,930
Accrued expenses 8,050 5,222
-------- --------
53,113 236,106
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value of $.01 per share; authorized
shares, 10,000,000; none outstanding -- --
Common stock, par value $.01 per share; authorized shares,
90,000,000; issued shares, 33,471,000 at December 31,
1997 and 1996 335 335
Additional paid-in capital 270,132 270,132
Retained earnings (deficit) 17,137 (118)
Cumulative translation adjustments (13,891) (1,697)
-------- --------
Total stockholders' equity 273,713 268,652
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $763,701 $742,819
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
IV-42
<PAGE> 118
CONSOLIDATED STATEMENTS OF OPERATIONS
BT OFFICE PRODUCTS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Net sales--products $1,618,554 $1,412,333 $1,132,127
License fee revenues 190 181 243
---------- ---------- ----------
1,618,744 1,412,514 1,132,370
Costs and expenses:
Costs of products sold, including inventory purchased
from affiliates of $8,126, $8,606 and $8,567 1,162,737 1,004,713 819,078
Selling and administrative expenses, including
management fees and shared expenses paid to
affiliates of $1,666, $2,035 and $3,959 383,758 345,879 266,163
Depreciation and amortization 16,485 13,693 10,339
Amortization of intangibles 10,636 10,046 8,117
---------- ---------- ----------
1,573,616 1,374,331 1,103,697
---------- ---------- ----------
Operating income 45,128 38,183 28,673
Other income (expense):
Interest income and other 2,749 2,091 1,287
Interest expense (15,283) (7,401) (3,561)
Interest expense to affiliates (639) (5,172) (12,372)
---------- ---------- ----------
(13,173) (10,482) (14,646)
---------- ---------- ----------
Income before income taxes 31,955 27,701 14,027
Income tax expense 14,700 13,000 7,337
---------- ---------- ----------
Net income $ 17,255 $ 14,701 $ 6,690
========== ========== ==========
Basic earnings per share $ .52 $ .44 $ .24
========== ========== ==========
Diluted earnings per share $ .51 $ .44 $ .24
========== ========== ==========
Average shares outstanding, basic 33,471 33,420 27,983
========== ========== ==========
Average shares outstanding, diluted 33,541 33,742 28,026
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
IV-43
<PAGE> 119
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
BT OFFICE PRODUCTS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
ADDITIONAL RETAINED CUMULATIVE TOTAL
COMMON PAID-IN EARNINGS TRANSLATION STOCKHOLDERS'
(IN THOUSANDS) STOCK CAPITAL (DEFICIT) ADJUSTMENTS EQUITY
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ 234 $ 44,093 $(21,509) $ (885) $ 21,933
Net income -- -- 6,690 -- 6,690
Issuance of common stock, net 100 102,607 -- -- 102,707
Capital contribution -- 118,000 -- -- 118,000
Net capital and intercompany
transactions--unrelated businesses -- 4,927 -- -- 4,927
Net capital and intercompany
transactions--related businesses -- 3,850 -- -- 3,850
Corporate reorganization:
Historical paid-in capital -- (33,281) -- -- (33,281)
Transfer of unrelated businesses -- 59,990 -- -- 59,990
Contribution of related businesses -- (79,579) -- -- (79,579)
Recapitalization -- 52,870 -- -- 52,870
Currency translation adjustments -- -- -- 2,128 2,128
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 334 273,477 (14,819) 1,243 260,235
Net income -- -- 14,701 -- 14,701
Stock options exercised 1 867 -- -- 868
Acquisition of Bax--a related entity -- (3,630) -- -- (3,630)
Other -- (582) -- -- (582)
Currency translation adjustments -- -- -- (2,940) (2,940)
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 335 270,132 (118) (1,697) 268,652
Net income -- -- 17,255 -- 17,255
Currency translation adjustments -- -- -- (12,194) (12,194)
-------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 $ 335 $270,132 $ 17,137 $(13,891) $273,713
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
IV-44
<PAGE> 120
CONSOLIDATED STATEMENTS OF CASH FLOWS
BT OFFICE PRODUCTS INTERNATIONAL, INC.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
(IN THOUSANDS) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 17,255 $ 14,701 $ 6,690
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization 18,045 15,351 11,663
Amortization of intangibles 10,636 10,046 8,117
Provision for doubtful accounts 6,662 2,107 1,369
(Gain) loss on sale of property, plant and equipment,
net 116 70 (77)
Deferred income taxes 3,409 1,477 2,323
Changes in operating assets and liabilities, net of effects
of business acquisitions:
Accounts receivable (26,373) (6,312) (32,681)
Inventories (6,359) (8,334) (8,605)
Other current assets (9,570) (3,800) 1,021
Accounts payable and accrued expenses 26,656 20,623 10,793
Due to/from affiliates, net (403) 1,564 (1,685)
Income taxes payable (refundable) (5,565) 1,020 728
-------- --------- ---------
Net cash provided by (used for) operating activities: 34,509 48,513 (344)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (28,217) (25,090) (21,886)
Acquisitions of businesses, less cash acquired (17,782) (130,135) (37,248)
Proceeds from disposal of property, plant and equipment 539 1,795 881
Other assets and liabilities 1,019 (1,581) (6,064)
-------- --------- ---------
Net cash used for investing activities (44,441) (155,011) (64,317)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable 33,430 15,571 9,562
Repayments of notes payable (37,918) (13,261) (11,071)
Proceeds from issuance of long-term obligations 50,602 220,135 6,100
Repayments of long-term obligations (49,034) (25,250) (5,337)
Net borrowings (repayments) on obligations with affiliates 13,023 (78,228) (161,420)
Proceeds from stock options exercised including related tax
benefits -- 868 --
Net transactions of unrelated businesses transferred -- -- 4,927
Net transactions of related businesses contributed -- (476) 3,850
Capital contributions by KNP BT -- -- 118,000
Issuance of common stock, net -- (106) 102,707
-------- --------- ---------
Net cash provided by financing activities 10,103 119,253 67,318
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (868) (160) (84)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents (697) 12,595 2,573
Cash and cash equivalents at beginning of year 20,163 7,568 4,995
-------- --------- ---------
Cash and cash equivalents at end of year $ 19,466 $ 20,163 $ 7,568
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
IV-45
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BT OFFICE PRODUCTS INTERNATIONAL, INC.
1. FORMATION AND BASIS OF PRESENTATION
BT Office Products International, Inc. was organized in 1984 as BT USA,
Inc., a subsidiary of Buhrmann-Tetterode NV, the predecessor of KNP BT, a
Netherlands-based diversified distribution and manufacturing company.
On June 30, 1995, KNP BT and BT Office Products International, Inc.
effected a series of transactions described below (collectively, the "Corporate
Reorganization") in order to reorganize the legal ownership of various of their
businesses and to recapitalize the ongoing office products distribution business
which now constitutes the "Company." Prior to the Corporate Reorganization, BT
Office Products International, Inc. was a holding company (the "Holding
Company"), which operated KNP BT's U.S. office products distribution business
(through its ownership of its U.S. office products companies) as well as certain
other businesses which are unrelated to the U.S. office products distribution
business.
The Corporate Reorganization included, among other things: (i) KNP BT's
contribution of the net assets of its European office products businesses and
one U.S. business to the Company; (ii) the transfer of the Holding Company's
unrelated businesses to KNP BT; (iii) a capital contribution of $118.0 million
in the form of an exchange of indebtedness of the Holding Company under interest
bearing advances by KNP BT for shares of common stock; (iv) a stock split which
resulted in 23,400,000 shares issued and outstanding; and (v) the execution of
various agreements related to income tax matters, financing arrangements, and
shared services.
In July 1995, the Company completed the sale of 10,000,000 shares of common
stock at a price of $11.50 per share in an initial public offering (the
"Offering"). After the Offering, KNP BT beneficially owns approximately 70% of
the Company's outstanding common stock. The net proceeds received from the
Offering, after underwriting commissions and estimated costs related to the
Offering and the Corporate Reorganization ("Net Proceeds"), were $98.4 million.
Of the Net Proceeds, the Company used $65.8 million to repay in full
non-interest bearing advances from affiliates made in 1995 and 1994 to finance
several acquisitions. The Company used the remaining Net Proceeds to reduce
outstanding indebtedness under the interest bearing advances from affiliates
made to the Company for working capital and other general corporate purposes.
Upon completion of the Offering, the Company entered into a $200 million
long-term credit agreement (the "Antilliana Credit Agreement") with KNP BT
Antilliana N.V. ("Antilliana"), an affiliate of KNP BT. Effective in August
1996, the Company reduced the commitments available under the Antilliana Credit
Agreement to $50 million. See Note 8.
The pro forma unaudited results of operations for the year ended December
31, 1995, assuming the Capital Contribution and Net Proceeds of the Offering
occurred as of January 1, 1995, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT) 1995
- -----------------------------------------------------
<S> <C>
Sales $1,132,370
Net income 10,781
Diluted earnings per share 0.32
Average shares outstanding, diluted 33,443
- -----------------------------------------------------
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements and related notes to consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
Temporary cash investments with an original maturity of three months or
less are considered to be cash equivalents.
FINANCIAL INSTRUMENTS
The carrying amount reported in the consolidated balance sheets for cash
and cash equivalents
IV-46
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
and notes payable approximate fair value because of the short-term maturity of
these financial instruments.
The Company utilizes letters of credit and guarantees by KNP BT to back
certain financing or leasing instruments. The letters of credit and guarantees
reflect fair value as a condition of their underlying purpose and are subject to
fees competitively determined in the market place. The carrying amount of
letters of credit and guarantees were $13.4 million and $15.0 million at
December 31, 1997 and 1996, respectively.
CONCENTRATION OF CREDIT RISK
The Company is in the business of distributing various office products,
including furniture and office equipment, to businesses throughout the U.S. and
Europe. In addition, one entity distributes paper and printing supplies.
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade receivables. Credit risk with respect
to trade receivables is minimized because of a large customer base and its
geographic dispersion. The Company maintains allowances for potential credit
losses and historically credit losses have been within management's
expectations.
REVENUE RECOGNITION
Revenues are recorded at the time of shipment of products or performance of
services. Revenues from service contracts are recognized as income over the term
of the contract. The present value of payments under sales-type lease contracts
is recorded as revenue and the book value of the equipment is charged to costs
of products sold at the time of shipment. Future interest income is deferred and
recognized over the related lease term.
COSTS OF PRODUCTS SOLD
Vendor rebates are recognized on an accrual basis in the period earned and
are recorded as a reduction to costs of products sold. Delivery and occupancy
costs are included as an increase to costs of products sold.
INVENTORIES
Inventories consist primarily of products held for sale and are valued at
the lower of cost or market using the last-in, first-out (LIFO) method for U.S.
inventories and the first-in, first-out (FIFO) method for foreign inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and
amortization of plant and equipment, including the amortization of assets
recorded under capital leases, are computed using the straight-line method over
the estimated useful lives of the assets or the initial or remaining terms of
the leases. Useful lives range from three to ten years for machinery and
equipment and up to 30 years for buildings. Repair and maintenance costs are
expensed as incurred.
SOFTWARE AND DEVELOPMENT COSTS
Costs related to internally developed or purchased software for major
projects are capitalized and amortized over the software's estimated useful life
once the project is put into service. Costs associated with the design phase and
reengineering components of systems projects are expensed as incurred. Computer
software maintenance and repair costs related to software development are
expensed as incurred. The carrying value is regularly reviewed by the Company
and a loss is recognized when the net realizable value falls below unamortized
cost.
COSTS IN EXCESS OF NET ASSETS OF BUSINESSES
ACQUIRED
Costs in excess of net assets of businesses acquired (goodwill) are being
amortized on a straight-line basis over 40 years.
IV-47
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
OTHER INTANGIBLE ASSETS
Costs of customer lists, trademarks and favorable lease rights arising from
business combinations are being amortized using the straight-line method over
periods which principally range from 4 to 10 years. Costs of covenants
not-to-compete are amortized using the straight-line method over their
contractual lives, which range from 1 to 5 years.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of any
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down to market value or discounted cash flow value is
required.
INCOME TAXES
The Company accounts for income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 is an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences by applying enacted statutory tax rates to differences
between the financial statement carrying amounts and tax bases of existing
assets and liabilities. In addition, the amount of any future tax benefits are
reduced by a valuation allowance to the extent such benefits are not expected to
be realized on a more likely than not basis.
STOCK BASED COMPENSATION
Effective December 31, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123"). As provided by SFAS 123, the Company has elected to continue to account
for its stock based compensation programs according to the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure provisions required by SFAS
123. See Note 11.
EARNINGS PER COMMON SHARE
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share," ("SFAS 128"),
which simplifies the standards for computing earnings per share ("EPS") and
requires the presentation of two new amounts, basic and diluted EPS. Basic EPS
is computed by dividing net income by the weighted-average number of common
shares outstanding during the period. Diluted EPS is computed by dividing net
income by the weighted-average number of common shares outstanding, adjusted for
dilutive common share equivalents (70,000 shares, 322,000 shares and 43,000
shares in 1997, 1996 and 1995, respectively) attributed to outstanding options
to purchase common stock. The Company has adopted SFAS 128 for the quarter and
year ended December 31, 1997 and has restated EPS for all prior periods
reported. The restated basic and diluted earnings per share for all periods
presented approximated the previously reported earnings per share.
TRANSLATION OF FOREIGN CURRENCIES
Balance sheet accounts of foreign operations are translated using the year
end exchange rate and income statement accounts are translated using the average
exchange rate for the year. Translation adjustments are recorded as a separate
component of stockholders' equity. The Company does not currently hedge foreign
currency translation risk exposure.
DERIVATIVE FINANCIAL INSTRUMENTS
Forward exchange contracts are used to hedge certain net transaction
exposures. The Company defers unrealized gains or losses until the completion of
the contract. The Company's program to hedge net foreign currency transaction
exposure has been limited to acquisition funding. The hedging
IV-48
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
activities seek to limit this risk by offsetting the gains and losses on the
underlying exposures with losses and gains on the instruments utilized to create
the hedge. At December 31, 1996, the Company had one outstanding contract
totaling $22 million. The contract value approximated fair value at December 31,
1996. No such contracts were outstanding at December 31, 1997.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 financial statement presentation.
3. BUSINESS ACQUISITIONS
In December 1996, the Company acquired the Vinborgen I Boras AB group of
companies ("Bjorsell"), an office products distributor in Sweden, in a purchase
transaction for approximately $41.5 million in cash. The transaction resulted in
goodwill of $30.5 million.
On December 31, 1996, the Company acquired Kuipers Centrum voor
Kantoorefficiency B.V. ("Kuipers"), an office products distributor in The
Netherlands, in a purchase transaction for approximately $21.8 million in cash,
as adjusted under provisions of the purchase agreement. The transaction resulted
in goodwill of $16.8 million.
In July 1996, the Company acquired the two businesses comprising the Keller
+ Roth Group, office products distributors in Germany, in a purchase transaction
for approximately $11.5 million in cash and the issuance of $3.2 million of
notes payable. The transaction resulted in goodwill of $11.1 million.
In July 1996, the Company assumed control of bax Burosysteme
Vertriebsgesellschaft mbH ("Bax"), an indirectly wholly-owned subsidiary of KNP
BT. In October 1996, the Company completed the acquisition of Bax, an office
equipment distributor in Germany, by acquiring the shares of Bax from KNP BT for
approximately $9.8 million in cash. The excess purchase price over the net book
value of $3.6 million was charged to additional paid-in capital.
In addition, during the year ended December 31, 1996, the Company acquired
four other significant office products businesses in the U.S. in purchase
transactions for aggregate consideration of $26.0 million, which included $25.2
million of cash and the issuance of $0.8 million of notes payable. These
transactions resulted in goodwill of $22.1 million.
In the year ended December 31, 1995, the Company acquired five significant
U.S. office products businesses in purchase transactions for aggregate
consideration of $34.2 million, which included $34.0 million of cash and the
issuance of $0.2 million of notes payable. These transactions resulted in
goodwill of $19.4 million and other intangible assets of $2.3 million.
The pro forma unaudited results of operations for the year ended December
31, 1996, assuming the 1996 acquisitions described above had been consummated as
of January 1, 1996, and translated at historical rates, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT) 1996
- -------------------------------------------------------
<S> <C>
Sales $1,580,657
Net income 15,818
Diluted earnings per share .47
Average shares outstanding, diluted 33,742
- -------------------------------------------------------
</TABLE>
The Company also acquired several other smaller office product businesses
in 1997 and 1996 for a total purchase price of $8.5 million and $23.8 million,
respectively. These acquisitions did not have a significant impact on the
consolidated
IV-49
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
3. BUSINESS ACQUISITIONS (CONTINUED)
financial statements for the years ended December 31, 1997 and 1996.
4. SOFTWARE AND DEVELOPMENT COSTS
Software development costs capitalized for major projects, including the
Company's investments in an enterprise-wide systems solution in the U.S., known
as Project Millennium, were $25.9 million and $8.4 million as of December 31,
1997 and 1996, respectively. Project Millennium costs accounted for $16.0
million of the $18.6 million capitalized as assets under construction at
December 31, 1997. Amortization of theses assets will begin once particular
assets or modules are placed into service. The remaining capitalized costs are
being amortized over the software or other development project's estimated
useful life. Amortization of software development costs totaled $1.3 million and
$1.0 million for the years ended December 31, 1997 and 1996, respectively.
5. INVENTORIES
Current cost exceeded the LIFO value of inventories by approximately $6.7
million and $5.3 million at December 31, 1997 and 1996, respectively. LIFO
inventories represented approximately 61% and 60% of total inventories at
December 31, 1997 and 1996, respectively.
6. INVESTMENT IN SALES-TYPE LEASES
The components of the net investment in sales-type leases, which
principally relates to the copier business in Europe, were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Lease contracts receivable $ 29,908 $ 33,147
Less: Unearned income (4,128) (5,455)
-------- --------
Net investment in sales-type
leases 25,780 27,692
Less: Current portion (10,128) (10,573)
-------- --------
$ 15,652 $ 17,119
======== ========
- ---------------------------------------------------------
</TABLE>
Minimum future lease payments to be received for the succeeding five years
on sales-type leases are as follows: $11.4 million in 1998; $8.6 million in
1999; $5.8 million in 2000; $3.1 million in 2001; and $1.0 million in 2002.
7. NOTES PAYABLE
Notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Acquisition notes payable to
sellers $ 1,335 $10,976
Borrowings under revolving
line-of-credit agreements 23,256 30,231
------- -------
$24,591 $41,207
======= =======
- ---------------------------------------------------------
</TABLE>
In June 1997, the Company entered into revolving lines of credit providing
an aggregate of $22.5 million to fund the Company's U.S. cash management
requirements. Such lines replaced the $15 million cash management facility
formerly available under the Antilliana Credit Agreement. In addition to the
revolving lines of credit available in the U.S., $28.7 million is available
under local agreements in Europe. Total unused lines of credit with
non-affiliates amounted to $28.0 million at December 31, 1997.
The weighted average interest rate for short-term obligations for the years
ended December 31, 1997 and 1996 were 4.8% and 6.4%, respectively.
IV-50
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
8. LONG-TERM OBLIGATIONS
Long-term obligations consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------------------
<S> <C> <C>
Debt:
Borrowing under Bank Credit Agreement, due in August 2001,
with a weighted average interest rate of 6.5% and 5.9%,
at December 31, 1997 and 1996, respectively $194,687 $197,159
Borrowing under Affiliate Credit Agreement, due in July
1999, with a weighted average interest rate of 6.0% at
December 31, 1997 16,500 --
Borrowing under Antilliana Credit Agreement, due in June
1998, with a weighted average interest rate of 6.5% at
December 31, 1996 -- 4,247
Acquisition notes payable, due September 2000 with
interest payable at 6.1% 1,100 1,100
Real estate mortgage note, payable in monthly installments
of $8 including interest, collateralized by the land and
building due December 1, 2006 with interest payable at
9.375% 604 646
Unsecured note, payable in monthly installments of $20,
due February 28, 2002, with interest payable at 8.5% 854 1,223
Collateralized notes, due in quarterly installments of
$205 plus interest, collateralized by certain assets,
due December 31, 2000 through March 31, 2003 with
interest rates ranging from 6.0% to 6.9% 2,538 3,743
Other 272 415
-------- --------
216,555 208,533
Capitalized leases:
Building, due July 1, 2022, with an interest rate of 10.8% 4,910 5,690
Building, due December 1, 2009, with an interest rate of
13.7% 1,975 2,036
Vehicles, due April 22, 1998 through November 20, 1999,
with interest rates ranging form 9.5% to 17.0% 94 150
Office equipment, due January 1997 through December 2001,
with interest rates ranging from 8.0% to 12.23% 8,955 9,751
Other 164 269
-------- --------
16,098 17,896
-------- --------
232,653 226,429
Less: Current portion 200,816 6,727
-------- --------
$ 31,837 $219,702
======== ========
- ---------------------------------------------------------------------------------
</TABLE>
On August 2, 1996, the Company entered into a $250 million syndicated bank
Competitive Advance and Revolving Credit Facility Agreement (the "Bank Credit
Agreement"). The Bank Credit Agreement was used to pay down existing debt owed
to affiliates of the Company and is being used for working capital needs and
general corporate purposes, including acquisitions.
The Bank Credit Agreement provides for a five-year, unsecured,
non-amortizing, multi-currency, revolving credit facility. Under the multi-
currency arrangement, term loans in U.S. Dollars, German Marks, British Pounds,
Swedish Kronor and Netherlands Guilders (other currencies are also available)
bear interest based on a leverage ratio ranging from .35% to .75% over the
applicable interbank rate as determined therein. The facility also provides for
revolving loans in U.S. Dollars at the prevailing prime rate. There is a
facility fee on the unused portion, based on the leverage ratio, which ranges
from .125% to .300%.
The Bank Credit Agreement, as modified, contains various loan covenants
calculated quarterly including a maximum leverage ratio based on total debt to
pro forma EBITDA (3.75 to 1 for each of the rolling four quarter periods ending
on or before March 31, 1998, and reducing to 3.25 to 1 in subsequent quarters),
a minimum EBITDA less capital expenditures to interest ratio (scheduled to
increase from 2.50 to 1 to 3.00 to 1 for the rolling four quarter period ending
September 30, 1998) and a minimum net worth requirement. In addition,
IV-51
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
8. LONG-TERM OBLIGATIONS (CONTINUED)
under a change of control clause, an event of default would occur if any person
or group, other than KNP BT or its affiliates, shall own more than 50% of the
voting shares of the Company.
As of December 31, 1997, the Company is in compliance with the financial
covenants under the Bank Credit Agreement. Unless the Company is able to enter
into an amendment with the lenders under its syndicated Bank Credit Agreement to
relax certain financial covenants or otherwise renegotiate or refinance such
agreement, the Company expects that one or more defaults or events of default
may arise in 1998 as a result of breaches of such financial covenants.
Accordingly, indebtedness under the Bank Credit Agreement has been classified as
current portion of the long-term obligations in the consolidated balance sheet.
The Company's majority shareholder, KNP BT, has advised the Company that it
will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in Note 18, KNP BT has made an offer to purchase the outstanding
shares of the Company that it does not already own in a so-called "going
private" transaction. If the going private transaction is completed, KNP BT has
advised the Company that it intends to reduce or eliminate its existing
indebtedness under the Bank Credit Agreement and/or otherwise cause such
indebtedness to be refinanced. If the going private transaction is not
completed, the Company intends to renegotiate the existing Bank Credit Agreement
so as to avoid or cure any such default or defaults or event or events of
default and/or to refinance the indebtedness under the Bank Credit Agreement, in
either case, at a cost that is not expected to be material to the Company's 1998
results of operations.
Effective in June 1997, the Company replaced the Antilliana Credit
Agreement with a new commitment of 70 million Netherlands Guilders
(approximately $35 million), which is available through KNP BT Europcenter N.V.
("Europcenter"), an affiliate of KNP BT (the "Affiliate Credit Agreement"). The
Affiliate Credit Agreement, which expires in July 1999, will be used by the
Company's European operations for working capital needs and general corporate
purposes, including acquisitions. As part of the same agreement, the Company's
European subsidiaries may invest funds representing positive balances of up to
20 million Netherlands Guilders in certain cash management accounts in
Europcenter. The Affiliate Credit Agreement contains certain events of default
the most significant of which includes KNP BT's failure to own, beneficially and
of record, more than 50% of the issued and outstanding share capital of the
Company. There is a commitment fee of .30% on the unused portion of the
Affiliate Credit Agreement.
Maturities of long-term obligations, other than obligations under capital
lease agreements, for the five years succeeding December 31, 1997, are $195.8
million in 1998, $17.6 million in 1999, $2.1 million in 2000, $0.4 million in
2001, $0.3 million in 2002 and $0.3 million thereafter.
The fair value of the Company's long-term obligations approximates the
carrying amount based on the present value of cash flows discounted at the
current rates offered to the Company on similar debt instruments.
Interest payments on short-term and long-term obligations were $16.8
million, $12.4 million and $15.6 million for the years ended December 31, 1997,
1996 and 1995, respectively.
Non-cash investing and financing activities included capital lease
obligations incurred of $113 thousand, $0 and $196 thousand in 1997, 1996 and
1995, respectively.
IV-52
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
9. INCOME TAXES
Domestic and foreign income before income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
(IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Domestic $23,772 $22,029 $10,558
Foreign 8,183 5,672 3,469
------- ------- -------
$31,955 $27,701 $14,027
======= ======= =======
- -------------------------------------------------------
</TABLE>
Federal, state and foreign income tax expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
(IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 7,632 $ 7,663 $2,374
State 1,702 1,895 858
Foreign 1,957 1,965 1,782
------- ------- ------
11,291 11,523 5,014
Deferred:
Federal 2,359 578 1,291
State 393 215 477
Foreign 657 684 555
------- ------- ------
3,409 1,477 2,323
------- ------- ------
$14,700 $13,000 $7,337
======= ======= ======
- -------------------------------------------------------
</TABLE>
Reconciliations between the U.S. federal statutory income tax rate of 35%
and the consolidated effective income tax rates of 46%, 47% and 52% for the
years ended December 31 1997, 1996 and 1995, respectively, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
(IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. federal income
tax rate $11,184 $ 9,695 $4,909
State income taxes, net of
U.S. federal tax benefit 1,584 1,372 793
Goodwill amortization 1,473 1,309 918
Reduced foreign tax
benefits due to loss
carryforwards and rate
differentials 748 633 1,199
All other items (289) (9) (482)
------- ------- ------
Tax provision $14,700 $13,000 $7,337
======= ======= ======
- -------------------------------------------------------
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ 7,059 $ 3,456
Capital leases 5,424 5,578
Inventories (1,196) 429
Other trade receivables 1,826 979
Other 1,210 1,782
-------- --------
Total deferred tax liabilities 14,323 12,224
Deferred tax assets:
Deferred compensation and post
retirement costs 1,972 2,026
Allowance for doubtful accounts 1,288 728
Amortization (263) 1,067
Deferred expenses 2,620 1,490
Integration reserves 827 1,089
Foreign net operating loss
carryforwards 44,292 48,770
Alternate minimum tax credit
carryforward -- 969
Other 221 133
-------- --------
Total deferred tax assets 50,957 56,272
Valuation allowance for deferred
tax assets (37,258) (41,294)
-------- --------
Total deferred tax assets net of
valuation allowance 13,699 14,978
-------- --------
Net deferred tax assets
(liabilities) $ (624) $ 2,754
======== ========
- ------------------------------------------------------
</TABLE>
The Company had foreign NOL carryovers of approximately $86.2 million at
December 31, 1997, which have an unlimited carryover. A valuation allowance has
been recorded against the deferred tax assets relating to United Kingdom and
certain German foreign tax net operating losses of $4.0 million and $33.2
million, respectively, as a result of the uncertainty of the ultimate
utilization. The $4.0 million decrease in the valuation allowance during 1997 is
due primarily to foreign currency translation.
The Company's policy is to permanently reinvest earnings of its foreign
subsidiaries. As of December 31, 1997, the Company had approximately $15 million
of undistributed earnings relating to its operations in Europe. It is
impracticable to determine the amount of income taxes that would be payable upon
remittance of assets that represent those earnings.
The Internal Revenue Service (the "IRS") has concluded its examination of
the 1991 to 1993 consolidated federal income tax returns of the Company as it
existed (including the non-related busi-
IV-53
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
9. INCOME TAXES (CONTINUED)
nesses described in Note 1) prior to the Reorganization and has entered into a
settlement with the Company on all proposed adjustments, except for the
following. On January 10, 1997, the IRS issued the Company a formal notice of
proposed adjustment that asserts approximately $1.9 million in tax deficiencies,
plus interest, relating to the disallowance of certain interest paid in 1992 and
1993 to Antilliana. On April 10, 1997, the Company filed a protest to the
proposed deficiency and has recently begun discussions with the Appellate
Officer assigned to the case. Management intends to vigorously contest this
assessment and does not believe that the ultimate resolution of the issue will
have a material adverse effect on the financial condition or results of
operations of the Company.
The IRS is currently examining the Company's 1994 and 1995 consolidated
federal income tax returns. Management believes that it has made adequate
provision for taxes that may become payable with respect to all open tax years.
In addition, KNP BT has agreed to make additional capital contributions to
the Company in the event that tax adjustments, applicable to operations of the
Company prior to the date of the Corporate Reorganization, exceed recorded
income tax accruals at the time of the Reorganization.
Total income tax payments (receipts) were $14.4 million, $8.3 million and
$(906) thousand in 1997, 1996 and 1995, respectively.
10. BENEFIT PLANS
The Company's United Kingdom, Netherlands and German operations have
defined-benefit pension plans covering certain salaried and hourly employees.
Benefits are based on years of service and each employee's compensation during
employment. The Company's funding policy is to make the minimum annual
contributions required by applicable regulations. Assets held by the plan
consist primarily of government bonds, bank deposits, and other investments.
The funded status and amount recognized for the Company's defined-benefit
pension plans in the consolidated balance sheets were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------
(IN THOUSANDS) 1997 1996
- ------------------------------------------------------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation
and vested benefits $26,871 $28,944
======= =======
Actuarial present value of
projected benefit obligation for
services rendered to date $29,155 $29,636
Plan assets at fair value 24,370 24,528
------- -------
Projected benefit obligation in
excess of plan assets 4,785 5,108
Unrecognized net loss from past
experience different from that
assumed and effects of changes in
assumptions (701) (383)
Unrecognized net transition gain 204 411
------- -------
Accrued pension cost $ 4,288 $ 5,136
======= =======
- ------------------------------------------------------
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
(IN THOUSANDS) 1997 1996 1995
- -------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned
during the period $1,115 $1,073 $ 935
Interest cost on projected
benefit obligation 1,698 1,266 1,172
Actual return on plan assets (1,425) (955) (865)
Net amortization and deferral (13) 9 11
------ ------ ------
Net pension costs $1,375 $1,393 $1,253
====== ====== ======
- -------------------------------------------------------
</TABLE>
Following is a summary of significant actuarial assumptions used for
European subsidiaries:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------
(IN PERCENTAGES) 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Discount rate 5.5 to 7.5 6.5 to 7.5 6.5 to 7.5
Rates of increase in
compensation levels 2.0 to 6.0 2.0 to 6.0 2.0 to 6.0
Expected long-term
rate of return on
assets 4.0 to 8.5 7.0 to 8.5 7.0 to 8.5
- -----------------------------------------------------------
</TABLE>
The Company provides 401(k) defined-contribution plans covering
substantially all U.S. employees. Company matching contributions for employees
under the plans amounted to $2.1 million
IV-54
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
10. BENEFIT PLANS (CONTINUED)
in 1997, $2.1 million in 1996 and $1.6 million in 1995.
11. STOCK OPTION PLAN
In 1995, the Company adopted a non qualified and incentive stock option
plan ("the Plan") for officers and other key employees. A total of 4,188,000
shares of authorized but unissued common stock has been reserved for issuance
under the Plan upon the exercise of options, subject to adjustment in the event
of a stock split, stock dividend or other change in the common stock. The
administrator of the Plan is the Compensation Committee of the Company's Board
of Directors. Under the Plan, options may be granted to purchase common stock at
prices not less than 90% (100% in the case of an incentive stock option and 110%
in the case of an incentive stock option granted to a 10% stockholder) of the
fair market value of the common stock on the date of the grant of the option.
The term of each option may be for such a period as the Compensation Committee
shall determine, but not more than 10 years (or 5 years in the case of certain
incentive stock options) from the date of grant. The vesting schedule for
options shall be determined by the Compensation Committee.
Information with respect to options granted under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
- -----------------------------------------------------
<S> <C> <C>
Outstanding at December 31,
1994 -- $ --
Granted during the year 1,203,000 11.50
Exercised during the year -- --
Canceled during the year (17,500) 11.50
--------- ------
Outstanding at December 31,
1995 1,185,500 11.50
Granted during the year 1,015,930 18.90
Exercised during the year (71,000) 11.50
Canceled during the year (146,400) 13.28
--------- ------
Outstanding at December 31,
1996 1,984,030 15.16
Granted during the year 739,300 7.66
Exercised during the year -- --
Canceled during the year (234,680) 14.91
--------- ------
Outstanding at December 31,
1997 2,488,650 $12.95
========= ======
Exercisable at December 31,
1997 1,462,690 $13.77
========= ======
- -----------------------------------------------------
</TABLE>
The Company issued 1,203,000 options at $11.50 per share in 1995 and
757,250 and 258,680 options in two separate issuances in 1996 at $21.00 and
$12.75 per share, respectively. In 1997, the Company issued 664,300 options and
75,000 options under two separate issuances at $7.50 and $9.06 per share,
respectively. The grant price for all grants equaled the fair market value of
common stock at the date of grant. The options granted are exercisable as
follows: 50% after one year from grant date; an additional 25% after two years
from grant date; and the remaining 25% after three years from grant date. The
options granted expire after ten years from the grant date, except for those
granted to Netherlands based employees which vest immediately and expire after
five years. In addition, all options vest upon retirement and must be exercised
within three years of the retirement date.
At December 31, 1997, the outstanding options for shares issued under the
Company's stock option plan includes: 899,500 options at $11.50; 641,550 options
at $21.00; 227,750 options at $12.75; 644,850 options at $7.50; and 75,000
options at $9.06 per share.
For purposes of the SFAS 123 pro forma net income and income per share
calculation, the fair value of each option grant is estimated as of the date of
grant using the Black-Scholes option-pricing model. Compensation expense was not
recognized for options that were forfeited because employees failed to fulfill
service requirements. Had the Company elected to apply the provisions of SFAS
123 regarding recognition of compensation expense to the extent of the
calculated fair value of stock options granted, reported net income and earnings
per share would have been reduced as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(In thousands, except per share ---------------------------
AMOUNTS) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Net income, as reported $17,255 $14,701 $ 6,690
Pro forma net income 14,341 12,310 5,797
Diluted earnings per share,
as reported $.51 $.44 $.24
Pro forma diluted earnings
per share .43 .37 .21
- ------------------------------------------------------------
</TABLE>
IV-55
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
11. STOCK OPTION PLANS (CONTINUED)
The weighted-average assumptions used in determining fair value as
disclosed for SFAS 123 are shown in the following table for each grant year:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 6.5% 6.7% 5.9%
Dividend yield 0.0% 0.0% 0.0%
Option life (years) 5 5 5
Stock price volatility 42.5% 40.2% 39.9%
- ---------------------------------------------------------
</TABLE>
If the proposed transaction as disclosed in Note 18 is completed, it may
substantially change the above pro forma calculation of compensation expense
under the provisions of SFAS 123. The Company is unable at this time to
determine the impact.
12. LEASES
The Company operates primarily in leased facilities. Lease terms range up
to 30 years with options to renew at varying terms. The majority of leases
contain escalation clauses relating to real estate tax increases and cost of
living adjustments. In addition, the Company leases certain machinery, equipment
and vehicles.
Future minimum payments under capital leases and noncancelable operating
leases with initial or remaining terms in excess of one year consisted of the
following at December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
(IN THOUSANDS) LEASES LEASES
- ----------------------------------------------------------
<S> <C> <C>
1998 $ 5,441 $ 34,709
1999 3,539 31,267
2000 2,564 25,443
2001 1,927 20,612
2002 1,008 14,596
Thereafter 13,826 33,765
------- --------
Total minimum lease payments 28,305 $160,392
========
Amount representing interest 12,207
-------
Obligations under capital leases 16,098
Less: Obligations due within one
year 5,004
-------
Long-term obligations under
capital leases $11,094
=======
- ----------------------------------------------------------
</TABLE>
Rental expense was $35.7 million, $29.1 million and $23.5 million for the
years ended December 31, 1997, 1996 and 1995, respectively.
Property, plant and equipment includes the following amounts for leases
that have been capitalized:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Buildings $7,215 $7,975
Machinery and equipment 727 736
------ ------
7,942 8,711
Less: Accumulated amortization 1,599 1,296
------ ------
$6,343 $7,415
====== ======
- ---------------------------------------------------------
</TABLE>
Two of the European operating companies lease facilities from affiliates of
KNP BT under operating leases which expire on June 30 and September 30, 1999.
Rental expense was $849 thousand, $893 thousand and $648 thousand in 1997, 1996
and 1995, respectively. Future minimum lease payments are $1.4 million.
The Company sells office equipment and leases the equipment back with the
obligation to purchase the equipment at the end of the lease. The equipment
underlying the leases is subsequently sub-leased to customers under sales-type
leases. At December 31, 1997 and 1996, $8.7 million and $9.8 million,
respectively, of these leases are classified as capital leases and generally
have a term of three years.
13. CONTINGENCIES
The Company has been served with several class action complaints that have
been filed in the Court of Chancery of the State of Delaware. The actions allege
breach of fiduciary duties and related claims against KNP BT, the Company and
certain of its directors in connection with the January 22, 1998 announcement
that KNP BT was prepared to make an offer to purchase the outstanding shares of
the Company that it does not already own. The defendants intend to defend the
lawsuits vigorously and the Company does not expect such lawsuits to have a
material adverse effect on the financial condition or results of operations of
the Company.
IV-56
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
13. CONTINGENCIES (CONTINUED)
The Company is also involved in various legal actions arising in the normal
course of business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that the ultimate resolution of
these matters over and above previously established accruals will not have a
material adverse effect on the financial position, or results of operations of
the Company.
14. STOCKHOLDERS' EQUITY
Net capital and intercompany transactions, included as a component of
additional paid-in capital, represents the activity of the unrelated businesses
transferred to KNP BT and the related businesses contributed to the Company by
KNP BT in connection with the Corporate Reorganization.
The net equity transactions of the unrelated businesses represent cash
advances/repayments between the Company and the unrelated businesses and the
effect of expenses incurred or income earned by the Company on behalf of the
unrelated businesses.
The net equity transactions of the related businesses to be contributed to
the Company are between the related businesses and KNP BT. The components of
these net equity transactions were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
(IN THOUSANDS) 1996 1995
- ---------------------------------------------------------
<S> <C> <C>
Capital contributions by KNP BT $ 317 $ 5,086
Tax related adjustments (793) (1,645)
Divisional expenses allocated from
KNP BT -- 409
----- -------
$(476) $ 3,850
===== =======
- ---------------------------------------------------------
</TABLE>
The capital contributions in 1996 were related to the differences between
certain distributions which were estimated at the date of the Corporate
Reorganization and the actual settlement amount. The capital reductions in 1996
were related to income taxes generated by the Corporate Reorganization which
were not reflected at the date of the Corporate Reorganization. There were no
such transactions in 1997.
15. BUSINESS SEGMENT INFORMATION
Geographic segments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
(IN MILLIONS) 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Sales:
United States $1,147.7 $1,087.0 $ 833.0
Europe 471.0 325.5 299.4
Consolidated 1,618.7 1,412.5 1,132.4
Operating income:
United States 34.8 31.3 22.8
Europe 10.3 6.9 5.9
Consolidated 45.1 38.2 28.7
Identifiable assets:
United States 485.6 459.7 375.9
Europe 278.1 283.1 148.7
Consolidated 763.7 742.8 524.6
- ------------------------------------------------------------
</TABLE>
There are no intergeographic sales or eliminations.
16. RELATED PARTY TRANSACTIONS
The financial statements of the Company include, in addition to borrowings
and related interest expense, the following transactions with KNP BT and its
affiliated companies:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
(IN THOUSANDS) 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Sales $1,716 $1,310 $1,413
Purchases 8,126 8,606 8,567
Selling and administrative
expenses:
Shared expenses 972 1,241 4,215
Other 694 794 (256)
- -----------------------------------------------------------
</TABLE>
Included in other assets is a collateralized note receivable from a former
officer of the Company, totaling $650 and $850 thousand at December 31, 1997 and
1996, respectively. The note bears interest at a rate of 7.25%, with quarterly
interest installments due through September 1997 and monthly principal and
interest payments due thereafter through September 2024.
IV-57
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BT OFFICE PRODUCTS INTERNATIONAL, INC.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Selected unaudited quarterly financial data is shown below:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) MARCH 31 JUNE 30 SEPTEMBER 30(1) DECEMBER 31(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Sales $401,562 $390,668 $393,182 $433,332
Costs of products sold 286,011 278,219 284,410 314,097
Operating income 11,619 12,630 7,739 13,140
Income before income taxes 8,218 9,400 4,529 9,808
Net income 4,368 4,975 2,617 5,295
Basic earnings per share 0.13 0.15 0.08 0.16
Diluted earnings per share 0.13 0.15 0.08 0.16
1996
Sales $342,656 $339,057 $354,871 $375,930
Costs of products sold 245,313 240,298 253,415 265,687
Operating income 10,246 9,911 7,679 10,347
Income before income taxes 7,681 7,443 5,005 7,572
Net income 4,071 3,945 2,655 4,030
Basic earnings per share 0.12 0.12 0.08 0.12
Diluted earnings per share 0.12 0.12 0.08 0.12
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The third quarter 1997 results included a special personnel reduction
pre-tax charge of $2.0 million related primarily to the replacement of
former president and Chief Executive Officer and staff reductions associated
with the decision to outsource the print services in New York.
(2) The fourth quarter 1997 results includes a year over year increase in the
provision for doubtful accounts of $2.9 million associated with the
Company's ongoing review of the collectability of its trade receivables.
18. SUBSEQUENT EVENTS
On January 22, 1998, KNP BT, the Company's 70% stockholder, announced that
it is prepared to make an offer to acquire the approximately 30% of the
Company's stock that is publicly-traded for a cash purchase price of $10.50 per
share. The Company has formed an independent committee of its Board of Directors
to represent the interests of the minority shareholders. This committee,
together with independent financial and legal advisors retained by the
committee, is evaluating the proposal. The parties have not reached a definitive
agreement.
The Company has been served with several class action complaints that have
been filed in the Court of Chancery of the State of Delaware. The actions allege
breach of fiduciary duties and related claims against KNP BT, the Company and
certain of its directors in connection with the announcement. The defendants
intend to defend the lawsuits vigorously and the Company does expect such
lawsuits to have an material adverse effect on the financial condition or
results of operations of the Company.
IV-58
<PAGE> 134
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
BT OFFICE PRODUCTS INTERNATIONAL, INC.
(In thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------- --------- ----------------------- ---------------------- -------
ADDITIONS DEDUCTIONS
----------------------- ----------------------
CHARGED WRITE-OFFS
BEGINNING CHARGED TO OTHER NET OF OTHER ENDING
DESCRIPTION BALANCE TO EXPENSE DESCRIBED RECOVERIES DESCRIBE BALANCE
- ----------------------------------- --------- ---------- --------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $4,915 $6,662 $ 78(1) $1,902 $-- $ 9,753
Inventory reserves 4,173 2,040 -- 1,611 -- 4,602
------ ------ ------ ------ --- -------
Total $9,088 $8,702 $ 78 $3,513 $-- $14,355
====== ====== ====== ====== === =======
Year Ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $4,222 $2,107 $1,046(1) $2,460 $-- $ 4,915
Inventory reserves 3,011 1,462 1,357 1,657 -- 4,173
------ ------ ------ ------ --- -------
Total $7,233 $3,569 $2,403 $4,117 $-- $ 9,088
====== ====== ====== ====== === =======
Year Ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful
accounts $4,651 $1,369 $ 263(1) $2,061 $-- $ 4,222
Inventory reserves 2,375 1,234 156 754 -- 3,011
------ ------ ------ ------ --- -------
Total $7,026 $2,603 $ 419 $2,815 $-- $ 7,233
====== ====== ====== ====== === =======
</TABLE>
- ------------------------------
(1) Acquisition balances and net foreign currency translation adjustments.
IV-59
<PAGE> 135
EXHIBIT INDEX:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
2.1 Exchange Agreement (incorporated by reference to Exhibit 2.1
to the Company's Annual Report on Form 10-K for the Fiscal
Year ended December 31, 1995, Commission file no. 1-13858).
3.1 Amended and Restated Certificate of Incorporation of the
Company (incorporated by reference to Exhibit 3.1 filed with
Amendment No. 2 to the Company's Registration Statement on
Form S-1, dated July 7, 1995, Registration No. 33-12124).
3.2 Amended and Restated By-laws of the Company (incorporated by
reference to Exhibit 3.2 filed with Amendment No. 2 to the
Company's Registration Statement on Form S-1, dated July 7,
1995, Registration No. 33-12124).
10.1 Credit Agreement by and among the Company, the European
Subsidiaries from time to time party thereto, and KNP BT
Europcenter N.V. (incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-Q for the Fiscal
Quarter ended September 30, 1997, Commission file no.
1-13858).
10.2 Registration Rights Agreement among NV Koninklijke KNP BT,
Buhrmann-Tetterode International B.V. and the Company
(incorporated by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1995, Commission file no. 1-13858).
10.3 Tax Matters Agreement (incorporated by reference to Exhibit
10.3 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1995, Commission file no.
1-13858).
10.4 Amendment No. 1 to Tax Matters Agreement dated as of June 7,
1996 (incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the Fiscal Year
ended December 31, 1996, Commission file no. 1-3858).
10.5 License Agreement (incorporated by reference to Exhibit 10.4
to the Company's Annual Report on Form 10-K for the Fiscal
Year ended December 31, 1995, Commission file no. 1-13858).
10.6 Intercompany Services Agreement between NV Koninklijke KNP
BT and the Company (incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1995, Commission file no.
1-13858).
10.7 Form of Indemnification Agreement for officers and directors
(incorporated by reference to Exhibit 10.7 filed with
Amendment No. 2 to the Company's Registration Statement on
Form S-1, dated July 7, 1995, Registration No. 33-12124).
+10.8 Supplemental Executive Retirement Plan, as amended by the
First Amendment thereto (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K for
the Fiscal Year ended December 31, 1995, Commission file no.
1-13858).
+10.9 Second Amendment to Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1996, Commission file no. 1-3858).
+10.10 1995 Stock Option Plan (incorporated by reference to Exhibit
10.9 filed with Amendment No. 1 to the Company's
Registration Statement on Form S-1, dated June 22, 1995,
Registration No. 33-12124).
10.11 Promissory Note evidencing mortgage (incorporated by
reference to Exhibit 10.10 filed with Amendment No. 2 to the
Company's Registration Statement on Form S-1, dated July 7,
1995, Registration No. 33-12124).
</TABLE>
IV-60
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.12 Mortgage and Note Amendment Agreement (incorporated by
reference to Exhibit 10.11 filed with Amendment No. 2 to the
Company's Registration Statement on Form S-1, dated July 7,
1995, Registration No. 33-12124).
+10.13 Separation Agreement and General Release by and among BT
Office Products International, Inc., Rudolf Huyzer, and N.V.
Koninklijke KNP BT dated as of December 17, 1997.
+10.14 Employment Agreement of Richard C. Dubin (incorporated by
reference to Exhibit 10.3 to the Company's Annual Report on
Form 10-Q for the Fiscal Quarter ended September 30, 1997,
Commission file no. 1-13858).
+10.15 Employment Agreement of David Kirshner (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+10.16 Employment Agreement of Michael J. Miller (incorporated by
reference to Exhibit 10.17 to the Company's Annual Report on
Form 10-K for the Fiscal Year ended December 31, 1995,
Commission file no. 1-13858).
+10.17 Employment Agreement of Janhein H. Pieterse (English
translation of Dutch document).
10.18 Competitive Advance and Revolving Credit Facility Agreement,
dated as of August 2, 1996 among BT Office Products
International, Inc., the subsidiaries, guarantors and
lenders named therein, The Chase Manhattan Bank, as
Administrative Agent, and ABN AMRO Bank N.V., as
Documentation Agent (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter ended June 30, 1996, Commission file no.
1-3858).
10.19 Amendment No. 1 dated as of December 20, 1996 to the
Competitive Advance and Revolving Credit Facility Agreement
(incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1996, Commission file no. 1-3858).
10.20 Amendment No. 2 dated as of May 28, 1997 to the Competitive
Advance and Revolving Credit Facility Agreement
(incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Fiscal Quarter ended
June 30, 1997, Commission file no. 1-3858).
10.21 Amended and Restated Cash Management Agreement dated June
16, 1997 among the Company, Sengewald USA, Inc. and KNP BT
USA Holdings, Inc. (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q for the
Fiscal Quarter ended September 30, 1997, Commission file no.
1-3858).
10.22 Agreement between BT Office Products International, Inc.
Northern California Division and Graphic Communications
Union District Council No. 2 Local No. 388M AFL-CIO dated
January 1, 1998.
10.23 Indemnification Letter from BT Office Products
International, Inc. to NV Koninklijke KNP BT dated December
22, 1997.
10.24 Support letter from N.V. Koninklijke KNP BT to Coopers &
Lybrand LLP dated February 9, 1998.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
+ Management contract or compensatory plan or arrangement.
IV-61
<PAGE> 137
ANNEX V
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
- ------------------ TO
- ------------------
COMMISSION FILE NUMBER: 1-13858
BT OFFICE PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3245865
(STATE OF INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
2150 E. LAKE COOK ROAD 60089-1877
BUFFALO GROVE, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(847) 793-7500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
</TABLE>
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
<TABLE>
<CAPTION>
CLASS OF COMMON STOCK SHARES OUTSTANDING AS OF AUGUST 3, 1998
--------------------- ---------------------------------------
<S> <C>
Common stock, par value $.01 per share 33,504,470
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
V-1
<PAGE> 138
BT OFFICE PRODUCTS INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX OF INFORMATION INCLUDED IN REPORT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets V-3
Condensed Consolidated Statements of Operations V-4
Condensed Consolidated Statements of Cash Flows V-5
Notes to Condensed Consolidated Financial
Statements V-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations V-10
PART II. OTHER INFORMATION V-14
</TABLE>
V-2
<PAGE> 139
PART I. FINANCIAL INFORMATION
BT OFFICE PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,823 $ 19,466
Accounts receivable, less allowances of $9,909 in 1998 and
$9,753 in 1997 238,296 219,118
Other receivables 24,581 33,429
Inventories 125,269 123,324
Other current assets 35,322 29,524
-------- --------
Total current assets 436,291 424,861
Other assets 30,036 26,786
Property, plant and equipment 168,139 152,137
Accumulated depreciation and amortization 73,643 64,212
-------- --------
Net property, plant and equipment 94,496 87,925
Intangibles, net of accumulated amortization of $58,490 in
1998 and $53,726 in 1997 242,911 224,129
-------- --------
TOTAL ASSETS $803,734 $763,701
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 20,990 $ 24,591
Accounts payable 134,373 140,780
Current portion of long-term obligations 201,290 200,816
Other current liabilities 75,176 70,688
-------- --------
Total current liabilities 431,829 436,875
Long-term obligations 69,093 31,837
Other liabilities 23,815 21,276
Commitments and contingencies
Stockholders' equity:
Common stock 335 335
Additional paid-in capital 270,437 270,132
Retained earnings 23,303 17,137
Accumulated other comprehensive loss (15,078) (13,891)
-------- --------
Total stockholders' equity 278,997 273,713
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $803,734 $763,701
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements
V-3
<PAGE> 140
BT OFFICE PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $434,435 $390,668 $878,658 $792,230
Costs and expenses:
Costs of products sold 314,722 278,219 639,196 564,230
Selling and administrative expenses 104,169 93,331 205,635 190,374
Depreciation and amortization 4,736 3,869 9,229 8,075
Amortization of intangibles 2,427 2,619 4,818 5,302
-------- -------- -------- --------
426,054 378,038 858,878 767,981
Operating income 8,381 12,630 19,780 24,249
Other income (expense):
Interest income and other 628 658 1,295 1,309
Interest expense (4,076) (3,888) (8,109) (7,940)
-------- -------- -------- --------
(3,448) (3,230) (6,814) (6,631)
Income before income taxes and extraordinary
item 4,933 9,400 12,966 17,618
Income tax expense 2,100 4,425 5,800 8,275
-------- -------- -------- --------
Income before extraordinary item 2,833 4,975 7,166 9,343
Extraordinary item -- going private costs, net
of tax (1,000) -- (1,000) --
-------- -------- -------- --------
Net income $ 1,833 $ 4,975 $ 6,166 $ 9,343
======== ======== ======== ========
Basic earnings per share:
Income before extraordinary item $ 0.08 $ 0.15 $ 0.21 $ 0.28
Extraordinary item (0.03) -- (0.03) --
-------- -------- -------- --------
Net income $ 0.05 $ 0.15 $ 0.18 $ 0.28
======== ======== ======== ========
Diluted earnings per share:
Income before extraordinary item $ 0.08 $ 0.15 $ 0.21 $ 0.28
Extraordinary item (0.03) -- (0.03) --
-------- -------- -------- --------
Net income $ 0.05 $ 0.15 $ 0.18 $ 0.28
======== ======== ======== ========
Average shares outstanding, basic 33,485 33,471 33,478 33,471
======== ======== ======== ========
Average shares outstanding, diluted 33,852 33,491 33,752 33,481
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
V-4
<PAGE> 141
BT OFFICE PRODUCTS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,166 $ 9,343
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 9,931 8,934
Amortization of intangibles 4,818 5,303
Other 1,977 1,716
Changes in operating assets and liabilities, net of effects
of business acquisitions:
Receivables (10,265) (6,194)
Inventories 3,522 5,230
Other current assets 5,658 3,469
Accounts payable and other current liabilities (12,099) 1,401
------- -------
Net cash provided by operating activities 9,708 29,202
INVESTING ACTIVITIES
Purchases of property, plant and equipment (15,367) (11,181)
Acquisitions of businesses, less cash acquired (32,098) (5,383)
Other 998 (1,155)
------- -------
Net cash used for investing activities (46,467) (17,719)
FINANCING ACTIVITIES
Net repayments of notes payable (3,655) (10,168)
Net borrowings(repayments) under long-term obligations 32,358 (1,795)
Proceeds from stock options exercised including related tax
benefits 305 --
------- -------
Net cash provided by (used for) financing activities 29,008 (11,963)
Effect of exchange rate changes on cash and cash equivalents 1,108 851
------- -------
Net increase (decrease) in cash and cash equivalents (6,643) 371
Cash and cash equivalents at beginning of period 19,466 20,163
------- -------
Cash and cash equivalents at end of period $12,823 $20,534
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
V-5
<PAGE> 142
BT OFFICE PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
present information in accordance with generally accepted accounting principles
for interim financial information and applicable rules of Regulation S-X.
Accordingly, they do not include all information or footnotes required by
generally accepted accounting principles for complete financial statements.
Management believes the financial statements include all normal accrual
adjustments necessary for a fair presentation. Operating results for the three
month and six month periods ended June 30, 1998 do not necessarily reflect the
results that may be expected for the full year. For further information, refer
to the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
2. BUSINESS ACQUISITIONS
In June 1998, the Company acquired the Werprasent AG group of companies
("Werprasent"), an office products distributor in Austria, in a purchase
transaction for approximately $26.3 million in cash, subject to adjustment as
provided in the purchase agreement. The transaction resulted in goodwill of
$21.4 million.
The pro forma unaudited results of operations for the six month period
ended June 30, 1998 and June 30, 1997, assuming the above-described acquisition
had been consummated as of January 1, 1997 and translated at historical rates,
is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
---------------- ----------------
<S> <C> <C>
Sales $896,658 $817,030
Income before extraordinary item 7,191 9,393
Net Income 6,191 9,393
Basic earnings per share
Income before extraordinary item $ 0.21 $ 0.28
Net Income $ 0.18 $ 0.28
Diluted earnings per share
Income before extraordinary item $ 0.21 $ 0.28
Net Income $ 0.18 $ 0.28
Average shares outstanding, basic 33,478 33,471
Average shares outstanding, diluted 33,752 33,481
</TABLE>
The Company also acquired other smaller office products businesses in 1998
and 1997. These acquisitions did not have a significant impact on the
consolidated results for the six month periods ended June 30, 1998 and 1997.
3. LONG-TERM OBLIGATIONS
On August 2, 1996, the Company entered into a $250 million syndicated bank
Competitive Advance and Revolving Credit Facility Agreement (the "Bank Credit
Agreement"). The Bank Credit Agreement is being used for working capital needs
and general corporate purposes, including acquisitions.
In August 1998, the Bank Credit Agreement was amended to provide covenant
relief, specifically the leverage and interest coverage ratios, for the period
ended June 30, 1998. The Bank Credit Agreement, as amended, contains various
loan covenants including a maximum leverage ratio based on total debt to pro
forma EBITDA calculated based on a four quarter rolling period (3.75 to 1
through March 31, 1998; 4.0 to 1 as of June 30, 1998; and 3.25 to 1 after June
30, 1998), a minimum interest coverage ratio based on EBITDA
V-6
<PAGE> 143
BT OFFICE PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- CONTINUED
less capital expenditures to interest costs calculated based on a four quarter
rolling period (2.50 to 1 through March 31, 1998; 2.0 to 1 as of June 30, 1998;
and 3.0 to 1 after June 30, 1998), a maximum subsidiary debt level requirement,
and a minimum net worth requirement. In addition, under a change of control
clause, an event of default would occur if any person or group, other than
Buhrmann NV ("Buhrmann"), formerly known as NV Koninklijke KNP BT, or its
affiliates, shall own more than 50% of the voting shares of the Company.
As a result of the August 1998 amendment, the Company is in compliance with
the financial covenants under the Bank Credit Agreement as of June 30, 1998. The
Company does, however, expect that one or more defaults or events of default
under the Bank Credit Agreement may arise during the remainder of 1998 as a
result of breaches of existing financial covenants. Accordingly, indebtedness
under the Bank Credit Agreement has been classified as current portion of
long-term obligations in the financial statements at June 30, 1998. Similar
breaches of financial covenants were expected during 1998 and, accordingly, the
long-term obligations were reported as current portion of long-term obligations
in the financial statements at December 31, 1997.
The Company's majority shareholder, Buhrmann, has advised the Company that
it will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in Note 8, the Company has announced that Buhrmann and the Company
have entered into an agreement pursuant to which Buhrmann would acquire in a
cash merger the outstanding minority interest in the Company subject to approval
by a majority of the Company's public stockholders. Buhrmann has advised the
Company it intends to reduce or eliminate its existing indebtedness under the
Bank Credit Agreement and/or otherwise cause such indebtedness to be refinanced.
4. INCOME TAXES
The difference between the effective income tax rate and the U.S. statutory
tax rate is primarily due to the effects of foreign and state income taxes and
non-deductible goodwill amortization.
5. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted-average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted-average
number of common shares outstanding during the period, adjusted for the dilutive
common share equivalents attributed to outstanding options to purchase common
stock (367,000 shares and 20,000 shares for the three months ended June 30, 1998
and 1997 and 274,000 shares and 10,000 shares for the six months ended June 30,
1998 and 1997, respectively).
6. CONTINGENCIES
The Company is involved in various legal actions arising in the normal
course of business. Management, after taking into consideration legal counsel's
evaluation of such actions, is of the opinion that the ultimate resolution of
these matters over and above previously established accruals will not have a
material adverse effect on the financial position, net cash flows or results of
operations of the Company.
7. COMPREHENSIVE INCOME (LOSS)
During 1998, the Company adopted the provision of Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." As of June 30,
1998 and December 31, 1997, accumulated other comprehensive loss, as reflected
on the condensed balance sheet, was comprised entirely of the foreign
V-7
<PAGE> 144
BT OFFICE PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- CONTINUED
currency translation adjustment. Total comprehensive income (loss) for the three
month and six month periods ended June 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- ------------------
1998 1997 1998 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income $1,833 $ 4,975 $ 6,166 $ 9,343
Other comprehensive loss:
Unrealized currency translation gain (loss) 1,917 (2,946) (1,187) (9,842)
------ ------- ------- -------
Total comprehensive income (loss) $3,750 $ 2,029 $ 4,979 $ ( 499)
====== ======= ======= =======
</TABLE>
8. GOING PRIVATE TRANSACTION
On January 22, 1998, Buhrmann, the Company's 70% stockholder, announced
that it was prepared to make an offer to acquire the approximately 30% of the
Company's stock that is publicly traded for a cash purchase price of $10.50 per
share. The Company formed an independent committee of its Board of Directors
(the "Special Committee") to represent the interests of the minority
stockholders. The Special Committee, together with independent financial and
legal advisors it retained, evaluated the proposal. On May 7, 1998, the Company
announced that Buhrmann has reached an agreement in principle with the Special
Committee of the Board of Directors to acquire in a cash merger the outstanding
minority interest in the Company for $13.75 per share. The agreement is subject
to definitive documentation, final board approval by the Company's Board of
Directors, and approval by a majority of the Company's public stockholders. On
June 2, 1998, the Board of Directors of the Company unanimously approved and
adopted an Agreement and Plan of Merger that was entered into with Buhrmann on
such date (the "Merger Agreement") and resolved that the Merger Agreement be
recommended to the Stockholders of the Company for consideration and adoption at
a Special Meeting of Stockholders. A preliminary proxy statement was filed with
the Securities and Exchange Commission (the "SEC") on June 17, 1998.
The total amount of funds required to pay the merger consideration is
estimated to be approximately $138.5 million. In addition, approximately $6.5
million will be required to pay holders of outstanding options upon cancellation
of such options. While no final decisions have been reached, Buhrmann intends to
provide the necessary funds by means of a contribution of capital, intercompany
debt, or as a combination of both. After the consummation of the transaction,
Buhrmann will own 100% of the Company.
The Company was served with several class action complaints that have been
filed in the Court of Chancery of the State of Delaware relating to the going
private transaction. The actions allege breach of fiduciary duties and related
claims against Buhrmann, the Company and certain of its directors in connection
with the January 22, 1998 announcement. On May 7, 1998, the Company also
announced that Buhrmann has reached an agreement in principle to settle the
class action lawsuits that were filed challenging the transaction. This
settlement is subject to Court approval. The fees and expenses associated with
such settlement are not expected to be material to the financial condition of
the Company.
V-8
<PAGE> 145
BT OFFICE PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- CONTINUED
9. EXTRAORDINARY ITEM -- GOING PRIVATE COSTS
Expenses of the "going private" transaction described in Note 8 have been
recorded as an extraordinary item. As of June 30, 1998, the Company had incurred
approximately $1.0 million in costs consisting mainly of fees for legal and
financial advisors. The total costs for these and other filing costs are
estimated to be $2.6 million. The Company has determined that these expenses are
not deductible for income tax purposes and accordingly no tax effect has been
recorded.
The Merger Agreement calls for an acceleration of the vesting schedule for
all options outstanding under the Company's stock option plan. Under the
provisions of APB No. 25 "Accounting for Stock Issued to Employees," the portion
of options which has accelerated vesting privileges is deemed compensation
expense. As such, additional compensation expense of $1.3 million, net of
related tax benefits, will be treated as an extraordinary item if the
transactions contemplated by the Merger Agreement are consummated.
V-9
<PAGE> 146
BT OFFICE PRODUCTS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Net sales increased to $434.4 million in the second quarter of 1998 from
$390.7 million in the comparable period last year, an increase of $43.7 million
or 11.2%. The increase in sales was led by an increase in sales from existing
locations of 8.0% and growth from acquisitions of 4.2%, offset by currency
translation which had a negative impact of 1.0%. Net sales increased to $878.7
million in the first six months of 1998 from $792.2 million in the comparable
period last year, an increase of $86.5 million or 10.9%. The increase in sales
was led by an increase in sales from existing locations of 9.2% and growth from
acquisitions of 3.6%, offset by currency translation which had a negative impact
of 1.9%.
Net sales in the United States increased to $301.4 million in the second
quarter of 1998 from $278.7 million in the comparable period last year, an
increase of $22.7 million or 8.1%. Net sales in the United States increased to
$614.0 million in the first six months of 1998 from $567.1 million in the
comparable period last year, an increase of $46.9 million or 8.3%. The Company
believes the principal factors contributing to its internal growth were
increased sales to existing customers and new accounts. Net sales in the United
States continue to be negatively impacted by increasing competitive market
conditions and lower paper prices.
Net sales in Europe increased to $133.0 million in the second quarter of
1998 from $112.0 million in the comparable period last year, an increase of
$21.0 million or 18.8%. The incremental impact of the Company's 1997 and 1998
acquisitions accounted for 14.8% of the European sales growth in the second
quarter of 1998. Excluding the effects of foreign currency depreciation against
the U.S. dollar of 3.4%, sales growth at existing locations increased 7.4% for
the second quarter, compared to the same period last year. Net sales in Europe
increased to $264.6 million in the first six months of 1998 from $225.1 million
in the comparable period last year, an increase of $39.5 million or 17.6%. The
incremental impact of the Company's 1997 and 1998 acquisitions accounted for
12.5% of the European sales growth in the first six months of 1998. Excluding
the effects of foreign currency depreciation against the U.S. dollar of 6.5%,
sales growth at existing locations increased 11.6% for the first six months,
compared to the same period last year. Europe's internal growth was driven by
the continued double digit growth from the late 1996 acquisitions in Sweden and
the Netherlands, the addition of new, large accounts in Germany and, to a lesser
extent, two new sales offices in Germany.
Gross profit as a percentage of net sales was 27.6% in the second quarter
of 1998 as compared to 28.8% in the comparable period last year, a decrease of
1.2%. Gross profit as a percentage of net sales was 27.3% in the first six
months of 1998 as compared to 28.8% in the comparable period last year, a
decrease of 1.5%. These decreases were attributable primarily to highly
competitive market conditions resulting in lower product margins in the United
States and Europe and a shift in product mix in Europe.
Selling and administrative expenses, expressed as a percentage of net
sales, were 24.0% in the second quarter of 1998 as compared to 23.9% in the
comparable period last year, an increase of 0.1%. Selling and administrative
expenses, expressed as a percentage of net sales, were 23.4% in the first six
months of 1998 as compared to 24.0% in the comparable period last year, a
decrease of 0.6%. With the recent sales growth, the Company has leveraged its
operating and logistics costs while at the same time invested in additional
personnel to support the business. The Company continues to focus on initiatives
to improve its cost structure.
In December 1997, the Company announced its U.S. plan to implement an
enterprise-wide system solution, known as Project Millennium, which is designed
to standardize business processes, centralize certain business functions, and
enhance customer service capabilities. As part of the first phase of the
project, customers will gradually transition from the various legacy systems to
the national sales and order management system. The operating costs associated
with the design and implementation of Project Millennium and the enhanced
national sales and order management system in the second quarter of 1998 and the
comparable quarter last year totaled $4.1 million and $1.3 million,
respectively. Similar operating costs in
V-10
<PAGE> 147
the first six months of 1998 and the comparable period last year included $7.5
million and $3.2 million, respectively.
Operating income, expressed as a percentage of net sales, was 1.9% in the
second quarter of 1998 as compared to 3.2% in the comparable period last year.
Excluding the Project Millennium costs described above, operating income as a
percentage of sales would have been 2.9% in the second quarter of 1998 and 3.6%
in the comparable period in the prior year. Operating income in the United
States, excluding the costs of Project Millennium described above, would have
been $10.5 million, or 3.5% in the second quarter of 1998 and $12.0 million, or
4.3% in the same period last year. Operating income as a percentage of net sales
in Europe in the second quarter of 1998 and 1997 was 1.4% and 1.8%,
respectively. Operating income as a percentage of net sales was 2.3% in the
first six months of 1998 as compared to 3.1% in the comparable period last year.
Excluding the Project Millennium costs described above, operating income as a
percentage of sales would have been 3.1% in the first six months of 1998 and
3.5% in the comparable period in the prior year. Operating income in the United
States, excluding the costs of Project Millennium described above, would have
been $22.9 million, or 3.7% in the first six months of 1998 and $23.9 million,
or 4.2% in the same period last year. Operating income as a percentage of net
sales in Europe in the first six months of 1998 and 1997 was 1.6%.
An extraordinary expense was recorded in the second quarter of 1998 related
to expenses associated with the "going private" transaction described in Note 8.
As of June 30, 1998, the Company had incurred approximately $1.0 million of
costs consisting mainly of fees for legal and financial advisors. The total
costs for these and other filing costs are estimated to be $2.6 million. The
Company has determined that these expenses are not deductible for income tax
purposes and accordingly no tax effect has been recorded.
Net income decreased to $1.8 million in the second quarter of 1998 from
$5.0 million in the comparable period last year. Net income decreased to $6.2
million in the first six months of 1998 from $9.3 million in the comparable
period last year. Lower gross margins and additional costs associated with
Project Millennium offset the favorable experience of higher sales and operating
cost reductions.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities in the first six months of 1998 of
$9.7 million was the result of $22.9 million of net income, depreciation,
amortization and other non-cash items offset by $13.2 million of net increases
in working capital. Cash provided by financing activities included $28.7 million
for net borrowings of notes payable and long-term obligations. Significant cash
requirements in the first six months of 1998 included $15.4 million for capital
expenditures, of which $7.8 million related to Project Millennium, and $32.1
million related to acquisitions of businesses.
As a result of the August 1998 amendment, the Company is in compliance with
the financial covenants under the Bank Credit Agreement as of June 30, 1998. The
Company does, however, expect that one or more defaults or events of default
under the Bank Credit Agreement may arise during the remainder of 1998 as a
result of breaches of existing financial covenants. Accordingly, indebtedness
under the Bank Credit Agreement has been classified as current portion of
long-term obligations in the financial statements at June 30, 1998. Similar
breaches of financial covenants were expected during 1998 and, accordingly, the
long-term obligations were reported as current portion of long-term obligations
in the financial statements at December 31, 1997.
The Company's majority shareholder, Buhrmann, has advised the Company that
it will support the Company during 1998 and use its best efforts to prevent any
default or event of default that may arise under the Bank Credit Agreement. As
described in Note 8, the Company has announced that Buhrmann and the Company
have entered into an agreement pursuant to which Buhrmann would acquire in a
cash merger the outstanding minority interest in the Company subject to approval
by a majority of the Company's public stockholders. Buhrmann has advised the
Company it intends to reduce or eliminate its existing indebtedness under the
Bank Credit Agreement and/or otherwise cause such indebtedness to be refinanced.
The Company continues to actively pursue acquiring established quality
office products distributors in Europe and, to a lesser extent, in the United
States as an integral part of its long term strategy. The Company
V-11
<PAGE> 148
anticipates significant future acquisition funding, to the extent required, will
necessitate obtaining additional debt and/or equity capital resources. There can
be no assurance that the Company could obtain such additional resources. The
Company continues to examine and evaluate several alternatives.
EURO CURRENCY MATTERS
By June 1998, eleven of the fifteen members of the European Union agreed to
adopt fixed conversion rates on January 1, 1999 between their national currency
and the Euro currency. The respective national currencies will also remain legal
tender until January 1, 2002. The Company operates in three countries -- The
Netherlands, Germany and Austria -- that will adopt the Euro currency as their
common currency on January 1, 1999. The Company is not certain when, or if, its
other European operations in the United Kingdom and Sweden (also members of the
European Union) will be subject to Euro currency conversion. The Company's
European operations currently use the local currency as the functional currency
in translating the financial statements. The introduction of the Euro currency
requires that the Company's systems have the ability to transact in
dual-currencies. However, a change in the functional currency is not anticipated
until the local currency is no longer legal tender.
The Company has completed its initial assessment of their systems in
anticipation of the dual currencies starting January 1, 1999 or later. These
changes are being coordinated with other system changes required to be Year 2000
compliant (see discussion below). Full system conversion to the Euro is not
required until at least January 1, 2002. However, to the extent the Company does
not have the ability to invoice customers in the Euro, or that customers would
be unable to order product or pay invoices in the Euro, the Company's business
could be materially adversely affected.
YEAR 2000 ISSUES
The Company has completed its initial assessment of the impact of the Year
2000 issue on the majority of its systems and is addressing the issues
identified. The Company currently believes it will be able to modify or replace
its affected systems in time to minimize any detrimental effects on operations.
During the first six months of 1998, the Company expensed $0.4 million for
consulting fees in conjunction with the initial assessment of the Year 2000
impact. Management currently expects that full implementation of this project
will involve a commitment of internal and external resources of approximately $7
million to $10 million over the next 18 months. While it is not possible, at
present, to know the actual cost of this work, the Company expects that such
costs may be material to the Company's results of operations in one or more
fiscal quarters or years. The Company is unable to ascertain whether its
customers' and vendors' systems are, or will be, Year 2000 compliant. However,
to the extent that customers would be unable to order products or pay invoices,
vendors would be unable to manufacture and ship products, or the Company is
unable to achieve Year 2000 compliance, the Company's business could be
materially adversely affected.
OTHER
In June 1997, the FASB issued Statement No. 131 ("SFAS 131"), "Disclosure
about Segments of an Enterprise and Related Information." This statement,
effective for financial statements for periods beginning after December 15,
1997, requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments. The Company is evaluating the effects of this
pronouncement.
On June 15, 1998, the FASB issued Statement No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133 is
effective for all fiscal years beginning after June 15, 1999. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of transaction. The Company anticipates that, due to its limited use of
derivative instruments, the adoption of SFAS 133 will not have a significant
effect on the Company's results of operations or its financial position.
V-12
<PAGE> 149
FORWARD LOOKING STATEMENTS
Various statements made within this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Quarterly
Report on Form 10-Q constitute "forward looking statements" for purposes of the
Securities and Exchange Commission's "safe harbor" provisions under the Private
Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities
Exchange Act of 1934, as amended. Investors are cautioned that all forward
looking statements involve risks and uncertainties, including those detailed in
the Company's filings with the Securities and Exchange Commission. There can be
no assurance that actual results will not differ from the Company's
expectations. Factors which could cause materially different results include,
among others, uncertainties related to the introduction of the Company's
products and services; the ability to finance and successfully complete and
integrate future acquisitions; mix of sales by product category and country;
continual competitive pressure on pricing and margins; delays in implementing
the technological and operational changes planned under Project Millennium; Year
2000 implementation costs, the volatility of paper prices; the fluctuation in
interest rates; and the expansion into international markets, including currency
exchange rates and general market conditions.
V-13
<PAGE> 150
PART II. OTHER INFORMATION
BT OFFICE PRODUCTS INTERNATIONAL, INC.
ITEM 1. LEGAL PROCEEDINGS
The Company was served with several class action complaints that have been
filed in the Court of Chancery of the State of Delaware. The actions allege
breach of fiduciary duties and related claims against Buhrmann, the Company and
certain of its directors in connection with the January 22, 1998 announcement
relating to the going private transaction. On May 7, 1998, the Company announced
that Buhrmann has reached an agreement in principle to settle the class action
lawsuits that were filed challenging the transaction. This settlement is subject
to Court approval. The fees and expenses associated with such settlement are not
expected to be material to the financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 3 dated August 13, 1998 to the Competitive Advance
and Revolving Credit Facility Agreement
10.2 Collective bargaining agreement between BT Office Products
International, Inc. Pittsburgh Division and General Teamsters, Chauffeurs,
and Helpers Local Union No. 249 dated August 10, 1998
10.3 Collective bargaining agreement between BT Office Products
International, Inc. Washington Division and Graphic Communications Union,
Local 449-S dated May 25, 1998
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On June 5, 1998, the Company filed a Current Report on Form 8-K to report
that the Company has signed a definitive merger agreement with Buhrmann
(formerly known as NV Konkinklijke KNP BT) as of June 2, 1998.
V-14
<PAGE> 151
BT OFFICE PRODUCTS INTERNATIONAL, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BT OFFICE PRODUCTS INTERNATIONAL, INC.
/s/ FRANCIS J. LEONARD
----------------------------------------
Francis J. Leonard
Vice President-Finance and Chief
Financial Officer
(Principal Financial Officer and
Duly Authorized Officer)
Date: August 13, 1998
V-15
<PAGE> 152
BT OFFICE PRODUCTS INTERNATIONAL, INC.
INDEX TO EXHIBITS
FILED WITH THE QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.1 Amendment No. 3 dated August 13, 1998 to the Competitive
Advance and Revolving Credit Facility Agreement
10.2 Collective bargaining agreement between BT Office Products
International, Inc. Pittsburgh Division and General
Teamsters, Chauffeurs, and Helpers Local Union No. 249 dated
August 10, 1998
10.3 Collective bargaining agreement between BT Office Products
International, Inc. Washington Division and Graphic
Communications Union, Local 449-S dated May 25, 1998
27.1 Financial Data Schedule
</TABLE>
V-16
<PAGE> 153
BT OFFICE PRODUCTS INTERNATIONAL, INC.
Six Parkway North
Deerfield, Illinois 60015
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Richard C. Dubin, Frank J. Leonard and Thomas
F. Cullen as Proxies, each with the power of substitution, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares of
common stock, par value $.01 per share, of BT Office Products International,
Inc. (the "Company") held of record by the undersigned on September 3, 1998 at
a Special Meeting of Stockholders of the Company to be held on September 29,
1998 or any adjournment or postponement thereof.
1 TO CONSIDER AND VOTE UPON A PROPOSAL TO APPROVE AND ADOPT AN AGREEMENT AND
PLAN OF MERGER DATED AS OF JUNE 2, 1998 BY AND AMONG THE COMPANY, BUHRMANN
NV, BUHRMANN INTERNATIONAL B.V., AND BT OPI ACQUISITION CORP.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2 TO CONSIDER AND ACT UPON ANY OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY TO THE COMPANY.
<PAGE> 154
When properly executed, this proxy will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR Proposal 1.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please provide the full name
of the corporation and the signature of the authorized officer signing on its
behalf.
__ Name (please print)
__ Name of Corporation (if applicable)
(By) _____________ (Date) _________, 1998
Signature
